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TMI Blog2023 (9) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... such a deduction under the said Section shall not be admissible to a cooperative bank. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act. A co-operative society which is not a state co-operative bank within the meaning of NABARD Act, 1981 would not be a co-operative bank within the meaning of Section 56 of the BR Act, 1949. In the instant case, as already noted in A.P. Varghese case [ 2007 (12) TMI 545 - KERALA HIGH COURT] the Kerala State Co-operative Bank being declared as a state co-operative bank by the Kerala State Government in terms of NABARD Act, 1981 and the appellant society not being so declared, would imply that the appellant society is not a state co-operative bank. In fact, in Citizen Co-operative Society Ltd [ 2017 (8) TMI 536 - SUPREME COURT] this Court held that the appellant therein was having both members as well as nominal members who were depositing and availing loan facilities from the appellant therein and therefore, appellant therein was not entitled to the benefit of Section 80P of the Act as it was functioning as a cooperative bank. But, the appellant herein is not a co-operative bank and neither has i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Biju P Raman, AOR Ms. Divyangana Malik, Adv. Ms. Vishnupriya, Adv. Mr. Krishnan Venugopal, Sr. Adv. Mr. Deepak Prakash, AOR Mr. Krishnan Agarwal, Adv. Mr. Kamal Singh Bisht, Adv. Mr. Pawan Kr. Dabas, Adv. Mr. Raneev Dahiya, Adv. Ms. Shrutii Srivastava, Adv. Mr. Nachiketa Vajpayee, Adv. Ms. Divyangna Malik, Adv. Ms. Vishnu Priya, Adv. Mr. Shyam Nair, Adv. Mr. Rahul Lakhera, Adv. Mr. Vardaan Kapoor, Adv. Mr. N Venkatraman, A.S.G. Mrs. Sonia Mathur, Sr. Adv. Mr. Raj Bahadur Yadav, AOR Mr. S A Haseeb, Adv. Mrs. Praveena Gautam, Adv. Mr. H R Rao, Adv. Mrs. Nisha Bagchi, Adv. JUDGMENT NAGARATHNA , J. Leave granted in those Special Leave Petitions where it has not yet been granted. 2. These appeals arise out of analogous proceedings against the appellant/assessee, and, inter alia, impugn the judgement dated 26.11.2015 passed by the Kerala High Court; the order dated 08.08.2016 passed by the Commissioner of Income Tax (Appeals), Trivandrum and the order dated 07.02.2019 passed by the Income Tax Appellate Tribunal ( ITAT ). 3. The issue involved in these cases is, whether, the appellant/assessee, a co-operative society, is entitled to claim deduction of the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Commission. 6. The State Act, 1969 defines co-operative society with limited liability in Section 2(g) as a society in which the liability of its members for the debts of the society in the event of its being wound up is limited by its bye-laws (i) to the amount, if any, unpaid on the shares respectively held by them; or (ii) to such amount as they may, respectively, undertake to contribute to the assets of the society. 7. It would also be apposite to take note of the Kerala State Co- Operative Agricultural Development Banks Act, 1984 (for short, State Act, 1984 ). This Act was passed to facilitate the more efficient working of Co-operative Agricultural and Rural Development Banks in the State of Kerala. 8. Section 2(a) of the State Act, 1984 defines Agricultural and Rural Development Bank to mean the Kerala Co-operative Central Land Mortgage Bank Limited, registered under Section 10 of the State Act, 1951 (X of 1952), and provides that the same shall be known as the Kerala State Co-operative Agricultural and Rural Development Bank Limited which is the name of the appellant herein. Section 2(d) thereof defines co-operative society to mean a co-operative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aying the role of a development bank in the State and is no longer a land mortgage bank but is a development bank. The appellant/assessee may have earlier been a land mortgage bank but by virtue of a shift in its activities has become a development bank and is now governed by the State Act, 1984 and thus, it is in the business of banking as it satisfies all the tests that are required to qualify as a co-operative bank . CIT (A) further observed that with the insertion of Section 80P (4), co-operative banks are placed at par with other commercial banks and the appellant/assessee who is in the business of banking through its primary co-operative banks is definitely a co-operative bank within the meaning of Section 80P (4). Consequently, the appeal was dismissed. 9.3. Being aggrieved by the Order passed by CIT(A), the appellant/assessee filed further appeal before the Income Tax Appellate Tribunal ( ITAT ). The ITAT vide Order dated 23.02.2011 partly allowed the appeal and held that the appellant/assessee is a co-operative bank and is not a primary agricultural credit society or a primary co-operative agricultural and rural development bank and is consequently hit by the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s but are other co-operative societies and the appellant is an apex co-operative society. 