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TMI Blog2017 (10) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulation Act, 1949. (3) The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee society being a Credit Cooperative Society engaged in banking business is a Primary Cooperative Bank within the definition of section 5(ccv) of the Banking Regulation Act, 1949 and as such, is not eligible for deduction under section 80P(2)(a)(i) of the 1. T. Act, 1961. (4) The learned CIT(Appeals) erred in not considering the fact that the Special Leave Petition filed by the Department before the Hon'ble Supreme Court, vide SLP No. 18221 of 2015 has been converted to Civil Appeal No. 5103/2015 which is pending for a final decision on the same issue, in the case of CIT Vs. Shri Biluru Gurbasava Pattin Sahakari Sangh Niyamit." 3. Briefly the facts of the case are that the respondent-assessee is a cooperative society providing credit facilities. Return of income for the AY 2013-14 was filed on 23.09.2013 declaring NIL income after claiming exemption u/s. 80P of the Act of Rs. 87,10,540. Against the said return of income, assessment was completed by the ITO, Ward-1, Bagalkot by order dated 31.12.2015 passed u/s. 143(3) of the Act by denying the exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - "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) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation.-For the purposes of this section, an "urban consumers' co-operative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment. (3) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA or section 80J, the deduction under subsection (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80HHB, section 80HHC, section 80HHD, section 80-I, section 80-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative societies which fall within the purview of Section 80P of the Act are entitled to deduction in respect of any income referred to in sub-section (2) thereof. Clause (a) of sub-section (2) gives exemption of whole of the amount of profits and gains of business attributable to anyone or more of such activities which are mentioned in sub-section (2). 19) Since we are concerned here with sub-section (i) of clause (a) of sub-section (2), it recognises two kinds of co-operative societies, namely: (i) those carrying on the business of banking and; (ii) those providing credit facilities to its members. 20) In the case of Kerala State Cooperative Marketing Federation Limited & Ors. v. Commissioner of Income Tax (1998) 5 SCC 48, this Court, while dealing with classes of societies covered by Section 80P of the Act, held as follows: "6. The classes of societies covered by Section 80-P of the Act are as follows: (a) Engaged in business of banking and providing credit facilities to its members; xx xx xx We may notice that the provision is introduced with a view to encouraging and promoting growth of cooperative sector in the economic life of the country and in pursuance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from clause (f) with reference to a milk co-operative society that a primary society engaged in supplying milk is entitled to such exemption while denying the same to a federal milk co-operative society." 22) The aforesaid judgment of the High Court correctly analyses the provisions of Section 80P of the Act and it is in tune with the judgment of this Court in Kerala State Cooperative Marketing Federation Limited (supra). 23) With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a co-operative bank. However, if it is a primary agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act. 24) Undoubtedly, if one has to go by the aforesaid definition of 'co-operative bank', the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer, our purpose would be served by taking note of the following portion of the discussion: "As various courts have observed that the following three conditions must exist before an activity could be brought under the concept of mutuality; that no person can earn from him; that there a profit motivation; and that there is no sharing of profit. It is noticed that the fund invested with bank which are not member of association welfare fund, and the interest has been earned on such investment for example, ING Mutual Fund [as said by the MD vide his statement dated 20.12.2010]. [Though the bank formed the third party vis-a-vis the assessee entitled between contributor and recipient is lost in such case. The other ingredients of mutuality are also found to be missing as discussed in further paragraphs]. In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent of whatsoever for participators as their identity is not established. Hence, the assessee fails to satisfy the test of mutuality at the time of making the payments the number in referred as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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