Cooperative society qualifies for tax deduction under Section 80P(2)(a)(i)

The Tribunal held that the assessee, a cooperative society, is entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, as it does not fall under the category of a cooperative bank as per Section 80P(4). Citing legal precedents and clarifications, the Tribunal dismissed the Revenue's appeal, upholding the order allowing the deduction to the assessee. The decision was pronounced on June 11, 2015.

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Issues Involved:
1. Whether the assessee, a cooperative society, is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Whether the provisions of Section 80P(4) of the Income Tax Act, 1961, which excludes cooperative banks from availing the deduction, are applicable to the assessee.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(i):
The assessee, a cooperative society engaged in providing credit facilities to its members, claimed a deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. This section allows deductions for income from carrying on the business of banking or providing credit facilities to members. The Assessing Officer (AO) denied the deduction, stating that the assessee was functioning as a cooperative bank and thus ineligible for the deduction post the amendment introduced by the Finance Act, 2006.

2. Applicability of Section 80P(4):
The AO's denial was based on the introduction of Section 80P(4), which states that the provisions of Section 80P shall not apply to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The AO argued that the assessee's activities and characteristics, such as accepting deposits and lending to members, resembled those of a banking institution, thereby classifying it as a cooperative bank under Section 80P(4).

Tribunal's Findings:

1. Cooperative Society vs. Cooperative Bank:
The Tribunal referred to previous rulings, including the decision in the case of ACIT, Circle 3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd., which established that Section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies. The Tribunal highlighted the legislative intent behind Section 80P(4), which was to bring cooperative banks on par with commercial banks. Since the assessee is a cooperative society and not a cooperative bank, Section 80P(4) does not apply, making the assessee eligible for the deduction under Section 80P(2)(a)(i).

2. Legal Precedents and Clarifications:
The Tribunal also considered the Hon'ble Gujarat High Court's judgment in the case of CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd., which clarified that Section 80P(4) does not apply to cooperative societies that are not cooperative banks. Additionally, the Tribunal referred to the CBDT Circular No.133/06/2007-TPL dated 9th May 2007, which further clarified that Section 80P(4) is not applicable to entities that do not fall under the definition of "cooperative bank" as per the Banking Regulation Act, 1949.

3. Karnataka High Court Ruling:
The Tribunal also cited the Karnataka High Court's decision in CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot, which held that a credit cooperative society providing credit to its members is not affected by Section 80P(4) as it does not have an RBI license to operate as a cooperative bank.

Conclusion:
Based on the aforementioned legal precedents and clarifications, the Tribunal concluded that the assessee, being a cooperative society and not a cooperative bank, is entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. Consequently, the appeal filed by the Revenue was dismissed.

Final Decision:
The appeal by the Revenue was dismissed, and the order of the CIT(Appeals) allowing the deduction under Section 80P(2)(a)(i) to the assessee was upheld. The Tribunal pronounced this decision in the open court on June 11, 2015.

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