INCOME TAX ACT, 1961

Section 80P(2)(a)(i)

Deduction under section 80P(2)(a)(i) - Allowability - Loans given to nominal members by society deriving income from the activity of providing credit facilities to the members/nominal members -

Assessee was a cooperative society registered under the A.P. Mutually Cooperative Societies Act, 1995 deriving income from the activity of providing credit facilities to its members/nominal members as well as income from sale of stamps. It claimed deduction under section 80P(2)(a)(i). AO disallowed assessee's claim on the ground that assessee was engaged in the business of banking, and was providing credit facility to its members and also on the ground that interest was earned on surplus funds. Held: Limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks, i.e., which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society would carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by the RBI. It was not so in assessee's case. Also, that 'nominal members' are 'members' as defined under the Kerala Act. Considering the definition of 'Member' under the Kerala Act, loans given to nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). Therefore, disallowance of deduction was not justified.

Followed:Mavilayi Service Cooperative Bank Ltd. v. CIT (2021) 123 Taxmann.com 161 (SC) : 2021 TaxPub(DT) 273 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12 & 2014-15

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