10.2. Highlighting the genesis of the appellant, it was submitted that the appellant was first registered as a co-operative society under the State Act, 1951 and was recognised as a co-operative central land mortgage bank and when the State Act, 1969 was enacted, it was recognised as a co-operative society under the said enactment. The State Act, 1951 was repealed by Section 110 of the State Act, 1969. Section 2(g) of the State Act, 1969 defines a co-operative society with limited liability. That on the enactment of the State Act, 1984, Section 2(a) thereof defines agricultural and rural development bank to mean the Kerala Co-operative Central Land Mortgage Bank Limited, registered under Section 10 of the State Act, 1951 which is known as Kerala State Co-operative Agricultural and Rural Development Bank Limited . Therefore, the appellant is not a co-operative bank within the meaning of Section 80P of the Act. 10.3. Referring to Explanation (a) to sub-section (4) of Section 80P of the Act which states that a co-operative bank shall have the same meaning assigned to it in Part V of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit society; (b) a co-operative land mortgage bank; and (c) any other cooperative society, except in the manner and to the extent specified in Part V. It was submitted that the appellant is a co-operative credit society engaged in providing credit facilities to its members and its members are other co-operative societies which are in the nature of primary societies. The appellant is not carrying on the business of banking within the meaning of Section 80P(2)(a)(i) of the Act. That only a co-operative society which is engaged in the business of banking and is a co-operative bank within the meaning of Part V of the BR Act, 1949 would come within the scope of the exclusion under sub-section (4) of Section 80P of the Act. 10.5. In this context, our attention was drawn to Section 56(o) of the BR Act, 1949 which states that under Section 22, no co-operative society shall carry out banking business in India unless it is a co-operative bank and holds a licence issued in that behalf by the Reserve Bank. That in the instant case, the appellant does not hold any licence as per Section 22 of the BR Act, 1949 and in fact such a licence is not required for the appellant to conduct its busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culture society together with one multi-state cooperative society and therefore such a society did not require Reserve Bank of India licence but the appellant is not a primary agriculture credit society but a co-operative bank which is excluded from the benefit of deduction in respect of its income under the provisions of the Act. It was therefore submitted that the judgment of this Court in Mavilayi Service Co-operative Bank does not apply to the appellant herein. In this regard, learned ASG submitted that any central or state cooperative bank is a co-operative bank within the meaning of Section 56 of BR Act, 1949 as it is engaged in banking business. That the appellant is a state co-operative bank. Therefore, sub-section (4) of Section 80P excludes the benefit of deduction in respect of income to such an entity. It was submitted that impugned orders are just and proper and do not call for any interference in these appeals which lack merit and therefore the same may be dismissed. 10.9. By way of reply, learned senior counsel for the appellants reiterated that the appellant is not engaged in banking business at all and it receives funds from National Bank for Agriculture and Rur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tend that the Kerala State Cooperative Bank is a state co-operative bank as defined under the provisions of the NABARD Act, 1981 and the district co-operative banks are central co-operative banks as defined in that Act. Hence, they are co-operative banks falling within the notification dated 28.01.2003 issued under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, SARFAESI Act, 2002 ). It was contended that the Kerala State Co-operative Bank is a state co-operative bank which is an apex bank. That a state cooperative bank, central co-operative bank in the co-operative sector is engaged in the business of banking but the appellant herein is not engaged in the business of banking within the meaning of BR Act, 1949 and is thus entitled to the benefit of deduction even as per sub-section (4) of Section 80P of the Act as it is not a co-operative bank. 10.12. In this regard, our attention was drawn to the provisions of State Act, 1969, namely, Section 2(rb) which defines a state cooperative bank ; Section 2(ia) which defines a district co-operative bank ; Section 2(ra) which defines a state co-operative agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of the agricultural produce of its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment In connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities ; Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:- (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area, or cantonment. (3) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC, or section 80HHD or section 80- 1 or section 80-IA or section 80J, or section 80JJ, the deduction under subsection (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of subsection (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80HHB, section 