TMI Blog2015 (11) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... Anand Byrareddy And S. Sujatha, JJ. For the Appellant : Shri Y V Raviraj, Adv For the Respondent : Shri Sangram S Kulkarni, Adv JUDGMENT This appeal is by the revenue under the Income Tax Act, 1961 (Hereinafter referred to as the 'IT Act, for brevity). The assessee is said to be a Co-operative Society registered under the Karnataka State Co-operative Societies Act, 1956, (Hereinafter referred to as the 'KCS Act', for brevity). 2. The appeal pertains to the Assessment year 2009-10. The respondent - Society had filed its return of income for the assessment year 2009-10 and after claiming deduction under Section 80 P(2) (a) (i) of the IT Act, the total income was declared as 'nil'. The Assessing Officer had however, opined that the assessee was not entitled to the deduction, as claimed, for the reason, inter alia, that the activity of the respondent was covered by Section 2 (24 (vii a) of the IT Act, which requires the inclusion of profits and gains of any business of banking (including providing credit facilities) carried on by a cooperative society. Reference was made to the Explanation appended to Section 80 P (4) - which lays down t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the benefit of deduction, under Section 80 P (2) (a) (i) of the IT Act, could be denied to the assessee on the footing that, though the respondent was said to be a Cooperative Society, it was in fact a co-operative bank, within the meaning as assigned to such bank under Part V of the BR Act. ii. Whether the Authorities under the IT Act were competent and possessed the jurisdiction to resolve the controversy as to whether the assessee was a co-operative society or co-operative bank, as defined under the provisions of the BR Act? 5. In addressing the above, it would be useful to extract the relevant provisions for ready reference. 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 shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of any committee or body for the time being vested with the management of the affairs of that society; [(cciiia) multi-State co-operative bank means a multi-State co-operative society which is a primary cooperative bank;] [(cciiib) multi-State co-operative society means a multi-State co-operative society registered as such under any Central Act for the time being in force relating to the multi-State co-operative societies but does not include a national co-operative society and a federal co-operative;] (cciv) primary agricultural credit society means a co-operative society,- (1) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (2) the bye-laws of which do not permit admission of any other co-operative society as member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank sub-scribing to the share capital of such co-operative society out of funds provided by the State Government for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank, a Central Co-operative Bank and a Primary Co-operative Bank. A Primary Co-operative Bank is defined in section 5(ccv) of the Banking Regulation Act, 1949 as the co-operative society which fulfills three conditions namely: i) The primary object or principal business of which is transaction of banking business. ii) The paid-up share capital and reserves of which are not less than one lakh of rupees and iii) The bye-laws of which do not permit admission of any other co-operative society as a member. If a co-operative society fulfills all the above three conditions, it is to be treated as a co-operative bank for the purpose of section 80P(4) and the benefit of deduction under Section 80P(2)(a)(i) is denied. After insertion of Section 80P(4), the provisions of Section 80P(2)(a)(i) were not amended and the co-operative societies engaged in carrying on business in banking with its members continued to be entitled for deduction. The embargo put under Section 80P(4) are applicable only to a co-operative society, treated as a bank by a legal fiction created under Section 80P(4) as defined in the Explanation to the said section with reference to Part V of the Banking R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Carrying on the business of banking or providing credit facilities to its memebrs, or (ii) .. (iii) .. (iv) .. (v) .. (vi) .. (vii) .. The whole of the amount of profits and gains of business attributable to any one or more of such activities. Section 80P(4) which came to be introduced in the statute by the Finance Act, 2006, with effect from 1.4.2007, reads as under: 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. Part V of the Banking Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and as such, cannot be treated as a primary co-operative bank as defined therein: The Tribunal has referred to section 16 of the Karnataka State Co-operative Societies Act, 1959 and held that the said provisions permit admission of any other co-operative society as a member. The Tribunal however has erred