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TMI Blog2015 (9) TMI 1658X X X X Extracts X X X X X X X X Extracts X X X X ..... s of any co-operative 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 80 P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed by this court BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LIMITED [ 2014 (6) TMI 913 - KARNATAKA HIGH COURT] however, as to the assessee being a co-operative society and not a co-operative 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. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning as assigned to such bank under 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?" 5. In addressing the above, it would be useful to extract the relevant provisions for ready reference. "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 (ii) x x x x x (iii) x x x x xx x x x x (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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te co-operative society registered as such under any Central Act for the time being in force relating to the multi-State co-operative societies but does not include a national co-operative society and a federal co-operative;] (cciv) "primary agricultural credit society" means a co-operative society,- (1) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (2) the bye-laws of which do not permit admission of any other co-operative society as member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank sub-scribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 business, it is not a Co-operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(1) to such society. There fore, there was no error committed by the Assessing Authority." In CIT vs. Bangalore Commercial Transporter Credit Society (supra), this court has cited with approval the following differences between a co-operative society and a co-operative 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 Registration Under the Banking Regulation Act, 1949and Co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing attention of this court to the tenor of the relevant provisions of law and the above decisions, would contend that this court has categorically held that the assessee, as a co-operative society, was entitled to the benefit of deduction under Section 80 P (2)(a) (i) of the IT Act. Notwithstanding the aforesaid decisions of 15 this court, the Tribunal which was bound by the same, has ignored the said decisions. It is also pointed out that though other benches of the Appellate Tribunal had followed the dictum of this court, and which circumstance was brought to the attention of the Tribunal, it had not chosen to distinguish the said decisions nor has it chosen to refer the matter to a special bench, as propriety demanded. It is hence contended that the point of law as to the entitlement of deduction under Section 80 P (2) (a) (i) in so far as the assessee is concerned, would have to be held in its favour. He would contend that all co-operative banks may be co-operative Societies, but all co-operative Societies are not necessarily co-operative banks. It is further contended that the activity of "banking", is defined under Section 5 (b) of the BR Act as follows : "5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If a co-operative society fulfills all the above three conditions, it is to be treated as a co-operative bank for the purpose of section 80P(4) and the benefit of deduction under Section 80P(2)(a)(i) is denied. After insertion of Section 80P(4), the provisions of Section 80P(2)(a)(i) were not amended and the co-operative societies engaged in carrying on business in banking with its members continued to be entitled for deduction. The embargo put under Section 80P(4) are applicable only to a co-operative society, treated as a bank by a legal fiction created under Section 80P(4) as defined in the Explanation to the said section with reference to Part V of the Banking Regulation Act, 1949. However, if an assessee society does not fulfill any of the above three conditions as defined under Section 5(ccv) of Banking Regulation Act, 1949, it cannot be treated as a 'primary co-operative bank' and as such will be eligible to get the deduction under Section 80P(2)(a)(i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation 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. Part V of the Banking Regulation Act, 1949, section5(cci): In order to examine in a given case of an assessee society whether it is a co-operative bank or not as defined in Part V of the Banking Regulation Act, 1949, of the said Act has to be looked into. Section 5(cci) states as under: "Co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank.' The primary co-operative bank is defined under Section5(ccv) of the BR Act as under: ""primary co-operative bank" means a co-operative society, other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... help in any way to come to the conclusion that the bye-laws in the case of a particular assessee society permits admission of any other co-operative society as a member. Proposition: The Tribunal has referred to section 20 to21A of the Karnataka Souhardha Sahakari Co-operative Societies Act, 1997, and held that the said provisions permit admission of any other co-operative society as a member. The Tribunal however ought to have examined into the aspect as to whether the bye-laws in the case of a particular assessee society permits admission of any other co-operative society as a member. Proposition: Referring to the bye-laws of the assessee society, the Tribunal has observed that the Societies registered under the Karnataka Societies Registration Act, 1960 are allowed to become members. The Tribunal had failed to appreciate that a society registered under the Karnataka Societies Registration Act, 1960is established or created for different purposes and cannot be treated as that of the one registered under the Karnataka Co-operative Societies Act, 1959 or that registered under the Karnataka Souhardha Sahakari Co-operative Societies Act,1997. Proposition: The issue is covered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. The issues with the approval of Chairman, Central Board of Direct Taxes." The learned counsel contends that the above circular has only clarified that if the societies do not fall within the meaning of the co-operative bank as per Part V of the Banking Regulation Act, 1949, then exception under Section 80P(4) will not apply. Proposition: The assessee Society has not obtained Banking Licence from the R.B.I: It is contended that it is also pertinent to note that it is necessary that a co-operative society should have a banking licence as per the definition under the Income Tax Act, for carrying on banking business and if the required licence is not obtained as per other laws, it can only be termed as an illegal banking business under a particular statute prescribing the same. Income Tax Act, however is concerned with the taxing of "income" as per the provisions of the Income Tax Act and "income" if any, has to be taxed whether it is from a legal or illegal business. Hence, it is contended by the learned counsel that, by the insertion of Section 2(24 (viia) and Section 80P(4), by adopting the words 'primary co-operative bank' means a co-operative society other than ...' in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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