KARNATAKA JUDICIAL OFFICERS CREDIT CO-OPERATIVE SOCIETY LTD,BENGALURU vs. INCOME TAX OFFICER, WARD-5(3)(2), BENGALURU

In both these years, the assessee has raised as many as 10 grounds in each year but there is only one common grievance in both these years that assessee is not a co-operative bank and therefore, disallowance made in both the years of assessee’s claim for deduction u/s. 80P(2)(a)(i) of IT Act, 1961 is not justified.

In course of hearing before us, it was submitted by ld. AR of assessee that as per the judgment of Hon’ble Apex Court rendered in the case of The Citizen Co-operative Society Ltd. Vs. ACIT as reported in 397 ITR 1, it was held in para 24 of this judgment that in order to do the business of a co- operative bank, it is imperative to obtain license from the Reserve Bank of India. He submitted that in the present case also, the assessee is not & 2684/Bang/2017 Page 2 of 4 having any license from RBI and therefore, it cannot be said that assessee is a co-operative bank. At this juncture, it was pointed out by the bench that in the same Para 24 of this judgment of Hon’ble Apex Court after holding that in order to do the business of a co-operative bank, it is imperative to have license from RBI, it is also noted by Hon’ble Apex Court that in that case, RBI has itself clarified that the business of the assessee does not amount to that of a co-operative bank. After considering both these aspects, it was held that the assessee will not come within the mischief of sub-section (4) of Section 80P. The bench observed that therefore, the issue should go back to the file of CIT(A) for fresh decision with the direction that the assessee should obtain clarification from RBI as to whether business of the assessee is that of a co-operative bank or not. In reply, it was submitted by ld. AR of assessee that the matter may be restored back but it may be a possibility that in the absence of any license from RBI, the RBI may not issue a clarification regarding the nature of business of the assessee and hence, direction should be given as to what should happen in such a situation. The ld. DR of revenue supported the orders of authorities below.

We have considered the rival submissions. First of all, we reproduce Para 24 from the judgment of Hon’ble Apex Court rendered in the case of The Citizen Co-operative Society Ltd. vs. ACIT (supra). This Para reads as under. “24) Undoubtedly, if one has to go by the aforesaid definition of ‘co-operative bank’, the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a license from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P.”

From the above Para reproduced from the judgment of Hon’ble Apex Court, it comes out that in that case also, the assessee was not having license from RBI to do banking business but still in that case, a clarification was issued by RBI clarifying that business of assessee in that case did not & 2684/Bang/2017 Page 3 of 4 amount to that of a co-operative bank. Hence, this argument of ld. AR of assessee is hypothetical that RBI may not issue a clarification in the present case because the present assessee is not holding a license from RBI. In that case also, the assessee was not holding license from RBI but still clarification was issued by RBI regarding the nature of business of that assessee. Hence on this hypothetical argument of ld. AR of assessee, we do not want to make any comment. We set aside the order of CIT(A) in both years and restore back the matter to the file of CIT(A) for fresh decision after considering this judgment of Hon’ble Apex Court rendered in the case of The Citizen Co-operative Society Ltd. Vs. ACIT (supra). The assessee should obtain a clarification from the RBI regarding the nature of business of the assessee and if as per the clarification issued by the RBI, it is found that the assessee’s business is not in the nature of a co-operative bank, then it should be held that the provisions of sub-section (4) of section 80P are not applicable in the present case and in that situation, the assessee’s claim for deduction u/s. 80P should be decided without referring to the provisions of sub-section (4) of section 80P of IT Act. But if it is found that the assessee is a co-operative bank, then obviously, sub-section (4) of section 80P is applicable and assessee is not eligible for deduction u/s. 80P. The ld. CIT(A) should pass necessary order as per law as per above discussion after providing adequate opportunity of being heard to both sides.

In the result, both the appeals filed by the assessee are allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.