80HHC, section 80HHD, section 80- 1, section 80-IA, section 80J and 80JJ. [(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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting informed by the Reserve Bank that a licence cannot be granted to it: Provided further that the Reserve Bank shall not give a notice as aforesaid to a banking company in existence on the commencement of this Act before the expiry of the three years referred to in sub-section (1) of section 11 or of such further period as the Reserve Bank may under that sub-section think fit to allow. (3) Before granting any licence under this section, the Reserve Bank may require to be satisfied by an inspection of the books of the company or otherwise that the following conditions are fulfilled, namely: (a) that the company is or will be in a position to pay its present or future depositors in full as their claims accrue; (b) that the affairs of the company are not being, or are not likely to be, conducted in a manner deterimental to the interests of its present or future depositors; (c) that the general character of the proposed management of the company will not be prejudicial to the public interest or the interest of its depositors; (d) that the company has adequate capital structure and earning prospects; (e) that the public interest will be served by the grant of a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within thirty days from the date on which such decision is communicated to it, appeal to the Central Government. (6) The decision of the Central Government where an appeal has been preferred to it under sub-section (5) or of the Reserve Bank where no such appeal has been preferred shall be final. X X X 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: (a) throughout this Act, unless the context otherwise requires, (i) references to a banking company or the company or such company shall be construed as references to a co-operative bank, (ii) references to commencement of this Act shall be construed as references to commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965); (b) in section 2, the words and figures the Companies Act, 1956 (1 of 1956), and shall be omitted; (c) in section 5 (i) after clause (cc), the following clauses shall be inserted namely: (cci) co-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose; (ccvi) primary credit society 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 less than one lakh of rupees; and (3) the bye-laws of which do not permit admission of any other co-operative society as a 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 subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose. Explanation. If any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final; (ccvii) central co-operative bank , primary rural credit society and state co-operative bank shall have the meanings respectively assigned to them in the National Bank f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5); or (ii) a co-operative bank which has come into existence as a result of the division of any other co-operative society carrying on business as a co-operative bank, or the amalgamation of two or more co-operative societies carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965) or at any time thereafter; or (iii) [***] from carrying on banking business until it is granted a licence in pursuance of this section or is, by a notice in writing notified by the Reserve Bank that the licence cannot be granted to it.]; (ii) sub-section (3A) shall be omitted; (iii) in sub-section (4) in clause (iii) the words, brackets, figures and letter and sub-section (3A) shall be omitted; iii) National Bank for Agriculture and Rural Development Act, 1981 ( NABARD Act, 1981 , for short): The relevant provisions of NABARD Act, 1981 are extracted as under for immediate reference: 2. Definitions.- In this Act, unless the context otherwise requires, - X X X (d) central co-operative bank means the principal cooperative society in a district in a State, the primary ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the subject or context,- X X X (e) scheduled bank means a bank included in the Second Schedule; v) The Kerala Co-Operative Societies Act, 1969 (State Act, 1969): The relevant provisions of the State Act, 1969 are extracted as under for immediate reference: 2. Definitions.- In this Act, unless the context otherwise requires X X X (g) co-operative society with limited liability means a society in which the liability of its members for the debts of the society in the event of its being wound up is limited by its bye-laws- (i) to the amount, if any, unpaid on the shares respectively held by them; or (ii) to such amount as they may, respectively, undertake to contribute to the assets of the society; X X X (ia) District Co-operative Bank means a Central Society having jurisdiction over one revenue district and having as its members Primary Agricultural Credit Societies, Urban Co-operative Banks and the principal object of which is to raise funds to be lent to its members, including nominal or associate members, which existed under this Act, immediately before the commencement of the Kerala Co-operative Societie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act, continue in force until altered or rescinded. vi) The Kerala State Co-Operative Agricultural Development Banks Act, 1984 (State Act, 1984): The relevant provisions of the State Act, 1984 are extracted as under for immediate reference: (2) Definitions.