Kasipalayam Primary Agricultural Co-Operative Bank Ltd., Erode V. ITO, Erode

CO 42/CHNY/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8897 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI JT
• Assessee Lawyers: S SRIDHAR
• Keywords: Gift
• Section: 56; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER] I.T.A.NO.174/MDS/2013 & C.O.NO.42/MDS/2013 ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER WARD I(1) ERODE VS THE KASIPALAYAM PRIMARY AGRICULTURAL CO-OPERATIVE BANK LTD. (A.A.185) 9, KALAYANASUNDARAM STREET CHENNIMALAI ROAD KASIPALAYAM, ERODE 638 009 [PAN AAAAT 7548 R] (APPELLANT/RESPONDENT ) (RESPONDENT/CROSS OBJECTOR) DEPARTMENT BY : SHRI T.N.BETGIRI, JT.CIT ASSESSEE BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 08-08-2013 DATE OF PRONOUNCEMENT : 23-08-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REV ENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-I, COIMBATORE, DATED 1.11.2012. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPE AL: I.T.A.NO. 174/13 C.O 42/13 :- 2 -: 1. THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) IS ERRONEOUS AND OPPOSED TO LAW. 2. THE LEARNED CIT (A) FAILED TO APPRECI ATE THE FACT THAT THE ASSESSEE'S PRINCIPAL BUSINESS IS BANKING ONLY AFTER THE CONSIDERING THE PROFITS AND IT IS NOT A CREDIT SOCI ETY WITHIN THE MEANING OF EXPLANATION BELOW SECTION 80P(4) AND HEN CE THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A )(I). 3. THE LEARNED CIT (A) DIDN'T CALL FOR ANY REMAND REPORT AND NO OPPORTUNITY WAS GIVEN TO THE AO TO EXPLAIN. 4. THE LEARNED CIT(A) DIDN'T LOOK INTO THE FACTS WHICH HAD BEEN DISTINGUISHED CLEARLY BEFORE ALLOWING THE APPEAL. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF CIT (APPEALS) MAY BE CANCE LLED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE ONLY ISSUE INVOLVED IN THIS APPEAL OF THE REVEN UE IS WHETHER THE ASSESSEE IS A CO-OPERATIVE BANK OR A PRIMARY AGRICULTURAL CREDIT SOCIETY. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSIN G OFFICER OBSERVED THAT THE ASSESSEE CARRIED OUT THE FOLLOWI NG ACTIVITIES: A) BANKING BUSINESS B) TRADING IN CIVIL SUPPLY GOODS C) TRADING IN FERTILIZERS THE ASSESSEE CLAIMED DEDUCTION U/S 80P OF THE ACT O F ` 36,76,329/-. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEES MAIN ACTIVITY WAS ONLY BANKING BUSINESS AND INCOME FROM BANKING BUSIN ESS WAS TAXABLE FROM ASSESSMENT YEAR 2007-08 ONWARDS BY AMENDING SE CTION I.T.A.NO. 174/13 C.O 42/13 :- 3 -: 80P(2)(A)(I) OF THE ACT. HENCE, THE PROVISIONS OF S ECTION 80P ARE NOT APPLICABLE TO ANY CO-OPERATIVE BANK OTHER THAN PRIM ARY AGRICULTURAL CREDIT SOCIETY WITH EFFECT FROM 1.4.2007. ACCORDIN G TO THE ASSESSING