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TMI Blog2015 (4) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... 19-9-2014 - SHRI N.V. VASUDEVAN AND SHRI ABRAHAM P. GEORGE, JJ. For the Appellant : Shri S. Ramasubramanian, C.A. For the Respondent : Dr. Shankar Prasad K., Jt. CIT(DR) ORDER N. V. Vasudevan (Judicial Member).- This appeal is by the assessee against the order dated July 18, 2013 of the Commissioner of Income-tax (Appeals), Belgaum relating to the assessment year 2010-11. 2. The assessee is a co-operative society registered under the Karnataka State Co-operative Societies Act, 1959. It is engaged in providing credit facility to its members. The assessee had claimed deduction under section 80P(2)(a)(i) of the Act. Under section 80P(2)(a)(i) of the Act where the gross total income of a co-operative society includes income from carrying on the business of banking or providing credit facilities to its members, the same is allowed deduction. By the Finance Act, 2006 with effect from April 1, 2007 sub-section (4) was inserted in section 80P which provides as follows : (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 agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities of the assessee fall within the provisions of clauses (cci), (ccv) and (ccvi) of section 5 of the Banking Regulation Act and held that, broadly, they are in the nature of banking activity. According to the Assessing Officer, the following features make the assessee ineligible to exemption contemplated in section 80P of the Act : (i) The bye-laws do not permit admission of any other co-operative society as a member. (ii) The purpose of accepting deposits from the public is for making investments and for lending to members. Confining the lending only to members makes no difference. (iii) Deposits collected from the depositors are repayable on demand and do not go into the corpus of the appellant. (iv) Though withdrawal of money is not done by cheques, drafts or pay-out slips, pay orders are issued in favour of a person on behalf of the depositor. (v) The assessee-society came within the Explanation to sub-section (4) of section 80P of the Act as a banking institution. 4. In the light of the abovementioned observations, the Assessing Officer held that the appellant was not entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0P(4) reads as follows : '(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 sub-section.- (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 agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.' 9.1 The above sub-section (4) of section 80P provides that deduction under the said section shall not be available to any co-operative bank other than a primary agricultural credit society or rural development bank. For the purpose of the said sub-section, co-operative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949. In Part V of the Banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Society has to submit the annual return to Registrar of Societies Inspection RBI has the power to inspect accounts and overall functioning of the bank. Registrar has the power to inspect accounts and overall functioning of the bank. Part V Part V of the Banking Regulation Act is applicable to co-operative banks. Part V of the Banking Regulation Act is not applicable to co-operative societies. Use of words The word bank , banker , banking can be used by a co-operative bank The word bank , banker , banking cannot be used by a co-operative society 9.3 If the intention of the Legislature was not to grant deduction under section 80P(2)(a)(i) to co-operative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted. The new proviso to section 80P(4) which is brought into statute is applicable only to cooperative banks and not to credit co-operative societies. The intention of the Legislature of bringing in co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, by virtue of sub- section (4) only co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then Legislature speci fied primary agricultural credit societies along with primary co-operative agricultural and rural development banks for exclusion from such exclusion and in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplified by virtue of the Central Board of Direct Taxes Circular No. 133 of 2007 dated May 9, 2007, Circular provides as under : 'Subject : Clarification regarding admissibly of deduction under section 80P of the Income-tax Act, 1961. 1. Please refer to your letter No. DCUS/30688/2007, dated March 28, 2007 addressed to Chairman, Central Board of Direct Taxes, on the above given subject. 2. In this regard, I have been directed to state that sub-section (4) of section 80P provides that deduction under the said section shall not be allowable to any co-operative bank other than a primary agri cultural credit society or a primary co-operative ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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