TMI Blog2014 (3) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... rmits admission of any other co-operative society as a member - Assessee did not file copy of its bye-laws - neither are the provisions of Sec. 17 of The Karnataka State Co-operative Societies Act, 1959 - Therefore, we are unable to give a finding whether the Assessee complies with the third condition but since the Assessee did not comply with the first condition - the Assesse cannot be regarded to be a primary co- operative bank - Since the Assessee cannot be regarded to be a primary co-operative bank – thus, it cannot be a co-operative bank and therefore the provisions of Sec. 80P(4) are not applicable in the case of the Assessee and Assessee shall be entitled for deduction u/s 80P(2)(a)(i) – thus, the order of the CIT(A) set aside – Decided in favour of Assessee. - ITA No. 229 & 230/PNJ/2013 - - - Dated:- 28-2-2014 - Shri P. K. Bansal And Shri D. T. Garasia,JJ. For the Petitioner : Pramod Y. Vaidya, Adv. For the Respondent : Nishant K., Ld. DR ORDER Per P. K. Bansal 1. Since common issues are involved in both these appeals filed by the Assessee against the order of CIT(A) both dt. 20.5.2013, therefore, both the appeals are decided by this common order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore net taxable income was shown to be nil . The AO did not allow the deduction to the Assessee u/s 80P(2)(a)(i) and the income was assessed at Rs.18,10,920/-. The AO while denying the deduction to the Assessee 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. The Assessee went in appeal before the CIT(A). CIT(A) dismissed the appeal of the Assessee. 3.1 The ld. AR before us vehemently contended that the provisions of Sec. 80P(4) are not applicable in the case of the Assessee. The Assessee is not a co- operative bank. The Assessee is a co-operative society duly registered under the Karnataka State Co-operative Societies Act, 1959. The primary object of the Assessee is to promote the economic interest of its members and to encourage thrift, savings, co-operative and self-help among themselves. For this, our attention was drawn towards the order of the CIT(A) which re- produces the bye-laws of the Assessee from (i) to (v). The Assessee is a credit society. The activities of the Assessee are limited to its members. The Assessee does not finance or take deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Sec. 80P(4) which was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The relevant provisions of both the sections are re-produced for our ready reference as under : 80P.(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :-- (a) in the case of a co-operative society engaged in-- (i) carrying on the business of banking or providing credit facilities to its members, or............... the whole of the amount of profits and gains of business attributable to any one or more of such activities. 80P(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank. Explanation.--For the purposes of this sub-section,-- (a) co-operative bank and primary agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our opinion, it cannot be said that a co-operative society cannot carry on business of banking facilities to its members even if it is not a co-operative bank. If we read the provisions in the manner that every co-operative society engaged in carrying on business of banking even for its members is regarded to be a co-operative bank, then, the provisions of Sec. 80P(2)(a)(i) will become redundant. Therefore, in our opinion, before deciding the issue whether the Assessee is entitled for deduction u/s 80P(2)(a)(i), it is essential to decide whether the Assessee is a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. In case it is found that the Assessee is a co-operative bank, the Assessee will not be entitled for deduction as stipulated u/s 80P(2)(a)(i) but in case the Assessee is not a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, the provisions of Sec. 80P(2)(a)(i) will be applicable to the Assessee provided the Assessee is engaged in carrying on business of banking or providing credit facilities to its members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Co-operative bank. 3.3.4 The Primary Co-operative bank is defined under section 5 clause (CCV) of Banking Regulation Act 1949 as under:- (CCV) primary co-operative bank means a co-operative society, other than a primary agricultural credit society- (1) the primary object or principal business of which is transaction of banking business: (2) the paid-up share capital and reserves of which are not less than one lakh of rupees: and (3) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such Co-operative society out of funds provided by the State Government for the purpose 3.3.5 From the aforesaid definition, it is apparent that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transacted by it is a banking business, secondly, the paid up share capital and reserve of which are 1 lakh or more and thirdly, by laws of the co-operative society do not permit admission of any other co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be accepted from the public, not only from the members. These deposits must be repayable on demand or otherwise and could be withdrawn by the depositor by cheque, draft or otherwise. From the aforesaid objects, it is apparent that none of the aims and objects allows the Assessee co-operative society to accept deposits of money from the public for the purpose of lending or investment. In our opinion, until and unless this condition is satisfied, it cannot be said that the prime object or principal business of the Assessee is banking business. Therefore, in this case, the Assessee will not comply with the first condition as laid down in the definition as given u/s 5(ccv) of the Banking Regulation Act, 1949 for becoming primary co-operative bank. We may clarify that if the business of the Assessee is limited only to the members and even if it is a banking business, the Assessee will be entitled for deduction u/s 80P(2)(a)(i). 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. So far as the third condition is concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 3.3.7 The Assessee did not file copy of its bye-laws before us; neither are the provisions of Sec. 17 of The Karnataka State Co-operative Societies Act, 1959. Therefore, we are unable to give a finding whether the Assessee complies with the third condition but since the Assessee did not comply with the first condition, therefore, the Assesse cannot be regarded to be a primary co- operative bank. 3.3.8 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT (supra). We noted that this decision is not applicable to the facts of the case before us. In this decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Merely because the petitioners-the co-operative societies in question-are required to advance loans to their members, they do not cease to be co-operative societies governed by the Act nor can they be treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to banking as contemplated under the Banking Regulation Act, 1949, inasmuch as these co- operative societies are not established for the purpose of doing banking as defined in section 5(b) of the Banking Regulation Act, 1949. This decision, in our opinion, is not applicable to the case before us because the provisions of Sec. 80P(2)(a)(i), as we have already held in the preceding paragraphs, are applicable to a co-operative society which is engaged in carrying on banking business facilities to its members if it is not a co-operative bank. We have also gone through the decision of this Bench in the case of DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. in ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra), for which the undersigned is the author. While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 o ..... 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