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TMI Blog2014 (7) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... ety registered under the Karnataka Souharda Sahakari Act, 1997. The Assessee filed return declaring gross total income of Rs. 26,05,926/- 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 assessed at Rs. 26,05,930/-. The AO while denying the deduction to the Assessee u/s 80P(2)(a)(i) took the view that the Assessee is a primary co-operative bank and therefore provisions of Sec. 80P(4) are applicable in the case of the Assessee. The Assessee went in appeal before the CIT(A). CIT(A) dismissed the appeal of the Assessee. 2.1 The ld. AR before us vehemently contended that the provisions of Sec. 80P(4) are not applicable in the case of the Assessee. The Assessee is not a co-operative bank. The Assessee is a co-operative society duly registered under the Karnataka Souharda Sahakari Act,1997. The primary object of the Assessee is to encourage thrift, self help and cooperation among the members and providing financial facilities. For this, our attention was drawn towards the bye- laws of the Assessee from (1) to (30). The Assessee is a credit society. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sahakari Sangh Niyamitha dated 5.2.2014, which relates to an appeal filed against the order passed u/s 263 and the question involved was whether the Revisional Authority was justified in invoking his power u/s 263 without the foundational fact of the assessee being co-operative bank. 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 decision of Hyderabad Bench of the Tribunal in the case of The Citizen Co-operative Society vs. Addl. CIT in ITA Nos. 1003/Hyd/2011 & 1004/Hyd/2011 dt. 2.7.2012. 2.3 We have heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below as well 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulation 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 facilities to its members is entitled for deduction. After the insertion of Sec. 80P(4), the provisions of Sec. 80P(2)(a)(i) were not amended, rather the co- operative society engaged in carrying on business of banking facilities to its members continued to be entitled for deduction u/s 80P(2)(a)(i). This pre- supposes 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-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties/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 societies in respect of business relating to its members. Now, the question before us is whether the Assessee is a co-operative bank or not. 'Co-operative Bank' is defined in Part V of the Banking Regulations Act, 1949 as under : "Co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank:" 2.6 From the definition of Co-operative bank it is apparent that Co-operative bank means state' co-operative bank, a Central Co-operative Bank and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-laws of the Assessee. The objects of the Assessee in this case are enumerated as under :- "1. To encourage thrift, self help and cooperation among the members and providing financial facilities. 2. To formulate special plan and projects for the development of financially weaker section of the society. And to assist to them financially. 3. To collect funds required to run the sahakari by the way of deposits and to assist the weaker section of the society. 4. To provide loans to the member of sahakari with lowest rate of interest and encourage to provide financial assistance for factories, industries, repairs renovation, construction of houses and to provide other businesses. 5. To provide pledge loan on silver and gold ornaments, deposit receipts, government and semi Govt. cash certificate and deposit receipts etc. 6. To invest surplus funds of sahakari in Government savings schemes and by way of shares in societies and other institutions approved by the Govt. according to section 18. 7. To establish funds for the welfare of the members and staff and assist them as per provisions of the bye-law. 8. To encourage and help for the financial activities of the members. 9. To h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To undertake all other activities condussive and attainment of above objects and improvement of members." 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 deposits must be accepted from the public, not only from the members. These deposits must be repayable on demand or otherwise and could be withdrawn by the depositor by cheque, draft or otherwise. We noted that the Assessee has categorically accepted before the authorities below that the Assessee was not accepting deposits of money from the non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve general meetings of the co-operative and such absence has not received the consent of the general body; or c) is in default regarding any payment to be made to the co-operative exceeding an amount and for a period specified in the bye-laws. (3) If a question arises as to the eligibility or otherwise of a person to become a member or to continue as a member, the board shall decide the question after giving such person an opportunity of being heard. The decision of the board shall be final. 21. Removal of membership.-(1) The board may, by a resolution passed by a majority of not less than two thirds of the members present and voting, remove the membership of a person in the co-operative for acts or omissions which are detrimental to the interest of the co-operative: Provided that a member shall not be removed unless a reasonable opportunity of making-representation in this regard has been provided to him. (2) Where a member has been removed by the board, an appeal shall lie to the general body and the decision of the general body shall be final. (3)A person whose membership has been removed shall, subject to the provisions of this Act, rules and bye-laws, be ineligible for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 11 of Indian Contract Act 1872, provided he is a person of sound mind and who is not declared as insolvent. b) Proprietorship firms and Partnership firms registered under the Indian Partnership Act 1932. c) A society registered under Karnataka Societies Registration Act 1960 or any other institution or body of individuals registered under any other act." From this, it is apparent that the bye-laws of society does permit the admission of other co-operative society as member. Thus the third condition for becoming primary co-operative bank is not complied with. Since the assessee society did not comply all the three conditions, therefore, in our opinion the assessee society cannot be regarded to be a primary co-operative bank as all the three conditions as discussed by us in the preceding paragraphs are not complied with and in consequence it is not a co-operative bank and the assessee is not hit by the provision of section 80P(4). 2.11 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 decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners 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 "banking" as contemplated under the Banking Regulation Act, 1949, inasmuch as these co- operative 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 co-operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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