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TMI Blog2022 (7) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court observed that the object of section 80P(4) was to exclude co-operative banks that function at par with other commercial banks and noted that as primary agricultural credit societies are not entitled for obtaining a banking license would not be hit by this provision. In the light of the law on the issue discussed above Assessee is entitled to deduction u/s.80P(2)(a)(i) of the Act as claimed and the same is directed to be allowed. - ITA Nos.146 and 147/Bang/2022 - - - Dated:- 26-7-2022 - Shri N. V. Vasudevan, Vice President For the Assessee : Shri. G. Sathyanarayan, CA For the Revenue : Shri. Ganesh R. Ghale, Standing Counsel ORDER PER N. V. VASUDEVAN, VICE PRESIDENT : These are appeals by the Assessee against two orders both dated 15.03.2019 of CIT(A), Davangere, in relation to AYs 2013-14 and 2014-15. 2. The only issue that arises for consideration in these two appeals is as to whether the Revenue authorities were justified in denying the benefit of deduction u/s.80P(2)(a)(i) of the Act to the Assessee. The Assessee is a society registered under the Karnataka Co-operative Societies Act, 1959. In the return of income filed for the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T issued a beneficial Circular No. 319 dated 11-1-1982 , which stated that for the purpose of Section 80P, a Regional Rural Bank shall be deemed to be a cooperative society. Section 80P was amended by the Finance Act, 2006, with effect from 1 -4-2007 introducing sub-section (4), which laid down specifically that the provisions of Section 80P will not apply to any co-operative bank other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Accordingly, deduction under Section 80P was no more available to any Regional Rural Bank from assessment year 2007-08 onwards. An OM dated 25-8-2006 addressed to RBI was issued by the Board clarifying that Regional Rural Banks would not be eligible for deduction under Section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards. It has been bought to the notice of the Board that despite the amended provisions, some Regional Rural Banks continue to claim deduction under Section 80P on the ground that they are co-operative societies covered by Section 80P(1) read with Boards Circular No. 319 dated 11-1-1982 . It is, therefore, reiterated that Regional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er words, the said income is not taxable. It is a benefit given to the Co-operative society. Section 80P(4) was introduced by Finance Act, 2006 with effect from 01.04.2007 excluding the said benefit to a Co-operative Bank. The said provision reads as under:- (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. (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. Therefore, the intention of the legislature is clear. If a Co-operative Bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with other commercial banks, i.e., which lend money to members of public. Thus, if Banking Regulation Act, 1949 is to be seen, what is clear from section 3 read with section 56 is that a primary cooperative bank cannot be a primary agricultural credit society, as such cooperative bank must be engaged in the business of banking as defined by section 5(b) of the said Act, which means accepting, for the purpose of lending or investment, of deposits of money from public. Likewise, under section 22(1)(b) of Banking Regulation Act, 1949 as applicable to cooperative societies, no co-operative society would carry on banking business in India, unless it is a cooperative bank and holds a licence issued in that behalf by RBI. As opposed to this, a primary agricultural credit society is a co-operative society, primary object of which is provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. As a matter of fact, some primary agricultural credit societies applied for a banking licence to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of business of banking. This was turned do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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