TMI Blog2014 (10) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the business of providing credit facilities U/s.80P(2)(a)(i) of the Act or interest derived by a co-op. society from its investments with any other co-op. society, as contemplated by the provisions of s. 80P(2)(a)(d) of the Act. Therefore, following the decision of the Tribunal in the case of Sri Basaveshwara Credit Co-operative Society Ltd., Hirekerur [ 2013 (5) TMI 1010 - ITAT BANGALORE] we hold that the order of the ld. CIT u/s. 263 of the Act on this issue calls for no interference. - ITA Nos. 1720 And 1721/Bang/2013 - - - Dated:- 31-10-2014 - SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri V. Srinivasan, C.A. For The Respondent : Shri Farahat Hussain Qureshi, CIT-II (DR) ORDER Per N.V. Vasudevan, Judicial Member These appeals are by the assessee against the separate orders dated 26.3.2013 22.5.2013 passed u/s. 263 of the Act by the CIT(Appeals), Davangere relating to assessment years 2008-09 2009-10 respectively. 2. There is a delay of about 195 days and 138 days in filing the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act which lays down that income derived from the business of providing credit facilities to its members is to be allowed as deduction in computing total income. The CIT was of the view that u/s. 80P(4) of the Act, provisions of s. 80P(2)(a)(i) of the Act were not applicable to a co-operative bank. The CIT was of the further view that assessee was a co-operative bank though it is Co-operative Society and therefore provisions of s. 80P(4) were applicable. The second issue pointed out by the CIT was that assessee earned interest on deposits maintained with other organizations and banks (Davangere Urban Co-op. Bank) and the interest therefrom ought to have been considered as income from other sources and not derived from the business of providing credit facilities U/s.80P(2)(a)(i) of the Act or interest derived by a co-op. society from its investments with any other co-op. society, as contemplated by the provisions of s. 80P(2)(a)(d) of the Act. According to the CIT, the deposit on which interest was earned by the assessee was a deposit made with Davangere Urban Co-op. Bank which was not a co-op. society and therefore interest earned was neither exempt u/s. 80P(2)(a)(d) or u/.s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative agricultural and rural development bank. Explanation: For the purposes of this subsection, ( 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 cooperative 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 . 9.1 The above sub-section 4 of section 80P provides that deduction under the said section shall not be available to any cooperative bank other than a primary agricultural credit society or rural development bank. For the purpose of the said sub section, cooperative bank shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949. In Part V of the Banking Regulation Act, cooperative bank means a State Cooperative Bank, a Central Cooperative Bank and a Primate Cooperative Bank. 9.2 From the above section, it is clear that the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cooperative banks. Part V of the Banking Regulation Act is not applicable to cooperative banks. Use of words The word bank , banker , banking can be used by a cooperative bank. The word bank , banker , banking cannot be used by a cooperative society. 9 . 3 If the intention of the legislature was not to grant deduction u/s 80P(2)(a)(i) to cooperative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted. The new proviso to section 80P(4) which is brought into statute is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and not a coope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural and rural development banks for exclusion from such exclusion and in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplified by virtue of CBDT circular No.133 of 2007 dated 9.5.2007. Circular provides as under:- Subject: Clarification regarding admissibly of deduction under section 80P of the Income-Tax Act, 1961. 1. Please refer to your letter no.DCUS/30688/2007, dated 28.03.2007 addressed to Chairman, Central Board of Direct Taxes, on the above given subject. 2. In this regard, I have been directed to state that sub-section(4) of section 80P provides that deduction under the said section shall not be allowable to any co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. For the purpose of the said sub-section, co-operative bank shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949. 3. In part V of the Banking Regulation Act, Cooperative Bank means a State Co-operative bank, a Central Co-operative Bank and a primary Coopera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. We have given a very careful consideration to the rival contentions. The Assessee is a Society registered under the Co-operative Societies Act providing credit facilities to its members. The Assessee accepts deposits from members and lends money only to members. The income of the society is in the form of the interest that it earns on credit facilities extended to its members. Under Section 80P(2)(a)(i) of the Act, the profits and gains of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members is exempt. What is exempt is the business income attributable to the activities of banking or providing credit facilities to the members which is included in the gross total income of the society. Deduction will be allowed only when there is direct or proximate connection with or nexus to the income and the business carried on by the Society. As we have already seen, in the present case, the interest income which is in dispute in the present appeal arises out of fixed deposit with banks. The claim of the Assessee is that the fixed deposits in banks were made to repay fixed deposits to the members and also to ensure that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; account, could be taxed as business income under s. 28 of the Act ? In our view, such interest income would come in the category of income from other sources , hence, such interest income would be taxable under s. 56 of the Act, as rightly held by the AO. In this connection, we may analyze s. 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with Deductions in respect of certain incomes . The headnote to s. 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Sec. 80P(1), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the specified activities in s. 80P(2) of the Act, would be eligible for deduction. The word income has been defined under s. 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically business profits into the definition of the word income . Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a)(d) of the Act. Therefore, following the decision of the Tribunal in the case of Sri Basaveshwara Credit Co-operative Society Ltd., Hirekerur (supra) , we hold that the order of the ld. CIT u/s. 263 of the Act on this issue calls for no interference. 14. In the result, the appeal for the A.Y. 2008-09 is partly allowed. ITA 1721/B/13 15. In this appeal for the A.Y. 2009-10, the only issue on which the ld. CIT invoked his powers u/s. 263 of the Act is on the ground that income earned by the assessee from providing credit facilities to its members is not entitled to deduction u/s. 80P(2)(a)(i) of the Act because assessee was a co-operative bank and therefore provisions of section 80P(4) apply. We have already held, while deciding the appeal of the assessee for the earlier A.Y., that assessee could not be regarded as a co-operative bank. For the reasons stated therein, we are of the view that the assessee was entitled to deduction u/s. 80P(2)(a)(i) of the Act and exercise of jurisdiction u/s. 263 of the Act by the ld. CIT was not proper. Accordingly, order of the ld. CIT is quashed and appeal of the assessee is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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