OFFICER, THE INTENTION OF THE LEGISLATURE WAS TO EX TEND THE BENEFIT OF DEDUCTION U/S 80P(4) ONLY WHEN THE ACTIVITIES OF TH E SOCIETY ARE IN CONNECTION WITH AGRICULTURAL PURPOSES AND ACTIVITIE S FOR WHICH IT WAS STARTED. THE TOTALITY OF THE CIRCUMSTANCES CLEARLY INDICATES THAT THE ACTIVITIES OF THE SOCIETY ARE NEVER INTENDED FOR AN Y AGRICULTURAL ACTIVITIES OR PURPOSES. MERE NAMING OF A SOCIETY AS PRIMARY AGRICULTURAL CO- OPERATIVE SOCIETY WAS NOT SUFFICIENT FOR CLAIMING DEDUCTION UNDER THE ABOVE SECTION, BUT THE PRINCIPAL OR PREDOMINANT ACT IVITIES OF THE BANK SHOULD BE IN CONNECTION WITH AGRICULTURAL PURPOSES OR FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES. HE, THERE FORE, HELD THAT IN THE LIGHT OF THE FACTUAL POSITION, THE ASSESSEE WAS NO T ELIGIBLE FOR DEDUCTION OF ` 36,76,329/- U/S 80P(2)(A)(I) OF THE ACT. 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TH E LD. CIT(A). THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS TREATED THE ASSESSEE AS PRIMARY AGRICULTURAL CREDIT SOCI ETY. IT WAS SUBMITTED THAT SECTION 80P(4) DOES NOT DEAL WITH P RIMARY AGRICULTURAL CREDIT SOCIETY. IN FACT, SECTION 80P(4) IN THE EXP LANATION, DEFINES IN I.T.A.NO. 174/13 C.O 42/13 :- 4 -: CLAUSE(A) CO-OPERATIVE BANK AND PRIMARY AGRICUL TURAL CREDIT SOCIETY AND IN CLAUSE (B) PRIMARY CO-OPERATIVE AND RURAL D EVELOPMENT BANK. FURTHER, IN THE EXPLANATION TO SECTION 80P(4), IN C LAUSE (A), IT HAS BEEN MENTIONED THAT BOTH THE TERMS SHALL HAVE THE MEANIN GS ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949 (BR ACT). THUS, THE ASSESSEE DOES NOT FALL WITHIN THE MEANING OF CO-OPERATIVE BANK OR PRIMARY CO-OPERATIVE AND RURAL DEVELOPMENT BAN K SO AS TO FALL WITHIN CLAUSE(B) TO THE EXPLANATION. HENCE, WHAT I S LEFT FOR CONSIDERATION IS AS TO UNDER WHAT DEFINITION THE A SSESSEE FALLS. IN OTHER WORDS, WHETHER THE ASSESSEE FALLS WITHIN THE MEANING OF CO- OPERATIVE BANK OR PRIMARY AGRICULTURAL CREDIT SO CIETY. IT WAS SUBMITTED THAT UNDER THE BR ACT, SECTION 5(CCI), CO -OPERATIVE BANK MEANS A STATE CO-OPERATIVE BANK, A CENTRAL CO-OPER ATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. FURTHER SECTION 5(CCV) , A CO-OPERATIVE BANK MEANS 1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH I S TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPOSES OR FOR PURPOSES CONNECTED WIT H AGRICULTURAL ACTIVITIES(INCLUDING THE MARKETING OF CROPS) AND 2) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF A NY OTHER CO-OPERATIVE SOCIETY AS A MEMBER. PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO TH E ADMISSION OF A CO-OPERATIVE BANK AS A MEMBER BY REA SON I.T.A.NO. 174/13 C.O 42/13 :- 5 -: 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. 