AI Drafter 
TaxTMI 
TaxTMI 
2014 (4) TMI 357
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.... income vide Sec 2(24) (viia) inserted w.e.f.01/04/2007. As per the amendment only Banking Institutions are affected and not the Co-operative Credit Societies like our society. 4. The learned CIT(A), Belgaum has not properly understood the intention of legislature and speech of Hon. Finance Minister while bringing new section 80P (4) into the Act. 5. The learned CIT(A), Belgaum has not appreciated the facts brought before him that the Banking Regulation Act 1949 and the RBI Licensing policy are not applicable to assessee society. 6. The learned CIT(A), Belgaum has also not considered the following decisions of the Hon. Appellate Authorities which are in favours of the appellant society. (i) Bangalore Commercial Transport Credit Co-operative Society Ltd Bangalore. ITA No.130/Ac-3/Ac-3(1)/CIT (A)-II/2009-10Dt 15/03/2010. By Hon. CIT (A)-II, Bangalore. (ii) M/s Dwarka Souhard Credit Sahakari Ltd. ITA No.202/203/204/DCIT/CC Panji/CITA VI/2010-11 Dt 20/10/2010 by Hon. CIT (A) Bangalore. (iii) Bangalore Commercial Transport Credit Co-operative Society Ltd Bangalore. ITA No.1069/Bangalore/2010 Dt 08/04/2011 by Hon. ITAT, Bangalore. (iv) Samarth urban Co-opera....
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....y covered in favour of the Assessee by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeal nos. 442 of 2013, 443 of 2013 and 863 of 2013. Attention was also drawn towards the decision of the Hon'ble Karnataka High Court in the case of Vyavasaya Seva Sahakara Sangha vs. State of Karnataka & Ors. for the proposition of law by referring to para 12 that merely because the co-operative society is required to advance loan to its members, it does not cease to be a co- operative society governed by the Co-operative Societies Act nor can they be treated as banking companies. The activities carried out by the society cannot be regarded to be banking activities as contemplated under the Banking Regulation Act, 1949. Reliance was also placed on the decision of the Bangalore Bench of this Tribunal in ITA No. 72/Bang/2013 in the case of ITO vs. Divyajyothi Credit Co-operative Society Ltd. for the A.Y 2009-10 in which it was held that the provisions of Sec. 80P(4) are applicable only to credit co- operative banks and not to credit co-operative society. Reliance was also placed on the decision of the Panaji Bench....
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....ary 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 taluka and the principal object of which is to provide for long-term credit for agricultural and rural development activities." 3.1 From the plain reading of Sec. 80P(2)(a)(i) it is apparent that if the co-operative society is engaged in carrying of business of banking or providing credit facilities to its members, the co-operative society is entitled for deduction on whole of the income relating to any one or more of such business. From the reading of Sec. 80P(4) it is apparent that this section denies deduction to a co- operative bank other than a primary agricultural credit society or primary co- operative agricultural and rural development bank. The provisions of Sec. 80P(4) was introduced in the statute by the Fin....
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....l and rural development bank, the provisions of Sec. 80P(2)(a)(i) will be applicable to the Assessee provided the Assessee is engaged in carrying on business of banking or providing credit facilities to its members. This section nowhere states co-operative credit society except mentioned under proviso 2 to section 80P which is relevant for sub-clause 6 or 7. It has nothing to do with section 80P(2)(a)(i). 4. In our opinion, Sec. 80P(2)(a)(i) provides two types of activities in which the co-operative society must be engaged to be eligible for deduction under sub-clause (i). These two activities are not alternates ones because the section allows deduction to the co-operative society on the whole of profits and gains of business attributable to any one or more of such activities. This pre- supposes that eligible co-operative society can carry on either one of these two businesses or can carry both these businesses for the members. If the Assessee co-operative society carries on one or both of the activities, it will be eligible for deduction. These two activities are (a) co-operative society engaged in carrying on business of banking facilities to its members or (b) co-operative so....
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....r the purpose" 7. From the aforesaid definition, it is apparent that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transacted by it is a banking business, secondly, the paid up share capital and reserve of which are 1 lakh or more and thirdly, by laws of the co-operative society do not permit admission of any other co-operative society as a member, it will be regarded to be primary co-operative bank. If co- operative society does not fulfil any of the conditions, it cannot be regarded to be a primary co-operative bank. Therefore, in the case of the Assessee we have to examine on the basis of the facts and materials on record whether the Assessee co-operative society complies with all the three conditions. In case, it does not comply with all the three conditions, it cannot be regarded to be a co- operative bank and the provisions of Sec. 80P(4), in our opinion, will not be applicable in the case of the Assessee. Once, the Assessee will not fall within the provisions of Sec. 80P(4), the Assessee, in our opinion, will be eligible to get deduction u/s 80P(2)(a)(i) in respect of whole of the income which the....
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....rative society for lending or investment. This fact has not been denied by the assessee or by his counsel in the written submission made before us. We have also noted from bye-laws 4 which deals with the funds of the society that the society can raise the funds by accepting deposits from members. This rule restricts accepting of the deposit to the members only. Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects as enumerated above. Thus, in our opinion, condition no. 1 does not stand satisfied and it can be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who were members. In the submission the authorised representative took the plea that the assessee has not obtained banking licence. In our opinion it is not necessary that the co-operative society should have a banking licence as per the definition under the Income Tax Act for carrying on banking business. If licence is not obtained it may be an illegal banking business under the other statute. What we have to see whether the nature of the business carrying on by the assessee is a banking bu....
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....act is clarified further by sub-section (2) as re- produced hereinabove that no co-operative society shall refuse admission to the membership, without sufficient reason, to any person who is qualified to become member under the provisions of this Act, rules and bye-laws. This clearly proves that in case the rules and bye-laws of the other co-operative society provides otherwise, the co-operative society may not be admitted as a member of the co-operative society. The person, as per sub-section (2), must be qualified for becoming member not only u/s 16(1) but also as per the rules and bye-laws of the co-operative society. We cannot read sub-section (2) in the manner that the rules and bye-laws cannot permit the admission of any other co- operative society as a member of the co-operative society. Had that been the intention of the legislature, they would have not used the words "this Act, rules and bye-laws" in sub-section (2). 9. We have gone through the bye-laws which contains the membership which is bye-laws no.14. It states as under :- "14. Membership : i) "A" Class members comprising of individuals. ii) "B" Class membership to firms, associates etc. iii) Any perso....
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....of CIT(A) following the decision of the Tribunal in the case of ACIT, Circle 3(1), Bangalore vs. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No. 1069/Bang/2010 holding that Sec. 80P(2)(a)(i) is applicable only to credit co-operative society a and not to co-operative bank. With due regards to the Bench, we are unable to find any term "credit co- operative society" u/s 80P(2)(a)(i) or u/s 80P(4), therefore, this decision cannot assist us. We noted that the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeals no. 442 of 2013, 443 of 2013 and 863 of 2013 (supra) vide order dt. 15.1.2014 took the view that Sec. 80P(4) will not apply to a society which is not a co-operative bank. In the case of Vyavasaya Seva Sahakara Sangha vs. State of Karnataka & Ors. (supra) we noted that the issue before the Hon'ble High Court in the Writ Petition filed by the Petitioner related to the legislative competence of the State Legislature for issuing a circular. The issue does not relate to the claim of deduction u/s 80P(2)(a)(i). While dealing with this issue, the Hon'ble High Court under para 12 observe....