- In this Act, unless the context otherwise requires,- (a) Agricultural and Rural Development Bank means the Kerala Co-operative Central Land Mortgage Bank Limited, registered under section 10 of the Travancore-Cochin Co-operative Societies Act, 1951 (X of 1952), which shall hereafter be known as the Kerala State Co-operative Agricultural and Rural Development Bank Limited ; X X X (ka) Kerala State Co-operative Bank means an apex society having Primary Agricultural Credit Societies and Urban Co-operative Banks as its members including nominal or associate members of the District Co-operative Banks who shall continue as nominal or associate members of the Kerala State Co-operative Bank; X X X (iA) Rural Development means any activity intended to promote the development in rural area and intends the following developmental activities- (1) Development of handicrafts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain types of co-operative societies, as were brought within the purview of the BR Act, 1949, could be issued a licence by the Reserve Bank of India. Under Section 22, the term co-operative society would include all types of co-operative societies. This Court observed that in other words, no co-operative society can carry on banking business unless it falls within the permitted categories set out in Section 22. The term co-operative bank has been defined under Section 5(cci) as a state co-operative bank, a central co-operative bank and a primary co-operative bank. Thus, the term co-operative bank does not include all co-operative societies. It only includes the abovementioned three types of societies which function as banks. By virtue of Section 5(ccvii), the term state co-operative bank is to be understood as defined in NABARD Act, 1981. Thus, unless a co-operative society is a state cooperative bank or a central co-operative bank or a primary co-operative bank as defined under NABARD Act, 1981, no licence can be issued by Reserve Bank of India. It was further explained by this Court that under Section 22(1), a primary credit society can carry on banking business. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to co-operative societies which are in force in any State. While interpreting Section 2(f) of the NABARD Act, 1981 which defines co-operative society, this Court held that it is only co-operative societies registered under local or State laws relating to co-operative societies which would be covered under the said definition. If it is a state co-operative bank, then there would be a declaration only by the State Government. If a declaration is by the State Government, it must be in respect of a society which is registered in that State and which can be regulated by the Registrar of Co-operative Societies of that State. It was concluded that the words in any State in Section 2(f) of NABARD Act, 1981 would mean that the co-operative society must be registered under the law in force in any State in which it wants to operate. It was also observed that use of words Co-operative Societies Act, 1912 in the NABARD Act, 1981 also indicates that the definition is restricted to societies registered under the law relating to co-operative societies in the State in which they want to operate. Thus, the term any other law relating to co-operative societies for the time being in force in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk which have been assigned the definitions under NABARD Act, 1981 and while considering the definitions of clause (u) and (d) in Section 2 of NABARD Act, 1981, it was observed, inter alia, that a state co-operative bank is one defined in Section 2(rb) of the State Act, 1969 to mean an apex society having only district co-operative banks as its members. District co-operative bank as defined in clause (ia) of Section 2 of the said Act, is a central society, the principal object of which is to raise funds to be lent to its members, with jurisdiction over one revenue district and having as its members any type of primary societies and federal and central societies having headquarters in such district. Therefore, Kerala State Co-operative Bank is a state co-operative bank as defined in the NABARD Act, 1981 and the district co-operative banks are central co-operative banks as defined in that Act. Hence, they are co-operative banks as defined in Section 5 (cci) of BR Act, 1949, falling within the BR Act, 1949. It was further observed that co-operative banks are further divided into apex banks and other banks. The Kerala State Co-operative Bank is an apex bank and the district c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced on Kerala State Coop. Mktg. Federation Ltd. vs. CIT, (1998) 5 SCC 48. Also, reference was made to CIT vs. Punjab State Coop. Bank Ltd., (2008) 300 ITR 24 which is a judgment of the Punjab and Haryana High Court and it was observed that Section 80P of the Act is a benevolent provision which is enacted by Parliament in order to encourage