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2014 (8) TMI 1240 - AT - Income TaxEligibility of deduction u/s 80P - income earned by a co-operative credit society to provision of credit facilities to its members - whether the Assessee is a cooperative bank or not? - HELD THAT - The deposits so accepted are used by the Assessee co-operative society for lending or investment. Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects as enumerated above. Thus, in our opinion, condition no.1 does stand satisfied and it can be said that the Assessee society was carrying on banking business as it was accepting deposits from the persons who were not members. The authorised representative took the plea that the assessee has not obtained banking licence. In our opinion it is not necessary that the cooperative society should have a banking licence as per the definition under the Income Tax Act for carrying on banking business. If licence is not obtained it may be an illegal banking business under the other statute. What we have to see whether the nature of the business carrying on by the assessee is a banking business or not. The Income Tax in our opinion is not concerned whether the banking business carried on by the assessee is legal or illegal. The income has to be assessed u/s 14 of the Income Tax Act under the same head even if the nature of the business is illegal. If we look into the bye-laws which consists of fund of the society, we noted that the types of the deposits which the assessee has accepted as per bye-laws are the same as are being accepted during the course of the carrying out the banking activities. So far as the second condition is concerned, there is no dispute that the paid up share capital and reserves in the case of the Assessee is more than Rs. 1 lac. Therefore, the Assessee satisfies the second condition. So far as the third condition is concerned, we noted that Sec. 16 of The Karnataka State Co-operative Societies Act, 1959 permits admission of any other co-operative society as a member. In case the rules and bye-laws of the other co-operative society provides otherwise, the co-operative society may not be admitted as a member of the co-operative society. The person, as per sub-section (2), must be qualified for becoming member not only u/s 16(1) but also as per the rules and bye-laws of the co-operative society. We cannot read sub-section (2) in the manner that the rules and bye-laws cannot permit the admission of any other cooperative society as a member of the co-operative society. Had that been the intention of the legislature, they would have not used the words this Act, rules and bye-laws in sub-section (2). Thus we hold that the Assessee has to be regarded to be a primary co-operative bank as all the three basic conditions are complied with, therefore, it is a co-operative bank and the provisions of Sec. 80P(4) are applicable in the case of the Assessee and Assessee is not entitled for deduction u/s 80P(2)(a)(i). We, therefore, confirm the order of the CIT(A) not allowing deduction u/s 80P(2)(a)(i) to the assessee. Appeal filed by the assessee is dismissed.
Issues Involved:
1. Deduction under Section 80P(2)(a)(i) for income earned by a co-operative credit society. 2. Deduction under Section 80P(2)(c) for other income earned by a co-operative credit society. 3. Deduction under Section 80P(2)(a)(i) for income earned by a co-operative credit society by way of interest and dividend from investments with any other co-operative society. 4. Classification of the appellant as a co-operative bank versus a cooperative credit society. 5. Applicability of Section 80P(4) to the appellant. 6. Discharge of tax liability by the appellant. 7. Consideration of recent judgments in favor of the appellant claiming deduction under Section 80P. Issue-wise Detailed Analysis: 1. Deduction under Section 80P(2)(a)(i) for income earned by a co-operative credit society: The assessee claimed a deduction under Section 80P(2)(a)(i) for income earned by providing credit facilities to its members. The Assessing Officer (AO) denied this deduction, asserting that the assessee is a primary co-operative bank and thus subject to the provisions of Section 80P(4). The CIT(A) upheld the AO's decision, leading the assessee to appeal to the Tribunal. 2. Deduction under Section 80P(2)(c) for other income earned by a co-operative credit society: The assessee also sought a deduction under Section 80P(2)(c) for other income. This claim was similarly denied by the AO and upheld by the CIT(A). 3. Deduction under Section 80P(2)(a)(i) for income earned by a co-operative credit society by way of interest and dividend from investments with any other co-operative society: The assessee claimed a deduction for income earned through interest and dividends from investments with other co-operative societies under Section 80P(2)(a)(i). This claim was denied on the grounds that the assessee is considered a co-operative bank under Section 80P(4). 4. Classification of the appellant as a co-operative bank versus a cooperative credit society: The core issue was whether the assessee is a co-operative bank or a co-operative credit society. The Tribunal examined the definition of a "co-operative bank" under Part V of the Banking Regulation Act, 1949, and the conditions for being classified as a primary co-operative bank. The Tribunal found that the assessee met all three conditions: (1) the primary object or principal business is the transaction of banking business, (2) the paid-up share capital and reserves exceed Rs. 1 lakh, and (3) the bye-laws do not permit the admission of any other co-operative society as a member. 5. Applicability of Section 80P(4) to the appellant: Section 80P(4) denies deductions to co-operative banks, except primary agricultural credit societies or primary co-operative agricultural and rural development banks. The Tribunal concluded that since the assessee qualifies as a primary co-operative bank, it falls under the purview of Section 80P(4) and is thus not entitled to the deductions under Section 80P(2)(a)(i). 6. Discharge of tax liability by the appellant: The appellant claimed to have discharged its entire tax liability. However, this was not a determining factor in the Tribunal's decision regarding the applicability of Section 80P(4). 7. Consideration of recent judgments in favor of the appellant claiming deduction under Section 80P: The appellant cited several recent judgments supporting the claim for deduction under Section 80P. The Tribunal reviewed these judgments but found them not applicable to the case at hand, as they did not address the specific issue of whether the assessee qualifies as a co-operative bank under Section 80P(4). Conclusion: The Tribunal held that the assessee qualifies as a primary co-operative bank and is thus subject to the provisions of Section 80P(4). Consequently, the assessee is not entitled to the deductions claimed under Section 80P(2)(a)(i). The appeal was dismissed, and the CIT(A)'s order was upheld.
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