Co-operative society – Special deduction u/s. 80P – No deduction where banking business is carried on – No evidence of banking business – Mere inclusion of name originally and object in bye-laws of society not conclusive – Assessee entitled to special deduction u/s. 80P

20.  ELURU Co-operative House Mortgage Society
Ltd. vs. ITO; 403 ITR 172 (T&AP)

Date of Order: 13^th
September, 2017

A. Ys.: 2007-08, 2008-09 and
2009-10

Section 80P of ITA 1961

Co-operative society – Special
deduction u/s. 80P – No deduction where banking business is carried on – No
evidence of banking business – Mere inclusion of name originally and object in
bye-laws of society not conclusive – Assessee entitled to special deduction u/s.
80P

The assessee was a
co-operative society, established in the year 1963. Originally, the assessee
was registered as the Eluru Co-operative House Mortgage Bank Ltd. But the
Reserve Bank of India as well as the Co-operative Department of the State
refused to accord permission to the assessee to carry on the business of
banking under that name. Therefore the word “Bank” was deleted from the name of
the assessee w.e.f. 19/02/2009. The assessee claimed that it was not a bank
within the meaning of section 80P(4) of the Income-tax Act, 1961.

For the A.Ys. 2007-08, 2008-09
and 2009-10, the assessee filed returns of income declaring “nil” income
claiming deduction u/s. 80P(2), on the ground that it was running on the
principle of mutuality, dealing only with its own members. The Assessing
Officer rejected the claim for deduction.

The Tribunal upheld the
disallowance.

On appeal by the assessee, the
Telangana and Andhra Pradesh High Court reversed the decision of the Tribunal
and held as under:

“i)  The entitlement of an assessee to the benefit of deduction u/s.
80P(2) does not depend upon either the name of the assessee or the objects for
which the assessee was established. The entitlement to deduction under the
provision would depend upon the actual carrying on of the business activity,
viz., banking. The fact that all co-operative banks would necessarily be
co-operative societies cannot lead to the presumption that all co-operative
societies are also co-operative banks. There are different types of co-operative
societies, many of whom may not be transacting any banking business.

ii)   Without reference to a single transaction that the assessee had
with any non-member, the Tribunal upheld the findings of the Assessing Officer
merely on the basis of the name of the assessee and one of the objects clauses
in the bye-laws of the assessee. Therefore, the finding of the Tribunal was
obviously perverse and such a finding could not have been recorded on the basis
of the material available on record.

iii)  The assessee was entitled to the special deduction u/s. 80P for the
A. Ys. 2007-08, 2008-09 and 2009-10.”