6. IT WAS, THEREFORE, SUBMITTED THAT ADMITTEDLY, THE ASSESSEE WAS NOT A STATE CO-OPERATIVE BANK, A CENTRAL CO-OPE RATIVE BANK AND A PRIMARY CO-OPERATIVE BANK, AS DEFINED UNDER BR ACT, DOES NOT FIT INTO FIRST LIMB OF CLAUSE (A) TO EXPLANATION TO SECTION 80P(4). IT WAS FURTHER SUBMITTED THAT IT HAS TO BE SEEN WHETHER THE ASSESS EE FALLS WITHIN THE MEANING OF THE SECOND LIMB OF CLAUSE (A) OF EXPLANA TION TO SECTION 80P(4). IT WAS ARGUED THAT UNDISPUTEDLY THE ASSESS EE DOES NOT FIT INTO THAT DEFINITION ALSO DUE TO THE FOLLOWING REASONS: A) FIRST, ALL THE CONDITIONS, BEING CUMULATIVE, ARE NO T SATISFIED IN THE CASE OF THE ASSESSEE. B) THE FIRST CONDITION, THAT THE PRINCIPAL BUSINESS IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPOSES, IS NOT SATISFIED, FOR THE BY E-LAWS DO NOT SAY SO. C) THE SECOND CONDITION, THAT THE BYE-LAWS DO NOT PERM IT ADMISSION OF ANY OTHER CO-OPERATIVE SOCIETY AS A MEMBER, IS NOT SATISFIED, FOR THE BYE-LAWS, IN CLAU SE 5(1)(A) SPECIFIES THAT NOTWITHSTANDING ANYTHING CONTAINED IN THIS BYE-LAW, IT SHALL BE COMPETENT FO R THE FINANCING BANK TO TAKE SHARES IN THE BANK TO SUCH EXTENT AS MAY BE NECESSARY. SUCH SHARES SHALL BE REDEEMABLE AT THE DISCRETION OF THE FINANCING BANK. 7. IT WAS, THEREFORE, SUBMITTED THAT THE FINDING BY TH E ASSESSING OFFICER THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DED UCTION U/S 80P IN I.T.A.NO. 174/13 C.O 42/13 :- 6 -: VIEW OF THE PROVISIONS OF SUB-SECTION(4) OF SECTION 80P WAS NOT SUSTAINABLE IN THE EYES OF LAW AND THE ASSESSEE WA S ENTITLED FOR DEDUCTION UN 80P(2)(A)(I) OF THE ACT. 8. REGARDING THE ASSESSING OFFICERS OBSERVATION THAT THE ASSESSEE WAS IN THE BUSINESS OF BANKING, IT WAS SUB MITTED THAT A) REFERENCE TO PART-V OF THE BR ACT WAS OPPOSITE TO T HE CASE OF THE ASSESSEE . B) SECTION 56 OF THE BR ACT DEALS WITH ACT TO APPLY T O CO- OPERATIVE SOCIETIES SUBJECT TO MODIFICATIONS. C) SECTION 22(1) OF THE BR ACT AS APPLICABLE TO CO-OPE RATIVE SOCIETIES WAS AS UNDER: (1) SAVE AS HEREINAFTER PROVIDED, NO CO-OPERATIVE SOCIETY SHALL CARRY ON THE BANKING BUSINESS IN INDI A UNLESS (A) IT IS A PRIMARY CREDIT SOCIETY, OR (B) IT IS A CO-OPERATIVE BANK AND HOLDS A LICENSE ISSUED IN THAT BEHALF BY THE RESERVE BANK, SUBJECT TO SUCH CONDITIONS, IF ANY, AS THE RESERVE BANK MAY DEED FIT TO IMPOSE PROVIDED THAT NOTHING IN THIS SUB-SECTION SHALL APPLY TO A CO-OPERATIVE SOCIETY, NOT BEING A PRIMAR Y CREDIT SOCIETY OR A CO-OPERATIVE BANK CARRYING ON BANKING BUSINESS AT THE COMMENCEMENT OF THE BANKING LAWS(APPLICATION TO CO-OPERATIVE SOCIETIES) ACT, 1965[23 OF 1965], FOR A PERIOD OF ONE YEAR FRO M SUCH COMMENCEMENT. D) IT CAN BE SEEN THAT NO