Appeal on Section 80P Dismissed, Cooperative Bank Deductions Allowed

The Tribunal dismissed the Revenue's appeal regarding the applicability of section 80P to a primary Cooperative Bank and allowed the assessee's appeal for deduction of interest and dividend received from cooperative banks. The Tribunal emphasized that the deduction under section 80P is limited to income earned from providing credit facilities to members, excluding income from non-members. The decision was pronounced on 23/05/2016.

---

---

Issues Involved:
1. Applicability of section 80P(4) and sub-clause (viia) to section 2(24) of the Income Tax Act, 1961.
2. Allowability of deduction of interest and dividend u/s 80P(2)(d) of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of section 80P(4) and sub-clause (viia) to section 2(24) of the Income Tax Act, 1961:

The Revenue's appeal (ITA No.2936/Mum/2014) contended that the assessee, being a "primary Cooperative Bank" as per the Banking Regulation Act, is not entitled to deduction u/s 80P(2)(a)(i) due to the insertion of section 80P(4). The Tribunal referenced the decision in the case of Punjab National Bank Employees Credit Society Ltd. (ITA No.3415 & 2935/Mum/2014) and found that the CIT (A)'s decision, which granted relief to the assessee, was fair and reasonable. The Tribunal noted that not all societies engaged in deposit activities are banks and upheld the CIT (A)'s decision, dismissing the Revenue's appeal.

2. Allowability of deduction of interest and dividend u/s 80P(2)(d) of the Income Tax Act, 1961:

In the assessee's appeal (ITA No.3414/Mum/2014), the issue was the deduction of interest and dividend received from cooperative banks amounting to Rs. 13,38,674/-. The Tribunal referred to various decisions, including the jurisdictional High Court decision in Quepem Urban Cooperative Credit Society Ltd. vs. ACIT [2015] 377 ITR 272 (Bom), which held that lending activities between a cooperative society and its members do not constitute banking activities. The Tribunal found merit in the assessee's contention that these were current accounts and not investments. The Tribunal concluded that the assessee, being a cooperative society providing credit facilities to its members, is entitled to deduction u/s 80P(2)(d). However, the Tribunal clarified that the benefit of section 80P is restricted to income earned from dealings with members only, excluding income from non-members.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, emphasizing that the deduction u/s 80P is applicable only to income earned from providing credit facilities to members. The Tribunal's decision was pronounced in the open court at the conclusion of the hearing on 23/05/2016.

---