2012 (12) TMI 1147 - AT - Income Tax

Appeal Dismissed: Credit Cooperative Society Eligible for Tax Deduction

The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s decision, affirming that the appellant, a credit cooperative society, was entitled to ... - 1. ISSUES PRESENTED AND CONSIDERED Whether a cooperative credit society carrying on the business of providing credit facilities to its members is entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act despite insertion of section 80P(4) which excludes 'co-operative bank' (other than specified agricultural entities) from the benefit. Whether the exclusion in section 80P(4) applies to cooperative credit societies or is limited to entities defined as 'co-operative bank' in Part V of the Banking Regulation Act, 1949. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 80P(2)(a)(i) to a cooperative credit society Legal framework: Section 80P(2)(a)(i) provides deduction for income of certain cooperative societies; section 80P(4) (as inserted) disqualifies 'any co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank' from the benefits of section 80P. Part V of the Banking Regulation Act, 1949 supplies the meanings of 'co-operative bank' and 'primary agricultural credit society'. Precedent treatment: The Tribunal in a coordinate bench decision considering identical facts held that section 80P(4) applies only to cooperative banks as defined in Part V of the Banking Regulation Act and does not operate to deny deduction to cooperative societies carrying on credit business for their members; that coordinate decision was followed. Interpretation and reasoning: The Court examined statutory definitions in Part V of the Banking Regulation Act distinguishing 'co-operative bank' (State, Central, primary cooperative banks) from 'co-operative credit society' (a co-operative society whose primary object is to provide financial accommodation to members). The Court emphasized that section 80P(4) expressly adopts the Part V definitions for the word 'co-operative bank', and therefore its exclusionary effect is limited to those entities. The Court noted practical and statutory distinctions between cooperative banks and cooperative societies (registration regimes, permitted banking functions, regulatory oversight by RBI versus Registrar, use of banking nomenclature, filing/inspection regimes). The Court accepted the interpretation that had been clarified by the Central Board of Direct Taxes (internal clarification No.133/06/2007-TPL dated 9 May 2007) supporting the distinction and application of section 80P(2)(a)(i) to cooperative credit societies. Ratio vs. Obiter: Ratio - the ruling that deduction under section 80P(2)(a)(i) is available to a cooperative credit society providing credit facilities to its members because section 80P(4) applies only to entities qualifying as 'co-operative bank' under Part V of the Banking Regulation Act. Obiter - observations on legislative intent (that if Parliament intended otherwise it would have repealed section 80P(2)(a)(i)) and the comparative table of features distinguishing banks and societies as set out in the cited coordinate decision; these support the ratio but are ancillary observations. Conclusions: The Court concluded that a cooperative credit society engaged in lending to its members is not a 'co-operative bank' within the meaning of Part V of the Banking Regulation Act and therefore the exclusion in section 80P(4) does not apply; deduction under section 80P(2)(a)(i) must be allowed on the society's income as determined by the Assessing Officer. Issue 2 - Reliance on coordinate bench precedent and its bindingness Legal framework: Judicial administration recognizes the principle of following coordinate bench decisions of the same Tribunal unless distinguishable or overruled by higher authority. Precedent treatment: The Court expressly relied on an earlier Tribunal decision involving identical facts and legal questions, noting the prior decision's detailed reasoning distinguishing cooperative banks from cooperative societies and applying section 80P(2)(a)(i) to the latter. Interpretation and reasoning: Given identity of facts and law, and absence of contrary authority, the Court applied the coordinate bench decision. The Court observed that the earlier decision had considered the statutory text of section 80P(4), definitions in Part V of the Banking Regulation Act, practical regulatory differences, and a CBDT clarification - and that those considerations supported allowing the deduction. Ratio vs. Obiter: Ratio - following the coordinate bench decision as decisive authority for identical facts, resulting in allowance of the deduction. Obiter - commentary on legislative intent and policy considerations underlying the amendment to section 80P(4) (to bring cooperative banks within the taxation structure similar to commercial banks) which was mentioned but not essential to the holding. Conclusions: The Tribunal followed the coordinate bench precedent and held that the CIT(A)'s direction to allow deduction under section 80P(2)(a)(i) was correct and required no interference; the revenue's appeal was dismissed.