TaxTMI 
TaxTMI 
2014 (8) TMI 760
X X X X Extracts X X X X
X X X X Extracts X X X X
....emed to be registered under the Karnataka Co-operative Societies Act, 1959. The above definition of co-operative society appears in the Karnataka Co-operative Societies Act, 1959 and the definition of co-operative society means a society registered under that Act. (3) The learned CIT(Appeals) erred in law and on facts in relying on byelaws which is not in consonance with the provisions of the Karnataka Co-operative Societies Act, 1959 and ignoring the definition which was applicable to the Karnataka Co-operative Societies Act, 1959. (4) The learned CIT(Appeals) erred in law and on facts in allowing deduction under section 80P(2)(a)(i) to the assessee ignoring the fact that the assessee does not permit co-operative societies registered under the provisions of Karnataka Co-operative Societies Act, 1959 to become a member and as such, satisfy conditions to become primary co-operative bank. (5) The learned CIT(Appeals) erred in law and on facts in not appreciating the definition of a co-operative bank which as per Explanation below section 80P(4) "the co-operative bank" shall have the meaning assigned to it in Part-V of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-laws of the Assessee from (1) to (27). The Assessee is a credit society. He contended that the word credit is of outmost important to decide the status of the assessee under the Banking Regulation Act, 1949. According to him the assessee is a co-operative credit society but when we question that section 80P does not talk of co-operative credit society, he could not reply thereto but relied on Banking Regulation Act forgetting that the section 80P only uses the word 'co-operative society engaged in-'. The activities of the Assessee are limited to its members. The paid up capital of the Assessee, no doubt, is more than Rs. 1 lacs. It was contended that the issue is duly 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 mem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or..............." the whole of the amount of profits and gains of business attributable to any one or more of such activities. "80P(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 Regulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g on business of banking even for its members is regarded to be a co-operative bank, then, the provisions of Sec.80P(2)(a)(i) will become redundant. Therefore, in our opinion, before deciding the issue whether the Assessee is entitled for deduction u/s 80P(2)(a)(i), it is essential to decide whether the Assessee is a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. In case it is found that the Assessee is a co-operative bank, the Assessee will not be entitled for deduction as stipulated u/s 80P(2)(a)(i) but in case the Assessee is not a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural 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 action 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). 2.5 In our opinion, Sec. 80P(2)(a)(i) provides two types ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o-operative bank is defined under section 5 clause (CCV) of Banking Regulation Act 1949 as under:- "(CCV)" primary co-operative bank" means a co-operative society, other than a primary agricultural credit society- (1) the primary object or principal business of which is transaction of banking business: (2) the paid-up share capital and reserves of which are not 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." 2.8 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 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mbers and staff and assist them as per provisions of the Bye-law. 9. To encourage and help for the financial activities of the members. 10. To provide financial assistance to purchase machineries under the self- employment for setting up their own industry and giving them technical assistance. 11. To provide labourers on commission basis through the sahakari to Government, Semi government, societies - institutions, banks security. 12. Purchase the day today food materials and house hold material on wholesale basis, retail sold on basis. 13. To undertake Govt. activities like and collection savings, germination of plant etc on commission basis. 14. To supply of raw materials, improved seeds, fertilizer and pesticides etc which are necessary to the members and helpful for production. 15. To provide loans on the security of the produce being supplied by the members to the processing units on the basis surety of processing units. 16. To appoint of the Representatives to sell the products manufactured through the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t or otherwise. We noted that the Assesse has categorically accepted before the authorities below vide letter dated 12.8.2013 that the Assessee was accepting deposits of money from the members only. The CIT(A) we noted that incorrectly observed that since the members are also part of the public therefore, he took the view that the assesse is accepting deposit form the public. 2.10 The deposits so accepted are used by the Assessee co-operative society for lending or investment. 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 cannnot be said that the Assessee society was carrying on banking business as it was not accepting deposits from the persons who were not members. 2.11 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. What we have to see whether the nature of the business carrying on by the assessee is a banking business or not. The Income Tax in our opinion is not concerned whether the banking business carried on b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll decide the question after giving such person an opportunity of being heard. The decision of the board shall be final. 21. Removal of membership.-(1) The board may, by a resolution passed by a majority of not less than two thirds of the members present and voting, remove the membership of a person in the co-operative for acts or omissions which are detrimental to the interest of the co-operative: Provided that a member shall not be removed unless a reasonable opportunity of making-representation in this regard has been provided to him. (2) Where a member has been removed by the board, an appeal shall lie to the general body and the decision of the general body shall be final. (3)A person whose membership has been removed shall, subject to the provisions of this Act, rules and bye-laws, be ineligible for re-admission as a member of that co-operative for a period of one year after the date of such removal. [(4) Notwithstanding such removal, a past member shall be liable to be proceeded against, under this Act or the rules or the bye-laws for his acts of commission or omissi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 1872 and residing within the Jurisdiction of co-operative society and registered Trust, Co-operative Societies and Companies, self help groups are also eligible to become member of society. However person should not disqualify as per terms of bye law of society. 11.A. NOMINAL MEMBERS. The persons eligible as per clause No.11 of the Bye laws shall become nominal members of the Sahakari, but 1. They shall pay entrance fee of Rs. 10/-. 2. The said membership will be in force for a period of one year, or until the repayment of the loan or until withdrawal of deposit. 3. The said members have no right to take benefit in the profit of Sahakari, participate in the meetings and to contest vote in election. 11.B. CO- MEMBERS. The persons having qualified as per clause No.11 of the Bye laws shall become Co-members of the Sahakari, but 1. They shall be paid at least one share ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'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 observed as under :- "12. It is not possible to accept this contention. The petitioners are not the banking institutions coming under the purview of the Banking Regulation Act. They are the co-operative societies registered under the Act, and as such they are governed by the provisions of the Act passed by the State Legislature. Consequently, the State Government has control over them to the extent the Act permits. Major activities of the petitioners are to finance its membe....