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TMI Blog2015 (9) TMI 1734X X X X Extracts X X X X X X X X Extracts X X X X ..... ad however, opined that the assessee was not entitled to the deduction, as claimed, for the reason, inter alia, that the activity of the appellant was covered by Section 2 (24 (vii a) of the IT Act, which requires the inclusion of profits and gains of any business of banking (including providing credit facilities) carried on by a co- operative society. Reference was made to the Explanation appended to Section 80 P (4) - which lays down that a co-operative bank and a primary agricultural credit society, shall have the same meaning assigned to them in Part V of the Banking Regulation Act, 1949 (Hereinafter referred to as the 'BR Act' , for brevity.) It was held that the Bye -laws of the Assessee indicated that their primary object was transactions that were apparently in the nature of banking. In that, the assessee was receiving deposits from its members and providing loans to other members and hence it satisfied all the three conditions contemplated under Section 56 (ccv) of the BR Act. For this premise, the Assessing Officer had proceeded on the basis that a primary co-operative bank, meant a Co-operative Society. Therefore, the Assessing Officer held that the appellant so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.]" "Section 56 of the BR Act:- Act to apply to co-operative societies subject to modifications. -The provisions of this Act, as in force for the time being, shall apply to, or in relation to, co- operative societies as they apply to, or in relation to banking companies subject to the following modifications, namely:- (a) throughout this Act, unless the context otherwise requires,- (i) references to a "banking company" or "the company" or "such company" 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit society" means a co- operative society, other than a primary agricultural credit society,- (1) the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are less 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 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. 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. Bangalor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative Banks can act as clearing agent for cheques, DDs, pay orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI). 1. As per the bye laws of the co-operative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheque, demand 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- oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the rigour of Section 37 of the BR Act. It is further contended that even if there was a disputed question as to whether the assessee was indeed 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. 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 Section 80P(4) which provides that this deduction will not be available to any co-operative bank other than a primary agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide that the provisions of the said section shall not apply in relation to any co-operative bank other than primary credit society or a primary co-operative agricultural and rural development 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 a 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, whether the Revisional Authority was justified in invoking his power under Section 263 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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