ITO 21(2)(4), MUMBAI vs. NIRALEE CO OPERATIVE CREDIT SOCIETY LTD, MUMBAI

The present appeal has been preferred by the Revenue against the order dated 28.03.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.

The only common issue raised by the Revenue is against the order of Ld. CIT(A) holding that assessee is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act without considering the provisions of the new sub section 4 which were inserted in section 80P w.e.f. 01.04.2007 which provides that provisions of sub-section shall not apply in 2 M/s. Niralee Co-operative Credit Society Ltd. relation to any co-operative bank other than a Primary Agricultural and Rural Development Bank and also ignoring the definition given under sub clause (cci) & (ccii) of clause (c) of section 5 of the Banking Regulation Act.

The facts in brief are that assessee is a co-operative credit society having the business of accepting deposits and lending money to the members of the society only. The society is registered with the Registrar of Cooperative Societies of Maharashtra Act. As per the registration certificate, the co-operative society has been classified as Resource Society and sub-classified as loan giving resource society. The assessee filed the return of income for A.Y. 2012-13 declaring income or Rs.11,15,081/- and claimed the entire income deductible under section 80P(2)(a)(i) of the Act. The case of the assessee was selected for scrutiny. According to the AO, the assessee society is carrying on the business of banking and therefore, deduction under section 80P was not available to it. Vide order sheet dated 19.12.2014 the assessee was given show cause notice which was duly replied by the assessee. Finally the AO relied upon the section 80P(4) as inserted w.e.f. 01.04.2007 and came to a conclusion that the assessee is a co-operative bank and therefore, not entitled to deduction under section 80P(2)(a)(i) of the Act. Finally, the assessment was framed at Rs.57,52,130/- vide order dated 26.02.15 passed under section 143(3) of the Act.

Aggrieved, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) after considering the detailed

The Ld. D.R. vehemently argued before us that since the assessee has fulfilled all conditions in respect of co-operative bank nonetheless the assessee has not been issued any banking certificate by the Reserve Bank of India, therefore, the assessee has to be treated as a cooperative bank for the purpose of section 80P(4) of the Act and thus the deduction was rightly disallowed by the AO as the same was not allowable to the co-operative bank. The Ld. D.R. prayed before the Bench that in view of the provision of the Act as defined generally and newly inserted in section 80P4

The Ld. A.R., on the other hand, while vehemently relying on the order of Ld. CIT(A) submitted that the assessee is a co-operative society and accepts deposits and lends money to its members only. The assessee is only rendering services by way of accepting the deposits and lending money to its members only and not engaged in the banking business to the public at large and therefore, cannot be treated as co- operative bank. The Ld. A.R. submitted that the assessee is not covered by the provisions of section 80P(4) of the Act as the same apply to a co-operative bank and not to a credit society. The Ld. A.R. while reiterating his arguments, which were made before the AO and relying upon the same decisions as have been relied upon before the Ld. CIT(A), submitted that assessee is not recognized as a co-operative bank by the Reserve Bank of India and in view of the said facts the appeal of the Revenue deserved to be dismissed.

Having heard the rival contentions and perusing the material on record, we find that the assessee is a credit society engaged in the business of accepting deposits and lending money to members of the society only and not public at large. Besides the assessee is not recognized by the Reserve Bank of India as a co-operative bank. All these facts were evaluated by the Ld. CIT(A) in detail in the appellate order in para Nos.11 to 24 analyzing the various decisions of 5 M/s. Niralee Co-operative Credit Society Ltd. the co-ordinate benches of the Tribunal and of various High Courts and taken a correct legal view that the income earned by the assessee society with other co-operative banks is attributed to the assessee’s business activity of banking and as such represents the profit gain from its banking business activities and therefore eligible for deduction under section 80P(2)(a)(i) read with section 80P(4) of the Act. Thus, we do not find any infirmity in the order of the Ld. CIT(A) and accordingly dismiss the appeal of the Revenue by confirming the same.