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TMI Blog2014 (8) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... ies to its members. 2. The Learned Commissioner of Income-tax (Appeals) has erred in not granting deduction u/s 80P(2)(c) amounting to Rs 27,803/- for other income earned by a co-operative credit society. 3. The Learned Commissioner of Income-tax (Appeals) has erred in not granting deduction u/s 80P(2)(a)(i) amounting to Rs. 1,83,963/- for income earned by a co-operative credit society by way of interest and dividend from investments with any other co-operative society. 4. The Learned Commissioner of Income-tax (Appeals) has erred in concluding that the appellant is a co-operative bank and not a cooperative credit society involved in providing credit facilities to its members. 5. The Learned Commissioner of Income-tax (Appeals) while completing the assessment has come to the conclusion that the appellant is not entitled to deduction u/s 80 P(2)(a)(i), 80P (2)(c) & 80P (2)(d) in view of the amendment brought in by the Finance Act 2006, by inserting a new clause 80P(4), wherein the provisions of section 80P(4) shall apply only to a co-operative bank, the existing section 80 P(2)(a) (i) shall apply to a co-operative society carrying on credit facilities to its members. This vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (11). The Assessee is a credit society. He contended that the word credit is of outmost important to decide the status of the assessee under the Banking Regulation Act, 1949. According to him the assessee is a co-operative credit society but when we question that section 80P does not talk of co-operative credit society, he could not reply thereto but relied on Banking Regulation Act forgetting that the section 80P only uses the word „co-operative society engaged in-‟. The activities of the Assessee are limited to its members. He also relied on CBDT Circular No.133 of 2007 dated 9.5.2007 for the proposition that section 80P(4) will not apply to an assessee which is not a cooperative bank. The paid up capital of the Assessee, no doubt, is more than Rs. 1 lacs. It was contended that the issue is duly covered in favour of the Assessee by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeal Nos. 442 of 2013, 443 of 2013 and 863 of 2013. Attention was also drawn towards the decision of the Hon'ble Karnataka High Court in the case of Vyavasaya Seva Sahakara Sangha vs. State of Karnataka & Ors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as the decisions and the entire material and case laws referred to before us. The question before us is whether the Assessee is entitled for deduction u/s 80P(2)(a)(i) and whether the Assessee is hit by the provisions of Sec. 80P(4) which was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The relevant provisions of both the sections are re-produced for our ready reference 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 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..............." the whole of the amount of profits and gains of business attributable to any one or more of such activities. "80P(4) The provisions of this section shall not apply in relation to any co-operative bank other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is presupposes that every co-operative society engaged in carrying on business of banking cannot be regarded to be a co-operative bank. The embargo put u/s 80P(4) are applicable only to a co-operative bank. In our opinion, it cannot be said that a co-operative society cannot carry on business of banking facilities to its members even if it is not a co-operative bank. If we read the provisions in the manner that every co-operative society engaged in carrying on business of banking even for its members is regarded to be a co-operative bank, then, the provisions of Sec. 80P(2)(a)(i)will become redundant. Therefore, in our opinion, before deciding the issue whether the Assessee is entitled for deduction u/s 80P(2)(a)(i), it is essential to decide whether the Assessee is a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. In case it is found that the Assessee is a co-operative bank, the Assessee will not be entitled for deduction as stipulated u/s 80P(2)(a)(i) but in case the Assessee is not a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve bank and a primary co-operative bank:" 5. From the definition of Co-operative bank it is apparent that Cooperative bank means state‟ co-operative bank, a Central Co-operative Bank and a Primary Co-operative bank. It is not the case of the revenue that the assessee is a state Co-operative bank or Central Co-operative bank. We have therefore to find whether the assessee is a primary Co-operative bank. 6. The Primary Co-operative bank is defined under section 5 clause (CCV) of Banking Regulation Act 1949 as under:- "(CCV)" primary co-operative bank" means a co-operative society, other than a primary agricultural credit society- (1) the primary object or principal business of which is transaction of banking business: (2) the paid-up share capital and reserves of which are not 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 society out of funds provided by the State Government „for the purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Necessary programme to be formed and financial help to be given. 8) For establishment of self business and self industries financial and technical help to be given. 9) Loans to be advanced on the security of immovable properties. 10) To take up other activities which are complimentary to the above objectives. 11) To open branches, sub-branches and pay offices in the area of operation of the society with the permission of the Registrar." On the basis of these objects whether it can be said that the primary object or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner :- "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." From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwise and withdrawal of these deposits by cheque, draft, order or otherwise and these deposits are accepted for the purpose of lending or investment. These dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ataka State Co-operative Societies Act, 1959 permits admission of any other co-operative society as a member. The provisions of Sec. 16 are laid down as under: "16. Persons who may become members - [(1) Subject to the provisions of Section 17, no person shall be admitted as a member of a co-operative society except the following, namely:-- [(a) an individual who needs the services of such co-operative society [and is residing in the area of the operation of the society] and is competent to enter into contract under the Contract Act, 1872 (Central Act IX of 1872);] [(a-1) a depositor;] (b) any other co-operative society; (c) the State Government or the Central Government; (d) the Life Insurance Corporation of India, State Warehousing Corporation and such other institutions as may be approved by the State Government; (e) a firm, a company or any other body corporate constituted under any law for the time being in force including a society registered under the Karnataka Societies Registration Act, 1960 (Karnataka Act 17 of 1960); (f) a Market Committee established under the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966 (Karnataka Act 27 of 1966); (g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember of any credit society. 7) The membership shall be open to the individuals only." From clause 19, it is apparent that the bye-laws of society does not permit the admission of any other co-operative society as member. Membership is permitted only to individuals. Thus the third condition for becoming primary co-operative bank is complied with. Since the assessee society does complies with all the three conditions, therefore, in our opinion the assessee society does become a primary co-operative bank and in view of explanation (a) of section 80P(4) it has to be regarded as a co-operative bank and is hit by section 80P(4). 14. We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT (supra). We noted that this decision is not applicable to the facts of the case before us. In this decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a co-operative bank. The Society is governed by the Banking Regulations Act. Therefore, the society being a co-operative bank providing banking facilities to members is not el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Act nor can they be treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to "banking" as contemplated under the Banking Regulation Act, 1949, inasmuch as these cooperative societies are not established for the purpose of doing "banking" as defined in section 5(b) of the Banking Regulation Act, 1949." This decision, in our opinion, is not applicable to the case before us because the provisions of Sec. 80P(2)(a)(i), as we have already held in the preceding paragraphs, are applicable to a co-operative society which is engaged in carrying on banking business facilities to its members if it is not a cooperative bank. We have also gone through the decision of this Bench in the case of DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. In ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra), for which the undersigned is the author. While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 of its order, this Tribunal has held as under :- "12. From the aforesaid objects, it is apparent that none of the aims and objects allows the assessee cooperative society to accep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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