LICENSE IS REQUIRED FOR BANK ING BUSINESS IN THE CASE OF A CO-OPERATIVE SOCIETY WHIC H IS A PRIMARY CREDIT SOCIETY, WHEREAS FOR OTHER CO-OPERAT IVE I.T.A.NO. 174/13 C.O 42/13 :- 7 -: SOCIETIES TO CARRY ON BANKING BUSINESS, THEY SHOULD BE CO- OPERATIVE BANKS AND THEY SHOULD HOLD LICENSE ISSUED IN THAT BEHALF BY THE RESERVE BANK OF INDIA. [AIR 2003 KER 299]. E) THE ASSESSEE, ADMITTEDLY, DOES NOT FALL UNDER PRIM ARY CREDIT SOCIETY AS DEFINED IN SECTION 5(CCI) OF THE BR ACT. THEREFORE, IT WAS ARGUED THAT THE ASSESSEE, ADMITTE DLY, DOES NOT ALSO FALL WITHIN THE MEANING OF CO-OPERATIVE BANK AS D EFINED IN SECTION 5(CCI) OF THE BR ACT AND DOES NOT HOLD A LICENSE IS SUED IN THAT BEHALF BY THE RBI. HENCE, IT CANNOT BE SAID THAT THE ASSE SSEE HAS BEEN CARRYING ON THE BANKING BUSINESS AND IT CANNOT DENI ED DEDUCTION U/S 80P OF THE ACT BY INVOKING SUB-SECTION(4). 9. IT WAS FURTHER SUBMITTED THAT THE MUMBAI BENCH OF T HE TRIBUNAL IN THE CASE OF APEX URBAN CO-OPERATIVE BA NK OF MAHARASHTRA & GOA VS ITO IN I.T.A.NO.6061/MUM/2008 HAS HELD THA T THE ASSESSEES INCOME CANNOT BE CONSIDERED AS FROM THE BUSINESS OF BANKING ON THE REASON THAT THE ASSESSEE IS NOT HAVING ANY LICENSE TO DO THE BUSINESS OF BANKING. IT WAS FURTHER SUBMITTED THAT FOR THE OTHER ACTIVITIES OF THE ASSESSEE, SUPPORT WAS DRAWN FROM THE ABOVE DECISION FOR THE PRINCIPLE THAT THE ASSESSEE SHOULD BE IN THE BUSINESS OF BANK ING TO ENGAGE IN ANY ONE OR MORE OF THE FORMS OF BUSINESS AS LISTED IN SECTION 6 OF THE BR ACT. I.T.A.NO. 174/13 C.O 42/13 :- 8 -: 10. IT WAS FURTHER ARGUED THAT SECTION 22 OF THE BR ACT PROHIBITS CO-OPERATIVE SOCIETIES FROM CARRYING ON BANKING BUS INESS. THE TERM CO-OPERATIVE SOCIETY AS USED IN SECTION 22 WOULD INCLUDE ALL TYPES OF CO-OPERATIVE SOCIETIES. IN OTHER WORDS, NO CO-OPER ATIVE SOCIETY CAN CARRY ON BANKING BUSINESS UNLESS IT FALLS WITHIN TH E PERMITTED CATEGORIES SET OUT IN SECTION 22. THE TERM CO-OPE RATIVE BANK HAS BEEN DEFINED IN SECTION 5(CCI) AS A STATE CO-OPERAT IVE BANK, A CENTRAL CO-OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. THEREFORE, THE TERM CO-OPERATIVE BANK DOES NOT INCLUDE ALL CO-OP ERATIVE SOCIETIES. IT ONLY INCLUDES THE ABOVE MENTIONED THREE TYPES OF SO CIETIES. BY VIRTUE OF SECTION 5(CCVII) THE TERM STATE CO-OPERATIVE BA NK IS TO BE UNDERSTOOD AS A STATE CO-OPERATIVE BANK OR A CENTRA L CO-OPERATIVE BANK OR A PRIMARY CO-OPERATIVE BANK AS DEFINED UNDE R THE NABARD ACT. THUS, UNLESS A CO-OPERATIVE SOCIETY IS A STA TE CO-OPERATIVE BANK OR A CENTRAL CO-OPERATIVE BANK OR A PRIMARY CO-OPER ATIVE BANK (AS DEFINED UNDER THE NABARD ACT), NO LICENSE CAN BE IS SUED BY RBI. 11. IT WAS ARGUED THAT IF A CO-OPERATIVE SOCIETY IS