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TMI Blog2014 (2) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (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 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." 4. The AO was of the view that after amended by the Finance Act, 2006 w.e.f. 1.4.2007 by which sub-section (4) was inserted, the Assessee which was a co-operative society carrying on banking 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 natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations, the AO held that the appellant was not entitled to exemption u/s 80P(2)(a)(i) of the Act and brought the same to tax. 6. On appeal by the assessee, the CIT(Appeals) allowed the claim of the assessee for deduction u/s. 80P(2)(a)(ii) of the Act by following the decision of ITAT in the following cases:- i) ACIT, Circle-3(1), Bangalore v. M/s Bangalore Commercial Transport Credit Co-operative Society Ltd. - ITA.No.1069/Bang/2010 dated 8/4/2011 [ITAT, Bangalore Bench 'B', Bangalore] ii) ITO, Ward-1(4) v. Jankalyan Nagri Sahakari Pat Sanstha Ltd. [(2012) 24 taxmann.com 127 (Pune-Trib) dated 26/6/2012] iii) DCIT, Central Circle, Panaji v. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. ITA Nos. 1 to 3 (PNJ)/1012 dated 30/3/2012. 7. Aggrieved by the order of the CIT(Appeals), the revenue has filed the present appeal before the Tribunal. 8. At the time of hearing, it was seen that the issue raised by the revenue has already been considered and decided by this Tribunal in the case of ACIT, Circle 3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010, wherein this Tribunal held that section 80P(4) is appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference 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 Act, 1949 and Cooperative Societies Act, 1959. Cooperative Societies Act, 1959. Nature of business 1. As defined in section 6 of Banking Regulation Act. 2. Can open savings bank account, current account, overdraft account, cash credit account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts (DD), Pay Orders, Gift cheques, lockers, bank guarantees etc. 3. Cooperative Banks can act as clearing agent for cheques, DDs, pay orders and other forms. 4. Banks are bound 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primary co-operative agricultural and rural development bank. As per the explanation, the terms "cooperative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of 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 sub-section(4) of section 80P would not apply. This, irrespective of the fact that the respondent would not fall within the expression "primary agricultural credit society". 6. Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of subsection(4) only co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then Legislature specified primary agricultural credit societies along wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the view that there is no merit in this appeal by the revenue. Consequently, the same is dismissed. 11. As far as the appeal by the assessee is concerned, the issue raised by the assessee in the grounds of appeal reads thus:- "2. The learned Commissioner of Income Tax (A) erred in law and on facts in holding that the sum of Rs. 1,77,305/- being the interest on deposits with banks is not entitled to deduction u/s. 80P(2)(a)(i) of the Act. 3. Without prejudice to ground No.2, the learned Commissioner of Income Tax (A) erred in law and on facts in holding entire income of Rs. 1,77,305/- is taxable without allowing the permissible deduction towards expenses." 12. As we have already seen, the assessee is a cooperative society. The assessee earned interest income on deposit of surplus funds, which it had deposited in banks. The assessee claimed deduction u/s. 80P(2)(a)(i) of the Act in respect of interest earned on such deposits. The AO as well as the CIT(Appeals) held that the interest income in question cannot be treated as income earned on the business of providing credit facilities to its members and would therefore not fall within section 80P(2)(a)(i) of the Act to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded to its members. Under Section 80P(2)(a)(i) of the Act, the profits and gains of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members is exempt. What is exempt is the business income attributable to the activities of banking or providing credit facilities to the members which is included in the gross total income of the society. Deduction will be allowed only when there is direct or proximate connection with or nexus to the income and the business carried on by the Society. As we have already seen, in the present case, the interest income which is in dispute in the present appeal arises out of fixed deposit with banks. The claim of the Assessee is that the fixed deposits in banks were made to repay fixed deposits to the members and also to ensure that funds are not kept idle and they earn some interest income. As we have already seen that there should be nexus between the earning of interest and business of the Assessee. The interest income earned on extending credit facilities will be business income as there exists nexus between the income and the business of the society which is extending credit facility to its m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of certain incomes". The headnote to s. 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Sec. 80P(1), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the specified activities in s. 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under s. 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in s. 80P(2) of the Act. In the present case, as stated above, assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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