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TMI Blog2014 (11) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... rom public during the year - The assesse since not discharged the onus. The deposits accepted are used by the Assessee co-operative society for lending or investment - Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects - the Assessee society was carrying on banking business as it was accepting deposits from the persons who were not members during the year - the paid up share capital and reserves in the case of the Assessee is more than ₹ 1 lac - Sec. 16 of The Karnataka State Co-operative Societies Act, 1959 permits admission of any other co-operative society as a member - 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 to be regarded to be a primary co-operative bank as all the three basic conditions are complied with, therefore, it is a co-operative bank and the provisions of Sec. 80P(4) are applicable in the case of the Assessee and Assessee is entitled for deduction u/s 80P(2)(a)(i) – the order of the CIT(A) is upheld – Decided against assessee. - ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to fulfil the demands of merchants and industrialists, provide loans on commercial merchandise and provide loans on godowns warehouses. Also explaining proper utilization of funds, making savings, cutting unproductive investments. For this, our attention was drawn towards the bye-laws of the Assessee from (1) to (13). The Assessee is a credit society. He contended that the word credit is of outmost important to decide the status of the assessee under the Banking Regulation Act, 1949. According to him the assessee is a co-operative credit society but when we question that section 80P does not talk of co-operative credit society, he could not reply thereto but relied on Banking Regulation Act 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1004/Hyd/2011 dt. 2.7.2012. 3. We heard the rival submissions 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 before 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded, rather the co- operative society engaged in carrying on business of banking facilities to 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 stipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. Co-operative Bank is defined in Part V of the Banking Regulations Act, 1949 as 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of loans at reasonable rate of interest. 5) To increase financial interests of members and encourage economy in expenses, savings and mutual help. 6) To take up necessary activities to attain the objects of the society with the approval from governing body of the society. 7) To provide loans to members to purchase household articles and vehicles on instalments. 8) To take up loan business to supply financial help. 9) To give loans to small enterprises and small industrialists. 10) To give loans on industrial and commercial products which are pledged or hypothicated with the society. 11) To give loans on security of vehicles and consumer items. 12) To give loans to members on pledge of gold and silver ornaments and fixed assets. 13) To take up necessary activities to attain the objects of the society with the permission from Assistant Registrar. 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 lendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ye-laws which consists of fund of the society, we noted that 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. 11. 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. 12. So far as the third condition is concerned, we noted that Sec. 16 of The Karnataka State Co-operative Societies Act, 1959 permits admission of any other co-operative society as a member. The provisions of Sec. 16 are laid down as under : 16. Persons who may become members - [(1) Subject to the provisions of Section 17, no person shall be admitted as a member of a co-operative society except the following, namely:-- [(a) an individual who needs the services of such co-operative society [and is residing in the area of the operation of the society] and is competent to enter into contract under the Contract Act, 1872 (Central Act IX of 1872);] [(a-1) a depositor;] (b) any other co-operative society; (c) the State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and holders of commercial tax serial number. 2) B class membership belongs to Government without entrance fee. 3) C class membership belongs to Associate members. A) QUALIFICATION FOR MEMBERSHIP : Any merchant, industrialists having following qualifications, may be enrolled as member of the society : 1) Having completed 18 years of age must be qualified to enter into contract as per Indian Contract Act, 2) Must be a resident or intending to reside within the area of operation of the society, 3) Must have submitted application for membership in the specified format and the same should have been accepted by the managing committee. 4) Person intending to be a member should have paid the following : 1) Entrance fee- ₹ 15/- 2) Share fee - ₹ 10/- 3) Share amount of minimum of one share alongwith application. 5) Managing committee should dispose of applications for membership from any person within the fixed period as per clause-16 of Karnataka Co-operative society Act-1959. 6) All the promoters as shown in schedule A at the time of registration, will become members soon after the registration of the society. From clause 13, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Writ Petition filed by the Petitioner related to the legislative competence of the State Legislature for issuing a circular. The issue does not relate to the claim of deduction u/s 80P(2)(a)(i). While dealing with this issue, the Hon'ble High Court under para 12 observed as under :- 12. It is not possible to accept this contention. The petitioners are not the banking institutions coming under the purview of the Banking Regulation Act. 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 contemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 127 Pune. This we have already stated that 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). This decision in our opinion will not assist the assessee. We have also gone through the decision of Tararani Mahila Co-operative Credit Society Ltd to which the undersigned is the author similar finding as has been given in this are given in that case also. The decision of Karnataka High Court in the case of CIT vs Sri Biluru Gurubasava Pattana Sahakari Sangh Niyamitha dated 5.2.2014, relates to an appeal filed against the order passed u/s 263 and the question involved was whether the Revisional Authority was justified in invoking his power u/s 263 without the foundational fact of the assessee being co-operative bank. Therefore, this decision is not applicable. 16. We, therefore, in view of our aforesaid discussion hold that the Assessee has to be regarded to be a primary co-operative bank as all the three basic conditions are complied with, therefore, it is a co-operative bank and the provisions of Sec. 80P(4) are applicable in the case of the Assessee and Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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