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TMI Blog2014 (4) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... ive bank. If a co-operative society is engaged in carrying on the activities/facilities for the persons other than its members, the co-operative society 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 - 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 facilities 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. Whether the Assessee is a co- operative bank or not – Held that:- It is not necessary that the co-operative 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 - the Assessee has not to be regarded to be a primary co-operative bank as all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit Sahakari Ltd. ITA No.202/203/204/DCIT/CC Panji/CITA VI/2010-11 Dt 20/10/2010 by Hon. CIT (A) Bangalore. (iii) Bangalore Commercial Transport Credit Co-operative Society Ltd Bangalore. ITA No.1069/Bangalore/2010 Dt 08/04/2011 by Hon. ITAT, Bangalore. (iv) Samarth urban Co-operative Credit Society Ltd, Belgaum. ITA No.662/BGM/2010-11 Dt 28/11/2011. (v) ITO Ward 1(1) Erode vs The Kasipalayam Primary Agricultural Co- operative Bank Ltd. [2013] 38 taxmann.com 322 (Chennai- Trib.) 7. The AO is also not correct in initiating penal provisions u/s 271(1)(c) of IT Act 1961 though there is no concealment. 2. Since the issue involved is common, as agreed by both the parties, both the appeals are disposed of on the basis of facts for the A.Y. 2009-10. The brief facts of the case for the A.Y.2009-10 are that the Assessee is a co- operative society registered under the Karnataka State Co-operative Societies Act. The Assessee filed return declaring gross total income of Rs.14,17,179/- and claimed deduction u/s 80P(2)(a)(i) and therefore net taxable income was shown to be nil . The AO did not allow the deduction to the Assessee u/s 80P(2)(a)(i) and the income was assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Reliance was also placed on the decision of Panaji Bench in ITA No. 229 230/PNJ/2013 in the case of Tarani Mahila Co-operative Credit Society, vs ITO. Reliance was also placed in ACIT vs Palhawas Primary Agriculture Co-operative Society Ltd, 23 Taxman.com 318 (Delhi), ITO vs Jankalyan Nagri Sahakari Pat Sanstha Ltd, 24 Taxman.com 127 (Pune). 2.2 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 exemption. Reliance was placed on the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 credit facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both these businesses for the members. If the Assessee co-operative society carries on one or both of the activities, it will be eligible for deduction. These two activities are (a) 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 facilities 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 societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Sec. 80P(4), in our opinion, will not be applicable in the case of the Assessee. Once, the Assessee will not fall within the provisions of Sec. 80P(4), the Assessee, in our opinion, 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. 8. 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. The objects of the society shall be 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 rates of interest. III. To do such other things in furtherance of the above subjects, with the prior approval of the Assistant Registrar. IV. To lend money to its members for hire purchase of household articles, consumer durables and all type of vehicles. V. To lend money to its members for their busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. 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. 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and bye-laws in sub-section (2). 9. We have gone through the bye-laws which contains the membership which is bye-laws no.14. It states as under :- 14. Membership : i) A Class members comprising of individuals. ii) B Class membership to firms, associates etc. iii) Any person can become member of the society; provided ... a) He has completed 18 years of age. b) He is residing in the area of operation permanently. c) He has applied in the prescribed form of the society shall for his membership and the application is admitted by the Board of Directors. d) He has paid :- 1) Entrance fee of Rs.10/- 2) Share fee of Rs.5/- 3) Share amount at least one alongwith application. iv) The application for membership of any person shall be disposed off by the Board of Directors within stipulated time as per K.C.S. Act, 1959. v) The promoters shown in the Schedule A Appendix at the time of Registration of the society shall become the member of the society as soon as the Society is Registered. Condition for completing 18 years of age cannot be imposed for co- operative society. This condition can be applied only to an individual. From this, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 purview of the Banking Regulation Act. They are the co-operative societies registered under the Act, and as such they are governed by the provisions of the Act passed by the State Legislature. Consequently, the State Government has control over them to the extent the Act permits. Major activities of the petitioners are to finance its members. For the purpose of financing its members, they borrow money from the financing agencies and repay the same. Merely because the petitioners-the co-operative societies in question-are required to advance loans to their members, they do not cease to be co-operative societies governed 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 bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman.com 127 Pune. This we have already stated that section 80P(2)(a)(i) nowhere talks of co-operative credit society and therefore the distinction made under the Banking Regulation Act cannot be imported u/s 80P(2)(a)(i). This decision in our opinion will not assist the assessee. We have also gone through the decision of Tarani Mahila Co-operative Credit Society Ltd to which the undersigned is the author similar finding as has been given in this are given in that case also. 11. We, therefore, in view of our aforesaid discussion hold that the Assessee has not to be regarded to be a primary co-operative bank as all the three basic conditions are not complied with, therefore, it is not a co-operative bank and the provisions of Sec. 80P(4) are not applicable in the case of the Assessee and Assessee is entitled for deduction u/s 80P(2)(a)(i). We, therefore, set aside the orders of the CIT(A) not allowing deduction u/s 80P(2)(a)(i) to the assessee and and direct the assessing officer to allow deduction to the assessee u/s 80P(2)(a)(i) on the income generated for providing banking or credit facilities to its. 12. In the result, both the appeals filed by the Assessee is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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