TaxTMI 
TaxTMI 
2014 (11) TMI 259
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....gh Court. CIT, Belgaum Vs Sri Biluru Gurubasava Pattina Sahakari Sangh Niyamath, Bagalkot ITA No 5006/2013 dt 5th February 2014 Kar. H.C Dharwad Bench. 3. The learned Commissioner of Income Tax (Appeals), Belgaum has erred in treating the appellant as "Primary Cooperative Society" read Section 5 of the Banking Regulation Act 1949 even when the first condition is not fulfilled as held in ITAT Panjim cases: (i) Tararani Mahila Coop Credit Society Vs ITO Ward 1(2), Belgaum ITA No 229 & 230/PNJ/2013 dt 28.02.2014. (ii) DCIT Vs Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd ITA 1 to 3/PNJ/2012 dt 30.3.2012. In the assessment year 2009-10 following ground has also been taken 4. The learned CIT(Appeals) erred in upholding the disallowance made by the Assessing officer the Government Audit Fees Rs. 97,720/- which has been held by the Hon'ble Bombay High Court in the case of Shri Varana Sahakari Sakhar Karkhana 253 ITR 226 that 43B is not applicable to Government Audit Fees." 2. Both these appeals are barred by limitation by 101 days. The assesse filed the application for condonation of delay alongwith affidavit in both the appeals. The reason....
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.... 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 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 Regula....
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....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 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 ....
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....nk. 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. 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 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 ....
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.... We have therefore to find whether the assessee is a primary Co-operative bank. 11. 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 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." (Asst. Years: 2009-10 & 2010-11) 12. 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....
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....ve the aims of the society as to provide better service to the members with prior permission of Registrar." 14. 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 or otherwise, and withdrawable by cheque, draft, order or otherwise." From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwise and withdrawal of these deposits by cheque, draft, order or otherwise and these deposits are accepted for the purpose of lending or investment. These deposits must be accepted from the public, not only from the members. These deposits must be repayable on demand or otherwise and could be withdrawn by the depositor by cheque, draft or otherwise. We noted that the Assessee has categorically accepted before the authorities below that the Assessee was not accepting deposits of money from....
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.... 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 (Karnataka Act 17 of 1960); (f) a Market Committee established under the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966 (Karnataka Act 27 of 1966); (g) a local authority. Explanation.-For the purpose of this clause, local authority means, a Municipal Corporation, Municipal Council, Town Panchayat, Zilla Panchayat, Taluk Panchayat or Grama Panchayat constituted under any law for the time being in force] (2) No co-operative society shall, without sufficient cause, refuse admission to membership to any person duly qualified therefore under the provisions of this [Act, rules and bye-laws]" The aforesaid provision of Sec.16 mandates admission of any other co-operative society as a member of the co-o....
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....he Board shall decide in the matter within 3 months from the date of receipt of application for membership whether to accept or reject; and if the member does not receive any intimation about his application before the end of this period, his application deemed to have been rejected u/s 105(a) of the KCS Act 1959." From clause 16 & 18, it is apparent that the bye-laws of society does permit the admission of any other co-operative society as member as under the Co-operative Societies Act there is no prohibition for making co-operative society to be the member. Therefore, as per rules 16(3), the co-operative society can be made as member. Thus the third condition for becoming primary co- operative bank is not complied with. Since the assessee society does not comply with all the three conditions, therefore, in our opinion the assessee society does not become a primary co-operative bank and in view of explanation (a) of section 80P(4) it has not to be regarded as a co-operative bank and is not hit by section 80P(4). 20. We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT (supra). We noted that this d....
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....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 members, they borrow money from the financing agencies and repay the same. Merely because the petitioners-the co-operative societies in question-are required to advance loans to their members, they do not cease to be co-operative societies governed by the Act nor can they be treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to "banking" as contemplated under the Banking Regulation Act, 1949, inasmuch as these co-operative societies are not established for the purpose of doing "banking" 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 Vividodeshagala So....