2016 (4) TMI 27 - AT - Income Tax

Tribunal clarifies cooperative society's tax deduction eligibility under Income Tax Act

The Tribunal allowed the appeal, remanding the matter to assess the assessee as a cooperative society under section 80P(2)(a)(i) of the Income Tax Act, ... Deduction u/s 80P(4) - Held that:- Assessee is not coming under the purview of co-operative bank and its activities are confined to its members whereas in case of co-operative bank dealings are done with members as well as nonmembers and the operational activities of co-operative bank is quite similar with the other scheduled bank working under the strict guidelines and norms of RBI as mentioned in the Banking Regulation Act, 1949. We, therefore, are of the confirmed view that assessee cooperative society does not fall in the exception mentioned in section 80P(4) of the Act and falls under the category of co-operative society engaged in the business of providing credit facilities to its members; mentioned under the provisions of section 80P(2)(a)(i) of the Act. Further as the Assessing Officer has not dealt any other issues on merits, we find it justified to remand the matter back to the file of Assessing Officer with a clear finding to assess the assessee cooperative society as a co-op. society falling under the category of provisions of section 80P(2)(a)(i) of the Act and not under the provisions of sec.80P(4) of the Act and accordingly frame fresh assessment order after providing reasonable opportunity of being heard to the assessee who will file financial statement and details of income earned and then decide the quantum of deduction available, if any, to assessee u/s 80P(1) of the Act. Issues:1. Disallowance of deduction u/s 80P(2)(a)(i) of the Income Tax Act.2. Interpretation of whether the assessee is a cooperative bank or a credit cooperative society.3. Application of section 80P(4) of the Income Tax Act.Issue 1: Disallowance of deduction u/s 80P(2)(a)(i) of the Income Tax Act:The appeal was filed against the order of CIT(A) upholding the disallowance of deduction u/s 80P(2)(a)(i) to the extent of a specific amount. The appellant argued that the disallowance was illegal and against natural justice. The AO had not made any disallowance on the ground that interest income earned on surplus funds did not constitute operational income. The CIT(A) erred in holding that the interest income was taxable u/s 56 and did not qualify for deduction u/s 80P(2)(a)(i). The working of interest income on a pro-rata basis was deemed incorrect.Issue 2: Interpretation of whether the assessee is a cooperative bank or a credit cooperative society:The primary issue revolved around determining whether the assessee was a cooperative bank or a credit cooperative society. The CIT(A) concluded that the assessee was a credit cooperative society and not a cooperative bank, thereby not falling under the provisions of section 80P(4) of the Act. Various legal definitions and precedents were cited to support this conclusion, emphasizing the distinction between banking activities and providing credit facilities to members. The assessee's activities were found to align more with a credit cooperative society engaged in providing credit facilities to its members.Issue 3: Application of section 80P(4) of the Income Tax Act:Section 80P(4) of the Act was analyzed in relation to the assessee's status as a cooperative bank or a credit cooperative society. It was established that the assessee did not require a license from the Reserve Bank of India to operate as a cooperative bank under the Banking Regulation Act, thereby not falling under the exceptions provided in section 80P(4). The decision was supported by references to relevant legal provisions and previous judgments, confirming the assessee's entitlement to the deduction u/s 80P(2)(a)(i) of the Income Tax Act.In conclusion, the Tribunal allowed the appeal for statistical purposes, remanding the matter back to the Assessing Officer to assess the assessee as a cooperative society falling under the provisions of section 80P(2)(a)(i) and not under section 80P(4) of the Act. The detailed analysis of the issues involved in the judgment provides a comprehensive understanding of the legal reasoning and implications of the decision.