2012 (8) TMI 119 - AT - Income Tax

Appellant's Appeals Dismissed: Deduction Denied under Section 80P

The Tribunal dismissed the appellant's appeals, affirming the disallowance of the deduction under Section 80P of the Income Tax Act. It was held that the ... Denial of claim of deduction u/s 80P - Held that:- Section 80P was amended by the Finance Act 2006, with effect from April 1, 2007, introducing subsection (4), which laid down specifically that the provisions of section 80P will not apply to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Accordingly, deduction under section 80P was no more available to any regional rural bank from the assessment year 2007-08 onwards - Circular No. 319, dated January 1, 1982, deeming any regional rural bank to be co-operative society stands withdrawn for application with effect from the assessment year 2007-08 - The legislative intent for insertion of sub Section (4) as per the speech of Hon'ble Union Finance Minister on 28.2.2006 clearly shows that Coop. Banks were excluded from the benefit of Section 80P on the plea that like any other bank, the Coop. Banks are also lending institution and should pay tax on their profits. Accordingly, Coop. Banks were excluded from the scope of Section 80P. The assessee is neither PACs nor PCARDB and hence not eligible for deduction U/S 80P as the object of the assessee and the range of the activities is not confined to taluk but is extended to entire district of Bhopal & Vidisha - Primary object of principal business of PACS is to finance for agricultural purposes or purposes connected with agricultural activities. The primary object as well as activities of assesse are not confined to agricultural purposes but other purposes also - against assessee. Issues Involved:1. Reopening of assessment under Section 147.2. Disallowance of deduction under Section 80P of the Income Tax Act, 1961.3. Classification of the appellant bank as a 'Cooperative Bank' under the Banking Regulation Act, 1949.4. Reliance on CBDT circulars for denying deduction under Section 80P.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147:The appellant contended that the reopening of the assessment under Section 147 was erroneous and without jurisdiction. However, this issue was not elaborated upon in the judgment, and the primary focus remained on the disallowance of deduction under Section 80P.2. Disallowance of Deduction under Section 80P:The primary issue revolved around the disallowance of the deduction claimed under Section 80P by the appellant, a Regional Rural Bank (RRB). The Assessing Officer (AO) declined the deduction based on the insertion of sub-section (4) to Section 80P by the Finance Act, 2006, effective from April 1, 2007. This sub-section specifically excludes cooperative banks, other than primary agricultural credit societies (PACS) and primary cooperative agricultural and rural development banks (PCARDB), from availing the deduction under Section 80P. The AO argued that the appellant did not qualify as PACS or PCARDB and hence was not eligible for the deduction.3. Classification of the Appellant Bank as a 'Cooperative Bank':The AO classified the appellant as a 'cooperative bank' under Part V of the Banking Regulation Act, 1949. The AO's reasoning was based on the fulfillment of three conditions:- The primary object or principal business of the appellant is the transaction of banking business.- The paid-up share capital and reserves of the appellant exceed one lakh rupees.- The by-laws of the appellant do not permit the admission of any other cooperative society as a member.The AO concluded that the appellant met all these conditions, thus classifying it as a 'cooperative bank' and thereby excluding it from the benefits of Section 80P.4. Reliance on CBDT Circulars:The CIT(A) confirmed the AO's decision by relying on CBDT Circular No. 6/2010, which reiterated that RRBs are not eligible for deduction under Section 80P from the assessment year 2007-08 onwards. The circular clarified that RRBs, being corporate entities and not cooperative societies, were not eligible for the deduction even when Section 80P was originally introduced. The circular further stated that the beneficial Circular No. 319, dated January 11, 1982, which deemed RRBs to be cooperative societies for the purposes of Section 80P, stood withdrawn from the assessment year 2007-08 onwards.Appellant's Arguments:The appellant argued that Section 22 of the Regional Rural Banks Act deems RRBs to be cooperative societies for the purposes of the Income Tax Act, 1961. They contended that the legal fiction created by Section 22 should not be extended beyond its intended purpose and should not be applied to the Banking Regulation Act. The appellant also argued that the withdrawal of Circular No. 319 did not affect their eligibility for deduction under Section 80P, as the benefit was conferred by the statute itself and not by the circular.Tribunal's Conclusion:The Tribunal upheld the decisions of the lower authorities, stating that the appellant, being a Regional Rural Bank, did not qualify as PACS or PCARDB and was thus excluded from the benefits of Section 80P after the insertion of sub-section (4). The Tribunal also noted that the appellant's classification as a 'cooperative bank' under the Banking Regulation Act was appropriate and that the legislative intent behind the amendment was clear in excluding cooperative banks from the scope of Section 80P.Summary:The Tribunal dismissed the appeals of the appellant, affirming the disallowance of the deduction under Section 80P. The Tribunal agreed with the lower authorities that the appellant, a Regional Rural Bank, did not qualify for the deduction as it did not meet the criteria for PACS or PCARDB and was classified as a 'cooperative bank' under the Banking Regulation Act. The reliance on CBDT circulars to clarify the legislative intent behind the amendment was also upheld.