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TMI Blog2022 (8) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... roduce of its members, providing credit facility to its members, sale and distribution of fertilizers, pesticides, agricultural equipments, farm products, providing warehousing facilities for storing agricultural produce. 3. The AO denied the benefit of deduction to the Assessee by applying the provisions of Sec.80P(4) of the Act and the CIT(A) confirmed the order of the AO. 4. The deduction under Section 80P is not available for Co-operative banks from A.Y. 2007-08. Section 80P was amended by the Finance Act, 2006, with effect from 1 -4-2007 introducing sub-section (4) to provide that the provisions of the said section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The expressions 'cooperative bank', `primary agricultural credit society' have been taken as per the definition given in Part V of the Banking Regulation Act, 1949 (10 of 1949). The `primary co-operative agricultural and rural development bank' have also been defined in the act to bring clarity. 5. Further, a new sub-section (viia) has also been inserted in clause (24) of Section 2 to provide that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn for application with effect from assessment year 2007-08. The field officers may take note of this position and take remedial action, if required." 7. The first aspect to be seen is as to whether the Assessee can be said to be a co-operative Bank. In [2017] 84 taxmann.com 114 (SC) Citizen Cooperative Society Ltd. vs. ACIT, the Hon'ble Supreme Court held that in order to do the business of a cooperative bank, it is imperative to have a licence from the Reserve Bank of India. It can therefore be said that a cooperative society which does not possess a license from RBI cannot be equated to a co-operative Bank, even though it might indulge in the business of banking. In this case the AO adopted the definition of co-operative Bank as given in the Banking Regulation Act, 1949, ignoring the specific exclusions given in Sec.80P(4) of the Act. The CBDT circular referred to above is also not applicable to the Assessee as it cannot be said to be a Regional Rural Bank. 8. In COMMISSIONER OF INCOME TAX AND ANOTHER vs. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT(2014) 369 ITR 0086 (Karn), the Hon'ble Karnataka High Court held: "8. In the assessment order, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 only which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, 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 Co-operative bank. It is a Cooperative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(1) to such society. ....." 9. Co-operative Societies carrying on business of banking are therefore entitled to claim deduction u/s.80P(2)(a)(i). The AO/CIT(A) refused to follow the aforesaid decision of the Hon'ble Karnataka High Court on the ground that SLP has been filed before the Hon'ble Supreme Court against the said decision of High Court. 10. I am of the view that in the light of the decision of Hon'ble High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case it is found that there were instances of loans being given to non-members, profits attributable to such loans obviously could not be deducted." 11. The Hon'ble Supreme Court held that section 80P being a benevolent provision must be read liberally and reasonably and in case of any ambiguity it must be interpreted in favour of the assessee. Supreme Court observed that section 80P(2)(a)(i) which covers a co-operative society engaged in the business of banking or providing credit facilities to its members does not require that the assessee has to be a primary agricultural credit society. The Hon'ble Supreme Court noted that section 80P(2)(a)(i) does not require that the society has to give agricultural credit only. It further observed that once the co-operative society provides credit facility to its members, the fact that it also provides credit facility to non-members does not disentitle the society from availing of deduction. Supreme Court observed that the object of section 80P(4) was to exclude co-operative banks that function at par with other commercial banks and noted that as primary agricultural credit societies are not entitled for obtaining a banking licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance". 15. Further the Hon'ble Karnataka in the case of CIT Vs. M/s. M.Pact Technology Services Pvt. Ltd. in ITA No.228/2013 order dated 11.7.2018 had to deal with admissibility of the following substantial question of law in an appeal by the Revenue u/s.260A of the Act :- "5. Whether the Tribunal is correct in law in not adjudicating the main issue of applicability of provisions of section 40(a)(ia) in respect of disallowance of sub-contracting chares of RS.16,21,851/- made by assessing authority on the ground that the assessee had failed to deduct tax at source under section 194C of I.T.Act? 6. Whether the Tribunal is justified in law in directing the assessing authority to allow deduction under section 10A in respect of amount disallowed under section 40(a)(ia) without appreciating the fact that the income enhanced on account of deeming provisions cannot be considered for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No.2 of 2011, September 11 2015, Bombay High Court [ii] If deduction under section 40A[3] of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act." 7. Applying the same analogy, it can be held that if deduction u/s. 40[a][ia] of the Act is not allowed, the same would have been to be added to the profits of the undertaking on which the Assessee would be entitled for deduction u/s. 10A of the Act. This view is fortified by the decision of Bombay High Court in the case of 'Commissioner of Income Tax v. Gem Plus Jewellery India Ltd.,' [2011] 330 ITR 175 [Bom], wherein it is held thus: "13. By reason of the judgment of the Supreme Court in Commissioner of Income Tax v. Alom Extrusions Limited [2009] 319 ITR 306 the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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