2015 (4) TMI 720 - AT - Income Tax

Co-op Societies Eligible for Tax Deduction: Tribunal Rules in Favor

The Tribunal held that the assessee, classified as a co-operative society and not a co-operative bank, is entitled to deduction under section 80P(2)(a)(i) ... Entitlement to deduction under section 80P(2)(a)(i) - assessee was denied the deduction u/s 80P(2)(a)(i) as the provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank - Held that:- As decided in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot [2015 (1) TMI 821 - KARNATAKA HIGH COURT] that when the status of the assessee is a co-operative society and not a co-operative bank, the order passed by the Assessing Officer extending the benefit of exemption from payment of tax under section 80P(2)(a)(i) of the Act is correct and such an order is not erroneous and therefore, jurisdiction under section 263 of the Act cannot be invoked. Thus hold that the assessee is a co-operative society entitled to claim deduction under section 80P(2)(a)(i) of the Act. - Decided in favour of assessee. Issues Involved:1. Entitlement of the assessee to deduction under section 80P(2)(a)(i) of the Income-tax Act.2. Applicability of section 80P(4) of the Income-tax Act to the assessee.3. Classification of the assessee as a co-operative bank or a co-operative society.Issue-wise Detailed Analysis:1. Entitlement of the assessee to deduction under section 80P(2)(a)(i) of the Income-tax Act:The assessee, a co-operative society registered under the Karnataka State Co-operative Societies Act, 1959, engaged in providing credit facilities to its members, claimed deduction under section 80P(2)(a)(i) of the Income-tax Act. This section allows deduction where the gross total income of a co-operative society includes income from carrying on the business of banking or providing credit facilities to its members. The Tribunal referred to its earlier decision in the case of Asst. CIT v. Bangalore Commercial Transport Credit Co-operative Society Ltd., where it was held that section 80P(4) is applicable only to co-operative banks and not to credit co-operative societies. Thus, the assessee, being a co-operative society and not a co-operative bank, is entitled to deduction under section 80P(2)(a)(i).2. Applicability of section 80P(4) of the Income-tax Act to the assessee:Section 80P(4) introduced by the Finance Act, 2006, with effect from April 1, 2007, states that the provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Assessing Officer had denied the deduction to the assessee, considering it a co-operative bank. However, the Tribunal noted that section 80P(4) is applicable only to co-operative banks, and the Central Board of Direct Taxes (CBDT) had clarified that sub-section (4) of section 80P will not apply to an assessee which is not a co-operative bank. The Tribunal, relying on the CBDT Circular No. 133 of 2007 dated May 9, 2007, concluded that the exclusion clause of sub-section (4) of section 80P does not apply to credit co-operative societies like the assessee.3. Classification of the assessee as a co-operative bank or a co-operative society:The Assessing Officer classified the assessee as a co-operative bank based on its activities, which he deemed to be in the nature of banking. However, the Tribunal highlighted the distinction between a co-operative bank and a co-operative society. The Tribunal referred to the Gujarat High Court's decision in CIT v. Jafari Momin Vikas Co-op. Credit Society Ltd., which held that section 80P(4) applies only to co-operative banks and not to credit co-operative societies. The Tribunal also cited the Karnataka High Court's decision in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot, which confirmed that a co-operative society, not being a co-operative bank, is entitled to the benefits of section 80P(2)(a)(i). Based on these precedents, the Tribunal concluded that the assessee is a co-operative society and not a co-operative bank, thus eligible for deduction under section 80P(2)(a)(i).Conclusion:In light of the above analysis, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and held that the assessee is a co-operative society entitled to claim deduction under section 80P(2)(a)(i) of the Income-tax Act. The appeal by the assessee was allowed, and the judgment was pronounced in the open court on September 19, 2014.