TaxTMI 
TaxTMI 
2015 (11) TMI 1196
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.... (3) The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee society being a credit co-operative society engaged in banking business is a Primary Co-operative Bank within the definition of section 5(ccv) of the Banking Regulation Act, 1949 and as such, not eligible for deduction under section 80P(2)(a)(i) of the I.T. Act, 1961. (4) The learned CIT(Appeals) erred in not appreciating the facts of the case and also relying upon the decision of High Court of Karnataka in CIT vs. Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, Bagalkot, ITA No.5006/2013, dated 5.2.2014 and other decisions ignoring the fact that the ITAT, Panaji Bench, has categorically distinguished the decision of Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, in various cases of co-operative society and held that the decision is in regard to revisionary order u/s 263. 3. Brief facts of the case are that assessee is a cooperative society registered under the Karnataka Cooperative Societies Act, 1959. The assessee filed return of income on 17/09/2011 declaring gross total income at Rs. 15,50,319/- and after claiming deduction under sec.80P(2)(a)(i)....
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.... (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of co-operative society engaged in - (i) carrying on the business of banking or providing credit facilities to its members, or (ii) ------------------------------ the whole of the amount of profits and gains of business attributable to any one or more of such activities: 6.1.1 The clause (4) of sec.80P inserted by the Finance Act,2006 w.e.f. 01-04-2007, which has been invoked by the Assessing Officer to deny deduction to the appellant co-operative society reads as under: (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 operat....
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....he paid up share capital and reserves of which are not less than one lakhs of rupees; and (3) the bye-laws of which do not permit admission of any other co-operative society as a member. 6.1.3 The Assessing Officer has concluded that the appellant co-operative society satisfies all the above mentioned three conditions and therefore it is held to be a 'Primary Cooperative Bank' and hence its claim of deduction u/s 80P(2)(a)(i) has been denied u/s 80P(4). Before arriving at this conclusion the Assessing Officer has also referred to the newly inserted provisions of Sec.2(24)(viia), inserted by the Finance Act,2006 w.e.f. 01-04-2007 which reads as under: "(24) "Income" includes - (viia) The profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;" The Assessing Officer has contended that the purpose of introduction of these provisions was to tax the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members. The Assessing Officer has also referred to the definition of 'Banking&#....
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...., 2006 wherein the Hon'ble Finance Minister explains the reasons for withdrawal of tax benefits available to certain co-operative banks, the relevant portion of the said notes is reproduced hereinbelow: "Section 80P, inter alia, provides for a deduction from the total income of the cooperative societies engaged in the business of banking or providing credit facilities to its members, or business of cottage industry, or of marketing of agricultural produce of its members, or processing, without the aid of power, of the agricultural produce of its members, etc. The co-operative banks are functioning at par with other commercial banks, which do not enjoy any tax benefits. It is, therefore, proposed to amend section SOP by inserting a new sub-section (4) so as to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than primary credit society or a primary co-operative agricultural and rural development bank. It is also proposed to define the expressions "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank". It is also proposed to i....
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.... the issues in this case have been considered and decided by various ITATs across the country. The jurisdictional ITAT of Bangalore bench in a number of cases while deciding the issue in favour of the assessees has held that the cooperative societies are not doing banking business and therefore, the provisions of section 80P(4) are not applicable to them. The jurisdictional ITAT Panjim bench has also in a number of cases where the assessee cooperative society engaged in providing credit facilities to its members and not accepting deposit from public as evidenced from their bye laws or the cooperative societies accepting other cooperative societies as members have held that those cooperative societies are entitles to the benefit of deduction u/s 80P(2)(a)(i) of the I.T. Act. 8. Now, after the Gujarat High Court in the case of CIT Vs Jafari Mom in Vikas Coop Credit Society Ltd ITA 442, 443 & 863 of 2013 deciding the issue in favour of the assessee, the Karnataka High Court in the cases of CIT Vs Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot ITA 5006/2013 dt 5th Feb 2014, Commissioner of Income Tax (A), Mysore & Others Vs General Insurance Employees Coopera....
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....enterprises guided by co-operative principles and matters connected therewith. It is also worth noting that the word Co-operative has been used on innumerable occasions in The Karnataka Souharda Sahakari Act, 1997. A few examples of which are: a. Section 4(1) - Co-operatives which may be registered:- No Co-operative shall be registered under this Act, Unless b. Section 6(1) - Certificate of Registration:- Where a co-operative is registered or deemed to be registered, the certificate of registration duly signed and sealed by the Registrar shall be conclusive evidence that the co-operative mentioned therein, is a cooperative registered or deemed to be registered under this Act. c. Section 10(1) - Bye Laws - Subject to the provisions of this Act or rules, every cooperative shall function in accordance with its bye-laws which as far as possible shall adhere to the co-operative principles. d. Section 32(1) - Maintenance of records, Accounts, etc :- Every co-operative shall maintain at its registered office the following, namely:- e. Section 33(1) - Audit :- Every Cooperative shall get its accounts audited atleast once a year f. Secti....
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....oviding credit facilities to members and not registered with the RBI cannot be denied the exemption under section 80P(2)(a)(i) of the I.T. Act. The operative part of the judgment reads as follows: "Therefore, the intention of the legislature is clear. If a Co-operative Bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a. primary co-operative agricultural and rural development bank. They did not want to extend the said benefit to a Co-operative bank which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, as the assessee is not a Cooperative bank carrying on exclusively banking business and as it does not possess a licence from Reserve Bank of India to carry on business, it is not a Co-operative bank. It is a Cooper....