2016 (5) TMI 691 - HC - Income Tax

Bank Eligibility Criteria for Tax Deduction Clarified

Commissioner of Income Tax, Panaji. Versus M/s VPK Urban Co-Op Credit Society Ltd.

The Division Bench of the Court affirmed that the appellant, not meeting the criteria for a primary cooperative bank, was not entitled to the deduction ... Benefit of deduction under Section 80P(2)(a)(i) - Held that:- Section 80P(1) of the Act restricts the benefits of deduction of income of cooperative society to the extent it is earned by providing credit facilities to its members. Therefore, to the extent the income earned is attributable to dealings with the nonmembers are concerned the benefit of Section 80P of the Act would not be available. Considering the concurrent findings of facts in the present appeal, and no perversity has been shown in such findings, we find that on going through the byelaws and the objects of the said Society, there is nothing to suggest that the primary business of the appellant was banking. We find that there is no case made out for any interference in the impugned Orders. We find that no substantial question of law arises in the present appeal Issues:Challenge to orders granting deduction under Section 80P(2)(a)(i) of the Income Tax Act based on the classification of the respondent/assessee as a cooperative bank and carrying out banking business.Analysis:The appellant contested the orders granting deduction under Section 80P(2)(a)(i) of the Income Tax Act, arguing that the respondent/assessee was not a cooperative bank and not engaged in banking business. The CIT(Appeals) determined that the respondent/assessee did not meet the conditions of a primary cooperative bank. However, the Income Tax Appellate Tribunal found that the respondent/assessee was not conducting banking business, leading to the appeal challenging this decision. The Tribunal observed that the respondent/assessee did not meet the conditions of a primary cooperative bank, as highlighted in a previous judgment. The Division Bench of the Court, in a related case, examined the definition of a cooperative bank under the Banking Regulation Act and the conditions for being classified as a primary cooperative bank. It was established that the appellant did not satisfy the conditions for being considered a cooperative bank based on the primary object and membership criteria.The Division Bench emphasized that the principal business of the appellant should be banking, and conditions related to share capital and membership restrictions must be met to qualify as a primary cooperative bank. The Tribunal's decision was based on the appellant's dealings with non-members for deposits, which were deemed insignificant. The judgment highlighted discrepancies in the interpretation of bye-laws regarding membership admission and the nature of transactions with non-members. The Court clarified that the appellant's primary business was not banking, as evidenced by the lack of evidence supporting this claim. The judgment also addressed the prohibition on admitting other cooperative societies as members, emphasizing the mandatory nature of this condition. It was concluded that the appellant did not meet the criteria for a primary cooperative bank, entitling them to the deduction under Section 80P(2)(a)(i) of the Act.The Court rejected the contention that dealings with non-members would disqualify the appellant from the deduction under Section 80P(2)(a)(i) of the Act, as the benefits were limited to income earned from providing credit facilities to members. The judgment highlighted the restrictions on the deduction based on dealings with non-members. The Court referenced a previous decision that addressed similar issues, concluding that the appellant was not entitled to interference in the impugned orders. The decision affirmed that no substantial question of law arose in the appeal, leading to its rejection based on the concurrent findings and absence of perversity in the conclusions.