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2014 (3) TMI 1203 - AT - Income TaxDeduction u/s 80P - Assessee is a co-operative society registered under the Karnataka State Co-operative Societies Act - whether assessee carrying out the banking activities? - AO while denying the deduction u/s 80P(2)(a)(i) took the view that the Assessee is a primary co-operative bank and therefore provisions of Sec. 80P(4) are applicable in the case of the Assessee - whether the Assessee is a co-operative bank or not? - Whether co-operative society compiling with first condition of primary object or principle business transacted by it is a banking business? - HELD THAT:- It is not necessary that the co-operative society should have a banking licence as per the definition under the Income Tax Act for carrying on banking business. If licence is not obtained it may be an illegal banking business under the other statute. What we have to see whether the nature of the business carrying on by the assessee is a banking business or not. The Income Tax in our opinion is not concerned whether the banking business carried on by the assessee is legal or illegal. The income has to be assessed u/s 14 of the Income Tax Act under the same head even if the nature of the business is illegal. If we look into chapter III of the bye-laws which consists of fund of the society, we noted that the types of the deposits which the assessee has accepted as per bye-laws 7 are the same as are being accepted during the course of the carrying out the banking activities. Paid up share capital and reserve of which are 1 lakh or more - So far as the second condition is concerned, there is no dispute that the paid up share capital and reserves in the case of the Assessee is more than Rs. 1 lac. Therefore, the Assessee satisfies the second condition. By laws of the co-operative society do not permit admission of any other co-operative society as a member, it will be regarded to be primary co-operative bank - So far as the third condition is concerned, we noted that Sec. 16 of The Karnataka State Co-operative Societies Act, 1959 permits admission of any other co-operative society as a member - in case the rules and bye-laws of the other co-operative society provides otherwise, the co-operative society may not be admitted as a member of the co-operative society. The person, as per sub-section (2), must be qualified for becoming member not only u/s 16(1) but also as per the rules and bye-laws of the co-operative society. We cannot read sub-section (2) in the manner that the rules and bye-laws cannot permit the admission of any other co-operative society as a member of the co-operative society. Had that been the intention of the legislature, they would have not used the words “this Act, rules and bye-laws” in sub-section (2). Qualification of Membership - Condition for completing 18 years of age cannot be imposed for co-operative society. This condition can be applied only to an individual. From this, it is apparent that the bye-laws of society does not permit the admission of any other co-operative society as member. Thus the third condition for becoming primary co-operative bank is also complied with. Since the assessee society complies with all the three conditions, therefore, in our opinion the assessee society becomes a primary co-operative bank and in view of explanation (a) of section 80P(4) it has to be regarded as a co-operative bank and is hit by section 80P(4). Section 80P(2)(a)(i) nowhere talks of co-operative credit society and therefore the distinction made under the Banking Regulation Act cannot be imported u/s 80P(2)(a)(i). Assessee has to be regarded to be a primary co-operative bank as all the three basic conditions are complied with, therefore, it is a co-operative bank and the provisions of Sec. 80P(4) are applicable in the case of the Assessee and Assessee is not entitled for deduction u/s 80P(2)(a)(i). We, therefore, confirm the order of the CIT(A) not allowing deduction u/s 80P(2)(a)(i) to the assessee. - Decided against assessee.
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