TaxTMI 
TaxTMI 
2014 (9) TMI 1138
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.... 4. The learned Appellate Authority has erred in confirming Assessing Officer‟s stand on withdrawing deduction u/s 80P (2) (a) (i) of I.T.Act,1961 on the presumption that our Multipurpose Co-operative Society is a "Co-operative Bank"as defined u/s.56(ccv) of Part V of Banking Regulation Act, 1949. 5. The learned Appellate Authority has erred in considering the fact, that on Amendment of Section 2(24) (viia) w.e.f. 1-04-2007, the definition of Income has expanded to include within its ambit profits and gains from any business of banking including providing credit facilities carried on by Co-operative Society with its members. On the contrary, the amendment was inserted to specifically cover income from any banking business including credit facilities providing to its members which are Co-operative Banks, as section 80P(4) specifically withdraws deduction u/s 80P(2) (a)(i) of the Income Tax Act, 1961 in the hands of Co-operative Banks. 6. The learned Appellate Authority has erred in accepting the reliance of Assessing Authority on definition of Primary Co-operative Bank u/s 56(ccv) of the Banking Regulation Act, 1949 to consider Appellant as Co-operative ....
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.....f. 2007 also provides that the deduction in respect of Bad Debts shall be allowable also to Cooperative Banks. This amendment also suggests that the deduction u/s 80P has been withdrawn by Finance Act, 2006 w.e.f 1-4-2007 in respect of Co-operative Banks only. 3. Order of Appellate Tribunal, Panaji (2012) VI Tax Corp(A.T.)28134 (PNJ) in case of the Deputy Commissioner of Income Tax, Central Circle, Panaji, Goa Vs Jaylakshmi Mahila Vividodeshagala Souhard Sahakari Ltd, by its order held that provisions of section 80P(4)are not applicable and the Cooperative Society is eligible for deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961. It is the order of jurisdictional tribunal bench. 4. Order of Appellate Tribunal, Bangalore in case of Income Tax Officer Vs Vasvi Credit Co-operative Society Ltd dated 14/12/2012, wherein it was held that provisions of section 80P(4) are applicable to Co-operative Bank only and not to Co-operative Credit Societies. (II) Judgements of the Commissioner of Income Tax (Appeals) 1) Order of the Commissioner of Income Tax (Appeals), II Bangalore in case of Appeal No.130/AC/3(1)/CIT(A)-II/200910, in case of Bangalore Com....
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....5 in numbers which includes Co-operative Credit Societies which are not Cooperative Banks as they do not hold banking license from Reserve Bank of India. 11. The learned Appellate Authority has erred in holding that Appellant is collecting deposits from public relying on object clause 5(c) which states that to raise funds for the business of Society which no where states that it is to be from public and ignores object clause 5(e) which clearly states to accepts deposits from members. 12. The learned Appellate Authority has erred in relying on remand report dated 14.8.2013 of Assessing Officer confirming that the Appellant accepts deposits from general public who are not members. In a reply given to Assessing Officer by Appellant in relation to remand report from your office, we have clearly stated that we accepts deposits from members and give loans to members and has given details of total number of members as on 31.03.2009. From this it is clear that we have not stated that we accept deposits from general public. 13. The learned Appellate Authority has erred in relying on judgment of Hyderabad Bench of Income Tax Appellate Tribunal in case of Citizen Co....
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....ject of the Assessee is to promote social and economic betterment of members through self-help and mutual aid in accordance with co-operative principles as specified in first schedule of the Act. For this, our attention was drawn towards the bye-laws of the Assessee from (a) to (j). The Assessee is a credit society. He contended that the word credit is of outmost important to decide the status of the assessee under the Banking Regulation Act, 1949. According to him the assessee is a co-operative credit society but when 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. He also relied on CBDT Circular No.133 of 2007 dated 9.5.2007 for the proposition that section 80P(4) will not apply to an assessee which is not a cooperative bank. 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 ....
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....f Hyderabad Bench of the Tribunal in the case of The Citizen Co-operative Society vs. Addl. CIT in ITA Nos. 1003/Hyd/2011 & 1004/Hyd/2011 dt. 2.7.2012. 3. We 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 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 th....
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....s 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 cooperative 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 presupposes 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. 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-ope....
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.... to such cooperative societies in respect of business relating to its members. 4.1 Now, the question before us is whether the Assessee is a cooperative 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:" 5. From the definition of Co-operative bank it is apparent that Cooperative 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. 6. 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:....
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....prove the economic condition of the weaker sections of society. vii) To purchase sites suitable to the members and construct appropriate buildings thereon. viii) To undertake schemes for special economic advancement of members belonging to the scheduled caste/ scheduled tribe and women members. ix) To lend money to members to purchase machineries and motor vehicles etc. x) To grant loans to members on gold-silver ornaments. xi) To grant loans to industrial and commercial products belonging to commercial undertakings and secured to the society. xii) To provide financial and technical assistance tot he self employed for establishment of their own industry. xiii) To undertake all such financial activities as are incidental, required and conducive to achieve fulfillment of the objects enunciated under the bye laws with prior permission of the Registrar." 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" ....
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....cceptance of deposits. " In view of this finding of fact which remain uncontroverted by the assessee as the onus remains on the assessee we hold that the assessee is carrying on the banking business that the first condition stand complied with for becoming primary co-operative bank. We may also hold that there is no term used co-operative credit society eligible for exemption u/s 80P(2)(a)(i). 10. The authorised representative took the plea that the assessee has not obtained banking licence. In our opinion it is not necessary that the cooperative society should have a banking licence as per the definition under the Income Tax Act for carrying on banking business. If licence is not obtained it may be an illegal banking business under the other statute. What we have to see whether the nature of the business carrying on by the assessee is a banking business or not. The Income Tax in our opinion is not concerned whether the banking business carried on by the assessee is legal or illegal. The income has to be assessed u/s 14 of the Income Tax Act under the same head even if the nature of the business is illegal. If we look into the bye-laws which consists of fund of the society, w....
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....act is clarified further by sub-section (2) as reproduced hereinabove that no co-operative society shall refuse admission to the membership, without sufficient reason, to any person who is qualified to become member under the provisions of this Act, rules and 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. The person, as per sub-section (2), must be qualified for becoming member not only u/s 16(1) but also as per the rules and bye-laws of the co-operative society. We cannot read sub-section (2) in the manner that the rules and bye-laws cannot permit the admission of any other cooperative society as a member of the co-operative society. Had that been the intention of the legislature, they would have not used the words "this Act, rules and bye-laws" in sub-section (2). 13. The assessee did not produce before us the copy of the bye-laws. We therefore noted membership clause from page no.9 of the order of the CIT(A) which states as under :- "A. Any persons can become member of the society provided - a) he has ....
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....'ble Gujarat High 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 p....