NOT A PRIMARY CREDIT SOCIETY, THEN TO CARRY ON BANKING BUSINESS, IT MUST BE A CO- OPERATIVE BANK AND HOLD A LICENSE ISSUED BY RBI. S ECTION 22(2) MERELY EMPHASIZES THAT A CO-OPERATIVE SOCIETY, OTHER THAN A PRIMARY CREDIT I.T.A.NO. 174/13 C.O 42/13 :- 9 -: SOCIETY, HAS TO APPLY TO RBI FOR LICENSE BEFORE IT CAN COMMENCE BANKING BUSINESS. HOWEVER, THIS DOES NOT MEAN THA T RBI CAN GIVE TO ANY OR ALL CO-OPERATIVE SOCIETIES, A BANKING LICENS E. RBI CAN ONLY GIVE A LICENSE AS PROVIDED IN SECTION 22(1) I.E TO A CO- OPERATIVE BANK. FURTHER, IN REGARD TO THE FINDING OF THE ASSESSING OFFICER AND THE ADMITTED FACT THAT THE ASSESSEE, IN THE RETURN OF I NCOME, HAS MENTIONED THE BUSINESS AS ONE OF BANKING, IT WAS SU BMITTED THAT THE MERE PRESENCE OF THE WORD BANK EITHER IN THE RETU RN OF INCOME OR ITS NAME IS NOT DETERMINATIVE OF ITS CHARACTER. 12. IT WAS FURTHER SUBMITTED U/S 5(B) OF THE ACT, THE T ERM BANKING HAS BEEN DEFINED AS ACCEPTING, FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC , REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWABLE BY CHEQUE, DR AFT, ORDER OR OTHERWISE. THUS, IN ESSENCE, THE BANKING BUSINES S IS RECEIVING MONEY ON CURRENT AC FOR DEPOSIT FROM THE PUBLIC REP AYABLE ON DEMAND AND WITHDRAWABLE BY CHEQUE, DRAFTS OR OTHERWISE. I N OTHER WORDS, THE ESSENCE OF THE RELATIONSHIP OF BANKER AND CUSTOMER IS THE AFFORDING OF THE FACILITY TO THE CUSTOMER TO DRAW FUNDS FROM THE BANK BY ISSUING CHEQUES. THIS IS THE PRIMARY CHARACTERISTIC OF A B ANKING BUSINESS. WITHOUT IT, THE BUSINESS IS NOT BANKING AS KNOWN. I.T.A.NO. 174/13 C.O 42/13 :- 10 -: 13. IT WAS FURTHER ARGUED THAT TO PUT IT OTHERWISE, AN ORDINARY MONEY LENDER WHO DOES NOT ACCEPT MONEY ON TERMS ENA BLING A DEPOSITOR TO DRAW CHEQUES UPON HIM WOULD NOT, THERE FORE, BE A BANK OR BANKER PROPERLY SO CALLED. THE PROVISIONS OF TH E ACT WOULD, THEREFORE, APPLY ONLY TO LIMITED CLASS OF CASES WHE RE THE BANK OR BANKER ALLOWS WITHDRAWAL OF MONEY BY ISSUE OF CHE QUES. THEREFORE, IT IS ABUNDANTLY CLEAR THAT THE ESSENCE OF BANKING IS THE RELATIONSHIP WHICH IS BROUGHT INTO EXISTENCE AT THE TIME OF THE DEPOSIT; THAT IS THE CORE OF BANKING. IT IS TRUE THAT THE ESSENCE OF BA NKING COVERS EVERY POSSIBLE PHASE OR COMBINATION OF DEPOSIT, CUSTODY, INVESTMENT, LOAN, EXCHANGE, ISSUE AND TRANSMISSION OF MONEY, CREATION AND TRANSFER OF CREDIT AND OTHER CONNECTED ACTIVITIES BUT IF THE ES SENTIAL CHARACTERISTIC OF BANKING, NAMELY, THE POWER TO RECEIVE DEPOSITS F ROM THE PUBLIC WHICH ARE REPAYABLE IN THE MANNER INDICATED IN SECT ION 5(1)(B) OF THE BANKING COMPANIES ACT IS ABSENT AND MERELY THE POWE R OF GRANTING LOANS IS RETAINED AND EXERCISED DOES NOT MAKE THE C OMPANY A