TMI Blog2015 (9) TMI 1716X X X X Extracts X X X X X X X X Extracts X X X X ..... and several other judgments adopting the same view. However, it is to be noticed that there is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescribing that in the event of a dispute as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi) of Section 56 of the BR Act, a determination 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, 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. 100092 OF 2014 - - - Dated:- 21-9-2015 - THE HONOURABLE MR. JUSTICE ANAND BYRAREDDY AND THE HONOURABLE MRS.JUSTICE S. SUJATHA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) The assessee Society had satisfied condition no.1 mentioned in Section 5(ccv) of the BR Act, to become primary co-operative bank as the assessee is carrying on banking business by accepting deposits from persons who are not members. ii) The second condition was also satisfied by the assessee since paid up share capital and reserves is more than ₹ 1 lakh. iii) With regard to the last condition, i.e., the bye-laws of the society whether permits other co-operative society to become a member, the Tribunal held that the said condition is not satisfied since the bye-laws of the society permits other co- operative society to become its member. The Tribunal held that the assessee Society is not to be regarded to be a primary co-operative bank as all the three basic conditions are not complied with and therefore, it is not a co- operative bank and the provisions of section 80P(4) are not applicable in the case of the assessee and the assessee is entitled for deduction under Section 80P(2)(a)(i). Hence, the Revenue is in appeal before this Court. 4. The questions of law that arise for our consideration in this appeal are : i. Whether the benefit of deduction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shall be construed as references to a co-operative bank; (ii) references to commencement of this Act shall be construed as references to commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965); (b) in section 2, the words and figures the Companies Act, 1956 (1 of 1956) and shall be omitted; (c) in section 5,- [(i) after clause (cc), the following clauses shall be inserted, namely:- (cci) Co-operative bank means a state co- operative bank, a central co-operative bank and a primary co-operative bank; (ccii) co-operative credit society means a co- operative society, the primary object of which is to provide financial accommodation to its members and includes a co- operative land mortgage bank; (cciia) 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;] (cciii) director in relation to a co-operative society, includes a member of any committee or body for the time being vested with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive socie-ty out of funds provided by the State Government for the purpose. 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; x x x x x x 6. 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 Section 80P(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, section 5(b), a co-operative bank means a State Co-operative Bank, a Central Co-operative Bank and a Primary Co-operative Bank. A Primary Co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -clause (viia) in clause (24) of the Section 2 so as to provide that ttheprofits 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 computing the total income of the assessee. (2) The sum referred to in sub-section (1) shall be the following, namely:- (a) the case of a co-operative society engaged in :- (i) Carrying on the business of banking or providing credit facilities to its memebrs, or ...... (ii) .... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety 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 demand or otherwise, and withdrawable by cheque, draft, order or otherwise The learned counsel would incidentally contend that the Tribunal while taking the cue from the decisions of this Court in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha and other cases, in certain other appeals apart from the present has also formed an opinion on certain further propositions, namely: Proposition: Assessee society has not fulfilled the third condition mentioned in Section 5(ccv) of the BR Act and as such, cannot be treated as a primary co-operative bank as defined therein: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nking 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 granted relief by holding that Section 80P(4) is not applicable, by referring to one circular of CBDT No.133 of 2007 dated 9.5.2007 which provided as under:- Subject: clarification regarding admissibility 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 the 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 co-operative agricultural and rural development bank. For the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming 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. 7. In so far as the first question of law is concerned, there are a series of decisions of this court wherein it has been repeatedly answered in favour of the assessee. Two of the said decisions are as follows : 1. CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha in ITA No.5006/2013 2. CIT vs. Bangalore Commercial Transporter Credit Society in ITA No.351/2011 ITA No.599/2013 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 or a prim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act clearing agent, for cheques, DDs, pay orders and other forms. 4. Society are bound by rules and regulations as specified by in the co- operative societies act. Filing of returns Co-operative banks have to submit annual return to RBI every year. Society has to submit the annual return to Registrar of Societies. Inspection 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 Words 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a co- operative bank. The authorities under the IT Act were not competent and did not have the jurisdiction to arrive at a finding in that regard and attention is drawn to the Explanation appended to clause (ccvi ) to Section 56 of the BR Act, which reads as follows : 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. 9. In the light of the above contentions and on an examination of the relevant legal provisions, it is to be noticed at the outset that this court in the appeal in ITA 351/ 2011, CIT v. Bangalore Commercial Transport Credit Co-operative Society Limited, decided on 27.6.2014, had framed the following substantial questions of law : (i) Whether the Tribunal was correct in holding that the provision of sub-section (4) of Section 80P of the Income Tax Act are applicable only to co- operative Banks and not to credit Co-operative Societies, which are engaged in business of banking, including provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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