TaxTMI 
TaxTMI 
2022 (8) TMI 1270
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....he I.T. Act, 1961 was issued to the assessee. Subsequently, notices under section 142 of the I.T. Act, 1961 are also issued. In response to the said notices, the assessee's Authorised Representative appeared before the A.O. and has filed copy of P & L A/c, balance-sheet and schedules thereto along with confirmation of closing balances in respect of accounts held by the assessee-society. During the course of assessment proceedings, it was the contention of the assessee-society before the A.O. that since the assessee society is carrying on the business of banking or providing credit facilities to its members, therefore, the claim of the assessee-society for deduction under section 80P(2)(a)(i) of the I.T. Act, 1961 be allowed. However, the A.O. vide assessment order dated 15.12.2016 under section 143(3) of the I.T. Act, 1961 rejected the assessee's claim of deduction of its income under section 80P(2)(a)(i) of the I.T. Act, 1961, on the ground that as per the newly inserted provisions of Section 2(24) (viia) by the Finance Act, 2006 with effect from 01.04.2007, includes the profit and gains of any business of banking (including providing credit facilities) carried on by a co-op socie....
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.... deduction u/s 80P(2)(a)(i) of the Act on interest earned from Regular Members as the assessee is an entity which is registered under the Karnataka Souharda Sahakari Act, 1997 and not under the Karnataka Cooperative Societies Act, 1959. Hence the assessee is not entitled for deduction u/s 80P(2)(a)(i) at all. 3. The Ld.ClT(A) did not appreciate the fact that a Souharda Sahakari is not a Cooperative Society which has been affirmed by the decision of the Hon'ble ITAT, Bangalore Bench, Bangalore in the case of M/s Uday Souharda Credit Co.Op. Society Ltd., Bangalore 4. For these and other grounds that may be adduced at the time of hearing the order of the Id. CIT(A) may be set aside and that of the Assessing Officer be restored." 4. None appeared on behalf of the assessee. We, therefore, proceed to decide the appeal, on merits, safter hearing the Ld. D.R. 5. Before us, the Ld. D.R. strongly supported the order of the A.O. 6. We have heard the Ld. D.R. and perused the material available on record. From the careful perusal of the assessment order we have observed that the assessee-society is not entitled for claiming of deduction under section 80P(2)(a)(i) of the I.T. Act, 1961 on....
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....s of the case. We have perused the case records, including the assessment order and the order of the CIT(A). We have also perused the paper-book filed by the learned Counsel of the Assessee consisting of pages 1 to 120 and pages 1 to 25. The Revenue has also filed a paper-book consisting of 1 to 84 pages and also filed written submissions along with annexures which were considered. We noted that the first objection of the learned CIT-DR is that the Assessee is a Co-operative Bank and not a Co-operative Society. We will deal with this argument of the learned CIT-DR. First of all, we have gone through the bye-laws of the Assessee Society which are placed at page 92. The relevant objects of the Assessee are mentioned at pages 93 and 94 of the Assessee's paper-book and the relevant reads as under: "Objects : 3. The object of the Bank shall be primarily to finance Primary Land Development Banks. 4. In order to fulfil such object, it shall have power: a) To float debentures on the security / of its assets and of land mortgages, other assets transferred or deemed under the provisions of section 23A of the Act to have been transferred to it by Primary Land Development Banks or agai....
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....ive Society providing finance to the members of the Society. We noted that the Assessee, like other cooperative institutions is a Cooperative Society and was entitled for deduction u/s.80P of the Act, the legislature, through the Finance Act 2006, introduced Section 80P(4) of the Act with a specific intention to exclude co-operative banks from this scope of deduction u/s.80P of the Act. The reasons sighted in the Finance Act, 2006 reads as under: "166. Co-operative Banks, like any other Bank, are lending institutions and should pay tax on their profits. Primary Agricultural Credit Societies [PACS] and Primary Cooperative Agricultural and Rural Development Banks [PCARDb] stand on a special footing and will continue to be exempt for tax under section 80P of the Income Tax Act. However, I propose to exclude all other co-operative banks from the scope of that section." From the above, it is clear that the provisions of Section 80P(4) of the Act was brought under the statute book, is to exclude the co-operative banks out from the ambit of Section 80P of the Act because, they have functions of any normal bank. In the present case, before us, although the Assessee by nomenclature, the....
