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2015 (11) TMI 1196 - ITAT PANAJI

2015 (11) TMI 1196 - ITAT PANAJI - TMI - Eligibility to deduction under sec. 80P(2)(a)(i) - CIT(A) allowed the claim - Held that:- Commissioner of Income Tax (Appeals) has allowed the claim for deduction under sec. 80P(2)(a)(i) of the Act by following the decision of 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 ] wherein held that when the status of the assessee is a Co-operative .....

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ner of Income Tax (Appeals), Belgaum, dated 01/12/2014. 2. The grounds of appeal taken by the Revenue are as under:- "(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 fulfils 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 CIT(Appeals) erred in law and on facts in not appreciating the definition of a co-operat .....

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section 80P(2)(a)(i) of the I.T. Act, 1961. (4) The learned CIT(Appeals) erred in not appreciating the facts of the case and also relying upon the decision of High Court of Karnataka in CIT vs. Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, Bagalkot, ITA No.5006/2013, dated 5.2.2014 and other decisions ignoring the fact that the ITAT, Panaji Bench, has categorically distinguished the decision of Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, in various cases of co-operative society .....

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itled to deduction under sec. 80P(2)(a)(i) under Chapter VIA as it is a cooperative society, carrying on the business of banking or providing credit facilities to its members. However, the claim of the assessee for deduction under sec. 80P(2)(a)(i) was rejected by the Assessing Officer vide his order under sec. 143(3) of the I.T. Act dated 28/08/2013. The Assessing Officer denied the deduction on the ground that the assessee is a cooperative bank and hence, not entitled to claim deduction by vir .....

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s of Section 80P(4) read with section 2(24)(viia) of the Income-tax Act, 1961 and Part V of the Banking Regulation Act and the facts of the case, the appellant assessee co-operative credit society is held to be a 'Primary Co-operative Bank' hence is not eligible for deduction under sec.80P(2)(a)(i) in view of the newly inserted provisions of section 80P(4). The assessing Officer has arrived at a conclusion that if a cooperative society satisfies all the three conditions as laid down in t .....

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s 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 co-operative society engaged in - (i) carrying on the business of banking or providing credit facilities to its members, or (ii) - the whole of the amount of pr .....

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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. .....

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of 1949). 6.1.2 Following the provisions of aforesaid Explanation to sec.80P, the Assessing Officer, with a view to find out the definition of "co-operative bank" has taken recourse to the relevant provisions of The Banking Regulation Act, 1949. Sl. No. Category Clause/section of the Banking Regulation Act, 1949 Definition 1 2 3 4 1 Co-operative Bank Clause (cci) of section 5 Co-operative Bank means a State Co-operative Bank, a Central Co-operative Bank and a Primary co-operative Bank .....

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imary Co-operative Society means a co-operative society other than a primary agricultural credit society - (1) the primary object or principal business of which is the transaction of banking business; (2) the paid up share capital and reserves of which are not less than one lakhs of rupees; and (3) the bye-laws of which do not permit admission of any other co-operative society as a member. The Assessing Officer has thus mentioned that the 'Co-operative Bank' includes 'Primary Co-oper .....

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ons and therefore it is held to be a 'Primary Cooperative Bank' and hence its claim of deduction u/s 80P(2)(a)(i) has been denied u/s 80P(4). Before arriving at this conclusion the Assessing Officer has also referred to the newly inserted provisions of Sec.2(24)(viia), inserted by the Finance Act,2006 w.e.f. 01-04-2007 which reads as under: "(24) "Income" includes - (viia) The profits and gains of any business of banking (including providing credit facilities) carried on b .....

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g for the purpose of lending or investment, of deposit of money from public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise." The A.O has come to the conclusion that the appellant co-operative society is doing banking business as 'providing credit facilities to members' is akin to banking business and since the membership is open to public, it is accepting deposits from public which can be withdrawn by any one of the specified means within the .....

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n Act, 1949 as adopted by the A.O in his Assessment Order. The appellants have also contended that the intention of the legislature as revealed by the speech of the Finance Minister was not to deny deduction to all the cooperative societies by introduction of sec. 80P(4). 6.2.1 It has also been a contention of the appellants that to fulfil the first condition for becoming a 'Primary Co-operative Bank', the society should carry on the business of banking as per the definition of 'bank .....

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such license/permission from the Reserve Bank of India to carry on the business of banking. 6.2.2 The appellant cooperative societies have contended that the explanatory note to memorandum explaining the provisions in the Finance Bill, 2006 wherein the Hon'ble Finance Minister explains the reasons for withdrawal of tax benefits available to certain co-operative banks, the relevant portion of the said notes is reproduced hereinbelow: "Section 80P, inter alia, provides for a deduction fro .....