BANKING COMPANY. IN CONCLUSION, IT WAS SUBMITTED THAT THE ASSESSEE IS NOT A PRIMARY CREDIT SOCIETY, IT IS NOT A PRIMARY AGRICUL TURAL CREDIT SOCIETY, IT IS NOT A CO-OPERATIVE BANK AS IT DOES NOT HOLD ANY LICENSE ISSUED BY RBI. IT HAS NOT DONE BUSINESS OF BANKING. IT HAS THE PRIMARY OBJECT OF PROVIDING FINANCIAL ACCOMMODATION TO ITS MEMBERS AN D HAS BEEN DOING I.T.A.NO. 174/13 C.O 42/13 :- 11 -: SO AND HENCE, DOES FALL UNDER CO-OPERATIVE CREDIT SOCIETY AS DEFINED IN SECTION 5(CCII) OF THE BR ACT. HENCE, ACTION OF THE ASSESSING OFFICER IN DENYING THE BENEFIT OF DEDUCTION TO THE ASSESSEE AS ONE PROVIDING CREDIT FACILITIES TO ITS MEMBERS U/S 80P(2)(A)(I) O F THE ACT, MORE PARTICULARLY INVOKING SECTION 80P(4) OF THE ACT IS AGAINST LAW AND THE CLAIM OF THE ASSESSEE IS LEGALLY SUSTAINABLE. 14. THE LD. CIT(A), AFTER CONSIDERING THE ABOVE ARGUMEN TS OF THE ASSESSEE, ALLOWED THE CLAIM OF THE ASSESSEE BY OBSE RVING AS UNDER: 6. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. THE MAIN MOTTO OF THE APPELLANT IS LENDING FOR ITS MEMBERS. SUBSECTION (4) OF SECTION 80P PROVIDES THAT DEDUCTION UNDER THE SAID SECTION SHALL NOT BE AVAIL ABLE TO ANY COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL COOPERATIVE CREDIT SOCIETY OR RURAL DEVELOPMENT BANK. FOR THE PURPOSE OF THE SAID SUBSECTION, COOPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART 5 OF THE BANKING REGULATION ACT , 1949 . IN PART 5 OF THE BANKING REGULATION ACT, COOPERATIVE CREDIT MEANS A STATE CO OPERATIVE BANK, A CENTRAL COOPERATIVE BANK AND A PRIMARY COOPERATIVE BANK. FROM THE ABOVE SECTION, IT IS CLEAR THAT THE PROVISIONS OF S ECTION 80P(4) AS GOT ITS APPLICATION ONLY TO COOPERATIVE BANKS . SECTION 80P(4) DOES NOT DEFINE THE WORD 'COOPERATIVE SOCIETY' . THE EXISTING SUB SECTION 80P(2)(A)(I) SHALL BE APPLICABLE TO COOPERATIVE SOCIETY CARRYING ON CREDI T FACILITY TO ITS MEMBERS. THIS VIEW IS CLARIFIED BY CENTRAL BOARD OF DIRECT TAXES VIDE ITS CLARIFICATION NO.133/06/07/TPL DATED 9 TH MAY 2007 . THE DIFFERENCE BETWEEN COOPERATIVE BANK AND COOPERATIVE SOCIETY AR E AS FOLLOWS: NATURE COOPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT, 1949. COOPERATIVE SOCIETY REGISTERED UNDER KARNATAKA COOPERATIVE SOCIETY ACT, 1959 REGISTRATION UNDER THE BANKING REGULATION ACT, 1949 AND COOPERATIVE COOPERATIVE SOCIETIES ACT, 1959 I.T.A.NO. 174/13 C.O 42/13 :- 12 -: SOCIETIES ACT, 1959 NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING REGULATION ACT. 2. CAN OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, OVERDRAFT ACCOUNT, CASH CREDIT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS (DD), PAY ORDER, GIFT CHEQUES, LOCKERS, BANK GUARANTEES, ETC. 3. COOPERATIVE BANKS CAN ACT AS CLEARING AGENT FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. . 