Credit co-operative society providing credit to its members cannot be treated as a ‘co-operative bank’ carrying on banking activities

The Assessee, in Income-tax Officer Vs. Somavamsha Sahasrajuna Kshatriya Credit Co-operative Society  is a credit co-operative society who provided credit/loan facilities to its members and accepted deposits from them. The Assessee had filed its return of income and declared its total income after claiming deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961 (Act). The return was processed under Section 143(1) of the Act and the case was subsequently taken up for scrutiny. The Assessing Officer (‘AO’), on examination of the Assessee’s claim for deduction under Section 80P(2)(a)(i) of the Act, was of the view that the Assessee is in fact a bank as per Section 5 (ccv) of the Banking Regulation Act,1949 and therefore, as per the provisions of Section 80P(4) of the Act, it was not entitled to the deduction claimed under Section 80P(2)(a)(i) of the Act. The assessment was accordingly concluded under Section 143(3) of the Act.

Being aggrieved, the Assessee preferred an appeal before the CIT(A) and in support of its claim for Section 80P(2)(a)(i) deduction, relied on the decision of the Karnataka High Court wherein the Hon’ble High Court had dismissed the Revenue’s appeal on the very same issue. The CIT(A) after relying on the said judgment of Karnataka High Court has allowed the Assessee’s claim for deduction under Section 80P(2)(a)(i) of the Act. 

Aggrieved by the order of the CIT(A), Revenue has filed the present appeal before this Tribunal. The question for consideration and adjudication before this Tribunal is that whether the Assessee, admittedly a credit cooperative society engaged in providing credit facilities, etc., to its members, is entitled to be allowed deduction claimed under Section 80P(2)(a)(i) of the Act or whether the said claim is hit by the provisions of sec.80P(4) of the Act. 

The Tribunal observed that the issue stands squarely covered in favour of the Assessee and against Revenue, by the decision of the coordinate bench of this Tribunal in its order in ITA No.1574/Bang/2012 dated 19/12/2014 in the Assessee’s own case for Assessment Year 2009-2010, wherein following the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sanagha Niyamitha in ITA No.5006/2013 dated 5/2/2014, it was held that a co-operative society providing credit etc., to its members cannot be treated as a ‘co-operative bank’ carrying on banking activities. Similar view was upheld by a co-ordinate bench in the Assessee’s own case for Assessment Year 2010-2011 also.