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TMI Blog2024 (11) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... ive bank , hence not hit by sub section 4 of section 80P of the Act. Apart from the business income, certain small portion of income of the society was earned from the interest and dividend. It appears from the profit loss A/C of paper book at page 37 that the appellant's co-operative credit society received interest income on investments and dividend income on bank shares. The investee institutions have not been questioned by the authorities below in respect of their status as co-operative societies. The total income from profit gains during the term under consideration is not disputed by the revenue. The income from interest on investment dividend is eligible for deduction u/s. 80P(2)(d) and the remaining amount received from the interest from members on deposit is attributable to assessee society s business income and is deductible u/s. 80P(2)(a)(i) - AO was thus not justified in denying the benefit of Section 80P of the Act to the assessee society. The aforesaid point is accordingly determined in favour of the assessee and against the revenue. - Shri Gagan Goyal, Accountant Member And Shri Sunil Kumar Singh, Judicial Member For the Assessee : Shri. Bhupendra Shah For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk and taking support from the Judgment of Hon ble Supreme Court passed in Totgar s Co operative Sale Society Ltd. V ITO, [2010]322 ITR 283(SC), dismissed assessee s appeal. 3. The assessee has preferred this appeal before the Tribunal on the ground that in the facts and circumstances of the case, learned CIT(A) has erred in upholding the assessment order, disallowing the assessee co operative society s whole amount of profits and gains of Rs. 56,64,971/ claimed u/s. 80P of the Act. 4. In response to the notice issued by the tribunal, learned DR appeared and participated in the hearing. 5. We have perused the material on record and heard learned representatives for both the parties. 6. The main point for determination under appeal is as to whether the appellant CIDCO Employees Credit Society is a co-operative bank within the meaning of section 80P(4) of the Act. If not, the effect thereof ? 7. Learned AR has submitted that the assessee is a co operative credit society engaged in providing credit facilities to its members exclusively. It is not carrying on the business of banking. He has submitted that the issue involved in the present appeal is squarely covered by the order dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 activities; (2) the co-operative credit societies which provide financial assistance to the society; (3) the State Government (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to- (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. The term co-operative society has been defined under section 2(19) of the income tax Act 1961, which reads as under: 2(19) co-operative society means a co-operative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ; Section 2(24)(viia) of the Act provides that income includes- 2(24)(viia)- The profits and gains of any business of banking(including providing credit facilities) carried on by a co-operative society with its members. ii) The Banking Regulation Act, 1949 (BR ACT, 1949): The relevant provisions of the BR Act, 1949 are extracted as under. Section 3 of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 licence to the company to carry on banking business in India; (f) that having regard to the banking facilities available in the proposed principal area of operations of the company, the potential scope for expansion of banks already in existence in the area and other relevant factors the grant of the licence would not be prejudicial to the operation and consolidation of the banking system consistent with mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 Cooperative 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-operative bank means a state co-operative bank, a central co operative 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; (cciia) co-operative society means a society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-State co-oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cooperative bank shall have the meanings respectively assigned to them in the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981); XXX (o) in section 22,- (i) for sub-sections (1) and (2) the following sub- sections shall be substituted, namely:- (1) Save as hereinafter provided, no co-operative society shall carry on banking business in India unless- (a) (*) (b) it is a co-operative bank and holds a licence issued in that behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose: Provided that nothing in this sub-section shall apply to a co-operative society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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,- XXX (d) central co-operative bank means the principal co- operative society in a district in a State, the primary object of which is the financing of other co-operative societies in that district: Provided that in addition to such principal society in a district, or where there is no such principal society in a district, the State Government may declare any one or more cooperative societies carrying on the business of financing other co-operative societies in that district to be also or to be a central co-operative bank or central co-operative banks within the meaning of this definition XXX (u) State co-operative bank means the principal co- operative society in a State, the primary object of which is the financing of other cooperative societi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Reserve Bank of India has the right to issue licences to companies to carry out banking business and no company can carry on a banking business unless it holds a licence issued by the Reserve Bank of India. After the amendment to Section 22 of the said Act, 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. Hon ble Supreme 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 was further observed by Hon ble Supreme Court that when a term is specifically defined in a statute, then, for purposes of that statute, that term cannot bear a meaning assigned to it in another statute. One cannot ignore the specific definition given in the BR Act, 1949 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative Bank, this Court observed that the object and purpose of sub-section (4) of Section 80P is to exclude only co-operative banks that function on par with other commercial banks i.e. which lend money to members of the public. That on a reading of Section 3 read with Section 56 of the BR Act, 1949, the primary co- operative bank cannot be a primary agricultural credit society. As such co-operative bank must be engaged in the business of banking as defined by Section 5(b) of the BR Act, 1949, which means accepting, for the purpose of lending or investment, of deposits of money from the public. Also under Section 22(1)(b) of the BR Act, 1949, no co- operative society can carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by Reserve Bank of India. It was pointed out that as opposed to the above, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. 14.5. It was further observed in the said case that some primary agricultural credit societies had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mary agricultural credit society or a primary co-operative agricultural and rural development bank. The expressions co-operative bank and primary agricultural credit society as well as primary co-operative agricultural and rural development bank are defined in the Explanation as co-operative bank and primary agricultural credit society having the meanings respectively assigned to them in Part V of the BR Act, 1949 .. 13. As regards the judgement of Hon ble Supreme Court in Totgar s Co-operative Sale Society Ltd., [2010]322 ITR 283SC, Hon ble Andhra Pradesh and Telangana High Court in case of The Vavveru co-operative rural bank V The Chief Commissioner of Income Tax (2017) 396 ITR 71(AP), has discussed the decision of the Hon ble Apex Court in Totgars (Supra) and distinguished the facts vide para 34 of its judgement as under: 34. The case before the Supreme Court in Totgars was in respect of a Cooperative Credit Society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Furthermore, even according to section 56(i) (ccv) of the Banking Regulation Act, 1949, defines a primary co-operative bank as the meaning of co- operative society. Therefore, a co-operative bank would be included in the words co-operative society . 10. Admittedly, the interest which the assessee-respondent had earned was from a co operative bank. Therefore, according to section 80P(2)(d) of the Income-tax Act, the said amount of interest earned from a co-operative bank would be deductible from the gross income of the co-operative society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee- respondent. The learned counsel has relied on the case of Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under section 80P(2)(a) (i) of the Income-tax Act. For, in the present case the interpretation that is required is of section 80P(2)(d) of the Income-tax Act and not section 80P(2)(a)(i) of the Income-tax Act. Therefore, the said judgment is inapplicable to the present case. Thus, neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative societies Act, 1960 on 11.10.1999, vide copy of registration certificate placed at page no. 86 of assessee s paper book. According to appellant s bye laws placed at pages 87 90 of assessee s paper book, the main objective of the appellant society is to provide credit facility among its members and the membership is restricted to its employees only. The appellant assessee society s members contribute their funds to society and same funds are given as loans on interest amongst its members only. Assessee s principal business is not banking business as it does not transact banking business with general public in India. The first and third conditions, thus do not exist in the functioning of assessee society. It is accordingly held that in absence of aforesaid two conditions, the appellant assessee does not fall under the category either of a co-operative bank or a primary co-operative bank , hence not hit by sub section 4 of section 80P of the Act. 18. We further notice that apart from the business income, certain small portion of income of the society was earned from the interest and dividend. It appears from the profit loss A/C of paper book at page 37 that the appellant s co-op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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