9911796707
TMI Blog2014 (10) TMI 502X X X X Extracts X X X X X X X X Extracts X X X X ..... rs - it is not necessary that the co-operative society should have a banking licence as per the definition under the Income Tax Act - 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 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. There is no dispute that the paid up share capital and reserves in the case of the Assessee is more than ₹ 1 lac - the Assessee satisfies the second condition - so far as the third condition is concerned, Sec. 20 of The Karnataka Souharda Sahakari Act, 1997 permits admission of any other co-operative society as a member - the provisions of Sec. 80P(2)(a)(i) 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 - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Banking regulation Act, 1949. 6. The learned CIT(Appeals) erred in law and on facts in not appreciating the definition of a co-operative society as well as definition of Banking while coming to the conclusion that the appellant is a primary co-operative bank. 7. In the facts and circumstances of the case, the appellant rely upon the decisions of ITAT, Panaji Bench, Panaji in the case of M/s Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd Another in ITA Nos.01 to 03/PNJ/2012 and ITA Nos.04 to 06/PNJ/2012 wherein, it has been held that the assessee is entitled to deduction us/ 80P(2)(a)(i) of the I.T. Act, 1961. 8. In the facts and circumstances of the case, the appellant rely upon the decision of ITAT, Bangalore Bench 'B', Bangalore in ITA No.514/Bang/2012 wherein, it has been held that the assessee is a co-operative society providing credit facility to its members and not a co-operative bank or primary co-op bank. 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 ₹ 44,16,755/- and claimed deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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). Reliance was also placed on the decision of Karnataka High Court in the case of CIT vs Sri Biluru Gurubasava Pattana 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 wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ); (b) primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluka and the principal object of which is to provide for long-term credit for agricultural and rural development activities. 2.4 From the plain reading of Sec. 80P(2)(a)(i) it is apparent that if the co-operative society is engaged in carrying of business of banking or providing credit facilities to its members, the co-operative society is entitled for deduction on whole of the income relating to any one or more of such business. 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 dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-clause 6 or 7. It has nothing to do with section 80P(2)(a)(i). 2.5 In our opinion, Sec. 80P(2)(a)(i) provides two types of activities in which the co-operative society must be engaged to be eligible for deduction under sub-clause (i). These two activities are not alternate ones because the section allows deduction to the co-operative society on the whole of profits and gains of business attributable to any one or more of such activities. This pre-supposes that eligible co-operative society can carry on either one of these two businesses or can carry 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative society do not permit admission of any other co-operative society as a member, it will be regarded to be primary co-operative bank. If co-operative society does not fulfil any of the conditions, it cannot be regarded to be a primary co-operative bank. Therefore, in the case of the Assessee we have to examine on the basis of the facts and materials on record whether the Assessee co-operative society complies with all the three conditions. In case, it does not comply with all the three conditions, it cannot be regarded to be a co-operative bank and 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. 2.9 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 :- 1. To optimum self help and encour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accepting deposits of money not only from the members but also from non-members. This fact is clear as per the remand report of A.O dated 13.02.2013 before the CIT(A) confirms from the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only by the elected board. (2) No person shall be eligible to continue as a member if such person ,- a) has not used the services of the co-operative for two consecutive years to the minimum level specified in the bye-laws; or b) has not attended three consecutive 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under:- 6. Admission to Membership: Following are qualified to be the members of the co-operative: 1. a) A person residing within the limits of area of operation of cooperative or having business or industry within such limits of co-operative, who has attained the age of 18 years, not being insolvent and unsound mind. b) Proprietary concern or Partnership Firm/s or society registered under Karnataka Societies Registration Act, 1960 (Karnataka 1960, Sec.17). c) Any body constituted under the provisions of law prevailing in force. Note :Any person eligible to enter contract u/s.11 of the Indian Contract Act, 1872. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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