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI) 1. AS PER THE BYE LAWS OF THE COOPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS, PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES, ETC. 3. SOCIETY CANNOT ACT AS CLEARING AGENT FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. SOCIETY IS BOUND TO FOLLOW THE RULES AND REGULATIONS AS SPECIFIED BY IN THE COOPERATIVE SOCIETIES ACT. FILING OF RETURNS COOPERATIVE BANKS HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR. SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIETIES. INSPECTION RBI HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. REGISTRAR HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. PART V PART V OF THE BANKING REGULATION ACT IS APPLICABLE TO COOPERATIVE BANKS. PART V OF THE BANKING REGULATION ACT IS NOT APPLICABLE TO COOPERATIVE BANK. USE OF WORDS THE WORD BANK, BANKING CAN BE USED BY A COOPERATIVE BANK. THE WORD BANK BANKER, BANKING CANNOT BE USED BY A COOPERATIVE SOCIETY. I.T.A.NO. 174/13 C.O 42/13 :- 13 -: NEW PROVISO TO SECTION 80P(4) IS BROUGHT INTO THE S TATUTE FOR APPLICATION ONLY TO COOPERATIVE BANKS AND NOT TO CR EDIT COOPERATIVE SOCIETIES. THE INTENTION OF LEGISLATURE OF BRINGING IN COOPERATIVE BANK INTO TAXATION STRUCTURE WAS MAINLY TO BRING IN PAR WITH COMMERCIAL BANKS. THE HON'BLE ITAT, 'B' BENCH, BANGALORE IN TH E CASE OF THE ACIT, CIRCLE-3(1), BANGALORE VS M/S BANGALORE COMME RCIAL TRANSPORT CREDIT COOPERATIVE SOCIETY LIMITED HELD T HAT 'THE PROVISIONS OF SECTION 80P(4) ARE APPLICABLE ONLY TO COOPERATIVE BANKS AND NOT TO CREDIT COOPERATIVE SOCIETIES'. FUR THER, THE ITAT, BANGALORE 'A' BENCH IN THE CASE OF M/S YESHWANTPUR CREDIT IN ITA NO.737/BANG/2011 RELIED ON THE DECISION OF THE ITAT IN THE CASE OF THE ACLT, CIRCLE-3(1), BANGALORE VS M/S BANGALORE C OMMERCIAL TRANSPORT CREDIT COOPERATIVE SOCIETY LIMITED AND HE LD THAT IF THE ASSESSEE IS A CREDIT COOPERATIVE SOCIETY, IT IS ENT ITLED TO DEDUCTION U/S 80P(2)(A)(I). AS SEEN FROM THE FACTS OF THE CASE, T HEY ARE IDENTICAL WITH THOSE OF THE OBSERVATIONS AND FINDINGS OF THE BANGALORE TRIBUNAL IN THE CASE OF THE M/S BANGALORE COMMERCIAL TRANSPO RT CREDIT COOPERATIVE SOCIETY LIMITED AND IS ENTITLED TO DEDU CTION U/S 80P(2)(A)(I). 15. THE LD.D.R SUPPORTED THE ORDER OF THE ASSESSING OFF ICER WHEREAS THE LD. AR OF THE ASSESSEE REITERATED THE S UBMISSIONS MADE BEFORE THE LD. CIT(A) AND SUPPORTED THE ORDER OF TH E LD. CIT(A.) 