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TMI Blog2014 (10) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 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. Nature of assessee - Whether the Assessee is a cooperative bank or not – Held that:- CIT(A) was rightly of the view that the Assessee has carried on banking activities on the basis of findings in the assessment order - The deposits accepted are used by the Assessee co-operative society for lending or investment - This fact has not been denied - Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects - it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right - the paid up share capital and reserves in the case of the Assessee is more than 1 lac - all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with - th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt u/s. 80P of the Income Tax Act. As per Finance Act, 2006, deduction u/s. 80P of the Act is limited to primary Agricultural Society and Primary Co-operative Agricultural and Rural Development Bank with an intersection to allow tax benefits only to primary societies which help agriculturists by providing agricultural credits to promote agricultural activities in the country. Since the main activity of the society is to provide non agricultural credits and banking business, the Assessing officer disallowed the claim of deduction u/s. 80P of the Act, and completed the assessment determining the total income at ₹ 68,71,578/-. On appeal, the CIT(A) confirmed the disallowance made by the Assessing officer by observing as under: "I have gone through the assessment order and also the submission and case laws relied by the assessee. As regards the first ground of appeal against the disallowance of deduction claimed u/s. 80P of the Income Tax Act, 1961, the Assessing officer after analyzing the activities of the assessee-society came to the conclusion that since the assessee has not fulfilled its main object of providing financial accommodation to its members for agricultural pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld counsel that the nature of the business of the assessee is in the character of 'mutuality', and therefore its income is exempt from taxation does not hold muster. First, because the ld. counsel has not supported his plea with any fact. Second, admitting any new fact at this late stage will be a clear violation of rule 46A of IT Rules. Thus, in view of the decision of the Hon'ble High Court of Kerala referred above, and also for the reasons stated in my order in I.T.A. No. 245/KNR/CLT/2011-12 dated 21-09-2012 in the case of Karivellur Service Co-operative Bank Ltd. for A.Y. 2009-10, I uphold the decision of the Assessing officer". 5. Against this, the assessee is in appeal before us. The Ld. AR relied on the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op Credit Society Ltd. in I.T.A. Nos. 442,443 & 863/2013 dated 15/01/2014 wherein it was held as under: "7. From the above clarification, it can be gathered that sub-section(4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Co-op Urban Thrift and Credit Society Ltd. was under consideration. Circular clarified that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy reference as under : "80P.(1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :-- (a) in the case of a co-operative society engaged in-- (i)carrying on the business of banking or providing credit facilities to its members, or..............."the whole of the amount of profits and gains of business attributable to any one or more of such activities. "80P(4)The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation.--For the purposes of this subsection,-- (a)"co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b)"primary co-operative agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank and a Primary Co-operative bank. It is not the case of the revenue that the assessee is a state Co-operative bank or Central Co-operative bank. We have therefore to find whether the assessee is a primary Cooperative bank. 8.4 The Primary Co-operative bank is defined under section 5 clause (CCV) of Banking Regulation Act 1949 as under:- "(CCV)" primary co-operative bank" means a co-operative society, other than a primary agricultural credit society- (1) The primary object or principal business of which is transaction of banking business: (2) the paid-up share capital and reserves of which are not less than one lakh of rupees: and (3) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such Co-operative society out of funds provided by the State Government „for the purpose" 8.5 From the aforesaid definition, it is apparent that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin its area of operation if necessary for the development of the bank; 12) To acquire and market industrial products for the benefit of the members; 13) To issue loans to members under hire purchase scheme for purchasing household articles, machinery, jeep, autorikshaw, car etc. 14) To accept deposits from primary non-agricultural cooperative societies. Out of these, only four objects (i.e. clause no. 2,4,5 and 10) are related to agriculture or agricultural operations. So from the byelaws of the bank it cannot be aid that the primary object or principal business of the bank is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities. 8.7 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 in vestment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. As such the assessee is not eligible for deduction u/s. 80P of the Income Tax Act, 1961." 8.8 The deposits accepted are used by the Assessee co-operative society for lending or investment. This fact has not been denied. 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 stands satisfied and it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right. 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. 8.9 Thus, we notice that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with. 8.10 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT, 41 305 (Hyd). We notice that this decision is applicable to the facts of the case before us. In that decision, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). While discussing this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent from a shareholder in a banking company, limited by shares. Indeed, the position of the assessee is no different from an ordinary bank except that it lends money and receives dividend from its shareholders which does not by itself make its income any the less income from business. The same judgment was followed in the case of CIT vs. Arcot Dhanasekhara Nidhi Ltd., 59 ITR 480 (Mad.), CIT vs. Dharmavaram Mutual Benefit Permanent Fund Ltd., 67 ITR 673 (AP) and CIT vs. Bhavnagar Trust Corporation (P) Ltd., 69 ITR 278. Further, the Hon'ble Kerala High Court in the case of Kottayam Co-operative Land Mortgage Bank Ltd. vs. CIT, 172 ITR 443(Ker.) where it was held as under: "The Income-tax Officer held the view that the assessee is not entitled to claim any further exemption under clause (c) as the assessee is entitled to exemption u/s. clause (a) in respect of the banking activities. The Appellate Assistant Commissioner, in allowing the assessee's appeal, held that exemption under clause (c) is in addition to the exemption allowable under clauses (a) and (b) and directed the Income-tax Officer to allow a deduction of ₹ 20,000 separately, taking into consideration the proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the activity in which the co-operative society is engaged. The expression "attributable to" is much wider than the expression "derived from" and it covers receipts from sources other than the actual conduct of the business of the assessee. In this view of the matter, interest earned by a cooperative society, which was carrying on the business of supplying surgarcane on statutory investment in Government securities, was held profit attributable to the carrying on of the activity of supplying sugarcane (CIT vs. Co-operative Cane Development Union Ltd. (1979) 118 ITR 770 (All.) The profits and gains from such investments were connected with or incidental to the carrying on of the actual business. Where, however, the assessee as owner of certain property lets out that property and receives rental income, the income thus received cannot partake of the character of profits and gains attributable to an activity carried on by the society. The building let out is not a commercial asset or the rent received is not profit or gain arising from the exploitation of a business asset. The word "activity" is wider than the word "business". It connotes a specified form of supervised action or 0fi ..... 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