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TMI Blog2017 (7) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers, so income is deductible u/s 80P of the Act". 3. The Assessing Officer denied the deduction u/s 80P for the following reasons :- (a) The assessee society is registered with the Registrar of Society for receiving deposits and providing credit facility to its members. (b) The society is created for the benefit of employees of M/s Sri Ram Pistons and Rings Ltd., (c) The object of society was as under :- From perusal of the object of society, he concluded that the society had declared itself as banking organization providing credit facility to its members. He pointed out section 80P provides the deduction in respect of income of co-operative society. Further, the Finance Act, 2006 w.e.f. 01.04.2007 had inserted section 80P(4) which provides that the provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank". (d) He rejected the assessee's claim that society was registered cooperative society observing that part V of the Banking Regulations Act, 1949 defines primary agricultural credit society as under :- "Primary agricultural credit socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s open to other cooperative society except cooperative bank. The relevant clause regarding the membership in bye laws is as under :- "The term Sewayojak" does not translate to cooperative. Thus, membership is not open to other cooperative society. Therefore, for the purpose of Section 80P(4) the society is deemed to be primary cooperative bank as per Section 56(ccv) of BRA 1949 irrespective of the fact that it has not sought or been granted license for banking. Having license is not material. This is altogether a different matter that the assessee society despite coming under definition of primary cooperative bank by virtue of Section 56(ccv) of Banking Regulation Act, 1949, it has not taken the requisite license." 5. Ld. counsel for the assessee submitted that a co-operative society has been treated as a co-operative bank. He referred to the assessment order page 2 and pointed out that the Assessing Officer has not disputed that the assessee's society is registered with the Registrar of Society for receiving deposits and providing credit facilities to its members. He further pointed out that it is not disputed that the society had been created for the benefit of employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under :- "56. Act to apply to co-operative societies subject to modifications.-- The provisions of this Act, as in force for the time being, shall apply to, or in relation to, co-operative societies as they apply to, or in relation to banking companies subject to the following modifications, namely:-- .......... (c) in section 5,-- [(i) after clause (cc), the following clauses shall be inserted, namely:-- (cci) "Co-operative bank" means a state co-operative bank, a central cooperative bank and a primary co-operative bank; (ccii) "co-operative credit society" means a co-operative society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank; .......... (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 the 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 cooperative society as a member: PROVIDED that this sub-cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Part V of the BR Act. ii. Whether the Authorities under the IT Act were competent and possessed the jurisdiction to resolve the controversy as to whether the assessee was a co-operative society or co-operative bank, as defined under the provisions of the BR Act? .......... Attention is also drawn to the relevant portion of the Finance Minister's Budget Speech explaining the reasons for withdrawal of tax benefits to some Societies by way of insertion of sub-section 80P(4) and insertion of new sub-clause (viia) in clause (24) of Section 2 definition of "income" by the Finance Act, 2006, with effect from 1.4.2007, is as under: The Co-operative banks are functioning at par with other commercial banks, which do not enjoy any tax benefits. It is, therefore proposed to amend section 80P by inserting a new sub-section (4) so as to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than primary credit society or a primary cooperative agricultural and rural development bank. It is also proposed to define the expressions "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative agricultural and rural development bank. They did not want to extend the said benefit to a Co-operative bank which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, as the assessee is not a Co-operative bank carrying on exclusively banking business and as it does not possess a licence from Reserve Bank of India to carry on of lending money to its members which is covered under Section 80(2)(a)(i) i.e. carrying on the amendment is not to exclude the benefit extended under Section 80P(1) to such society. Therefore, there was no error committee by the Assessing Authority." In Bangalore Commercial Transporter Credit Society (supra), this court has cited with approval the following differences between a co-operative society and a cooperative bank - as depicted by the Tribunal in tabular form thus : Nature Co-operative society registered under Banking Regulation Act, 1949 Co-operative Society registered under Karnataka Co-operative Society Act, 1959 Under the Banking Regulation Act, 1949 and Registration Co-operative Societies Act, 1959 Co-operative Societies Act, 1959 Nature of business 1. As defined in Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of law, by the co-ordinate bench of this court, in the above and several other judgments adopting the same view. However, it is to be noticed that there is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescribing that in the event of a dispute as to the primary object or principal business of any cooperative society referred to in clauses (cciv), (ccv) and (ccvi) of Section 56 of the BR Act, a determination thereof by the Reserve Bank shall be final, would require the dispute to be resolved by the Reserve Bank of India, before the authorities could term the assessee as a co-operative bank, for purposes of Section 80P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed by this court, however, as to the assessee being a co-operative society and not a cooperative bank in terms of Section 80P(4) of the IT Act, shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India. In the result, the above questions are answered in favour of the assessee and the present appeal of the revenue is dismissed." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled for deduction and income from nonmembers is not included and entitled for deduction under said provisions. But in the present case, it was not in dispute that credit facilities and supply of seeds, urea etc. were given only to the members of the appellant society. Only with regard to the deposits, the appellant banking society accepted from nonmembers does not, in any way, affect the revenue generated by the appellant in providing credit facilities and supply of other agriculture related equipments and fertilizers etc. to its members. Banking cooperative society does not earn income from deposits but it has to pay interest on the deposits, therefore, deposits from non-members can never earn income in the hands of assessee although if out of deposits, the bank cooperative society had provided credit to its members, only then the income arising from these activities are entitled for deduction. On the basis of foregoing discussion, the AO was not justified in disallowing deduction on this sole ground that the income declared by the assessee includes income from business of banking from its non-members because there was no income from the same activities as the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a co-operative society and not a co-operative bank, the provisions of section 80P(4) will not have application in the assessee's case and, therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act............". The facts being similar, the decision squarely applies." The Hon'ble Gujarat High Court also considered this issue in the case of CIT vs. Surat Vankar Sahakari Sangh Ltd. in Tax Appeal No.1150 of 2013 dated 17.01.2014. The operative portion is reproduced as under :- After considering the aims and objects of the assessee, it is held that assessee is not a cooperative bank in terms of Banking Regulations Act. The case laws relied upon by the CIT (A) are not squarely applicable on the case of the assessee. Therefore, we reverse the order of ld. CIT(A). Assessee is entitled to deduction under section 80P(2)(a)(i) of the IT Act." 10. Ld. counsel further submitted that in earlier year Revenue has allowed deduction 80P and, therefore, following the rule of consisting also, the assessee should not have been denied deduction u/s 80P. In this regard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and rural development activities. 13. A bare reading of aforementioned section makes it clear that section 80P(2)(a)(i) uses the term 'carrying on the business of banking' whereas section 80P(4) uses the term 'co-operative bank'. Explanation to section 80P(4) defines co-operative bank as meaning assigned to them in Part V of the Banking Regulations Act. This takes me to section 3 of BRA which restricts its applicability to co-operative societies as under :- (a) a primary agricultural credit society; (b) a co-operative land mortage bank; and (c) any other co-operative society, except in the manner and to the extent specified in Part V of BRA. Thus, it is evident that to a very limited extent the BRA has been made applicable to co-operative societies. Therefore, very strict interpretation is to be made. 14. Now coming to section 5 of the BRA. This reads as under :- 5. Interpretation - (In this Act) unless there is anything repugnant in the subject or context - 15. This implies that the terms defined in section 5 shall have same meaning throughout the Act unless the context otherwise requires. Therefore, the term 'banking' as defined in section 5(b) cannot be understood ..... X X X X Extracts X X X X X X X X Extracts X X X X
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