TMI Blog2015 (9) TMI 1658X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 80 P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed by this court BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LIMITED [ 2014 (6) TMI 913 - KARNATAKA HIGH 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 assessee. - INCOME TAX APPEAL NO. 100038 OF 2014 - - - Dated:- 21-9-2015 - MR. JUSTICE ANAND BYRAREDDY AND THE MRS. JUSTICE S. SUJATHA For the Appellant : Shri Sangram S. Kulkarni, Advocate) For the Respondent : Sri. Y V RAVIRAJ, ADVOCATE) JUDGMENT This appeal is 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 register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oting that, though the appellant was said to be a Co-operative Society, it was in fact a co-operative bank, within the meaning as assigned to such bank under Part V of the BR Act. ii. Whether the Authorities under the IT Act were competent and possessed the jurisdiction to resolve the controversy as to whether the assessee was a co-operative 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) x x x x x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 8State law relating to co-operative societies for the time being in force;] (cciii) director in relation to a co-operative society, includes a member of any committee or body for the time being vested with the management of the affairs of that society; [(cciiia) multi-State co-operative bank means amulti-State co-operative society which is a primary co-operative bank;] [(cciiib) multi-State co-operative society means a multi-State co-operative society registered as such under any Central Act for the time being in force relating to the multi-State co-operative societies but does not include a national 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-claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In interpreting Section 80 P (4) in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha of the I T Act, it was held as follows : 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 includes the primary agricultural credit society ora primary co-operative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary co-operative agricultural and rural development bank. They did not want to extend the said benefit to a Co-operative bank which is exclusively carrying on banking business i.e. the purport of this amendment. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI has the power to inspect accounts and overall functioning of the Bank. Registrar has the power to inspect accounts and overall functioning of the bank. Part V Part V of the Banking Regulation Act is applicable to co-operative banks. Part V of the Banking Regulation Act is not applicable to co-operative banks. Use of word The word bank , banker , banking can be used by a co-operative bank. The word bank , banker , banking cannot be used by a co-operative society. And this court had dismissed the appeal of the revenue following the decision in CIT v. Sri Biluru Gurubasava PattinaSahakari Sangha Niyamitha (supra). The same view has been taken in the following decisions : 1.CIT vs. Bangalore Credit Co-operative Society Ltd. in ITANo.598/2013 2.CIT vs. Yeshwanthpur Credit Co-operative Society Ltd. in ITA 237/2012 3.CIT vs. Mysore University Employees Co-operative Credit Society Ltd. in ITA 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation- If any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv)and (ccvi), a determination thereof by the Reserve Bank shall be final; It is hence contended that the appeal be allowed and the judgment of the Tribunal be set aside. 8. On the other hand, the learned counsel Shri Y.V. Raviraj, appearing on behalf of the Revenue contends as follows : Section 80P(2)(a)(i) provides deduction of income of co-operative societies carrying on the business of banking or providing credit facilities to its members . However, an exception to this is provided under Section80P(4) which provides that this deduction will not be available to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of sub-section 80P(4), a co-operative bank has been given a meaning assigned to them in Part V of the Banking Regulation Act, 1949. In Part V of the Banking Regulation Act, 1949, section5(b), a co-operative bank means a St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment bank. It is also proposed to define the expressions co-operative bank , primary agricultural credit society and primary co-operative agricultural and rural development bank . 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 . Section 2(24(viia) of the Income Tax Act inserted by the Finance Act, 2006, with effect from 1.4.2007 includes the following in its definition of income as under: profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members. The relevant portion of Section 80P is as under: 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 an subject to the provisions of this section, the sums specified in sub-section (2), in computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such Co-operative society out of funds provided by the State Government for the purpose . Section 5(cciia) of Banking Regulation Act, 1949 defines Co-operative Society as under: Co-operative Society means a society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-State co-operative societies or any other Central or State law relating to co-operative societies for the time being in force; Section 5(b) of the Banking Regulation Act, will also have to be looked into to examine whether the primary object or principal business of the co-operative society is transaction of banking business. The section is as under: banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of a Division Bench of this Hon ble Court in the case of Sri. Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot in ITA No.5006/2013 dated 5th February 2014: The substantial question of law pleaded on behalf of the Revenue in the said case was as follows: In the facts and circumstances of this case, whether the Revisional Authority was justified in invoking his power under Section263 of the Act without the foundational fact of assessee being co-operative bank was not there? It is pointed out that this Court, in the above case, had not examined the applicability of the provisions of the definition of a co-operative bank as per Part V of the Banking Regulation Act, 1949 by reading Explanation to section 80P(4). The facts of the above case are clearly distinguishable and are not applicable. However, a Review Petition was filed in the said case and subsequently, a memo had been filed to withdraw the said Review Petition, which is pending. It is submitted that the matter is being taken up by the Revenue in appeal before the Hon ble Apex Court. It is also stated that in some matters, the Tribunal has grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel that, by the insertion of Section 2(24 (viia) and Section 80P(4), by adopting the words primary co-operative bank means a co-operative society other than ... in clause (ccv) of BR Act, the Legislature has created a legal fiction for the purpose of taxing under certain circumstances, a Society which is to be treated as a bank for the purposes of the Income Tax Act, 1961 while dealing with the issue of its claim of deduction under Section80P. Further, when a Statute enacts that something shall be deemed to be treated as something else, which in fact is not true, the Court shall appreciate and ascertain for what purposes the statutory fiction is resorted and then give full effect to the statutory fiction to carry it to the logical conclusion. Therefore, in the case of an assessee Co-operative Society claiming deductions under Section 80P, an examination of the factual aspects will have to be conducted by the Revenue authorities on the basis of the facts and materials on record to conclude whether the assessee Society is to be treated as a primary co-operative bank which fulfills the above three conditions. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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