TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 263
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....red in law as well as on facts in making a distinction between a co-operative bank and co-operative society." 2. The brief facts of the case are that the Assessee is a co-operative society registered under the Karnataka State Co-operative Societies Act. The Assessee filed return declaring gross total income of Rs. 4,24,499/- and claimed deduction u/s 80P(2)(a)(i) and therefore net taxable income was shown to be 'nil'. The AO did not allow the deduction to the Assessee u/s 80P(2)(a)(i) and the income was assessed at Rs. 4,24,500/-. The AO while denying the deduction to the Assessee u/s 80P(2)(a)(i) took the view that the Assessee is a primary co-operative bank and therefore provisions of Sec. 80P(4) are applicable in the case of the Assessee. The Assessee went in appeal before the CIT(A). CIT(A) dismissed the appeal of the Assessee. 2.1 The Assessee filed the following written submission : "The issue in appeal relates to interpretation of the word 'banking' with reference to the business of co-operative credit societies. When section 80P(4) is analyzed, it takes into its ambit the cooperative bank and for this pur....
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.... Reserve Bank of India. 2. We are governed by the Co-operative Societies Act enacted by the Government of Karnataka and are duty bound to honor every of the direction given by the state. 3. Our deposits used for the purpose of lending although akin to or similar to the term banking, it can never be equal to the term banking as defined under Banking Regulation Act. 4. The Reserve Bank of India in its FAQ's posted on its website rbi.org has clarified that Non Banking Financial Companies doing functions similar to banks can never be termed as banks. The relevant question and answer is reproduced below: FAQ's from rbi.org Q.No 2 "NBFCs are doing functions similar to banks. What is difference between banks & NBFCs? Ans. NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below: i. NBFC cannot accept demand deposits; ii. NBFCs do not form ....
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....ted with that of banking. By no stretch of imagination, an activity of earning interest can be equated with that of banking. Banking business in India has to be one which the RBI recognizes as banking. Reserve bank is very categorical in allowing the use of the word "bank". No entity without an approval of banking license can carry on banking business. Mere activity of borrowing for the purpose of lending or to earn interest cannot by itself be termed as "banking". A "bank" has to be a bank, properly recognized as such enjoying the legal status to designate itself as bank. Banking as such is a subject of control of the centre and not of the state. Keeping this very basic factor, the further developments can find force. The Hon'ble Finance minister when he declares on open forum of the Parliament that amendments brought u/s 80P(4) will not affect all the co-operative sectors under field of credit lending, it means the intention of the statute is to cover only co-operative banks doing banking business. In explanatory notes and other relevant discussions, there is only a reference about bringing the co-operative banks at par with that of nationalized. 10.....
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....co-operative society is carrying on banking business, the Assessee will not be entitled for the exemption. Reliance was placed on the decision of Hyderabad Bench of The Citizen Co-operative Society vs. Addl. CIT in ITA Nos. 1003/Hyd/2011 & 1004/Hyd/2011 dt. 2.7.2012. 2.3 We have heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below as well as the decisions and the entire material and case laws referred to before us. The question before us is whether the Assessee is entitled for deduction u/s 80P(2)(a)(i) and whether the Assessee is hit by the provisions of Sec. 80P(4) which was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The relevant provisions of both the sections are re-produced for our ready reference as under : "80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums re....
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.... apply to any co-operative bank other than a primary agricultural credit society or primary co-operative agricultural and rural development bank but as per the provisions of Sec. 80P(2)(a)(i), a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members is entitled for deduction. After the insertion of Sec. 80P(4), the provisions of Sec. 80P(2)(a)(i) were not amended, rather the co-operative society engaged in carrying on business of banking facilities to its members continued to be entitled for deduction u/s 80P(2)(a)(i). This pre-supposes that every co-operative society engaged in carrying on business of banking cannot be regarded to be a co-operative bank. The embargo put u/s 80P(4) are applicable only to a co-operative bank. In our opinion, it cannot be said that a co-operative society cannot carry on business of banking facilities to its members even if it is not a co-operative bank. If we read the provisions in the manner that every co-operative society engaged in carrying 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. The....
