TaxTMI 
TaxTMI 
2015 (1) TMI 867
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....it society" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949). As per section 59cciv) of the Banking Regulation Act, "primary agricultural credit society' means a cooperative society - 'the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops)". According to the CIT(A), there was no clause incorporated in the bye-law of the assessee bank for provision of financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities and the agricultural credit provided by the assessee is negligible. Thus, the CIT(A) held that the assessee had failed to fulfil its obligation as defined u/s. 59cciv) of the Banking Regulation Act and since the assessee has been more in the field of banking instead of the principal objective of extending credit facility to its members for agricultural purposes, the assessee cannot claim deduction u/s. 80P of the Act. The CIT(A) relied on the judgment of the jurisdictional High Court in the case of M/s. Thatha....
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....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 and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities." 8.1 In our opin....
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....he 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 subclause 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" 8.5 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....
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....ing household articles, machinery, jeep, autorikshaw, car etc. 14) To accept deposits from primary non-agricultural co-operative societies. Out of these, only four objects (i.e. clause no. 2,4,5 and 10) are related to agriculture or agricultural operations. So from the bye-laws of the bank it cannot be aid that the primary object or principal business of the bank is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities. 8.7 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 in vestment, 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 dep....
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.... 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 stands satisfied and it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right. So far as the second condition is concerned, there is no dispute that the paid up share capital and reserves in the case of the Assessee is more than Rs. 1 lac. Therefore, the Assessee satisfies the second condition. 8.9 Thus, we notice that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with. 8.10 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT, 41 305 (Hyd). We notice that this decision is applicable to the facts of the case before us. In that 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 socie....
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....s 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 Souharda Sahakari Ltd. in ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra). 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....
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....s which does not by itself make its income any the less income from business. The same judgment was followed in the case of CIT vs. Arcot Dhanasekhara Nidhi Ltd., 59 ITR 480 (Mad.), CIT vs. Dharmavaram Mutual Benefit Permanent Fund Ltd., 67 ITR 673 (AP) and CIT vs. Bhavnagar Trust Corporation (P) Ltd., 69 ITR 278. Further, the Hon'ble Kerala High Court in the case of Kottayam Co-operative Land Mortgage Bank Ltd. vs. CIT, 172 ITR 443(Ker.) where it was held as under: "The Income-tax Officer held the view that the assessee is not entitled to claim any further exemption under clause (c) as the assessee is entitled to exemption u/s. clause (a) in respect of the banking activities. The Appellate Assistant Commissioner, in allowing the assessee's appeal, held that exemption under clause (c) is in addition to the exemption allowable under clauses (a) and (b) and directed the Income-tax Officer to allow a deduction of Rs. 20,000 separately, taking into consideration the property income earned by the assessee. The Revenue carried the matter in appeal before the Appellate Tribunal. The Tribunal held that the rule of construction of ejusdem generis applies to the construction of clause (c)....
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....e business of the assessee. In this view of the matter, interest earned by a co-operative society, which was carrying on the business of supplying surgarcane on statutory investment in Government securities, was held profit attributable to the carrying on of the activity of supplying sugarcane (CIT vs. Co-operative Cane Development Union Ltd. (1979) 118 ITR 770 (All.) The profits and gains from such investments were connected with or incidental to the carrying on of the actual business. Where, however, the assessee as owner of certain property lets out that property and receives rental income, the income thus received cannot partake of the character of profits and gains attributable to an activity carried on by the society. The building let out is not a commercial asset or the rent received is not profit or gain arising from the exploitation of a business asset. The word "activity" is wider than the word "business". It connotes a specified form of supervised action or 0field of action. Read in the context of the profit earning activity of a co-operative society, it means the corporate activity of the society, that is to say, whether or not they amount to a business, trade or pro....
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....ld be claimed by banks referred to in clause (viia) in respect of bad and doubtful debts. It provides certain terms and conditions under which such deductions could be claimed by a particular bank. Section 36(1)(viia) commences with following words "in respect of any provision for bad and doubtful debt made by" and sub-clause (a) reads as under: "A scheduled bank not being a bank approved by Central Government for the purposes of clause (viiia) or a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half percent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner." Under explanation to Section 36 for better understanding of certain terms used in sub-clause (a) of clause (viia) definitions ar provided. For the purpose of the above appeals,....
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....nance Act of 2007, coming into effect from 01.04.2007, one has to understand what was the position prior to 01.04.2007 and after 01.04.2007, they were enjoying the benefits provided u/s. 80P. With the introduction of Finance Act 2007 with effect from 01.04.2007, they could claim deductions as provided u/s. 36(1) of the Act. We are concerned with sub-clause(a) of clause (viia) to Section 36(1). Prior to Finance Act of 2007, co-operative bank was not included in sub-clause (a) so far as provisions for bad and doubtful debts. With effect from 01.04.2007, co-operative bank was included under sub-clause 9a) of clause (viia) of Section 36(1). It is further clarified that only such co-operative bank other than a primary agriculture credit society, etc. is included in sub-clause (a) of clause (viia). The provision is a beneficial one. No doubt, plain reading of main Section 36(1) (viia)(a) and Explanation under said section present certain difficulties, but situation is not without possibilities. The object and intention of the legislature is to be understood by harmonious construction of the provisions. The policy was to include Co-operative Banks as well, as they could not take shelter u....
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....eaning of 'place' in Explanation (ia) to Section 36(1)(viia), their Lordships opined as under: "Next question raised pertains to the assessee's claim for deduction of provision for bad debts in terms of section 36(1) (viia) of the Income-tax Act. Here the only question raised is as to basis of classifying branches of the bank as rural branches and other branches. Rural branch is defined under Explanation (ia) to section 36(1)(viia) as follows: "rural branch" means a branch of a scheduled bank or a nonschedules bank situated in a place which has a population of nor more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year.". What is clear from the above is that the classification between rural and other branches of a bank is made based on the population in the place where the concerned branch is located. While the assessee's case that found acceptance with the Tribunal is that "place" referred to in the above definition clause is the ward of a panchayat or municipality, the Assessing officer took the view that "place" contained in the definition clause should mean a revenue villa....
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.... the population is less than 10000. So much so, rural branches are such of the branches located in a village where the population in the village as a unit is less than 10000." It is clear from the above judgment that this Court had already an occasion to consider the meaning of place with reference to above section. Therefore, rural branch is a branch which falls under Explanation (ia) to Section 36(1) (viia). Tribunal had to reverse the judgment of CIT(appeals) in the light of the decision in Lord Krishna Bank's case (supra). 12. Then coming to the controversy whether co-operative bank could claim deduction of 10% of the aggregate average advances while computing the income irrespective of falling under rural branch as per Explanation, in order to consider a company as a banking company it must transact business of banking in India as defined u/s. 5(c) of Banking Regulation Act. Explanation to Section 5(c) clearly indicates which are the transactions which would not come within the meaning of banking business. Non-schedule bank means a banking company as defined u/s. 5(c) which is not a scheduled bank. As already stated above, co-operative bank cannot be considered as a sche....