INCOME TAX OFFICER Vs. SHIVA CREDIT SOUHARD SAHAKARI NIYAMIT
LAWS(IT)-2014-8-23
INCOME TAX APPELLATE TRIBUNAL
Decided on August 08,2014

INCOME TAX OFFICER Appellant
VERSUS
Shiva Credit Souhard Sahakari Niyamit Respondents

JUDGEMENT

P.K.Bansal, Member (A) - (1.) BOTH these appeals have been filed by the revenue against the respective orders of CIT(A), Belgaum dtd. 15.10.2013 for assessment years 2007 -08 and 2009 -10. The assessee has taken the following common effective grounds of appeal: - "(1) The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee is a co -operative society which fulfills all the three conditions of being held a Primary Cooperative Bank as given in section 5(ccv) of the Banking Regulation Act, 1949. (2) The learned CIT(Appeals) erred in relying on the byelaws which mere provide membership to co -operative societies without specifying type of co -operative societies as for this purpose "cooperative society" to mean a society registered or deemed to be registered under the Karnataka Co -operative Societies Act, 1959. The above definition of co -operative society appears in the Karnataka Cooperative Societies Act, 1959 and the definition of co -operative society means a society registered under that Act. (3) The learned CIT(Appeals) erred in law and on facts in relying on byelaws which is not in consonance with the provisions of the Karnataka Co -operative Societies Act, 1959 and ignoring the definition which was applicable to the Karnataka Cooperative Societies Act, 1959. (4) The learned CIT(Appeals) erred in law and on facts in allowing deduction under section 80P(2)(a)(i) to the assessee ignoring the fact that the assessee does not permit co -operative societies registered under the provisions of Karnataka Cooperative Societies Act, 1959 to become a member and as such, satisfy conditions to become primary co -operative bank. (5) The learned CIT(Appeals) erred in law and on facts in not appreciating the definition of a co -operative bank which as per Explanation below section 80P(4) "the co -operative bank" shall have the meaning assigned to it in Part -V of the Banking Regulation Act, 1949. (6) 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."
(2.) NONE appeared on behalf of the assessee, as the issue involved are duly covered, we therefore decided to dispose of both these appeals after hearing Ld. DR. Since the issues involved in both the appeals are common, therefore, both these appeals are decided on the basis of the facts relating to the assessment year 2007 -08. The brief facts of the case are that the Assessee is a co -operative society registered under the Karnataka Souharda Sahakari Act, 1997. The Assessee filed return declaring gross total income of Rs. 12,17,616/ - and claimed deduction u/s. 80P(2)(a)(i) and therefore net taxable income was shown to be 'nil'. The AO did not allow the deduction to the Assessee u/s. 80P(2)(a)(i) and the income was assessed at Rs. 12,17,616/ -. The AO while denying the deduction to the Assessee u/s. 80P(2)(a)(i) took the view that the Assessee is a primary co -operative bank and therefore provisions of Sec. 80P(4) are applicable in the case of the Assessee. The Assessee went in appeal before the CIT(A). CIT(A) allowed the appeal of the Assessee. 2.1 The ld. DR, on the other hand vehemently contended that the Assessee is a co -operative bank in view of the definition of the co -operative bank given under explanation to Sec. 80P(4) the Assessee is engaged in the business of banking. Sec. 80P(4) puts an embargo w.e.f. 1.4.2007 that if a cooperative society is carrying on banking business, the Assessee will not be entitled for the exemption. Reliance was placed on the decision of 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. 2.2 We heard the submissions of ld. D.R. 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 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 cooperative 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 taluka and the principal object of which is to provide for long -term credit for agricultural and rural development activities." 2.3 From the plain reading of Sec. 80P(2)(a)(i) it is apparent that if the co -operative society is engaged in carrying of business of banking or providing credit facilities to its members, the co -operative society is entitled for deduction on whole of the income relating to any one or more of such business. From the reading of Sec. 80P(4) it is apparent that this section denies deduction to a cooperative bank other than a primary agricultural credit society or primary cooperative agricultural and rural development bank. The provisions of Sec. 80P(4) was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The explanation to the section defines the co -operative bank and primary agricultural credit society to have the same meaning as assigned to them in Part -V of the Banking Regulation Act, 1949. It is not the case of either of the parties that the Assessee is a primary co -operative agricultural and rural development bank. It is also not the claim of the Assessee that Assessee is a primary agricultural credit society. If we read both the sections, Sec. 80P(2)(a)(i) and Sec. 80P(4) together, we find that the provisions of Sec. 80P(4) mandates that the provisions of Sec. 80P will not apply to any co -operative bank other than a primary agricultural credit society or primary co -operative agricultural and rural development bank but as per the provisions of Sec. 80P(2)(a)(i), a co -operative society engaged in carrying on the business 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 -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 action 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 nothing to do with section 80P(2)(a)(i). 2.4 In our opinion, Sec. 80P(2)(a)(i) provides two types of activities in which the co -operative society must be engaged to be eligible for deduction under sub -clause (i). These two activities are not alternate ones because the section allows deduction to the co -operative society on the whole of profits and gains of business attributable to any one or more of such activities. This presupposes that eligible co -operative society can carry on either one of these two businesses or can carry both these businesses for the members. If the Assessee co -operative society carries on one or both of the activities, it will be eligible for deduction. These two activities are (a) co -operative society engaged in carrying on business of banking facilities to its members or (b) co -operative society engaged in providing credit facilities to its members. Both the activities must be carried on by the co -operative society for its members. If a co -operative society is engaged in carrying on these activities/facilities for the persons other than its members, the co -operative society, in our opinion, will not be eligible for deduction u/s. 80P(2)(a)(i) on the income which it derives from carrying on the activities not relating to its members. Therefore, where a co -operative society is engaged in carrying on business of banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business of banking facilities to its members or providing credit facilities to its members will only be eligible for deduction u/s. 80P(2)(a)(i). There is no prohibition u/s. 80P not to allow deduction to such cooperative societies in respect of business relating to its members. Now, the question before us is whether the Assessee is a co -operative 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:" 2.5 From the definition of Co -operative bank it is apparent that Co -operative 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. 2.6 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: 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." 2.7 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 be regarded to be primary co -operative bank. If cooperative society does not fulfill any of the conditions, it cannot be regarded to be a primary co -operative bank. Therefore, in the case of the Assessee we have to examine on the basis of the facts and materials on record whether the Assessee co -operative society complies with all the three conditions. In case, it does not comply with all the three conditions, it cannot be regarded to be a cooperative bank and the provisions of Sec. 80P(4), in our opinion, will not be applicable in the case of the Assessee. Once, the Assessee will not fall within the provisions of Sec. 80P(4), the Assessee, in our opinion, will be eligible to get deduction u/s. 80P(2)(a)(i) in respect of whole of the income which the Assessee derives from carrying on the business of banking or providing credit facilities to its members. 2.8 Whether condition no. 1 is applicable in the case of the Assessee, for this we have to look into the bye -laws of the Assessee. The objects of the Assessee produced in CIT(A)'s order in this case are enumerated as under: - "1. Encouragement to members of the sahakari and member depositors for minimization of expenses, self and mutual co -operation. 2. Arrangement of loan and advances to members of the sahakari for their varied requirements. Arrangements of services and facilities for various govt., deposits and saving schemes.
(3.) SERVICE like purchase/sale of Govt. bonds etc., on behalf of members.;


Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.