Co-op Society entitled to tax deduction under Sec 80P(2)(a)(i) - IT authorities lack jurisdiction

The court held that the assessee, a co-operative society, was entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act. It ruled that the authorities under the IT Act lacked jurisdiction to determine whether the assessee was a co-operative bank, a determination reserved for the Reserve Bank of India. The appeal favored the assessee, overturning the Tribunal's decision.

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Issues Involved:
1. Denial of deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 (IT Act).
2. Jurisdiction and competency of the Authorities under the IT Act to determine whether the assessee is a co-operative society or a co-operative bank as defined under the provisions of the Banking Regulation Act, 1949 (BR Act).

Issue-wise Detailed Analysis:

1. Denial of 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 was, in fact, a co-operative bank as defined under Part V of the BR Act. The Assessing Officer (AO) and subsequent authorities had held that the assessee's activities, which included receiving deposits and providing loans to members, classified it as a primary co-operative bank under Section 56(ccv) of the BR Act. Consequently, they denied the deduction under Section 80P(4), which excludes co-operative banks from such benefits, except primary agricultural credit societies or primary co-operative agricultural and rural development banks.

The court referred to multiple precedents, including CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha and CIT vs. Bangalore Commercial Transporter Credit Society, which clarified that a co-operative society that does not exclusively carry on banking business and does not possess an RBI license is not a co-operative bank. The court reaffirmed that the assessee, being a co-operative society engaged in providing credit facilities to its members, was entitled to the deduction under Section 80P(2)(a)(i).

2. Jurisdiction and Competency of Authorities:
The second issue was whether the authorities under the IT Act had the jurisdiction to determine if the assessee was a co-operative society or a co-operative bank as per the BR Act. The court noted the explanation appended to Section 56 of the BR Act, which states that any dispute regarding the primary object or principal business of a co-operative society must be determined by the Reserve Bank of India (RBI) and such determination shall be final.

The court highlighted that the authorities under the IT Act had overstepped their jurisdiction by making determinations that should have been made by the RBI. The court emphasized that unless the RBI determined otherwise, the assessee should be considered a co-operative society and not a co-operative bank for the purposes of Section 80P(4) of the IT Act.

Conclusion:
The court concluded that the assessee, as a co-operative society, was entitled to the deduction under Section 80P(2)(a)(i) of the IT Act. It also held that the authorities under the IT Act did not have the jurisdiction to determine whether the assessee was a co-operative bank, as such disputes must be resolved by the RBI. The appeal was allowed in favor of the assessee, and the judgment of the Tribunal was set aside.

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