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TMI Blog2015 (11) TMI 1842X X X X Extracts X X X X X X X X Extracts X X X X ..... follows:- (1) Clause (viia) of Section 2(24) of the Finance Act 2006 (w.e.f 1/4/2007) has been inserted to include the profits and gains of any business of banking (including providing credit facilities) carried on by a cooperative society with its members in the definition of income. This means that, if the business of banking is carried on by a cooperative society, even though the business may be with its members only, the profits would be considered as income and the principle of mutuality would not be attracted to the profits and gains of such cooperative society. The definition of business of banking is enlarged for the purpose of the Income Tax Act to include providing credit facilities to the members of such cooperative societies. (2) Further, a deduction from Gross Total Income in respect of income of certain cooperative societies is provided under the Income Tax Act u/s. 80P(1). Sub clause 1 of clause (a) of sub section (2) of this section allows this deduction to a cooperative society engaged in carrying on the business of banking or providing credit facilities to its members. Sub section (4), inserted w.e.f 1-4-2007, provides that the provisions of section 80(P) shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to Sec 2(24)(viia) the profits and gains of any "business of banking" carried on by a cooperative society with its members (which includes providing credit facilities to its members) is to be construed as income from banking. Further, the Pr. CIT observed that according to the amended provisions of the Banking Regulation Act, vide Sec. 5(ccii) and 5(ccvi), in cases where the principal business of a primary credit society is the "transaction of banking business" and its paid-up capital and reserves has attained a level of Rs. 1 lakh, the primary credit society automatically becomes a primary cooperative bank. Thus, the Pr.CIT held that there is no distinction between a cooperative credit society and a cooperative bank except for the threshold of paid-up capital and reserves placed by the Banking Regulation Act on every credit society whose primary objective of principle business is "transacting of banking business". The Pr. CIT observed that the assessee's reliance on the letter dated 09/05/2007 issued by the CBDT to argue that Co-operative Societies do not fall within the meaning of "Cooperative Bank" does not have a bearing, as can be perused from Para no.4 of the refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not obtained any banking license and it cannot carry on any banking business. It is engaged in the activity of providing credit facilities to its members and section 80P(4) is not applicable as held by various High Courts and Tribunal. Reliance was placed on the judgment dated 5.2.2014 of the Hon'ble High Court in the case of CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot in ITA No.5006/2013. 10. The ld. DR supported the order of the Pr. CIT. 11. We have heard both the parties and perused the material on record. 12. We find that identical issue has already been considered and decided by this Tribunal in the case of ACIT, Circle 3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010 dt. 8.4.2011, wherein this Tribunal held that section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Nature Of business 1. As defined in section 6 of Banking Regulation Act. 2. Can open savings bank account, current account, overdraft account, cash credit account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts (DD), Pay Orders, Gift cheques, lockers, bank guarantees etc. 3. Cooperative Banks can act as clearing agent for cheques, DDs, pay orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI). 1. As per the bye laws of the cooperative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act as clearing agent, for cheques, DDs, pay orders and other forms. 4. Society are bound by rules and regulations as specified by in the cooperative societies act. Filing of returns Cooperative banks have to submit annual return to RBI every year. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be entitled to benefits of deduction under section 80P. CIT(Appeals) as well as the Tribunal reversed the decision of the Assessing Officer on the premise that the respondent assessee not being a bank, exclusion provided in subsection( 4) of section 80P would not apply. This, irrespective of the fact that the respondent would not fall within the expression "primary agricultural credit society". 6. Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of subsection(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 specified primary agricultural credit societies along with primary cooperative 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 CBDT circular No.133 of 2007 dated 9.5.2007. Circular provides as under:- "Subject: Clarification regarding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive bank was not there?" 15. The Hon'ble jurisdictional High Court held at para 9 of its order in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot (supra) held as under:- "9. This Court had an occasion to consider Section 263 of the Act in the case of - COMMISSIONER OF INCOME-TAX AND ANOTHER V. DIGITAL GLOBAL SOFT LTD. [2013] 354 ITR 489 (Karn) where paragraph-18, it has held as under: "As is clear from the wording in section 263, the Commissioner gets the jurisdiction to revise any proceedings under this Act if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interest of the Revenue. "Prejudicial to the Revenue" means, lawful revenue due to the State has not been realized or cannot be realized. In other words, by the order of the assessing authority if the lawful revenue to the State has not been realized or cannot be realized, as the said order is prejudici ..... 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