and promote growth of cooperative sector in the economic life of the country. Therefore, such a provision has to be read liberally, reasonably and in favour of the assessee with a view to effectuate the object of the Legislature and not to defeat it. Therefore, all those co-operative societies which fall within the purview of the Section 80P of the Act are entitled to deduction in respect of any income referred to in sub-section (2) thereof. Clause (a) of sub-section (2) gives exemption of whole of the amount of profits and gains of business attributable to any one or more of such activities which are mentioned in sub-section (2). Sub-section (4) of Section 80P inserted by the Finance Act, 2006 is in the nature of a proviso and such a deduction under the said Section shall not be admissible to a cooperative bank. Thus, co-operative banks are now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (4) of Section 80P of the Act the deduction could not be allowed. The Full Bench of the Kerala High Court accordingly answered the question. Being aggrieved, the assessees approached this Court. It was argued before this Court by the assessees that co-operative societies which are registered under the said Act are entitled to deductions under Section 80P. That the insertion of sub-section (4) to Section 80P of the Act had not led to any change insofar as the assessees therein were concerned. That the moment a cooperative society is registered under the said Act, whatever be its classification, so long as it provides credit facilities to its members, it is entitled to a deduction contained in Section 80P(2)(a)(i) of the Act. A distinction was said to be drawn between eligibility for deduction, and whether the whole of the amounts of profits and gains of business attributable to any one or more such activities under the sub-section could be given. On the other hand, in the said case, it was argued on behalf of the revenue that a society undeserving of any deduction cannot get a deduction contrary to what has been sought to be achieved by Section 80P(4) of the Act. That the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; 24.2. That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in sub-section (2) of Section 80-P must be given by way of deduction; 24.3. That this Court in Kerala State Coop. Mktg. Federation Ltd. has construed Section 80-P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; 24.4. This is for the reason that when the legislature wanted to restrict the deduction to a particular type of cooperative society, such as is evident from Section 80-P(2)(b) qua milk cooperative societies, the legislature expressly says so which is not the case with Section 80-P(2)(a)(i) 24.5. That Section 80-P(4) is in the nature of a proviso to the main provision contained in Sections 80-P(1) and (2). This proviso specifically excludes only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning assigned to it in Part V of the Banking Regulation Act, 1949. 3. In Part V of the Banking Regulation Act, Cooperative Bank means a State Cooperative bank, a Central Cooperative Bank and a primary cooperative bank. 4. Thus, if the Delhi Co-op Urban T C Society Ltd. does not fall within the meaning of Cooperative Bank as defined in Part V of the Banking Regulation Act, 1949, sub-section (4) of Section 80-P will not apply in this case. 5. Issued with the approval of Chairman, Central Board of Direct Taxes. 42. The above material would clearly indicate that the limited object of Section 80-P(4) is to exclude cooperative banks that function on a par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now 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 Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said case notwithstanding that they may also be giving loans to the members which are not related to agriculture. Also, in case it was found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. Analysis: 14. We shall now analyse the aforesaid judgments in a common conspectus. 14.1. In Apex Co-operative Bank of Urban Bank of Maharashtra and Goa Ltd., it was categorically held that under Section 56 of the BR Act, 1949 only three co-operative banks have been defined, namely, state co-operative bank, central co-operative bank and primary co51 operative bank which are covered under Section 56 (cci) read with (ccvii) read with the provisions of the NABARD Act, 1981. Thus, it is only these three banks which are co-operative banks which require a licence under the BR Act, 1949 to engage in banking business. If any bank does not fall within the nomenclature of the aforesaid three banks as defined under the NABARD Act, 1981, it would not be a co-operative bank within the meaning of Section 56 of BR Act, 1949 irrespective of whatever nomenclature it may have or structure it may possess or incorporated unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysing Section 80P of the Act in depth, the following points were noted by this Court: i) Firstly, the marginal note to Section 80P which reads Deduction in respect of income of co-operative societies is significant as it indicates the general drift of the provision. ii) Secondly, for purposes of eligibility for deduction, the assessee