TMI Blog2014 (12) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... an a primary agricultural credit society or a primary co-operative agricultural and rural development bank – Held that:- 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 can receive the deposits from any person - The bye-law does not restrict the assessee for receiving the deposit only from members - the Assessee society was carrying on banking business as it was accepting deposits from the persons who were not members and was advancing loans to the non-members - the paid up share capital and reserves in the case of the Assessee is more than ₹ 1 lac - therefore, the Assessee satisfies the second condition. Sec. 21 of The Goa Co-operative Societies Act, 2001 permits admission of any other co-operative society as a member - only society registered can become the member not the co-operative society. Section 5 clause (CCV) of Banking Regulation Act, 1949 requires that the bye-laws should not permit any co-operative society to becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common order. Ground no.1 since general does not require any adjudication. Both the parties agreed that these appeals be decided on the basis of facts for the assessment year 2008-09. The brief facts of the case for the assessment years 2008-09 for ground no.2 are that the Assessee is a co-operative society registered under the Goa Co-operative Societies Act, 2001. The Assessee filed return declaring gross total income of ₹ 1,31,21,061/- 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 ₹ 1,65,99,094/-. 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) partly allowed the appeal of the Assessee. 2.1 The ld. DR, on the other hand vehemently contended that the Assessee is a co-operative bank in view of the definition of the co-operative bank given under explanation to Sec. 80P(4) the Assessee is engaged in the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 Niyamitha dated 5.2.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 bank but as per the provisions of Sec. 80P(2)(a)(i), a co-operative socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 can 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 members will only be eligible for deduction u/s 80P(2)(a)(i). There is no pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 8. 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 :- i) to encourage thrift, self-help and co-operation among others. ii) To accept deposit of money from the members repayable on demand or otherwise and withdrawable by cheque draft, order or otherwise, for the purpose of lending or investment. iii) To borrow or raise money. iv) To lend or to advance money either upon or without security to members and others as permitted by the Registrar. v) To acquire, to hold, to issue on commission, to under-write and to deal in stocks, funds, shares, debentures, debenture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxii) To act as agents for collection of monies of various Government, Quasi-Government and Statutory Bodies. xxiii) To undertake any other form of business which the Central Government / State Government may specify as a form of business in which it is lawful for a co-operative institution to engage. xxiv) To do all such other things as are incidental and conducive to the promotion or advancement of these objects and of the business of the society. 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 otherwise and withdrawal of these deposits by cheque, draft, order or otherwise and these deposits are accepted for the purpose of lending or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mits admission of any other co-operative society as a member. The provisions of Sec. 21 are laid down as under :- 21. Person who may become member - (1) Any person, who needs the services of the society, accepts the responsibilities of membership and fulfils such other conditions as may be specified in the bye-laws of the society, may be admitted as a member. (2) No person shall be admitted as a member of a society except the following, that is to say :- (a) an individual, who is a citizen of India and who is competent to contract under the Contract Act, 1872 (9 of 1872); (b) a firm, company or any other body corporate constituted under any law for the time being in force, or a society registered under the Societies Registration Act, 1860 (XXI of 1860); (c) a society registered, or deemed to be registered, under this Act or any other Co-operative Societies Act; (d) a public trust registered under any law for the time being in force for the registration of such trusts. [(e) Any Self Help Group formed by women for mutual assistance or with an objective to avail any type of assistance from the Government or any organization for their social, economic, cultural an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st member. In the event of the cessation of membership of the first member by death, the joint member shall be the first member and the nominee, if any, of the deceased member shall be the joint member. (4) The joint member shall have equal right in the capital and property of the society with the first member. (5) The joint member shall have the right to vote only in the absence of the members whose name stands first in the share certificate. The aforesaid provision of Sec.21 mandates admission of any other co-operative society as a member of the co-operative society. The word used in Sec. 21 (2) is shall . This fact is clarified further by section 22 as re-produced hereinabove that no co-operative society shall refuse admission to the membership, without sufficient reason, to any person who is qualified to become member under the provisions of this Act, rules and 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. The person, as per section 22, must be qualified for becoming member not only u/s 21(2) but also as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er trustees securities, may be enrolled as a nominal member upon his application in the prescribed form on payment of ₹ 10/- as non-refundable entrance fee and upon his agreeing to the condition that he shall cease to be nominal member when all liabilities against him either as a borrower or as a surety are fully discharged. ii) A Co-operative society registered under the Act shall not be eligible and as such, shall not be admitted to nominal membership in terms of the provisions of this bye-law. iii) The nominal member shall not be entitled : a) To receive a share certificate. b) To receive audited accounts and annual report. c) To attend, participate and to vote in the General Meeting and / or special General Meeting of the society and d) To receive dividend. e) From clause 9 and 10, it is apparent that the bye-laws of society does not permit the admission of any other co-operative society as member. The ld. A.R drawn our attention to page 23 of the paper book and contended that bye-laws 9(d) which deals with the membership has been amended w.e.f. 12.01.2001 by substituting following clause :- Not withstanding anything contained in the bye-laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). We accordingly confirm the order of CIT(A) allowing deduction to the assessee. 15. 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 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 Tararani 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. The decision of Karnataka High Court in the case of CIT vs Sri Biluru Gurubasava Pattana Sahakari Sangh Niyamitha dated 5.2.2014, relates to an appeal filed against the order passed u/s 263 and the question involved was whether the Revi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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