TaxTMI 
TaxTMI 
2014 (10) TMI 502
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....ppellant was a co-operative society carrying on business of banking to bring the appellant into the clutches of provisions of section 80P(4) of the I.T.Act, 1961 to deny the deduction claimed by the appellant. 4. The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the appellant is neither a co-operative bank nor governed by Banking Regulation Act or RBI Act and ought to have appreciated that the provisions of section 80P(4)of the I.T. Act are not applicable to the appellant society which income is fully deductible under section 80P(2)(a)(i) of the I.T. Act, 1961. 5. The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee society engaged in providing credit facilities to its members cannot be treated as a primary Co-operative Bank within the definition of section 5(ccv) of the Banking regulation Act, 1949. 6. The learned CIT(Appeals) erred in law and on facts in not appreciating the definition of a co-operative society as well as definition of Banking while coming to the conclusion that the appellant is a primary co-operative bank. 7. In the facts and circumstances of the case, the appellant rely ....
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.... 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 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 c....
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....on (2), 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 confined to a taluka and the principal object of which is to provide for long-term credit for agricultural and rural development activities." 2.4 From the plain reading of Sec. 80P(2)(a)(i) it is apparent that if the co....
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....ssessee 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 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 alternate ones because the section allows deduction to the co-operative....
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.... 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 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 fac....
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....ve Committee. 12. To set up Reserve Funds for education of the members or children of members which shall be within the limits as framed by the Board of Directors and mandated by the General Meeting. 13. To make fund transfer and provide rehabilitation with or to other co-operative societies having common objectives, based on the philosophy of co-operative and in accordance guidelines issued by the Federation of Co-operative. 14. To attach and realize any of the property or properties that come in the possession of co-operative to recover partly or full dues. 15. In order to achieve the objectives of the co-operative, constituting the union and to establish co-business, partnership firms and other incidental concerns within the framework of provisions of the Act and rules made thereunder." On the basis of these objects whether it can be said that the primary object or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner : "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand ....
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.... The Karnataka Souharda Sahakari Act, 1997 permits admission of any other co-operative society as a member. The provisions of Sec. 20 are laid down as under :- "20. Persons who may be admitted or continued as members :- (1) Subject to the provisions of this Act, no person shall be admitted as a member of a co-operative,- a) unless he needs the services of the co-operative and accepts the responsibility of membership and is competent to contract under the Contract Act, 1872 (Central Act IX of 1872); b) if he conducts any business, such business being in conflict or competition with the business of the co-operative as specified in the bye-laws; and c) unless he fulfils such other conditions as may be specified in the bye-laws of the co-operative: Provided that after the registration of a co-operative, the members shall be admitted only by the elected board. (2) No person shall be eligible to continue as a member if such person ,- a) has not used the services of the co-operative for two consecutive years to the minimum level specified in the bye-laws; or b) has not attended three consecutive general meetings of the co-operative and such absence has not recei....
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....on, a nominal or associate member shall have such privileges and rights of a member and be subject to such liabilities of a member as may be specified in the bye-laws of the Co-operative." The aforesaid provision of Sec. 20 to 21A mandates admission of any other co-operative society as a member of the co-operative society. The word used in Sec.21A is 'may'. Section 21A further states that the co-operative society can be admitted as nominal or associate member for any specific purpose for any specific period as may be mentioned in the 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. 2.10 We have gone through the bye-laws which contains the membership which is bye-laws no.6. They state as under:- "6. Admission to Membership: Following are qualified to be the members of the co-operative: 1. a) A person residing within the limits of area of operation of cooperative or having business or industry within such limits of co-operative, who has attained the age of 18 years, not being insolvent and unsound mind. b) Propr....
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.... 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 members. For the purpose of financing its mem....