in not examining whether the bye-laws of the assessee society permits other co19 operative society to become member as per Section 5(ccv) of the Banking Regulation Act, 1949. Provisions of Section 16(1) and 16(2) of the Karnataka State Co-operative Societies Act, 1959 does not help in any way to come to the conclusion that the bye-laws in the case of a particular assessee society permits admission of any other co-operative society as a member. Proposition: The Tribunal has referred to section 20 to 21A of the Karnataka Souhardha Sahakari Co-operative Societies Act, 1997, and held that the said provisions permit admission of any other co-operative society as a member. The Tribunal however ought to have examined into the aspect as to whether the bye-laws in the case of a particular assessee society permits admission of any other co-operative society as a member. Proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub-section, co-operative bank shall have the meaning assigned to it in part V of the Banking Regulations Act, 1949. 3. In part V of the Banking Regulation Act, Co-operative Bank means a State co-operative bank, a Central Co-operative Bank and a primary Cooperative bank. 4. Thus, if the Delhi Co-op Urban T and C Society Ltd. does not fall within the meaning of Cooperative Banks as defined in part V of the Banking Regulation Act, 1949, sub-section (4) of Section 80P will not apply in this case. 5. The issues with the approval of Chairman, Central Board of Direct Taxes. The learned counsel contends that the above circular has only clarified that if the societies do not fall within the meaning of the co-operative bank as per Part V of the Banking Regulation Act, 1949, then exception under Section 80P(4) will not apply. Proposition: The assessee Society has not obtained Banking Licence from the R.B.I: It is contended that it is also pertinent to note that it is necessary that a co-operative society should have a banking licence as per the def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for tax. A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary co-operative agricultural and rural development bank. They did not want to extend the said benefit to a Cooperative bank which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, as the assessee is not a Co-operative bank carrying on exclusively banking business and as it does not possess a licence from Reserve Bank of India to carry on business, it is not a Co-operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(1) to such society. Therefore, there was no error committed by the Assessing Authority. In CIT vs. Bangalore Commercial Transporter Credit Society (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;, 'banker', 'banking' cannot be used by a cooperative society. And this court had dismissed the appeal of the revenue following the decision in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (supra ). The same view has been taken in the following decisions : 1. CIT vs. Bangalore Credit Co-operative Society Ltd. in ITA No.598/2013 2. CIT vs. Yeshwanthpur Credit Co-operative Society Ltd. in ITA 237/2012 3. CIT vs. Mysore University Employees Co-operative Credit Society Ltd. in ITA 298/2013 4. CIT vs. Vasavi Credit Co-operative Society Ltd. in ITA No.118/2012 5. CIT vs. Sri Vasavi Multi Purpose Souharda Sahakari Sangha Niyamitha in ITA No.505/2013 6. CIT vs. General Insurance Employees Co-operative Society Ltd. in ITA No.273/2013. 8. The learned counsel Shri A. Shankar while drawing attention of this court to the tenor of the relevant provisions of law and the above decisions, would contend that this court has categorically held that the assessee, as a co-operative society, was entitled to the benefit of deduction under Section 80 P (2) (a) (i) of the IT Act. Notwithstanding the aforesaid dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 80P of the Income Tax Act are applicable only to cooperative Banks and not to credit Co-operative Societies, which are engaged in business of banking, including providing credit facilities to their members? (ii) Whether the Tribunal was correct in holding that the assessee is a co-operative society and not a cooperative Bank in terms of sub-section (4) of Section 80P of the Income Tax Act without considering the meaning of co-operative Bank as envisaged under Part V of the Banking Regulation Act, 1949, wherein it is defined that co-operative Bank includes primary cooperative Bank, which is further defined as cooperative Society with the primary object of transactions of Banking business? The said issues were answered in favour of the Assessee. 10. We are in respectful agreement with the general view taken as to the interpretation of the relevant provisions of law, by the co-ordinate bench of this court, in the above and several other judgments adopting the same view. However, it is to be noticed that there is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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