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....e Demand Drafts and finally, the deposits are only from members and no non-members are involved; V. That the Society has taken due approval for admission of members from the Registrar of Co14 operative Societies and with members' capital only, it has been lending and conducting its business transactions; 24. Now, coming to an another objection of the learned CIT-DR that the Assessee never gave the list of "B" category members or Associate members, as they were general public and whole of their accounts were in the banks. It was the argument of the learned CITDR that "B" category members were general public derived the facilities of the Assessee Bank without having any voting right in the Bank and moreover, they only gave the maximum business support to the Assessee Bank. We have considered this argument and noted that the Assessee has two categories of members, as under: a) Members - State Government and Primary Co-operative Agriculture and Rural Development Banks. b) Associate Members - Individuals and other Institutions. 25. We noted that the Assessee had filed before us, the extracts of the provisions of the Tamil Nadu Co-operative Societies Act, 1983 and the Tamil Nad....
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.... shares but Associate members are exempted from holding such shares, in view of the Section 22(2) of the Tamil Nadu Co-operative Societies Act, 1983 and the Rules as amended from time to time. We noted that the Assessee's transactions are restricted only to the members or Associate members and not to the general public as alleged by the learned CIT-DR. According to us, the Assessee cannot be construed to carry the business of Banking as defined u/s.5(b) of the Banking Regulation Act, 1949. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from Section 3, read with Section 56 of the Banking Regulation Act, 1949 is that, a Primary Co-operative Bank cannot be a Primary Agriculture Credit Society as such a Co-operative Bank must be engaged in the business of banking, as defined by Section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment of deposits of money from the public. Even the provisions of Section 22(1)(b) of the Banking Regulation Act, which is also applicable to the Co-operative Societies, but no Co-operative Society shall carry on Banking business in India, unless it is a Co-operative Ba....
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....o-operative banks that function at par with other commercial banks, i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is not to be seen, what is clear from Section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to cooperative societies, no co-operative society shall carry on banking business in India, unless it is a cooperative bank and holds a license issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. 40. As a matter of fact, some primary agricultural credit societies applied for a banking license to the RBI, as their byelaws also contai....
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.... deducted. 46. It must also be mentioned here that unlike the Andhra Act that Citizen Co-operative Society Limited (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Co-operative Cane Unions' Federation Limited vs. Commissioner of Income Tax [1997] 11 SCC 287 referred to section 80P of the Income Tax Act and then held: "8. The expression "members" is not defined in the Act. Since a co-operative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the Co-operative Society claiming exemption has been formed. It is therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: 2.(n). 'Member' means a person who joined in the application for registration of a Society or a person admitted to membership after such registration in accor....
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....Co-operative Bank and holds license issued on this behalf by the Reserve Bank of India. In the present case also, there is no banking activity and it is not registered as a Bank and it does not hold any license issued by the Reserve Bank of India. The Assessee being a Primary Agriculture Credit Society is a Co-operative Society. The primary object of which is to provide financial accommodation to its members, i.e. members as well as Associate members for agriculture purposes or for purpose connected with the agricultural activities. Further, we are of the view that the provision of Section 80P(4) of the Act is to be read as a proviso, which proviso now specifically excludes cooperative banks which are co-operative societies engaged in the banking business, i.e. engaged in lending money to members of the public, which have a license in this behalf from the Reserve Bank of India. Clearly, therefore, the Assessee's case is out of the provisions of Section 80P(4) of the Act. In relation to the Associate members, we are of the view that the provisions of Section 22 read with Rule 32 of the Tamil Nadu Co-operative Societies Act, 1983 and Tamil Nadu Co-operative Societies Rules clearly ....