TMI Blog2015 (2) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). We, therefore, set aside the order of CIT(A) and allow deduction to the Assessee u/s 80P(2)(a)(i). - Decided in favor of assessee. - ITA NO. 325/PNJ/2013 - - - Dated:- 28-2-2014 - SHRI P.K. BANSAL AND SHRI D.T. GARASIA, JJ. For the Appellant : Pramod Y. Vaidya, Adv. For the Respondent : Nishant K., Ld. DR ORDER PER P.K. BANSAL 1. This appeal has been filed by the Assessee against the order of CIT(A) dt. 13.8.2013 for A.Y. 2010-11 by taking the following effective grounds of appeal: 1. On the facts and circumstances and in law the learned C.I.T ( A) erred in confirming the addition of ₹ 50,64,722/- on account of disallowance of deduction u/s 80P (2 ) (a ) (i). 2. The learned C.I.T ( A) erred in holding that the assessee is engaged in the business of banking and therefore is a primary co operative bank within the meaning of Section 5 (ccv) of The Banking Regulation Act 1949. 3. The authorities failed to appreciate that the assessee is not governed by RBI Act or The Banking Regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eties Act, 1959. The primary object of the Assessee is to finance artisans and industrialists interested or engaged in the establishment and conduct of cottage industries, village industries or small scale industries. For this, our attention was drawn towards the order of the CIT(A) which re-produces the bye-laws of the Assessee from (a) to (h). The Assessee is a credit society. The activities of the Assessee are limited to its members. The Assessee does not finance or take deposits from the public at large. The paid up capital of the Assessee, no doubt, is more than ₹ 1 lacs. It was contended that the issue is duly covered in favour of the Assessee by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeal nos. 442 of 2013, 443 of 2013 and 863 of 2013. Attention was also drawn towards the decision of the Hon'ble Karnataka High Court in the case of Vyavasaya Seva Sahakara Sangha vs. State of Karnataka Ors. for the proposition of law by referring to para 12 that merely because the co-operative society is required to advance loan to its members, it does not cease to be a co-operative society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. From the plain reading of Sec. 80P(2)(a)(i) it is apparent that if the co-operative society is engaged in carrying of business of banking or providing credit 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 busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment 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. 2.3.1 In our opinion, Sec. 80P(2)(a)(i) provides two types of activities in which the co-operative society must be engaged to be eligible for deduction under sub-clause (i). These two activities are not alternate ones because the section allows deduction to the co-operative society on the whole of profits and gains of business attributable to any one or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason 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 2.3.5 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-operative society as a member, it will be regarded to be primary co-operative bank. If co-operative society does not fulfil any of the conditions, it cannot be regarded to be a primary co-operative bank. Therefore, in the case of the Assessee we have to examine on the basis of the facts and materials on record whether 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise 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 ₹ 1 lac. Therefore, the Assessee satisfies the second condition. So far as the third condition is concerned, we noted that Sec. 16 of The Karnataka State Co-operative Societies Act, 1959 permits admission of any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive 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). 2.3.7 We noted that neither the AO nor the CIT has given a finding that the bye-laws of the society permit the admission of any other co-operative society as a member of the co-operative society and this is not the case of the Revenue. Since the bye-laws of the society permit admission of any other co-operative society as a member of the co-operative society as stipulated u/s 16 of the Karnataka State Co-operative Societies Act, 1959, we are of the opinion that the Assessee did not comply with the third condition also. Since the Assessee did not comply with two conditions out of the three conditions, therefore, the Assessee cannot be regarded, in our opinion, to be a primary co-operative bank. 2.3.8 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 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 Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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