TMI Blog2016 (1) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... his court, however, as to the assessee being a co-operative society and not a co-operative bank in terms of Section 80P(4) of the IT Act, shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India. - Decided in favour of the assessee - INCOME TAX APPEAL NOS.100043, 100045 OF 2014 - - - Dated:- 21-9-2015 - MR. NAND BYRAREDDY AND MRS. .SUJATHA FOR THE APPELLANT : SHRI H.R. KAMBIYAVAR, ADVOCATE FOR SHRI: S PARTHASARATHI, ADVOCATE FOR THE RESPONDENT : SHRI: Y V RAVIRAJ, ADVOCATE) JUDGMENT These appeals are by the assessee 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 appeals pertain to the Assessment years 2009-10 2010-11, respectively. The appellant - 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'. For the assessment year 2010-11, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 members, or (ii) xxxxx (iii) xxxxx xxxxx (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 cooperative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 purpose; (ccv) primary co-operative bank means a cooperative 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 lakh of rupees; and (3) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. 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 Bangalore Commercial Transporter Credit Society (supra), this court has cited with approval the following differences between a co-operative society and a co-operative bank - as depicted by the Tribunal, in tabular form thus : Nature Co-operative society registered under Banking Regulation Act, 1949 Co-operative Society registered under Karnataka Cooperative Society Act, 1959 Registration Under the Banking Regulation Act, 1949 and Co-operative Societies Act, 1959 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsity Employees Co-operative Credit Society Ltd. [IT Appeal No. 298 of 2013] 4. CIT v. Vasavi Credit Co-operative Society Ltd. [IT Appeal No.118 of 2012] 5. CIT v. Sri Vasavi Multi Purpose Souharda Sahakari Sangha Niyamitha [IT Appeal No. 505 of 2013] 6. CIT v. General Insurance Employees Co-operative Society Ltd. [IT Appeal No. 273 of 2013]. 7. 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 80P(2)(a)(i) of the IT Act. Notwithstanding the aforesaid decisions of this court, the Tribunal which was bound by the same, has ignored the said decisions. It is also pointed out that though other benches of the Appellate Tribunal had followed the dictum of this court, and which circumstance was brought to the attention of the Tribunal, it had not chosen to distinguish the said decisions nor has it chosen to refer the matter to a special bench, as propriety demanded. It is hence contended that the point of law as to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bank is defined in section 5(ccv) of the Banking Regulation Act, 1949 as the co-operative society which fulfils 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 fulfils 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 Regulation Act, 1949. However, if an assessee society does not fulfil any of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 Regulation Act, 1949, section 5(cci): In order to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k 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 cooperative 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: Referring to the bye-laws of the assessee society, the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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 definition under the Income Tax Act, for carrying on banking business and if the required licence is not obtained as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prescribing that in the event of a dispute as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi) of Section 56 of the BR Act, a determination thereof by the Reserve Bank shall be final, would require the dispute to be resolved by the Reserve Bank of India, before the authorities could term the assessee as a co-operative bank, for purposes of Section 80P of the IT Act. Any opinion expressed therefore is tentative and is not fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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