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TMI Blog2014 (11) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... see provided the Assessee is engaged in carrying on business of banking or providing credit facilities to its members. Whether the Assessee is a co- operative bank or not – Held that:- 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 - 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 - the types of the deposits which the assessee has accepted as per bye-laws are the same as are being accepted during the course of the carrying out the banking activities - the paid up share capital and reserves in the case of the Assessee is more than ₹ 1 lac - the Assessee satisfies the second condition - Sec. 16 of The Karnataka State Co-operative Societies Act, 1959 permits admission of any other co-operative society as a member – the assessee will be entitled for the deduction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y alongwith affidavit in both the appeals. The reason explained was that there has been delay in filing the appeal as the mother of the secretary after brief illness expired on 12.1.2014 and therefore the secretary stated on oath that due to disturbed state of mind he forgot to file the appeals. The ld. D.R did not object for the condonation of delay. In our opinion the assesse was prevented by sufficient cause to file the appeal within the time. We therefore, condone the delay and admit the appeal for both the years. 3. Both the parties agreed that both these appeals in respect of ground no. 1 to 3 be decided on the basis of the facts relating to the assessment year 2009-10 as the issue involved in both the years is the same. The brief facts of the case for the assessment year 2009-10 are that the Assessee is a co-operative society registered under the Karnataka State Co-operative Societies Act. The Assessee filed return declaring gross total income of ₹ 23,26,313/- 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 also made disallowance u/s 43B for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 whether the Revisiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rimary 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. 7. 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 developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -clause 6 or 7. It has nothing to do with section 80P(2)(a)(i). 8. 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 can 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 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more and thirdly, by laws of the co-operative 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. 13. 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey from the general public who are non-members. 15. The deposits so accepted are used by the Assessee co-operative society for lending or investment. This fact has been denied by the assessee or by his counsel in the submission made before us. 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 does not stand satisfied and it can be said that the Assessee society was not carrying on banking business. 16. The authorised 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative society. The word used in Sec. 16(1) is shall‟. This fact is clarified further by sub-section (2) as re- produced hereinabove that no co-operative society shall refuse admission to the membership, without sufficient reason, to any person who is qualified to become member under the provisions of this Act, rules and bye-laws. This clearly proves that in case the rules and bye-laws of the other co-operative society provides otherwise, the co-operative society may not be admitted as a member of the co-operative society. The person, as per sub-section (2), must be qualified for becoming member not only u/s 16(1) but also as per the rules and bye-laws of the co-operative society. We cannot read sub-section (2) in the manner that the rules and bye-laws cannot permit the admission of any other co- operative society as a member of the co-operative society. Had that been the intention of the legislature, they would have not used the words this Act, rules and bye-laws in sub-section (2). (Asst. Years: 2009-10 2010-11) 19. We have gone through the bye-laws which contains the membership of bye-laws no.16 18. It states as under :- 16. Eligibility for Admission for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kari 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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