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, DEDUCTION CLAIMED U/S 80P OF THE ACT BY THE ASSESSEE WAS DENIED BY THE ASSESSING OFFICER ON THE GROUNDS THAT FIRSTLY, WITH EFFECT FROM 1.4.2007 SUB-SECTION (4) OF SECTION 80P WAS IN SERTED TO PROVIDE THAT DEDUCTION U/S 80P SHALL NOT BE ALLOWED IN CASE OF A CO-OPERATIVE BANK AND SECONDLY, THAT THE ASSESSEE HAS TWO SETS O F MEMBERS (I) NORMAL MEMBERS WHO BECAME MEMBERS BY PAYING ` 10/- AND ` 1/- I.T.A.NO. 174/13 C.O 42/13 :- 14 -: WITH VOTING RIGHTS; AND (II) NOMINAL MEMBERS WHO BE CAME MEMBERS BY PAYING A NOMINAL AMOUNT OF ` 5/- AND ` 2/- WITHOUT VOTING RIGHTS AND ARE THE ASSESSEES CUSTOMERS. 17. ON APPEAL, THE LD. CIT(A) ALLOWED THE DEDUCTION U/S 80P OF THE ACT TO THE ASSESSEE BY OBSERVING THAT NEW SUB-S ECTION(4) WAS BROUGHT INTO THE STATUTE FOR PROHIBITING DEDUCTION TO CO-OPERATIVE BANKS ONLY AND NOT TO CO-OPERATIVE CREDIT SOCIETIES . HE LISTED OUT DIFFERENCE BETWEEN A CO-OPERATIVE SOCIETY REGISTERE D UNDER THE BANKING REGULATION ACT, 1949 AND A CO-OPERATIVE SOC IETY REGISTERED UNDER THE KARNATAKA CO-OPERATIVE SOCIETY ACT, 1959. THE LD. CIT(A) OPINED THAT THE FACTS OF THE INSTANT CASE WERE SIMI LAR TO THE FACTS OF THE CASE BEFORE THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS M/S BANGALORE COMMERCIAL TRANSPORT CREDIT COOPERATI VE SOCIETY LTD AND THEREFORE, FOLLOWING THE SAME, HE ALLOWED THE A PPEAL OF THE ASSESSEE. 18. BEFORE US, THE LD.D.R COULD NOT POINT OUT ANY SPECI FIC ERROR IN THE ORDER OF THE LD. CIT(A). NO MATERIAL COULD BE BROUGHT BEFORE US TO SHOW THAT THE ASSESSEE WAS A CO-OPERATIVE BANK WITH IN THE MEANING OF SUB-SECTION(4) OF SECTION 80P AND NOT A CO-OPERATIV E CREDIT SOCIETY. NO MATERIAL WAS BROUGHT BEFORE US TO SHOW THAT THE PROVISION OF I.T.A.NO. 174/13 C.O 42/13 :- 15 -: ACCEPTING NOMINAL MEMBERS WAS NOT IN ACCORDANCE WIT H THE CO- OPERATIVE SOCIETIES ACT OR RULES OR THE PERSONS WHO WERE MADE NOMINAL MEMBERS WERE, IN FACT, NOT THE MEMBERS OF T HE ASSESSEE- SOCIETY. IN THE ABOVE CIRCUMSTANCES, WE DO NOT FIN D ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) WHICH HAS BEEN PASSED FOLLOWING THE ORDER OF THE TRIBUNAL AS STATED IN HI S ORDER AND QUOTED ABOVE. THUS, THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 19. THE CROSS OBJECTION FILED BY THE ASSESSEE IS SIMPL Y IN SUPPORT OF THE ORDER OF THE CIT(A). THUS, THERE BE ING NO GRIEVANCE OF THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), THE CROSS OBJECTION FILED IS INFRUCTUOUS AND HENCE, DISMISSED. 20. IN THE RESULT, BOTH, THE APPEAL OF THE REVENUE A ND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 23 RD OF AUGUST, 2013, AT CHENNAI. SD/- SD/- (V. DURGA RAO) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 23 RD AUGUST, 2013, RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR