Cooperative credit society entitlement to deduction under section 80P affirmed where credit is provided only to members.

Appellate authority upheld deduction under section 80P(2)(a)(i) for a cooperative credit society whose objects, membership restrictions and byelaws show it provides credit exclusively to members and does not accept public deposits; the appellate order was not illegal or perverse. The Assessing Officer was bound to follow coordinate-bench and High Court precedent and erred in treating the society as carrying on banking business for the public; this favours the assessee. The Supreme Court decision in Totagar Co-op Sales Society Ltd. was held distinguishable on facts and does not preclude the deduction where no separate investment or marketing activities exist.

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Issues: (i) Whether the appellate order allowing deduction under section 80P(2)(a)(i) is vitiated by illegality or perversity; (ii) Whether the Assessing Officer is bound to follow the coordinate bench and the Bombay High Court decisions relied upon by the assessee; (iii) Whether the decision in Totagar Co-op Sales Society Ltd. bars deduction under section 80P(2)(a)(i) in the facts of the present case.

Issue (i): Whether the appellate order allowing deduction under section 80P(2)(a)(i) is vitiated by illegality or perversity.

Analysis: The appellate order accepted that the society's objects, membership restrictions and byelaws show it provides credit facilities solely to members and does not accept deposits from the general public. The appellate order relied on coordinate bench and higher court authorities holding that such credit societies are not cooperative banks for the purpose of section 80P(4). The Assessing Officer did not follow those precedents and treated the society as carrying on banking business for the public. The appellate conclusion was examined against settled authorities including a recent Supreme Court decision addressing similar classification and entitlement under section 80P.

Conclusion: The appellate order is not illegal or perverse and the order allowing deduction under section 80P(2)(a)(i) is upheld in favour of the assessee.

Issue (ii): Whether the Assessing Officer is bound to follow the coordinate bench and the Bombay High Court decisions relied upon by the assessee.

Analysis: Authority establishes that revenue officers are bound by Tribunal and High Court decisions of coordinate benches and cannot refuse to follow them merely because appeals are pending in higher courts. The coordinate bench decision in the assessee's earlier year and the Bombay High Court decision on the point were applicable and were followed by the appellate authority. Reliance on pending appeals against those decisions does not relieve the Assessing Officer from following binding precedent.

Conclusion: The Assessing Officer was bound by the coordinate bench and Bombay High Court decisions and erred in not following them; this conclusion favours the assessee.

Issue (iii): Whether the Supreme Court decision in Totagar Co-op Sales Society Ltd. precludes deduction under section 80P(2)(a)(i) on the facts of this case.

Analysis: The Supreme Court decision in Totagar turned on the assessee there earning interest from investments and engaging in marketing activities, facts which led to treating certain interest as not attributable to credit provision to members. In the present case the society's activity is confined to providing credit facilities to members and does not include analogous investment/marketing activities; therefore Totagar is distinguishable. Additionally, later authoritative decisions dealing with cooperative credit societies and the definition of bank were considered.

Conclusion: Totagar Co-op Sales Society Ltd. does not bar deduction under section 80P(2)(a)(i) on the facts of this case; this conclusion is in favour of the assessee.

Final Conclusion: The tribunal affirms that a cooperative credit society which, on its byelaws and activities, provides credit exclusively to its members and does not transact banking business with the public is entitled to deduction under section 80P(2)(a)(i); the revenue appeal is dismissed and the appellate order is confirmed.

Ratio Decidendi: A coordinate bench or higher court decision holding that a cooperative credit society that provides credit only to its members and does not perform banking activities within the meaning of the Banking Regulation Act binds revenue authorities and entitles such society to deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961 where facts show no separate investment/marketing activities that would attribute income outside that provision.

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