TMI Blog2014 (3) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... ective grounds of appeal: ITA NO. 142/PNJ/2013:- 1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) ought to have accepted the explanation and evidence furnished and held that the appellant was entitled to the deduction u/s.80P(2)(a)(i) of the Act. 2. The learned Commissioner (A) ought to have appreciated that the appellant was a co-op society providing credit facilities to its members and accordingly the appellant was entitled to the exemption u/s.80P(2)(a)(i) of the Act. 3. The learned Commissioner (A) erred in upholding the findings of the assessing authority that the appellant was a co-op society carrying business of banking to rope-in the provisions of Sec.80P(4) of the Act to deny the exemption. 4. The learned Commissioner (A) ought to have appreciated the appellant is not a co-op bank, not governed by Banking Regulations Act or RBI Act and consequently the provisions of Sec.80P(4) of the Act are not applicable and accordingly the income of the society is fully exempted u/s.80P(2)(a)(i) of the Act. ITA No. 143/PNJ/2013:- 6. On the facts and in the circumstances of the case, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f help among themselves. For this, our attention was drawn towards the order of the CIT(A) which re-produces the bye-laws of the Assessee from (i) to (vii). 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 governed by the Co-operative Societies Act nor can they be treated as banking companies. The activities carried out by the society cannot be regarded to be banking activities as contemplated und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions 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 business. From the reading of Sec. 80P(4) it is apparent that this section denies deduction to a co-operative bank other than a primary agricultural credit society or primary co-operative agricultural a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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. 3.3.1 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 society engaged in carrying on business of banking facilities to its members or (b) co-operative society engaged in providing credit facilities to its members. Both the activities must be carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent 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 provisions of Sec. 80P(4), the Assessee, in our opinion, will be eligible to get deduction u/s 80P(2)(a)(i) in respect of whole of the income which the Assessee derives from carrying on the business of banking or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also accept deposits from general public who are Non-members of the society. The deposits so accepted are used by the Assessee co-operative society for lending or investment. This fact has not been denied. Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects as enumerated above. Thus, in our opinion, condition no. 1 stands satisfied and it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who were not members. 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 other co-operative society as a member. The provisions of Sec. 16 are laid down as under : 16. Persons who may become members - [(1) Subject to the provisions of Section 17, no person shall be admitted as a member of a co-operative society except the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not used the words this Act, rules and bye-laws in sub-section (2). 3.3.7 We have gone through the copy of the bylaws filed by the assessee. We noted that bylaw 14 to 20 deals with the membership. None of the bylaws of the society permits the admission of any other cooperative society to be the member of the impugned society. Thus the third condition also in our opinion stand complied with. Thus, we noted that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with. 3.3.8 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 this decision is not applicable to the facts of the case before us. In this decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a co-operative bank. The Society is governed by the Banking Regulations Act. Therefore, the society being a co-operative bank providing banking facilities to members is not eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of sub-section (4) to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Vividodeshagala Souharda Sahakari Ltd. in ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra), for which the undersigned is the author. While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 of its order, this Tribunal has held as under : 12. From the aforesaid objects, it is apparent that none of the aims and objects allows the assessee cooperative society to accept deposits of money from public for the purpose of lending or investment. In our opinion u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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