2018 (6) TMI 1871 - AT - Income Tax

Co-operative credit society deduction upheld where member-only lending did not amount to banking business under section 80P(4).

A co-operative credit society that accepted deposits only from members and provided credit facilities only to members was treated as eligible for ... Deduction under section 80P(2)(a)(i) - Co-operative credit society vis-a-vis co-operative bank - Applicability of section 80P(4) exclusionDeduction under section 80P(2)(a)(i) - Co-operative credit society vis-a-vis co-operative bank - Applicability of section 80P(4) exclusion - The assessee, being a co-operative credit society providing credit facilities only to its members, was entitled to deduction under section 80P(2)(a)(i) and was not hit by the exclusion in section 80P(4). - HELD THAT: - The Tribunal held that the material on record showed the assessee to be engaged only in providing credit facilities to its members and not in carrying on banking business. It noted the absence of any case by the Revenue that the assessee operated on the strength of an RBI licence, and also took into account that its activities were confined to members, including acceptance of deposits from members and grant of credit to them, without typical banking facilities such as cheque book or draft facility. On these facts, the inference of the Assessing Officer that the assessee was a co-operative bank lacked factual foundation. Following the Bombay High Court decision in Quepem Urban Co-operative Credit Society Ltd. and the Tribunal's earlier order in the assessee's own case for Assessment Year 2010-11, it was concluded that the restriction under section 80P(4) did not apply. [Paras 5]The order allowing deduction under section 80P(2)(a)(i) was affirmed and the Revenue's challenge was rejected.Final Conclusion: The Tribunal upheld the allowance of deduction to the assessee under section 80P(2)(a)(i), holding that it was a co-operative credit society and not a co-operative bank for the purpose of section 80P(4). The Revenue's appeal was dismissed. Issues: Whether the assessee, a co-operative credit society providing credit facilities only to its members, was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, or whether the exclusion under section 80P(4) applied on the footing that it was a co-operative bank carrying on banking business.Analysis: The assessee's activities were confined to accepting deposits from members and providing credit facilities to members, without banking facilities such as cheque books, drafts or dealings with the general public. The factual basis for treating it as a co-operative bank was absent, and there was no material to show that it carried on banking business on the strength of an RBI licence. The issue was consistent with the assessee's own earlier year, where similar activities were held not to attract the restriction in section 80P(4). The view taken by the first appellate authority was also in line with the Bombay High Court's decision relied upon in similar factual settings.Conclusion: The assessee was not hit by section 80P(4) and was entitled to deduction under section 80P(2)(a)(i).