TMI Blog2014 (8) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... ns have been given to the members of the society in accordance with the objects – Thus it cannot be said that the Assessee society was carrying on banking business as it was not accepting deposits from the persons who were not members - it is not necessary that the co-operative society should have a banking licence as per the definition under the Income Tax Act – it has to be seen as to whether the nature of the business carrying on by the assessee is a banking business or not - the paid up share capital and reserves in the case of the Assessee is more than ₹ 1 lac – also, Sec. 20 of The Karnataka Souharda Sahakari Act, 1997 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 assessee society cannot be regarded to be a primary co-operative bank as all the three conditions are not complied with and it is not a co-operative bank and the assessee is not hit by the provision of section 80P(4) and asessee is entitled for deduction u/s 80P(2)(a)(i) - the order of the CIT(A) is upheld and the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts in not appreciating the fact that the assessee society being a credit co-operative society engaged in banking business is a Primary Co-operative Bank within the definition of section 5(ccv) of the Banking Regulation Act, 1949 and as such, not eligible for deduction under section 80P(2)(a)(i) of the I.T. Act, 1961. 2. Both the parties agreed that both these appeals be decided on the basis of the facts relating to the assessment year 2009-10 as the issue involved in both the years is the same. The brief facts of the case are that the Assessee is a co-operative society registered under the Karnataka Souharda Sahakari Act, 1997. The Assessee filed return declaring gross total income of ₹ 13,67,816/- and claimed deduction u/s 80P(2)(a)(i) 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 ₹ 13,67,820/-. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act nor can they be treated as banking companies. The activities carried out by the society cannot be regarded to be banking activities as contemplated under the Banking Regulation Act, 1949. Reliance was also placed on the decision of the Bangalore Bench of this Tribunal in ITA No. 72/Bang/2013 in the case of ITO vs. Divyajyothi Credit Co-operative Society Ltd. for the A.Y 2009-10 in which it was held that the provisions of Sec. 80P(4) are applicable only to credit co-operative banks and not to credit co-operative society. Reliance was also placed on the decision of the Panaji 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. Reliance was also placed on the decision of Panaji Bench in ITA No. 229 230/PNJ/2013 in the case of Tararani Mahila Co-operative Credit Society, vs ITO. Reliance was also placed in ACIT vs Palhawas Primary Agriculture Co-operative Society Ltd, 23 Taxman.com 318 (Delhi), ITO vs Jankalyan Nagri Sahakari Pat Sanstha Ltd, 24 Taxman.com 127 (Pune). Reliance was also placed on the decision of Karnataka High Court in the case of CIT vs Sri Biluru Gurubasava Pattana Sahakari Sangh Niya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit facilities to its members, the co-operative society is entitled for deduction on whole of the income relating to any one or more of such business. From the reading of Sec. 80P(4) it is apparent that this section denies deduction to a co-operative bank other than a primary agricultural credit society or primary co-operative agricultural and rural development bank. The provisions of Sec. 80P(4) was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The explanation to the section defines the co-operative bank and primary agricultural credit society to have the same meaning as assigned to them in Part-V of the Banking Regulation Act, 1949. It is not the case of either of the parties that the Assessee is a primary co-operative agricultural and rural development bank. It is also not the claim of the Assessee that Assessee is a primary agricultural credit society. If we read both the sections, Sec. 80P(2)(a)(i) and Sec. 80P(4) together, we find that the provisions of Sec. 80P(4) mandates that the provisions of Sec. 80P will not apply to any co-operative bank other than a primary agricultural credit society or primary co-operative agricultural and rural development ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more of such activities. This pre-supposes that eligible co-operative society can carry on either one of these two businesses or can carry both these businesses for the members. If the Assessee co-operative society carries on one or both of the activities, it will be eligible for deduction. These two activities are (a) co-operative society engaged in carrying on business of banking facilities to its members or (b) co-operative society engaged in providing credit facilities to its members. Both the activities must be carried on by the co-operative society for its members. If a co-operative society is engaged in carrying on these activities/facilities for the persons other than its members, the co-operative society, in our opinion, will not be eligible for deduction u/s 80P(2)(a)(i) on the income which it derives from carrying on the activities not relating to its members. Therefore, where a co-operative society is engaged in carrying on business of banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business of banking facilities to its members or providing credit facilities to its membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee co-operative society complies with all the three conditions. In case, it does not comply with all the three conditions, it cannot be regarded to be a co-operative bank and the provisions of Sec. 80P(4), in our opinion, 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, in our opinion, 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. 2.9 Whether condition no. 1 is applicable in the case of the Assessee, for this we have to look into the bye-laws of the Assessee. The objects of the Assessee in this case are enumerated as under :- 1. To encourage thrift, selfhelp co-operation among the members and providing financial facilities. 2. To formulate special plan and projects for the development of financially weaker section of the society. And to assist to them financially. 3. To collect funds required to run the ssahakari by the way of deposits and to assist the weaker section of the society. 4. To provide lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. To provide training to members for purchase of technologically improved machineries for the development of their activities. 23. To provide mortgage loans on produce of members. 24. To provide essential commodities by purchasing on wholesale basis and selling in retail. 25. To providing loans for animal husbandry, poultry, sheep rearing etc. 26. To work for distribution of products to the public under Govt. scheme. 27. To provide financial assistance to the members for establishment of home industry and development of their trade and business. 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. From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive 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 deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er co-operative society as a member of the co-operative society. 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. 2.14 We have gone through the bye-laws which contains the membership which is bye-laws no.11, 11.A 11.B. They state as under :- 11. Membership :- Eligibility of Membership Person to become member of society should hold any legal trade or business or industry or other affairs of similar nature having more than 18 year of age and eligible to act under section 11 of Indian Contract Act 1872 and residing within the Jurisdiction of co-operative society and registered Trust, Co-operative Societies and Companies, self help groups are also eligible to become member of society. However person should not disqualify as per terms of bye law of society. 11.A. NOMINAL M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Ltd. (supra) in ITA No. 72/Bang/2013. In this case, we noted that the Hon'ble Tribunal confirmed the order of CIT(A) following the decision of the Tribunal in the case of ACIT, Circle 3(1), Bangalore vs. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No. 1069/Bang/2010 holding that Sec. 80P(2)(a)(i) is applicable only to credit co-operative society a and not to co-operative bank. With due regards to the Bench, we are unable to find any term 'credit co-operative society' u/s 80P(2)(a)(i) or u/s 80P(4), therefore, this decision cannot assist us. We noted that the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeals 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down in the definition as given u/s. 5(ccv) of the Banking Regulation act, 1959 for becoming primary cooperative bank . The assessee, therefore, cannot be regarded to be primary cooperative bank and in consequence thereof, it cannot be a co-operative bank as defined under part V of the Banking Regulation Act 1949. Accordingly, in our opinion the provisions of section 80P (4) read with explanation there under will not be applicable in the case of the assessee. The assessee, therefore, in our opinion will be entitled for the deduction u/s 80P(2)(a)(i). We accordingly confirm the order of CIT(A) allowing deduction to the assessee. We have also gone through the decision of ACIT vs Palhawas Primary Agriculture Co-operative 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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