must be a co-operative society . iii) Thirdly, the gross total income must include income that is referred to in sub-section (2). iv) Fourthly, sub-clause (2)(a)(i) speaks of a co-operative society being engaged in , inter alia, carrying on the business of banking or providing credit facilities to its members. v) Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under Section 80P. vi) Sixthly, the expression providing credit facilities to its members does not necessarily mean agricultural credit alone. It was highlighted that the distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter in paragraph 48 of the judgment, it was observed that a deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication. That subsection (4) of Section 80P which is in the nature of a proviso specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from Reserve Bank of India. 15. It is on the aforesaid touchstone that these appeals must now be further considered from the point of view of the applicable provisions of law. 15.1. Section 80P speaks about deduction in respect of income of cooperative societies from the gross total income referred to in sub-section (2) of the said Section. From the said income, there shall be deducted, in accordance with the provisions of Section 80P, sums specified in subsection (2), in computing the total income of the assessee for the purpose of payment of income tax. Sub-section (2) of Section 80P enumerates various kinds of co-operative societies. Sub-section (2)(a)(i) states that if a co-operative society is engaged in carrying on the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cooperative bank. in clause (c), it is stated that in Section 5 as per clause (cci), cooperative bank means a state co-operative bank, a central cooperative bank and a primary co-operative bank. clause (ccv) defines primary co-operative bank while clause (ccvii) defines central co-operative bank and state co-operative bank to have the meanings assigned to them in the NABARD Act, 1981. Since the expression banking company is defined under the BR Act, 1949, it would be useful to consider the definition of banking company in Section 5(c) thereof which means any company which transacts the business of banking in India. Banking is defined in Section 5(b) of the said Act to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Therefore, a banking company must transact banking business vis- -vis the public. Thus, in the first place a co-operative society must be engaged in banking business as defined in Section 5(b) of the said Act. For that, Section 22 of the BR Act, 1949, speaks about licence to be obtained by a bank to do banking b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative bank or central co-operative bank under the NABARD Act, 1981 is essentially a principal cooperative society either in a district or in a State, respectively, the primary object of which is the financing of other co-operative societies in the district or the State respectively. Further, NABARD Act, 1981 does not define banking business. Hence, reliance is to be placed, on the definition of banking business in terms of clause (w) of Section 2 of NABARD Act, 1981 which means the RBI Act has to be seen. When the RBI Act is perused, it is noted that clause (i) of Section 2 defines cooperative bank , co-operative credit society , director , primary agricultural credit society , primary co-operative bank and primary credit society to have the meanings respectively assigned to them in Part V of the BR Act, 1949. Therefore, we have to again fall back on Part V of the BR Act, 1949 which has defined a co-operative bank in Section 56 (c)(i)(cci) to be a state co-operative bank, a central co-operative bank and a primary co-operative bank and central co-operative bank and state co-operative bank to have the same meanings as NABARD Act, 1981. 15.8. Since the words bank and ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-operative societies as they apply to, or in relation to, banking companies subject to certain modifications. The object of Section 56 is to provide a deeming fiction by equating a co-operative society to a banking company if it is a co-operative bank within the meaning of the said provision. This is because Chapter V of the BR Act, 1949, deals with application of the Chapter to co-operative societies which are co-operative banks within the meaning of the said chapter. For the purpose of these cases, what is relevant is that throughout the BR Act, 1949, unless the context otherwise requires, - references to a banking company or the company or such company shall be construed as references to a co-operative bank. Therefore, while considering the meaning of a co-operative bank inherently, such a cooperative society must be a banking company then only it would be construed as a co-operative bank requiring a licence under Section 22 of BR Act, 1949 in order to function as such a bank. 15.10. Further, while considering the definition of a co-operative bank under Section 56(cci) of the BR Act, 1949, to mean a state cooperative bank, a central co-operative bank and a primary co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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