TMI Blog2015 (1) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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, set aside the order of the CIT(A) allowing deduction u/s 80P(2)(a)(i) to the assessee. - Decided in favour of revenue. - IT Appeal No. 410 (PNJ.) of 2013 - - - Dated:- 19-11-2014 - SHRI P.K. BANSAL AND SHRI D.T. GARASIA, JJ. For The Appelalnt : Shri Ratnakar, Ld. D.R. For The Respondent : Shri Bharat R. Porwal, C.A. Shri Chetan V. Chougule, C.A. ORDER PER P.K. BANSAL This appeal has been filed by the revenue against the order of CIT(A), Belgaum dtd. 01.11.2013 for the assessment year 2010-11 by taking the following grounds of appeal :- 1. The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee is a co-operative society which fulfills all the three conditions of being held a Primary Co-operative Bank as given in section 5(ccv) of the Banking Regulation Act, 1949. 2. The learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business of banking. Sec. 80P(4) puts an embargo w.e.f. 1.4.2007 that if a co-operative society is carrying on banking business, the Assessee 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. 2.2 The ld. AR before us vehemently contended that the provisions of Sec. 80P(4) are not applicable in the case of the Assessee. The main contentions of the assessee are that 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 encourage self-help, thrift, savings and co-operation amongst each other. For this, our attention was drawn towards the bye- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka High Court in the case of CIT vs Sri Biluru Gurubasava Pattana Sahakari Sangh Niyamitha dated 5.2.2014, which relates to an appeal filed against the order passed u/s 263 and the question involved was whether the Revisional Authority was justified in invoking his power u/s 263 without the foundational fact of the assessee being co-operative bank. He also filed the written submissions and by which he relied on the order of the CIT(A) as well as the order of this tribunal in ITA No.35/pnj/2014. 3. We 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 society engaged in 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 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 prohibition u/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 mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Department and Government schemes and to provide necessary services to implement them amongst members. 4) To purchase Security Bonds on behalf of the members, to sell them and to make collections. 5) To arrange tie up with other financial institutions which provide financial assistance for the smooth transactions of the sahakari. 6) To collect funds and security bonds on behalf of members and to dispatch them. 7) To print and issue the cheque? book and to provide banking and other facilities other than withdrawal of money through cheque. 8) To acquire sites, buildings for the use of sahakari and to possess, construct buildings, make necessary alterations and make necessary relevant actions in this behalf for the use of sahakari. 9) To extend or advance the financial assistance through hire loans, hypothecation loan to the members desiring to purchase the motor vehicles in accordance with the provisions laid down in the Motor Vehicle Act by hypothecating the vehicle. 10) To open branches, sub-branches and receipt counters or to open any offices in any other names if necessary with prior permission of Annual General Body Meeting and to frame rules to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee co-operative society for lending or investment. Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects as enumerated above. Thus, in our opinion, condition no.1 does stand satisfied and it can be said that the Assessee society was carrying on banking business as it was accepting deposits from the persons who were not members during the impugned year. 10. The authorised representative took the plea that the assessee has not obtained banking licence. In our opinion 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 license 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 the bye-laws wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (2) 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 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). 13. We have gone through the bye-laws which contains the membership clause. Bye-laws no. 6 states as under :- 6. Eligibility criteria for Membership: He shall have the following eligibility criteria to be a member of a co-operative. 1. He is competent who is residing within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd condition for becoming primary co-operative bank is also complied with. Since the assessee society does comply with all the three conditions, therefore, in our opinion the assessee society does become 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). 14. 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 acts like a co-operative bank. The Society is governed by the Banking Regulations Act. Therefore, the society being a co-operative bank providing banking facilities to members is not eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of sub-section (4) to section 80P. In view of this finding, the Assessee was denied deduction u/s 80P(2)(a)(i). We have also gone through the decision of the Bangalore Bench of the Tribunal in the case of ITO vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing 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 of its order, this Tribunal has held as under :- 12. From the aforesaid objects, it is apparent that none of the aims and objects allows the assessee cooperative society to accept deposits of money from public for the purpose of lending or investment. In our opinion until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. Therefore, the assessee will not comply with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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