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TMI Blog2014 (3) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... he Karnataka Co-operative Societies Act and corresponding bye laws. 4. The learned C.I.T (A) erred in holding that the assessee also accepts deposits from general public when the facts reveal that deposits are accepted only from members for the purpose of meeting financial requirements of members and to provide credit facilities to the members as per the bye laws. 5. The learned C.I.T (A) erred in not granting deduction u/s 80(P)(2)(a)(i) of Income Tax Act 1961 which is specifically provided to a co-operative society carrying on the business of providing credit facilities to its members. 6. The learned C.I.T (A) ought to have appreciated that the insertion of clause (viia) in Section 2(24) of the Act does not alter the position as far as deduction u/s 80P(2)(a)(i) is concerned for providing deduction to a co-operative credit society which is engaged in providing credit facilities to its members. 7. The learned C.I.T (A) erred in denying deduction u/s 80(P)(2)(a)(i) of the Act to a co operative society by applying amendment by insertion of section 80P(4) which is applicable to co-operative banks. 8. Without prejudice to the claim of deduction u/s 80P(2)(a)(i), the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it does not cease to be a co-operative society governed by the Co-operative Societies Act nor can they be treated as banking companies. The activities carried out by the society cannot be regarded to be banking activities as contemplated under the Banking Regulation Act, 1949. Reliance was also placed on the decision of the Bangalore Bench of this Tribunal in ITA No. 72/Bang/2013 in the case of ITO vs. Divyajyothi Credit Co-operative Society Ltd. for the A.Y 2009-10 in which it was held that the provisions of Sec. 80P(4) are applicable only to credit co-operative banks and not to credit co-operative society. Reliance was also placed on the decision of the Panaji 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. 3.2 The ld. DR, on the other hand vehemently contended that the Assessee is a co-operative bank. In view of the definition of the co-operative bank given under explanation to Sec. 80P(4) the Assessee is engaged in the business of banking. Sec. 80P(4) puts an embargo w.e.f. 1.4.2007 that if a co-operative society is carrying on banking business, the Assessee will not be entitled for the exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch business. From the reading of Sec. 80P(4) it is apparent that this section denies deduction to a co- operative bank other than a primary agricultural credit society or primary co- operative agricultural and rural development bank. The provisions of Sec. 80P(4) was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The explanation to the section defines the co-operative bank and primary agricultural credit society to have the same meaning as assigned to them in Part- V of the Banking Regulation Act, 1949. It is not the case of either of the parties that the Assessee is a primary co-operative agricultural and rural development bank. It is also not the claim of the Assessee that Assessee is a primary agricultural credit society. If we read both the sections, Sec. 80P(2)(a)(i) and Sec. 80P(4) together, we find that the provisions of Sec. 80P(4) mandates that the provisions of Sec. 80P will not apply to any co-operative bank other than a primary agricultural credit society or primary co-operative agricultural and rural development bank but as per the provisions of Sec. 80P(2)(a)(i), a co-operative society engaged in carrying on the business of banking or providing c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-operative society engaged in carrying on business of banking facilities to its members or (b) co-operative society engaged in providing credit facilities to its members. Both the activities must be carried on by the co-operative society for its members. If a co-operative society is engaged in carrying on these activities/facilities for the persons other than its members, the co-operative society, in our opinion, will not be eligible for deduction u/s 80P(2)(a)(i) on the income which it derives from carrying on the activities not relating to its members. Therefore, where a co-operative society is engaged in carrying on business of banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business of banking facilities to its members or providing credit facilties to its members will only be eligible for deduction u/s 80P(2)(a)(i). There is no prohibition u/s 80P not to allow deduction to such co- operative societies in respect of business relating to its members. 3.3.2 Now, the question before us is whether the Assessee is a co-operative bank or not. "Co-operative Bank" is defined in Part V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, will be eligible to get deduction u/s 80P(2)(a)(i) in respect of whole of the income which the Assessee derives from carrying on the business of banking or providing credit facilities to its members. 3.3.6 Whether condition no. 1 is applicable in the case of the Assessee, for this we have to look into the bye-laws of the Assessee. The objects of the Assessee in this case are enumerated as under : "i. To promote the economic interest of its members and to encourage thrift, savings, co-operation and self-help among themselves. ii. To create funds by means of deposits and borrowings hereafter to lend to members of the society at moderate rate of interest. iii. To lend money to its members on higher purchase of household articles and vehicles. iv. To do such other things in furtherance of the above objects, with the prior approval of the Registrar. v. To lend money to its members for their business purposes." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent; (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) a local authority. Explanation.-For the purpose of this clause, local authority means, a Municipal Corporation, Municipal Council, Town Panchayat, Zilla Panchayat, Taluk Panchayat or Grama Panchayat constituted under any law for the time being in force] (2) No co-operative society shall, without sufficient cause, refuse admission to membership to any person duly qualified therefor under the provisions of this [Act, rules and bye-laws]" The aforesaid provision of Sec. 16 mandates admission of any other co- operative society as a member of the co-operative society. The word used in Sec. 16(1) is "shall". This fact is clarified further by sub-section (2) as re- produced hereinab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Credit Co-operative Society Ltd. in ITA No. 1069/Bang/2010 holding that Sec. 80P(2)(a)(i) is applicable only to a co-operative bank and not to credit co-operative society. With due regards to the Bench, we are unable to find any term "credit co- operative society" u/s 80P(2)(a)(i) or u/s 80P(4), therefore, this decision cannot assist us. We noted that the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeals no. 442 of 2013, 443 of 2013 and 863 of 2013 (supra) vide order dt. 15.1.2014 took the view that Sec. 80P(4) will not apply to a society which is not a co-operative bank. In the case of Vyavasaya Seva Sahakara Sangha vs. State of Karnataka & Ors. (supra) we noted that the issue before the Hon'ble High Court in the Writ Petition filed by the Petitioner related to the legislative competence of the State Legislature for issuing a circular. The issue does not relate to the claim of deduction u/s 80P(2)(a)(i). While dealing with this issue, the Hon'ble High Court under para 12 observed as under : "12. It is not possible to accept this contention. The petitioners are not the banking institutions coming under the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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