Case Note & Summary
The case involves four tax appeals filed by the Revenue (Pr. Commissioner of Income Tax, Goa) against the common order of the Income Tax Appellate Tribunal (ITAT) which dismissed the Revenue's appeals. The respondents are cooperative credit societies registered under the Goa Cooperative Societies Act, 2001. The core issue is whether these societies, which accept deposits from and lend to non-members, are 'primary cooperative banks' under Section 5(ccv) of the Banking Regulation Act, 1949, and thus excluded from claiming deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 by virtue of Section 80P(4). The facts in Tax Appeal No.2 of 2018 are representative: the assessee filed its return for Assessment Year 2012-13 claiming nil income after deduction under Section 80P. The Assessing Officer (AO) held that the assessee was a primary cooperative bank, not a cooperative credit society, and disallowed the deduction. The AO also disallowed expenditure of Rs. 94,38,864/- under Section 40(a)(ia) for failure to deduct TDS under Section 194A, and audit fees of Rs. 2,34,222/- under Section 40(a)(ia) for non-compliance with Section 194J. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal on the deduction issue, relying on a previous decision of the High Court in the assessee's own case, and deleted the disallowance under Section 40(a)(ia) holding that the assessee was covered by the exemption under Section 194A(3)(v). However, the CIT(A) upheld the disallowance of audit fees. The Revenue appealed to the ITAT, which dismissed the appeal. The Revenue then appealed to the High Court under Section 260A. The High Court framed substantial questions of law regarding the applicability of Section 80P(4) and the definition of primary cooperative bank. The court noted that the issue was covered by its earlier decision in the assessee's own case for a previous year, which held that a cooperative credit society not registered under the Banking Regulation Act is not a cooperative bank. The court also relied on the Supreme Court's decision in M/s. Mavilayi Service Co-operative Bank Ltd. v. CIT, which clarified that Section 80P(4) excludes only cooperative banks, not cooperative credit societies. The court held that the assessee society, though dealing with non-members, did not satisfy all conditions of Section 5(ccv) of the Banking Regulation Act, particularly the requirement of being registered under that Act. Therefore, the society was entitled to deduction under Section 80P(2)(a)(i). Regarding the disallowance under Section 40(a)(ia), the court held that the exemption under Section 194A(3)(v) applied, so no TDS was required, and the disallowance was rightly deleted. The court dismissed all four appeals, answering the substantial questions of law in favor of the assessee and against the Revenue.
Headnote
A) Income Tax - Deduction under Section 80P - Cooperative Credit Society vs. Cooperative Bank - The assessee, a cooperative credit society registered under the Goa Cooperative Societies Act, 2001, claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Revenue contended that the society, by accepting deposits from and lending to non-members, became a primary cooperative bank under Section 5(ccv) of the Banking Regulation Act, 1949, and was excluded by Section 80P(4). The court held that the society was not a cooperative bank as it was not registered under the Banking Regulation Act and did not satisfy all conditions of Section 5(ccv). The deduction was allowed. (Paras 1-10) B) Income Tax - Section 194A - TDS on Interest - Exemption for Cooperative Societies - The assessee society paid interest to its members and claimed exemption from TDS under Section 194A(3)(v) of the Income Tax Act, 1961, which exempts any credit society or cooperative society engaged in banking business. The court upheld the deletion of disallowance under Section 40(a)(ia) for non-deduction of TDS, as the exemption applied. (Paras 5, 10) C) Income Tax - Section 40(a)(ia) - Disallowance for Non-Deduction of TDS - The Revenue disallowed expenditure of Rs. 94,38,864/- under Section 40(a)(ia) for failure to deduct TDS under Section 194A. The court held that since the assessee was exempt from TDS under Section 194A(3)(v), no disallowance could be made. (Paras 4-5, 10)
Issue of Consideration
Whether a cooperative credit society, registered under the Goa Cooperative Societies Act, 2001, which accepts deposits from and lends to non-members, is a 'primary cooperative bank' under Section 5(ccv) of the Banking Regulation Act, 1949, and thus disentitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 by virtue of Section 80P(4).
Final Decision
The High Court dismissed all four tax appeals, holding that the assessee cooperative credit societies are not primary cooperative banks and are entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The disallowance under Section 40(a)(ia) was also correctly deleted as the assessee was exempt from TDS under Section 194A(3)(v). The substantial questions of law were answered in favor of the assessee and against the Revenue.
Law Points
- Section 80P(2)(a)(i) deduction available to cooperative credit societies
- Section 80P(4) excludes only cooperative banks
- definition of primary cooperative bank under Section 5(ccv) Banking Regulation Act requires three conditions: principal business of banking
- paid-up share capital and reserves of at least Rs.1 lakh
- and bye-laws conferring membership to certain categories
- mere acceptance of deposits from non-members does not automatically make a society a bank
- cooperative credit society not registered under Banking Regulation Act is not a cooperative bank
- section 194A(3)(v) exemption for cooperative societies
- section 40(a)(ia) disallowance not applicable if TDS not required.