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....(a)(i). There is no prohibition u/s 80P not to allow deduction to such co-operative societies in respect of business relating to its members. 2.3.2 Now, the question before us is whether the Assessee is a co-operative bank or not. 'Co-operative Bank' is defined in Part V of the Banking Regulations Act, 1949 as under : "Co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank:' 2.3.3 From the definition of Co-operative bank it is apparent that Co-operative bank means state' co-operative bank, a Central Co-operative Bank and a Primary Co-operative bank. It is not the case of the revenue that the assessee is a state Co-operative bank or Central Co-operative bank. We have therefore to find whether the assessee is a primary Co-operative bank. 2.3.4 The Primary Co-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 transactio....
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.... (4) To provide financial assistance to do allied to agricultural industrial or such business. (5) To provide financial assistance to promote social and education of members by arranging programmes and to encourage their overall development. (6) To develop weaker sections of society by project work. (7) To purchase suitable sites and building construction thereon. (8) Programming for promotion of Supreme Court, ST and female members. (9) To provide loans to purchase machinery and evehicles. (10) To provide loans against gold and silver ornaments. (11) To sanction loan against hypothecation of stores in trade and cottage industrial products. (12) Economical and technical assistance to self improved position to establish their own business or industry. (13) To undertake financial active with pre-permission of excluding of co-operative department to active the objects st....
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.... Karnataka State Co-operative Societies Act, 1959 permits admission of any other co-operative society as a member. The provisions of Sec. 16 are laid down as under : "16. Persons who may become members - (1) Subject to the provisions of Section 17, no person shall be admitted as a member of a co-operative society except the following, namely:- (a) an individual who needs the services of such co-operative society and is residing in the area of the operation of the society and is competent to enter into contract under the Contract Act, 1872 (Central Act IX of 1872); (a-1) a depositor; (b) any other co-operative society; (c) the State Government or the Central Government; (d) the Life Insurance Corporation of India, State Warehousing Corporation and such other institutions as may be approved by the State Government; (e) a firm, a company or any other body corporate constituted under any law for the time being in force including a society registered under the Karnataka Societies Registration Act, 1960 (Karn....
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....rimary co-operative bank. In case the bye-laws permit for the admission of any other co-operative society as a member, the Assessee will not be not treated as a co-operative bank and the provisions of Sec. 80P(4) will not apply to the Assessee. The Assessee will be entitled in that case, in our opinion, for the deduction as stipulated u/s 80P(1) r.w.s. 80P(2)(a)(i). 2.3.8 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of Citizen Co-op. Society Ltd. (supra). We noted that this decision is not applicable to the facts of the case before us. In this decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a co-operative bank. The Society is governed by the Banking Regulations Act. Therefore, the society being a co-operative bank providing banking facilities to members is not eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of sub-section (4) to section 80P. In view of this finding, the Assessee was denied deduction u/s 80P(2)(a)(i). We have also gone through the decision of the Bangalore Bench of the Tribunal in the case of ITO v. Divy....
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....king" as defined in section 5(b) of the Banking Regulation Act, 1949.' This decision, in our opinion, is not applicable to the case before us because the provisions of Sec. 80P(2)(a)(i), as we have already held in the preceding paragraphs, are applicable to a co-operative society which is engaged in carrying on banking business facilities to its members if it is not a co-operative bank. We have also gone through the decision of this Bench in the case of DCIT vs. Jayalakshmi Mahila Vivido deshagala Souharda Sahakari Ltd. in ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra) for which the undersigned is the author. While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 of its order, this Tribunal has held as under : "12. From the aforesaid objects, it is apparent that none of the aims and objects allows the assessee cooperative society to accept deposits of money 'from public for the purpose of lending or investment. In our opinion until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. Therefore, the assessee will....