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TMI Blog2014 (9) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 276 - ITAT DELHI] - Section 80P(4) clearly excludes primary agriculture credit society from its domain - 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) - the Assessee has not to be regarded to be a primary co-operative bank as all the three basic conditions are not complied, 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) – AO is directed to allow deduction to the assessee u/s 80P(2)(a)(i) on the income generated for providing banking or credit facilities to its members. Whether the Assessee is a co-operative bank or not – Held that:- If the co-operative society complied with all the three conditions - once the Assessee will not fall within the provisions of Sec. 80P(4), the Assessee 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 - it is not necessary that the co-operative society should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in not appreciating the definition of a co-operative bank which as per Explanation below section 80P(4) the co-operative bank shall have the meaning assigned to it in Part-V of the Banking Regulation Act, 1949. (6) The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee society being a credit co-operative society engaged in banking business is a Primary Co-operative Bank within the definition of section 5(ccv) of the Banking Regulation Act, 1949 and as such, not eligible for deduction under section 80P(2)(a)(i) of the I.T. Act, 1961. 2. The brief facts of the case are that the Assessee is a co-operative society registered under the Karnataka Souharda Sahakari Act, 1997. The Assessee filed return declaring gross total income of ₹ 17,09,822/- 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 ₹ 18,23,370/-. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to advance loan to its members, 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. Reliance was also placed on the decision of Panaji Bench in ITA No. 229 230/PNJ/2013 in the case of Tararani 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). 3. We have heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rimary 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 facilities to its members is entitled for deduction. After the insertion of Sec. 80P(4), the provisions of Sec. 80P(2)(a)(i) were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 societies in respect of business relating to its members. 4.1 Now, the question before us is whether the Assessee is a co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. 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. To encourage thrift, self-help and co-operation among the members and depositors of the co-operative. II. To arrange to grant loan advances for the various needs of members. III. To provide necessary services to the members for the utilization and publication of savings schemes encouraged by the Govt. and the Income Tax Department among the members. IV. To purchase, sell and accept the Govt. securities on behalf of members. V. ........................................................... XIII. To manage sell and realize any property which may come into possession of the co-operatives in partial / full satisfaction of its claims. XIV. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed representative took the plea that the assessee has not obtained banking licence. In our opinion 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. 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. 8.5 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 ₹ 1 lac. Therefore, the Assessee satisfies the second condition. So far as the third condition is concerned, we noted that Sec. 20 of The Karnataka Souharda Sahakari Act, 1997 permits admission of any other co-operative society as a member. The provisions of Sec. 20 are laid down as under :- 20. Persons who may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notwithstanding such removal, a past member shall be liable to be proceeded against, under this Act or the rules or the bye-laws for his acts of commission or omission as such member] [21.A Nominal and Associate Members (1) Notwithstanding anything contained in section 20, a Co-operative may admit, a) any individual b) any firm, company, Co-operative Society, Co-operative or anybody or corporation constituted by or under any law for the time being in force: - as a nominal or associate member for any specific purpose for any specific period as may be mentioned in the bye-laws. (2) A nominal members shall not be entitled to any share in any form whatsoever in the assets or profits of the Co-operative and shall not be entitled to become an office-bearer of the Co-operative. (3) An Associate member may hold shares but shall not be entitled to become an officer-bearer of the Co-operative. (4) A nominal or associate member shall not have the right to participate in the management and to vote at any meetings of the Co-operative including the election to the board of the Co-operative. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of sub-section (4) to section 80P. In view of this finding, the Assessee was denied deduction u/s 80P(2)(a)(i). We have also gone through the decision of the Bangalore Bench of the Tribunal in the case of ITO vs. Divyajyothi Credit Co-operative Society Ltd. (supra) in ITA No. 72/Bang/2013. In this case, we noted that the Hon'ble Tribunal confirmed the order of CIT(A) following the decision of the Tribunal in the case of ACIT, Circle 3(1), Bangalore vs. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No. 1069/Bang/2010 holding that Sec. 80P(2)(a)(i) is applicable only to credit co-operative society a and not to co-operative bank. 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. Cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety 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 accept deposits of money 'from public for the purpose of lending or investment. In our opinion until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. Therefore, the assessee will not comply with the first condition as laid down in the definition as given u/s. 5(ccv) of the Banking Regulation act, 1959 for becoming primary cooperative bank . The assessee, therefore, cannot be regarded to be primary cooperative bank and in consequence thereof, it cannot be a co-operative bank as defined under part V of the Banking Regulation Act 1949. Accordingly, in our opinion the provisions of section 80P (4) read with explanation there under will not be applicable in the case of the assessee. The assessee, therefore, in our opinion will be entitled for the deduction u/s 80P(2)(a)(i). We accordingly confirm the order of CIT(A) allowing deduction to the assessee. We have also gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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