TMI Blog2014 (9) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of CIT vs Sri Biluru Gurubasava Pattana Sahakari Sangh Niyamitha [2015 (1) TMI 821 - KARNATAKA HIGH COURT] relates to an appeal filed against the order passed u/s 263 and the question involved was whether the Revisional Authority was justified in invoking his power u/s 263 without the foundational fact of the assessee being co-operative bank. Therefore, this decision is not applicable. Thus hold that the Assessee has to be regarded to be a primary co-operative bank as all the three basic conditions are not complied with, therefore, it is a co-operative bank and the provisions of Sec. 80P(4) are applicable in the case of the Assessee and Assessee is not entitled for deduction u/s 80P(2)(a)(i). We, therefore, confirm the order of the CIT(A) not allowing deduction to the assessee u/s 80P(2)(a)(i) on the income generated for providing banking or credit facilities to its members. - Decided against assessee. - ITA NO. 02/PNJ/2014 - - - Dated:- 26-9-2014 - Shri P.K. Bansal, Hon ble Accountant Member And Shri D.T. Garasia, Hon ble Judicial Member For the Appellant : Shri Avinash S. Dixit, C.A. For the Respondent : Shri Nishant K., Ld. D.R. ORDER PER P.K. BA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80P(4) or in any other provisions does not define the word Co-operative Bank and it states that the term Co-operative Bank will have meaning as assigned in Banking Regulation Act, 1949. As such he has erred in ignoring the fact that to decide whether Appellant is Co-operative Bank in addition to section 56 (ccv) he should have relied on provisions of section 5(b), section 7, section 22 and section 56(f) and 56(o) of Banking Regulation Act, 1949 applicable to Co-operative Banks. 8. The learned Appellate Authority has erred in not considering the following case laws cited wherein it was held that 80P(4) is applicable only to Co-operative Banks and not to Co-operative Societies carrying on credit facilities to its members. (I) Judgements of Income Tax Appellate Tribunal ; 1. Order of Income Tax Appellate Tribunal, Bangalore Bench B‟ dated 08/04/2011 in case of ITA No.1069/BANG/2010 for the A.Y.2007-08 in case of Assistant Commissioner of Income Tax(Appeals)3 Bangalore Vs Bangalore Commercial Transport Co-operative Credit Society, Chamrajpeth, Bangalore, wherein it was held that provisions of section 80P(4) are applicable to Co-operative Banks and not Coop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Goa for the A.Y.2007-08, A.Y.2008-09 and A.Y.2009-l0 stating that provisions of section 80P(4) are not applicable to Co-operative Credit Societies as it is not a Primary Credit Bank and entitled to deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961. III) Clarification of CBDT No. 133/06/2007-08 TPL dated 0905-2008 in case of the Delhi Co-op Urban T and C Society Ltd, wherein it was clarified that provisions of 80P(4) will not apply and deduction claimed u/s 80P(2)(a)(i) will be applicable. 9. The learned Appellate Authority has erred in accepting the Assessing Officer‟s reliance on following case laws for rejecting deduction claimed by the Appellant u/s 80P(2)(a)(i) of the Income Tax Act, 1961 by applying provisions of section 80P(4) wherein as per the facts of the case the incomes were not from credit facilities given to members but from other transactions such as sale of goods on credit and interest on outstanding credit balances out of such transaction as not eligible for exemption u/s 80P(2) and interest from credit facilities given to members still continues to enjoy exemption u/s 80P(2)(a)(i) of the Income Tax Act, 1961. (a) Kerala Co-operative Consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills Discounting, providing accommodation of cheques is being undertaken and as such has erred in confirming disallowance of exemption by Assessing Officer by applying provisions of section 80P(4) of the Income Tax Act, 1961. 14. The learned Appellate Authority has erred in not considering the point raised in grounds of appeal at no.8 whereby assessee is adopting gross total income of ₹ 61,99,190/- instead of gross total income declared in income returned of ₹ 30,99,595/-without giving any reasons or basis for not adopting gross total income returned and has not considered section 80P deduction allowed by him in computation sheet of ₹ 30,99,595/-. 2. The brief facts of the case for the assessment year 2010-11 are that the Assessee is a co-operative society registered under the Karnataka State Cooperative Societies Act. The Assessee filed return declaring gross total income of ₹ 30,99,595/- and claimed deduction u/s 80P(2)(a)(i) and therefore net taxable income was shown to be nil‟. The AO did not allow the deduction to the Assessee u/s 80P(2)(a)(i) and the income was assessed at ₹ 30,99,595/-. The AO while denying the deduction to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities carried out by the society cannot be regarded to be banking activities as contemplated under the Banking Regulation Act, 1949. Reliance was also placed on the decision of the Bangalore Bench of this Tribunal in ITA No.72/Bang/2013 in the case of ITO vs. Divyajyothi Credit Cooperative Society Ltd. for the A.Y 2009-10 in which it was held that the provisions of Sec. 80P(4) are applicable only to credit co-operative banks and not to credit co-operative society. Reliance was also placed on the decision of the Panaji 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. Reliance was also placed on the decision of Panaji Bench in ITA No. 229 230/PNJ/2013 in the case of Tararani Mahila Co-operative Credit Society, vs ITO. Reliance was also placed in ACIT vs Palhawas Primary Agriculture Co-operative Society Ltd, 23 Taxman.com 318 (Delhi), ITO vs Jankalyan Nagri Sahakari Pat Sanstha Ltd, 24 Taxman.com 127 (Pune). Reliance was also placed on the decision of Karnataka High Court in the case of CIT vs Sri Biluru Gurubasava Pattana Sahakari Sangh Niyamitha dated 5.2.2014, which relates to an appeal filed again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned 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 taluka and the principal object of which is to provide for long-term credit for agricultural and rural development activities. 