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The Income Tax Officer, Ward 2 (3) , Mangalore Versus The Sumangala Credit Co-operative Society Ltd., Panemangalore

2015 (6) TMI 716 - ITAT BANGALORE

Eligibility to exemption to the assessee u/s. 80P(2)(a)(i) - CIT(A) allowed claim holding that the assessee is a cooperative society and not a co-operative bank and therefore the provisions of section 80P(4) of the Act are not applicable - Held that:- The Hon’ble Karnataka High Court in the case of CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot, [2015 (1) TMI 821 - KARNATAKA HIGH COURT] has held that a credit co-operative society giving credit to its members is not hit .....

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Addl. CIT (DR) For the Respondent: Shri A. Ravish Rao, CA ORDER Per N.V. Vasudevan, Judicial Member This appeal by the Revenue is against the order dated 14.11.2014 of the CIT(Appeals), Mysuru relating to assessment year 2009-10. 2. In this appeal, the Revenue has challenged the order of CIT(Appeals), whereby the CIT(Appeals) allowed exemption to the assessee u/s. 80P(2)(a)(i) of the Act, holding that the assessee is a cooperative society and not a co-operative bank and therefore the provisions .....

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ct, 2006 w.e.f. 1-4-2006, Sub-section (4) was inserted in Sec.80-P which provides as follows: (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 .....

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ing business was not entitled to deduction u/s.80P(2)(i) of the Act. According to the AO, the assessee was a co-operative bank and therefore the deduction u/s. 80P(2)(a)(i) cannot be allowed. In coming to the above conclusion, the AO noticed that the nature of the activity of the assessee, though registered as a credit co-operative society, is that of a banking institution notwithstanding the fact that receipt of and lending money is limited to its members. The AO further noticed that clause (vi .....

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deduction is not available to institutions like the assessee society. The AO also referred to section 5(b) of the Banking Regulation Act to hold that, if one of the two conditions of the appellant i.e. its primary object should be banking or its principal business must be transaction in banking business, is sufficient to bring the appellant into the concept of a banking institution. The AO referred to the objects of the assessee society and held that accepting deposits and lending to its member .....

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titution is available in the case of the appellant society. ii) The purpose of accepting deposits from the public is for making investments and for lending to members. Confining the lending only to members makes no difference. iii) Deposits collected from the depositors are repayable on demand and do not go into the corpus of the appellant. iv) The assessee society came within the Explanation to subsection (4) of section 80P of the Act as a banking institution. 5. In the light of the above-menti .....

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operative Society Ltd. for AY 2007-08 in support of its claim that the Assessee is not a co-operative bank. The CIT(A) agreed with the submission of the Assessee and following the decision of the Hon ble High Court of Karnataka in General Insurance Employees Credit Co-operative Society in ITA No.271/2013 directed the AO to allow the claim of the Assessee for deduction u/s.80(P)(2)(a)(i) of the Act. 7. Aggrieved by the order of the CIT(Appeals), the Revenue has filed the present appeal before the .....

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o the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application in the assessee s case and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act. The following were the relevant observations of the Tribunal:- 9. We have heard the rival submissions and perused the material on record. The assessee was denied the deduction u/s 80-P(2)(a)(i) of th .....

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gulation Act, 1949 (10 of 1949); (b) primary cooperative 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 . 9.1 The above sub-section 4 of section 80P provides that deduction under the said section shall not be available to any cooperative bank other than a primary agricultural credit society or rural development bank. For .....

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ion 80P(2)(a)(i) shall be applicable to a cooperative society carrying on credit facility to its members. This view is clarified by Central Board of Direct Tax vide its clarification No.133/06/2007-TPL dated 9th May, 2007. The difference between a cooperative bank and a cooperative society are as follows:- Nature Cooperative society registered under Banking Regulation Act, 1949 Cooperative society registered under Karnataka Cooperative Society Act, 1959. Registration Under the Banking Regulation .....

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nd to follow the rules, regulations and directions issued by Reserve Bank of India (RBI). 1. As per the bye laws of the cooperative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act as clearing agent, for cheques, DDs, pay orders and other forms. 4. Society are bound by rules and regulations as specified by in the .....

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. Use of words The word bank , banker , banking can be used by a cooperative bank. The word bank , banker , banking cannot be used by a cooperative society. 9.3 If the intention of the legislature was not to grant deduction u/s 80P(2)(a)(i) to cooperative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted. The new proviso to section 80P(4) which is brought into statute is applicable only to cooperative banks and not to cred .....

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rference is called for. 9. The Hon ble Gujarat High Court in the case of Tax appeal No.442 of 2013 with Tax appeal No.443 of 2013 with Tax appeal No.863 of 2013 in the case of CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd. by judgment dated 15.1.2014 on had to deal with the following question of law: Whether the Hon ble Tribunal is correct in allowing deduction under section 80P(2)(a)(i) to assessee s society even though same is covered under section 80P(4) rws 2(24) (viia) being income fr .....

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the Banking Regulation Act, 1949. 5. Assessing Officer held that by virtue of section 80P(4), the respondent assessee would not be entitled to benefits of deduction under section 80P. CIT(Appeals) as well as the Tribunal reversed the decision of the Assessing Officer on the premise that the respondent assessee not being a bank, exclusion provided in subsection( 4) of section 80P would not apply. This, irrespective of the fact that the respondent would not fall within the expression primary agric .....

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ltural and rural development banks for exclusion from such exclusion and in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplified by virtue of CBDT circular No.133 of 2007 dated 9.5.2007. Circular provides as under:- Subject: Clarification regarding admissibly of deduction under section 80P of the Income-Tax Act, 1961. 1. Please refer to your letter no.DCUS/30688/2007, dated 28.03.2007 addressed to Chairman, Central Board of Dir .....

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ing Regulation Act, Co-operative Bank means a State Co-operative bank, a Central Cooperative Bank and a primary Co-operative bank. 4. Thus, if the Delhi Co op Urban T & C Society Ltd. does not fall within the meaning of Co-operative Bank as defined in part V of the Banking Regulation Act, 1949, subsection(4) of section 80P will not apply in this case. 5. The issues with the approval of Chairman,Central Board of Direct Taxes. 7. From the above clarification, it can be gathered that subsection .....

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