2015 (11) TMI 647 - HC - Income Tax

High Court rules co-op society entitled to tax deduction, not co-op bank.

The High Court ruled in favor of the assessee, a co-operative society, determining that it was not a co-operative bank and thus entitled to the deduction ... Eligibility of deduction under Section 80P(2)(a)(i) - Held that:- There is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescribing that in the event of a dispute as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi) of Section 56 of the BR Act, a determination thereof by the Reserve Bank shall be final, would require the dispute to be resolved by the Reserve Bank of India, before the authorities could term the assessee as a co-operative bank, for purposes of Section 80 P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed as to the assessee being a co-operative society and not a co-operative bank in terms of Section 80P (4) of the IT Act, shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India. - Decided in favour of the assessee Issues Involved:1. Whether the benefit of deduction under Section 80P(2)(a)(i) of the IT Act could be denied to the assessee on the grounds that it is a co-operative bank under Part V of the BR Act.2. Whether the authorities under the IT Act are competent to resolve the controversy regarding the status of the assessee as a co-operative society or a co-operative bank under the BR Act.Issue-wise Detailed Analysis:1. Deduction under Section 80P(2)(a)(i):The primary issue was whether the assessee, a co-operative society, could be denied the benefit of deduction under Section 80P(2)(a)(i) of the IT Act on the grounds that it is a co-operative bank as defined under Part V of the BR Act. The Assessing Officer denied the deduction, arguing that the assessee's activities were akin to banking, thereby categorizing it as a primary co-operative bank under Section 5(ccv) of the BR Act. This classification was based on the assessee's acceptance of deposits and provision of loans, along with its paid-up share capital and reserves exceeding Rs. 1 lakh, and the bye-laws permitting admission of other co-operative societies as members.The Tribunal, however, found that the assessee did not meet all the conditions to be classified as a primary co-operative bank, particularly the condition that its bye-laws should not permit other co-operative societies as members. Consequently, the Tribunal ruled that the assessee was not a co-operative bank and thus eligible for the deduction under Section 80P(2)(a)(i).The High Court upheld this view, referencing multiple precedents, including CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, where it was held that a co-operative society engaged in providing credit facilities to its members is entitled to the deduction unless it is exclusively carrying on banking business and possesses a banking license from the RBI. The court emphasized that the legislative intent behind Section 80P(4) was to exclude co-operative banks that function like commercial banks from the deduction, not co-operative societies providing credit to members.2. Competence of IT Authorities:The second issue was whether the IT authorities had the jurisdiction to determine if the assessee was a co-operative society or a co-operative bank under the BR Act. The court noted that Section 56 of the BR Act stipulates that any dispute regarding the primary object or principal business of a co-operative society should be resolved by the Reserve Bank of India (RBI), whose determination is final.The court observed that the IT authorities had overstepped their jurisdiction by interpreting the BR Act to classify the assessee as a co-operative bank. The court held that such determinations should be made by the RBI, and until such a determination is made, the assessee should be treated as a co-operative society entitled to the deduction under Section 80P(2)(a)(i).Conclusion:The High Court dismissed the revenue's appeal, affirming the Tribunal's decision that the assessee is a co-operative society and not a co-operative bank, thus entitled to the deduction under Section 80P(2)(a)(i). The court reiterated that the IT authorities lack the jurisdiction to determine the status of the assessee under the BR Act, a function reserved for the RBI. The court's decision aligns with the legislative intent and existing judicial precedents, ensuring that co-operative societies providing credit facilities to their members continue to benefit from the deduction under Section 80P(2)(a)(i).