3.1 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 cooperative bank other than a primary agricultural credit society or primary cooperative agricultural and rural development bank. The provisions of Sec. 80P(4) was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The explanation to the section defines the co-operative bank and primary agricultural credit society to have the same meaning as assigned to them in PartV of the Banking Regulation Act, 1949. It is not the case of either of the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept mentioned under proviso 2 to section 80P which is relevant for sub-clause 6 or 7. It has nothing to do with section 80P(2)(a)(i). 4. 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 presupposes 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 can be carried on by the co-operative society for its members. If a co-operative society is engaged in carrying on these activities/facilities for the persons other than its members, the co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 cooperative society does not fulfill 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 cooperative 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 providing credit facilities to its members. 8. Whether condition no. 1 is applicable in the case of the Assessee, for this we have to look into the bye-laws of the Assessee. The objects of the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We noted that the assessing officer specifically asked the assessee whether the assessee is authorised to receive deposits and advance loans to the members. The assessee vide its letter dated 25.2.2013 confirmed that as per bye-laws society can accept deposits and advance loans to the members only but expressed his inability to provide the relevant information to prove this fact by stating as under :- . As per our E-bank software the information of depositors and loanees will be at the respective branches whereas the share department is centralized and is at Head office. Therefore, to get the requisite details from the branches, we require some additional time and thereafter at Head office we will be in a position to further process it for being filed with your office for the F.Y.2008-09. You have to note that we have got Head office at Belgaum and we have got total 64 branches situated 23 branches in the state of Karnataka 12 branches in the state of Goa and 28 branches in the state of Maharashtra and there is one more branch at Belgaum which is Asset Recovery Branch. We have asked the branches to process the data at their end and forward it to Head office for further process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers - [(1) Subject to the provisions of Section 17, no person shall be admitted as a member of a co-operative society except the following, namely:-- [(a) an individual who needs the services of such co-operative society [and is residing in the area of the operation of the society] and is competent to enter into contract under the Contract Act, 1872 (Central Act IX of 1872);] [(a-1) a depositor;] (b) any other co-operative society; (c) the State Government or the Central Government; (d) the Life Insurance Corporation of India, State Warehousing Corporation and such other institutions as may be approved by the State Government; (e) a firm, a company or any other body corporate constituted under any law for the time being in force including a society registered under the Karnataka Societies Registration Act, 1960 (Karnataka Act 17 of 1960); (f) a Market Committee established under the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966 (Karnataka Act 27 of 1966); (g) a local authority. Explanation.-For the purpose of this clause, local authority means, a Municipal Corporation, Municipal Council, Town Panchayat, Zilla Panchay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primary co-operative bank and in view of explanation (a) of section 80P(4) it has to be regarded as a co-operative bank and is hit by section 80P(4). 14. 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 80P. In view of this finding, the Assessee was denied deduction u/s 80P(2)(a)(i). We have also gone through the decision of the Bangalore Bench of the Tribunal in the case of ITO vs. Divyajyothi Credit Co-operative Society Ltd. (supra) in ITA No. 72/Bang/2013. In this case, we noted that the Hon'ble Tribunal confirmed the order of CIT(A) following the decision of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0P(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 cooperative 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 until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. Therefore, the assessee will not comply with the first condition as laid down in the definition as given u/s. 5(ccv) of the Banking Regulation act, 1959 for becoming primary cooperative bank . The assessee, therefore, cannot be rega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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