TMI Blog2016 (5) TMI 1445X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent : Shri K. Mehboob Khan - DR ORDER PER N S. SAINI, ACCOUNTANT MEMBER These are the appeals filed by the Revenue and the Cross Objections filed by the assessee against the separate orders of the Commissioner of Income Tax (Appeals), Belagavi, both dated 30/12/2015. 2. The sole issue involved in these appeals is that the Commissioner of Income Tax (Appeals) erred in allowing deduction to the assessee under sec. 80P(2)(a)(i) of the Income Tax Act, 1961. 3. Brief facts of the case are that the assessee is a cooperative society registered under the Karnataka Cooperative Societies Act, 1959. The assessee filed its return of income for the Assessment Year 2009-10 on 25/09/2009 showing total income at ₹ 37,19,476/- and for the Assessment Year 2010-11 on 06/09/2010 showing total income of ₹36,81,108/- and after claiming deduction under sec. 80P(2)(a)(i) under Chapter-VIA, the total income declared was NIL both the assessment years. The claim of the assessee for deduction under section 80P(2)(a)(i) was rejected by the Assessing Officer vide his orders dated 23/11/2011 24/12/2012 passed under section 143(3) on the ground that the assessee is a cooper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming deduction under sec. 80P(2)(a)(i) of the Act. The total income was declared at Rs. NIL. It was claimed that the society is entitled to deduction under sec. 80P(2)(a)(i) as it was 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 in the order passed under sec. 143(3) of the Act on the ground that the assessee was a cooperative bank, and hence, not entitled to claim deduction by virtue of sec. 80P(4). 4. On appeal, Commissioner of Income Tax (Appeals) allowed the claim of the assessees by observing as under:- 6. I have carefully perused and considered the aforesaid submission made by the appellant and the contents of the Assessment Order passed by the Assessing Officer. I have also perused the case laws relied upon by the appellant and the Assessing Officer. The main plank of argument of the Assessing Officer has been that after careful analysis 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 appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. By virtue of introduction of clause(4) in sec.80P, the Co-operative banks have been taken out of the purview of exemption granted under sec.80P whereas other entities/cooperative societies specified in other clauses of sec.80P continue to enjoy such exemptions. The Explanation to sec.80P provides that 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). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers. The Assessing Officer has also referred to the definition of Banking as provided in sec.5(b) of the Banking Regulation Act,1949 which reads as under: (b) Banking means the accepting 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 meaning of above mentioned definition of banking. 6.1.4. Similar issue is also involved in a number of cases pertaining to credit co-operative societies which are also in appeal and they have all contested the action of the AO is invoking the provisions of Sec. 80P(4) in their respective cases on the basis of various contentions discussed herein below. 6.2 The appellants on the other hand has challenged the interpretation of Sections 80P(2), 80P(4) and relevant provision of the Banking Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also proposed to insert a new sub-clause (viia) in clause (24) of the section 2 so as to provide that the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of income . This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. The appellants have thus contended that it was clear that the intention of the Finance Minister was to tax 'co-operative banks' only. 6.2.3 The appellants have relied on the decision in the cases of (i) Karnataka High Court (Dharwad Bench )0rder 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 on business , it is not a Cooperative Bank. (ii) The Karnataka High Court decision in the case of The Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No 273/2013 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 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 Credit Society Ltd, and Karnataka High Court decision in the case of Vasavi Multipurpose Souharda Sahakari Niyamita, ITA No. 505/2013 dated 27/06/2014. Supra, has clearly held that a co-operative society registered as cooperative society, providing credit facilities to members and not registered with the RBI cannot be denied the exemption under section 80P(2)(a)(i) of the I.T. Act. The operative part of the judgment reads as follows: Therefore, the intention of the legislature is clear. If 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Vasavi Multipurpose Souharda Sahakari Niyamita, ITA No. 505/2013 dated 27/06/2014 supra. Therefore, in view of the foregoing discussion and respectfully following the aforesaid decisions of the Jurisdictional High Court of Karnataka, it is held that the appellant's case is not covered by section 80P(4) as it is not a 'co-operative bank' and therefore, it is entitled to the exemption u/s 80P(2)(a)(i) of the IT. Act. 5. The Departmental Representative relied on the orders of the Assessing Officer. He could not point out any specific error in the above quoted orders of the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) has allowed the claim of deduction under sec. 80P(2)(a)(i) of the Act after following the decision of the Hon ble Bombay High Court at Panaji in the case of M/s. The Quepem Urban Cooperative Credit Society Ltd. Vs. ACIT in Tax Appeals No. 22-24/2015 dated 17/04/2015. No contrary decision could be cited by the Departmental Representative. We, therefore, do not find any good and justifiable reason to interfere with the orders of the Commissioner of Income Tax (Appeals), which are hereby confirmed and this groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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