2012 (9) TMI 1174 - AT - Income Tax

Cooperative Society Eligible for Tax Deduction: Clarification on Distinction from Cooperative Bank

The Tribunal upheld the CIT(A)'s decision that a cooperative society, distinct from a cooperative bank, qualifies for deduction under section 80P(2)(a)(i) ... Deduction for Co-operative Society u/s80P(2)(a)(i). - Assessee, a cooperative society derives income from providing credit facilities to its members only. They claimed deduction u/s 80P(2)(a)(i). Referring to the Banking Regulation Act, 1949 the AO held that the assessee fulfils all the criteria laid down in s. 5(ccv) and is consequently a primary cooperative bank, thus is not eligible for deduction u/s 80P(2)(a)(i). - HELD THAT:- Cooperative society is distinct and separate from the cooperative bank and is not a primary cooperative bank within the meaning of Banking Regulation Act, 1949. Therefore, the assessee cooperative credit society is entitled to deduction u/s.80P(2)(a)(i) of the Income Tax Act. Decision in the case of INCOME-TAX OFFICER, WARD 1(4) VERSUS JANKALYAN NAGRI SAHAKARI PAT SANSTHA LTD. [2012 (9) TMI 288 - ITAT, PUNE], relied upon Decision in favour of assessee. Issues:1. Whether the cooperative society qualifies as a primary cooperative bank under section 5(ccv) of the Banking Regulation Act, 1949, affecting its eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act.2. Impact of the insertion of clause viia in section 2(24) of the Finance Act, 2006 on the deduction allowable to cooperative societies.Analysis:Issue 1:The primary contention revolved around whether the cooperative society should be classified as a primary cooperative bank under section 5(ccv) of the Banking Regulation Act, 1949, thereby affecting its entitlement to deduction under section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer (AO) argued that if a cooperative society engages in activities falling within the definition of banking business as per the Banking Regulation Act, it should be considered a primary cooperative bank. However, the learned CIT(A) ruled in favor of the assessee, stating that the cooperative society is not a cooperative bank and thus, is eligible for the deduction under section 80P(2)(a)(i). The Tribunal, after considering the legal provisions and definitions, upheld the CIT(A)'s decision, emphasizing that the cooperative credit society is distinct from a cooperative bank and does not meet the criteria to be classified as a primary cooperative bank under the Banking Regulation Act. Consequently, the assessee was deemed entitled to the deduction under section 80P(2)(a)(i).Issue 2:The insertion of clause viia in section 2(24) of the Finance Act, 2006 was raised as a factor impacting the deduction allowable to cooperative societies. The revenue contended that the CIT(A) erred in allowing the deduction under section 80P(2)(a)(i) due to the withdrawal of such deduction for cooperative societies post the mentioned amendment. However, the Tribunal, in alignment with its earlier decision and after thorough examination of the legal provisions, concluded that the cooperative credit society, being distinct from a cooperative bank, remained eligible for the deduction under section 80P(2)(a)(i) of the Income Tax Act. The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision and confirming the eligibility of the assessee for the deduction.In summary, the judgment clarified the distinction between a cooperative credit society and a cooperative bank, emphasizing that the former is entitled to the deduction under section 80P(2)(a)(i) of the Income Tax Act. The decision was based on a meticulous analysis of relevant legal provisions and definitions, ultimately affirming the assessee's eligibility for the deduction despite the insertion of clause viia in the Finance Act, 2006.