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TMI Blog2014 (8) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee is entitled for deduction u/s 80P(2)(a)(i). We, therefore, confirm the order of the CIT(A) and direct the assessing officer to allow deduction to the assessee u/s 80P(2)(a)(i) on the income generated for providing banking or credit facilities to its members. - Decided in favour of assessee. - ITA NOS. 418 &419/PNJ/2013 - - - Dated:- 8-8-2014 - SHRI P.K. BANSAL, HON BLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HON BLE JUDICIAL MEMBER For the Assessee by : Shri Nishant K, Ld. DR. O R D E R PER P.K. BANSAL Both these appeals have been filed by the revenue against the respective orders of CIT(A), Belgaum dtd. 15.10.2013 for assessment years 2007-08 and 2009-10. The assessee has taken the following common effective grounds of appeal:- (1) The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee is a co-operative society which fulfills all the three conditions of being held a Primary Cooperative Bank as given in section 5(ccv) of the Banking Regulation Act, 1949. (2) The learned CIT(Appeals) erred in relying on the byelaws which mere provide membership to co-operative societies without specifying type of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,17,616/-. The AO while denying the deduction to the Assessee u/s 80P(2)(a)(i) took the view that the Assessee is a primary co-operative bank and therefore provisions of Sec. 80P(4) are applicable in the case of the Assessee. The Assessee went in appeal before the CIT(A). CIT(A) allowed the appeal of the Assessee. 2.1 The ld. DR, on the other hand vehemently contended that the Assessee is a co-operative bank in view of the definition of the co-operative bank given under explanation to Sec. 80P(4) the Assessee is engaged in the business of banking. Sec. 80P(4) puts an embargo w.e.f. 1.4.2007 that if a co-operative society is carrying on banking business, the Assessee will not be entitled for the exemption. Reliance was placed on the decision of Hyderabad Bench of the Tribunal in the case of The Citizen Co-operative Society vs. Addl. CIT in ITA Nos. 1003/Hyd/2011 1004/Hyd/2011 dt. 2.7.2012. 2.2 We heard the submissions of ld. D.R 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 development bank. It is also not the claim of the Assessee that Assessee is a primary agricultural credit society. If we read both the sections, Sec. 80P(2)(a)(i) and Sec. 80P(4) together, we find that the provisions of Sec. 80P(4) mandates that the provisions of Sec. 80P will not apply to any co-operative bank other than a primary agricultural credit society or primary co-operative agricultural and rural development bank but as per the provisions of Sec. 80P(2)(a)(i), a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members is entitled for deduction. After the insertion of Sec. 80P(4), the provisions of Sec. 80P(2)(a)(i) were not amended, 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 embar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 80P(2)(a)(i) on the income which it derives from carrying on the activities not relating to its members. Therefore, where a co-operative society is engaged in carrying on business of banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business of banking facilities to its members or providing credit facilities to its members will only be eligible for deduction u/s 80P(2)(a)(i). There is no prohibition u/s 80P not to allow deduction to such co-operative societies in respect of business relating to its members. Now, the question before us is whether the Assessee is a co-operative bank 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: 2.5 From the definition of Co-operative bank it is apparent that Co-operative bank means state co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable in the case of the Assessee, for this we have to look into the bye-laws of the Assessee. The objects of the Assessee produced in CIT(A) s order in this case are enumerated as under :- 1. Encouragement to members of the sahakari and member depositors for minimization of expenses, self and mutual co-operation. 2. Arrangement of loan and advances to members of the sahakari for their varied requirements. 3. Arrangements of services and facilities for various govt., deposits and saving schemes. 4. Service like purchase / sale of Govt. bonds etc., on behalf of members. 5. Contacting financial institution for day to day financial and credit activities of sahakari. 6. Transfer remittance of fund on behalf of its members. 7. Rendering of banking services except issue of cheque books etc. 8. Objectives of purchase of office premises, construction etc for hire purchase of smooth functioning of sahakari. 9. Lending loans for purchases of motor vehicles, machinery under hire purchase, hypothecation scheme. 10. Taking permission from members of the sahakari at annual general meeting to opening new branches and formation of credit activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee society was not carrying on banking business as it was not accepting deposits from the persons who were not members. 2.10 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. 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 Act under the same head even if the nature of the business is illegal. 2.11 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. 2.12 So far as the third condition is concerned, we noted that Sec. 20 of The Karnataka Souharda Sahakari Act, 1997 permits admission of any other co-operative society as a member. The provisions of Sec. 20 are laid down as under :- 20. Persons who may be admitted or continued as members :- (1) Subject to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such member] [21.A Nominal and Associate Members (1) Notwithstanding anything contained in section 20, a Co-operative may admit, a) any individual b) any firm, company, Co-operative Society, Co-operative or anybody or corporation constituted by or under any law for the time being in force: - as a nominal or associate member for any specific purpose for any specific period as may be mentioned in the bye-laws. (2) A nominal members shall not be entitled to any share in any form whatsoever in the assets or profits of the Co-operative and shall not be entitled to become an office-bearer of the Co-operative. (3) An Associate member may hold shares but shall not be entitled to become an officer-bearer of the Co-operative. (4) A nominal or associate member shall not have the right to participate in the management and to vote at any meetings of the Co-operative including the election to the board of the Co-operative. (5) Save as provided in this section, a nominal or associate member shall have such privileges and rights of a member and be subject to such liabilities of a member as may be specified in the bye-laws of the Co-operative. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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-operative society u/s 80P(2)(a)(i) or u/s 80P(4), therefore, this decision cannot assist us. We noted that the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op. Credit Soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal 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 opinion will be entitled for the deduction u/s 80P(2)(a)(i). We accordingly confirm the order of CIT(A) allowing deduction to the assessee. We have also gone through the decision of ACIT vs Palhawas Primary Agriculture Co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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