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(4) so as to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than primary credit society or a primary co-operative agricultural and rural development bank. It is also proposed to define the expressions "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank". It is also proposed to insert a new sub-clause (viia) in clause (24) of the sectio .....

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ative banks' only. 6.2.3 The appellants have relied on the decision in the cases of (i) Karnataka High Court (Dharwad Bench) Order in the case of CIT Vs Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot ITA 5006/2013 dt 5th Feb 2014 wherein apart from the deciding on section 263 it has also held, on section 80P that "As the assessee is not a cooperative bank carrying on exclusively banking business and as it does not possess a licence from Reserve bank of India to carry o .....

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Manila Coop Credit Society Vs ITO Ward 1(2), Belgaum ITA 229 & 230/PNJ/2013dt 28.2.2014 (vi) ITAT Bangalore B Bench decision vide ITA No 1069/Bang/2010 for the Asst Year 2007-08 of M/s Bangalore Commercial Transport Coop Society Ltd, Bangalore. (vii) ITO Vs Yeshwantpur Credit Coop Society Ltd ITA No 717/Bang/2011 Dt 11.4.2012 rendered by ITAT A Bench, Bangalore. (viii) M/s Jayalakshmi Mahila Vividodeshagala Souharada Sahakari Ltd & Another in ITA No 01 to 03/PNJ/2012 and ITA 04 to 06/PNJ .....

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e societies are not doing banking business and therefore, the provisions of section 80P(4) are not applicable to them. The jurisdictional ITAT Panjim bench has also in a number of cases where the assessee cooperative society engaged in providing credit facilities to its members and not accepting deposit from public as evidenced from their bye laws or the cooperative societies accepting other cooperative societies as members have held that those cooperative societies are entitles to the benefit o .....

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dt 27.6.2014 and Karnataka High Court decision in the case of Vasavi Multipurpose Souharda Sahakari Niyamita, ITA No. 505/2013 dated 27/06/2014 has also decided the issue in favour of the assessee. 8.1 Now a question which may be asked in the case of the appellant being a 'Souharda' is; whether, 'Souharda' is a 'co operative society' within the meaning of section 80P/2(19) of the I.T. Act.? Since the deduction u/s8OP of the Income Tax Act, 1961 is available to the co-oper .....

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ns (1) a co-operative society (2) registered (a) under the Co-operative Societies Act, 1912 (2 of 1912), or (b) under any other law for the time being in force in any State for the registration of cooperative societies; 8.1.1 As far as first part of the definition given in section 2(19) is concerned, a Souharda is a society which is cooperative in nature and thus it is a co- operative society. The dictionary meaning of 'society' as per Oxford English Dictionary is: 'An association or .....

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rative in nature. They are registered under an Act which provides for recognition, encouragement and voluntary formation of co-operatives based on self help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self reliant and economic enterprises guided by co-operative principles and matters connected therewith. It is also worth noting that the word Co-operative has been used on innumerable occasions in The Karnataka Souharda Sahakari Act, 1997. A few exampl .....

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he provisions of this Act or rules, every cooperative shall function in accordance with its bye-laws which as far as possible shall adhere to the co-operative principles. d. Section 32(1) - Maintenance of records, Accounts, etc :- Every co-operative shall maintain at its registered office the following, namely:- e. Section 33(1) - Audit :- Every Cooperative shall get its accounts audited atleast once a year f. Section 35(1) - Inquiry:-The Registrar may conduct an inquiry or cause an inquiry to b .....

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ataka Souharda Sahakari Act,1997, an Act in force in the state of Karnataka for the registration of Co-operative societies in addition to the co-operative societies Act. 8.1.3 Further, in a number of decisions by the Panjim and Bangalore benches of the ITAT and by the Karnataka High Court, no distinction has been drawn between the Souhardas and the co-operative societies as far as the applicability of the provisions of section 80P of the Act are concerned. Some of such decisions are: (i) Karnata .....

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8.1.4 Thus, it is amply clear that 'Souhardas' are 'co-operative societies' within the meaning of section 80P of the Income Tax Act,1961. Moreover, it is not the case of the A.O that the appellant Souharda is not a co-operative Society within the meaning of section 80P of the I.T. Act. 8.2 The Hon'ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, supra which was followed in the cases of General Insurance Employees Cooperative .....

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f a Co-operative Bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable 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. pri .....

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ney 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 .........................................In the instant case, when the status of the assessee is a Co-operative society and is not a Co-operative bank, the order passed by the Assessing Authority extending the benefit of exemption fro .....

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