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TMI Blog2014 (10) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... ) - 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 co-operative bank or not – Held that:- The Assessee has accepted that the Assessee was accepting deposits of money not only from the members but also from the general public who are non-members - The deposits so accepted are used by the Assessee co-operative society for lending or investment - the Assessee society was not carrying on banking business as it was accepting deposits from the persons who were not members - 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 - Sec. 20 of The Karnataka Souharda Sahakari Act, 1997 permits admission of any other co-operative society as a member - The word used in Sec.21A is 'may'. Section 21A further states that the co-operative society can be admitted as nominal or associate member for any specific purpose for any specific period as may be mentioned in the bye-laws - in case the rules and bye-laws of the other co-operative society provides otherwise, the co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 economy, self help and co-operative knowledge amongst the members and depositors of the society. For this, our attention was drawn towards the bye-laws of the Assessee from (I) to (XXX). The Assessee is a credit society. The word credit is of outmost important to decide the status of the assessee under the Banking Regulation Act, 1949. The assessee is a co-operative credit society forgetting that the section 80P only uses the word 'co-operative society engaged in-'. The activities of the Assessee are limited to its members. The paid up capital of the Assessee, no doubt, is more than ₹ 1 lacs. It was contended that the issue is duly covered in favour of the Assessee by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeal nos. 442 of 2013, 443 of 2013 and 863 of 2013. Attention was also drawn towards the decision of the Hon'ble Karnataka High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 us. The question before us is whether the Assessee is entitled for deduction u/s 80P(2)(a)(i) and whether the Assessee is hit by the provisions of Sec. 80P(4) which was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The relevant provisions of both the sections are re-produced for our ready reference as under:- 80P. (1) Where, in the case of an assessee being a co-operative 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 sub-section (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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-operative bank. In our opinion, it cannot be said that a co-operative society cannot carry on business of banking facilities to its members even if it is not a co-operative bank. If we read the provisions in the manner that every co-operative society engaged in carrying on business of banking even for its members is regarded to be a co-operative bank, then, the provisions of Sec. 80P(2)(a)(i) will become redundant. Therefore, in our opinion, before deciding the issue whether the Assessee is entitled for deduction u/s 80P(2)(a)(i), it is essential to decide whether the Assessee is a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. In case it is found that the Assessee is a co-operative bank, the Assessee will not be entitled for deduction as stipulated u/s 80P(2)(a)(i) but in case the Assessee is not a co-operative bank other than a primary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- Co-operative bank means a state co-operative bank, a central co-operative bank and a primary co-operative bank: 5. 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 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 Co-operative bank. 6. 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government Savings Schemes and approved institutions and shares as per sec.18. VII. To create funds as per the bye laws of the society. To create funds for the benefit of members and staff of the society and provide assistance. VIII. To assist and encourage the economic activities of the members. IX. To purchase buildings necessary to run the activities of the society by way of rent, lease or construction. X. To Open branches within the jurisdiction of the society to develop the activities of the society. XI. To provide financial assistance to purchase equipments and machines, motor vehicles etc. XII. To provide financial assistance to self employed for purchase of machineries and to establish industries and to provide technical assistance. XIII. To accept financial assistance from Karnataka backward Class Development Corporation/Bangalore/Belgaum to provide financial assistance to backward class people and to provide training to such persons. To accept loan and grants from Karnataka Minorities Development Corporation Limited, Bangalore/ Belgaum to provide financial assistance and technical assistance to minority people. XIV. To provide financial assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawal 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 accepting deposits of money not only from the members but also from the general public who are non-members. This fact is clear as per the remand report of A.O dated 14.08.2013 before the CIT(A) confirms from the following:- We are advancing loans to the members only. No advances are given to non-members. We are accepting deposits from members as well as non-members. 8.3 The deposits so accepted are used by the Assessee co-operative society for lending or investment. This fact has not been denied by the assessee or by his counsel. 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 were not members. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 re-admission as a member of that co-operative for a period of one year after the date of such removal. [(4) Notwithstanding such removal, a past member shall be liable to be proceeded against, under this Act or the ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to become the members of the society. They shall be liable for membership. Condition for completing 18 years of age cannot be imposed for co-operative society. This condition can be applied only to an individual. From the bye-laws, it is apparent that the bye-laws of society does permit the admission of any other co-operative society as member. Thus the third condition for becoming primary co-operative bank is not complied with. Since the assessee society does not comply with all the three conditions, therefore, in our opinion the assessee society does not become a primary co-operative bank and in view of explanation (a) of section 80P(4) it has not to be regarded as a co-operative bank and is not hit by section 80P(4). 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 (supra). We noted that this decision is not applicable to the facts of the case before us. In this decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a co-operative bank. The Society is governed by the Banking Regulations Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired 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 the undersigned is the author. While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 of its order, this Tribunal has held as under:- 12. From the aforesaid obje ..... X X X X Extracts X X X X X X X X Extracts X X X X
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