2015 (9) TMI 1618 - AT - Income Tax

Tax Appeal Decision: Cooperative society qualifies for Section 80P(2)(a)(i) deduction.

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, confirming that the assessee, a cooperative society providing credit facilities ... Deduction u/s 80P(2)(a)(i) denied - Assessee co-operative society providing credit facilities to members and not registered with the RBI - Held that:- Hon'ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha [2015 (1) TMI 821 - KARNATAKA HIGH COURT] held when the status of the assessee is a Co-operative society and is not a Co- operative bank, the order passed by the Assessing Authority extending the benefit of exemption from payment of tax under Section 80P(2)(a)(i) of the Act is correct. A co-operative society registered as cooperative society, providing credit facilities to members and not registered with the RBI cannot be denied the exemption under section 80P(2)(a)(i) - Decided in favour of assessee Issues Involved:1. Whether the assessee is entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.2. Interpretation of Section 80P(4) and its applicability to cooperative societies.3. Definition and classification of cooperative societies versus cooperative banks under the Banking Regulation Act, 1949.4. Whether Souharda cooperative societies qualify for deduction under Section 80P of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Deduction under Section 80P(2)(a)(i):The primary issue in this appeal is whether the assessee, a cooperative society, is entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee claimed deduction under this section, asserting it was a cooperative society engaged in banking or providing credit facilities to its members. However, the Assessing Officer denied this deduction, classifying the assessee as a cooperative bank under Section 80P(4), which excludes cooperative banks from such deductions.2. Interpretation of Section 80P(4):The Commissioner of Income Tax (Appeals) allowed the assessee's claim, interpreting Section 80P(4) and related provisions. Section 80P(4) excludes 'cooperative banks' from deductions, defining them per the Banking Regulation Act, 1949. The Assessing Officer argued that the assessee met the criteria for being a 'primary cooperative bank,' thus disqualifying it from deductions under Section 80P(2)(a)(i). However, the Commissioner of Income Tax (Appeals) and various judicial precedents suggested that the exclusion was intended for cooperative banks operating akin to commercial banks, not cooperative societies providing credit facilities to members without a banking license from RBI.3. Definition and Classification under the Banking Regulation Act, 1949:The Assessing Officer referred to definitions under the Banking Regulation Act, 1949, to classify the assessee as a 'primary cooperative bank.' The criteria included:- Primary object or principal business of banking.- Paid-up share capital and reserves of at least one lakh rupees.- Bye-laws not permitting admission of other cooperative societies as members.The Commissioner of Income Tax (Appeals) and various judicial decisions, including Karnataka High Court rulings, emphasized that entities not registered with RBI and not performing full-scale banking functions do not qualify as cooperative banks under Section 80P(4).4. Souharda Cooperative Societies:A significant point of contention was whether Souharda cooperative societies, registered under the Karnataka Souharda Sahakari Act, 1997, qualify for deductions under Section 80P. The Commissioner of Income Tax (Appeals) and supporting judicial decisions confirmed that Souharda societies are cooperative societies within the meaning of Section 2(19) of the Income Tax Act, thus eligible for deductions under Section 80P. The Karnataka High Court and ITAT Panjim and Bangalore benches consistently ruled in favor of such societies, asserting they are cooperative in nature and not cooperative banks.Conclusion:The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, confirming that the assessee, being a cooperative society providing credit facilities to its members and not a cooperative bank, is entitled to the deduction under Section 80P(2)(a)(i). The appeal by the Revenue was dismissed, and the Cross Objection filed by the assessee was deemed infructuous and also dismissed. The judgment reinforced the interpretation that cooperative societies, including Souharda societies, are eligible for deductions unless they operate as full-fledged cooperative banks with RBI registration.