TMI Blog2014 (4) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... me which relates to the business of banking facilities to its members or providing credit facilities to its members will only be eligible for deduction u/s 80P(2)(a)(i) - There is no prohibition u/s 80P not to allow deduction to such co-operative societies in respect of business relating to its members. Whether the Assessee is a co-operative bank or not – Held that:- In case, the assessee does not comply with the three conditions of being a cooperative society, it cannot be regarded to be a co-operative bank and the provisions of Sec. 80P(4) will not be applicable in the case of the Assessee - Once, the Assessee will not fall within the provisions of Sec. 80P(4), the Assessee, will be eligible to get deduction u/s 80P(2)(a)(i) in respect of whole of the income which the Assessee derives from carrying on the business of banking or providing credit facilities to its members. The Assessee has accepted before the authorities that the Assessee was accepting deposits of money not only from the members but also from the general public who are non-members - it is not necessary that the co-operative society should have a banking licence as per the definition under the Income Tax Act f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the income was assessed at Rs.8,43,559/- and Rs. 16,54,213/- respectively. 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 both the appeals. 2.1 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 Souharda Sahakari Act, 1997. The primary object of the Assessee is to promote the economic interest of its members and to encourage thrift, self help and co-operation among the members and depositors of the co-operative. For this, our attention was drawn towards the bye-laws of the Assessee from (I) to (XX). The Assessee is a credit society. He contended that the word credit is of outmost important to decide the status of the assessee under the Banking Regulation Act, 1949. According to him the assessee is a co-operative credit society but when we question that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e will not be entitled for the exemption. Reliance was placed on the decision of Hyderabad Bench of the Tribunal in the case of The Citizen Co-operative Society vs. Addl. CIT in ITA Nos. 1003/Hyd/2011 1004/Hyd/2011 dt. 2.7.2012. 3 We have heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below as well as the decisions and the entire material and case laws referred to before us. The question before us is whether the Assessee is entitled for deduction u/s 80P(2)(a)(i) and whether the Assessee is hit by the provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on the business of banking or providing credit facilities to its members is entitled for deduction. After the insertion of Sec. 80P(4), the provisions of Sec. 80P(2)(a)(i) were not amended, rather the co-operative society engaged in carrying on business of banking facilities to its members continued to be entitled for deduction u/s 80P(2)(a)(i). This pre-supposes that every co-operative society engaged in carrying on business of banking cannot be regarded to be a co-operative bank. The embargo put u/s 80P(4) are applicable only to a co-operative bank. In 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 80P not to allow deduction to such co-operative societies in respect of business relating to its members. 4.1 Now, the question before us is whether the Assessee is a co-operative bank or not. Co-operative Bank is defined in Part V of the Banking Regulations Act, 1949 as under :- Co-operative bank means a state co-operative bank, a central co-operative bank and a primary co-operative bank: 5. From the definition of Co-operative bank it is apparent that Co-operative bank means state co-operative bank, a Central Co-operative Bank and a Primary Co-operative bank. It is not the case of the revenue that the assessee is a state Co-operative bank or Central Co-operative bank. We have therefore to find whether the assessee is a primary Co-operative bank. 6. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies which are required to promote and strengthen the activities of the co-operative. To extend the business by using modern technology including internet. XVIII To do business of the co-operative credit societies as stipulated in the Banking Regulation Act. 8.1 On the basis of these objects whether it can be said that the primary object or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner : banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. 8.2 From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwise and withdrawal of these deposits by cheque, draft, order or otherwise and these deposits are accepted for the purpose of lending or investment. These deposits 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, dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) unless he needs the services of the co-operative and accepts the responsibility of membership and is competent to contract under the Contract Act, 1872 (Central Act IX of 1872); b) if he conducts any business, such business being in conflict or competition with the business of the co-operative as specified in the bye-laws; and c) unless he fulfils such other conditions as may be specified in the bye-laws of the co-operative: Provided that after the registration of a co-operative, the members shall be admitted only by the elected board. (2) No person shall be eligible to continue as a member if such person ,- a) has not used the services of the co-operative for two consecutive years to the minimum level specified in the bye-laws; or b) has not attended three consecutive general meetings of the co-operative and such absence has not received the consent of the general body; or c) is in default regarding any payment to be made to the co-operative exceeding an amount and for a period specified in the bye-laws. (3) If a question arises as to the eligibility or otherwise of a person to become a member or to continue as a member, the board shall decide the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The word used in Sec.21A is may . Section 21A further states that the co-operative society can be admitted as nominal or associate member for any specific purpose for any specific period as may be mentioned in the bye-laws. This clearly proves that 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. 9. We have gone through the bye-laws which contains the membership which is bye-laws no.6. It states as under :- 6. Eligibility for Membership :Following are eligible comprising of co-operative. A Class member comprising of individual person B Class membership to Govt. without entrance fees. 1. (A) Person residing in the area of operation of co-operative attained the age of 18 years engaged in business or trade and not insolvent and lunatic. 2. Person seeking admission as a member shall make an application in writing with prescribed share fee admission fee and full amount of minimum one share. 3. Board of Directors are empowered to accept or reject the membership application. If membership is rejected full amount subscribed by the person shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals no. 442 of 2013, 443 of 2013 and 863 of 2013 (supra) vide order dt. 15.1.2014 took the view that Sec. 80P(4) will not apply to a society which is not a co-operative bank. In the case of Vyavasaya Seva Sahakara Sangha vs. State of Karnataka Ors. (supra) we noted that the issue before the Hon'ble High Court in the Writ Petition filed by the Petitioner related to the legislative competence of the State Legislature for issuing a circular. The issue does not relate to the claim of deduction u/s 80P(2)(a)(i). While dealing with this issue, the Hon'ble High Court under para 12 observed as under :- 12. It is not possible to accept this contention. The petitioners are not the banking institutions coming under the purview of the Banking Regulation Act. They are the co-operative societies registered under the Act, and as such they are governed by the provisions of the Act passed by the State Legislature. Consequently, the State Government has control over them to the extent the Act permits. Major activities of the petitioners are to finance its members. For the purpose of financing its members, they borrow money from the financing agencies and repay the same. Merely becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative Society Ltd, 23 Taxman.com 318 (Delhi). Section 80P(4) clearly excludes primary agriculture credit society from its domain. Therefore this decision will not assist the assessee. We have also gone through the decision of Pune Bench in the case of ITO vs Jankalyan Nagri Sahakari Pad Sanstha Ltd, 24 Taxman.com 127 Pune. This we have already stated that 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). This decision in our opinion will not assist the assessee. We have also gone through the decision of Tarani Mahila Co-operative Credit Society Ltd to which the undersigned is the author similar finding as has been given in this are given in that case also. 11. We, therefore, in view of our aforesaid discussion hold that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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