Shri Chandraprabhu Urban Co-op. Credit Soc. Ltd., Belgaum V. Income Tax Offiser Ward-1, Belgaum

ITA 142/PAN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75999 (ITAT-PANAJI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 25-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 21-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NISHANT K LD
• Assessee Lawyers: P DINESH
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA , HONBLE JUDICIAL MEMBER ITA NO. 142 & 143 / PNJ /201 3 : (ASST. YEAR : 2009 - 10 & 2010 - 11 ) SHRI CHANDRAPRABHU URBAN CO - OPERATIVE CREDIT SOCIETY LTD., CHIKODI ROAD, NIPANI. PAN : AA GFS7687F (APPELLANT) VS. INCOME TAX OFFICER , WARD - 1, NIPANI (RESPONDENT) ASSESSEE BY : P. DINESH, ADV. REVENUE BY : NISHANT K. , LD. DR DATE OF HEARING : 25 / 02/ 2014 DATE OF PRONOUNCEMENT : 14 /0 3 /2014 O R D E R PER P.K. BANSAL 1. THE ABOVE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) , BELGAUM BOTH DT. 20 . 3 .2013 FOR A.Y S . 2009 - 10 & 2010 - 11 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL: ITA NO. 142/PNJ/2013 : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE ACCEPTED THE EXPLANATION AND EVIDENCE FURNISHED AND HELD THAT THE APPELLANT WAS ENTITLED TO THE DEDUCTION U/S.80P(2)(A)(I ) OF THE ACT. 2. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT WAS A CO - OP SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND ACCORDINGLY THE APPELLANT WAS ENTITLED TO THE EXEMPTION U/S.80P(2)(A)(I) OF THE ACT. 3. THE LEAR NED COMMISSIONER (A) ERRED IN UPHOLDING THE FINDINGS OF THE ASSESSING AUTHORITY THAT THE APPELLANT WAS A CO - OP SOCIETY CARRYING BUSINESS OF BANKING TO ROPE - IN THE PROVISIONS OF SEC.80P(4) OF THE ACT TO DENY THE EXEMPTION. 2 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) 4. THE LEARNED COMMISSIONER (A) O UGHT TO HAVE APPRECIATED THE APPELLANT IS NOT A CO - OP BANK, NOT GOVERNED BY BANKING REGULATIONS ACT OR RBI ACT AND CONSEQUENTLY THE PROVISIONS OF SEC.80P(4) OF THE ACT ARE NOT APPLICABLE AND ACCORDINGLY THE INCOME OF THE SOCIETY IS FULLY EXEMPTED U/S.80P(2 )(A)(I) OF THE ACT. ITA NO. 143/PNJ/2013 : - 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE ACCEPTED THE EXPLANATION AND EVIDENCE FURNISHED AND HELD THAT THE APPELLANT WAS ENTITLED TO THE DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. 7. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT WAS A CO - OP SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND ACCORDINGLY THE APPELLANT WAS ENTITLED TO THE EXEMPTION U/S.80P(2)(A )(I) OF THE ACT. 8. THE LEARNED COMMISSIONER (A) ERRED IN UPHOLDING THE FINDINGS OF THE ASSESSING AUTHORITY THAT THE APPELLANT WAS A CO - OP SOCIETY CARRYING BUSINESS OF BANKING TO ROPE - IN THE PROVISIONS OF SEC.80P(4) OF THE ACT TO DENY THE EXEMPTION. 9. T HE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIATED THE APPELLANT IS NOT A CO - OP BANK, NOT GOVERNED BY BANKING REGULATIONS ACT OR RBI ACT AND CONSEQUENTLY THE PROVISIONS OF SEC.80P(4) OF THE ACT ARE NOT APPLICABLE AND ACCORDINGLY THE INCOME OF THE SOCIET Y IS FULLY EXEMPTED U/S.80P(2)(A)(I) OF THE ACT. 2. BOTH THE PARTIES AGREED THAT WHATEVER VIEW IS TAKEN FOR THE A.Y 2009 - 10, THE SAME VIEW MAY BE TAKEN FOR THE A.Y 2010 - 11, THEREFORE THESE APPEALS ARE DISPOSED OFF ON THE BASIS OF THE FACTS INVOLVED FOR TH E A.Y. 2009 - 10. 3. THE BRIEF FACTS OF THE CASE FOR A.Y.2009 - 10 ARE THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA STATE CO - OPERATIVE SOCIETIES ACT. THE ASSESSEE FILED RETURN DECLARING GROSS TOTAL INCOME OF RS.30,94,493/ - 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.30,94,500/ - . THE AO WHILE DENYING THE DEDUCTION TO THE ASSES SEE 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) 3 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) ARE APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). CIT(A) DISMISSED THE APPEAL OF THE ASSE SSEE. 3.1 THE LD. AR BEFORE US VEHEMENTLY CONTENDED THAT THE PROVISIONS OF SEC. 80P(4) ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSEE IS NOT A CO - OPERATIVE BANK. THE ASSESSEE IS A CO - OPERATIVE SOCIETY DULY REGISTERED UNDER THE KARNATAKA ST ATE CO - OPERATIVE SOCIETIES ACT, 1959. THE PRIMARY OBJECT OF THE ASSESSEE IS TO PROMOTE THE ECONOMIC INTEREST OF ITS MEMBERS AND TO ENCOURAGE THRIFT, SAVINGS, CO - OPERATION AND SELF HELP AMONG THEMSELVES. FOR THIS, OUR ATTENTION WAS DRAWN TOWARDS THE ORDER OF THE CIT(A) WHICH RE - PRODUCES THE BYE - LAWS OF THE ASSESSEE FROM (I) TO (VII). THE ASSESSEE IS A CREDIT SOCIETY. THE ACTIVITIES OF THE ASSESSEE ARE LIMITED TO ITS MEMBERS. THE ASSESSEE DOES NOT FINANCE OR TAKE DEPOSITS FROM THE PUBLIC AT LARGE. THE PA ID 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 VS. JAFARI MOMIN VIKAS CO - OP. CREDIT SOCIETY L TD. IN TAX APPEAL NOS. 442 OF 2013, 443 OF 2013 AND 863 OF 2013. ATTENTION WAS ALSO DRAWN TOWARDS THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF VYAVASAYA SEVA SAHAKARA SANGHA VS. STATE OF KARNATAKA & ORS. FOR THE PROPOSITION OF LAW BY RE FERRING TO PARA 12 THAT MERELY BECAUSE THE CO - OPERATIVE SOCIETY IS REQUIRED TO ADVANCE LOAN TO ITS MEMBERS, IT DOES NOT CEASE TO BE A CO - OPERATIVE SOCIETY GOVERNED BY THE CO - OPERATIVE SOCIETIES ACT NOR CAN THEY BE TREATED AS BANKING COMPANIES. THE ACTIVIT IES CARRIED OUT BY THE SOCIETY CANNOT BE REGARDED TO BE BANKING ACTIVITIES AS CONTEMPLATED UNDER THE BANKING REGULATION ACT, 1949. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE BANGALORE BENCH OF THIS TRIBUNAL IN ITA NO. 72/BANG/2013 IN THE CASE OF ITO VS. DIVYAJYOTHI CREDIT CO - OPERATIVE SOCIETY LTD. FOR THE A.Y 2009 - 10 IN WHICH IT WAS HELD THAT THE PROVISIONS OF SEC. 80P(4) ARE APPLICABLE ONLY TO CREDIT CO - OPERATIVE BANKS AND NOT TO CREDIT CO - OPERATIVE 4 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) SOCIETY. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE PANAJI BENCH IN THE CASE OF DCIT VS. JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. IN ITA NO. 1 TO 3/PNJ/2012 DT. 30.3.2012. 3.2 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 CO - OPERATIVE 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 SO CIETY VS. ADDL. CIT IN ITA NOS. 1003/HYD/2011 & 1004/HYD/2011 DT. 2.7.2012. 3.3 WE HAVE 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 CAS E 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 ACTIV ITIES. 5 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) 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 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 OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE FOR LONG - TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 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 B USINESS. FROM THE READING OF SEC. 80P(4) IT IS APPARENT THAT THIS SECTION DENIES DEDUCTION TO A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CO - OPERATIVE 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 REGULATI ON 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 BO TH 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 - OPERATIV E 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. 6 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) 80P(4), THE PROVISIONS OF SEC. 80P(2)(A)(I) WERE NOT AMENDED, RATHER THE CO - OPERATIVE 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 PRE - SUPPOSES 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 CARR Y 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 - OPERAT IVE 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 - OPERATI VE 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 PROVIDE D THE ASSESSEE IS ENGAGED IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. 3.3.1 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 DED UCTION 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 PRE - SUPPOSES 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 7 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) 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 WH ICH 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 FACILTIES 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 CO - OPERATIVE SOCIETIES IN RESPECT OF BUSINESS RELATING TO ITS MEMBERS. 3.3.2 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: 3 . 3.3 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. 8 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) 3.3.4 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 SO CIETY 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 ST ATE GOVE RNMENT FOR THE PURPOSE 3.3.5 FROM THE AFORESAID DEFINITION, IT IS APPARENT THAT IF THE CO - OPERATIVE SOCIETY COMPLIED WITH ALL THE T HREE CONDITIONS; F IRSTLY THAT THE PRIMARY OBJECT OR PRINCIPLE BUSINESS TRANSACTED BY IT IS A BANKING BUSINESS, S ECONDLY, T HE 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 CO - OPERATIVE S OCIETY DOES NOT FULFIL 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 CO MPLIES WITH ALL THE THREE CONDITIONS. IN CASE, IT DOES NOT COMPLY WITH ALL THE THREE CONDITIONS, IT CANNOT BE REGARDED TO BE A CO - OPERATIVE 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 PROVI DING CREDIT FACILITIES TO ITS MEMBERS. 9 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) 3.3.6 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 IN THIS CASE ARE ENUMERATED AS UNDER : I. THE OBJECT OF THE SOCIETY SHALL BE TO PROMOTE THE ECONOMIC INTEREST OF ITS MEMBERS AND TO ENCOURAGE THRIFT, SAVINGS, CO - OPERATION AND SELF HELP AMONG THEMSELVES. II. TO CREATE FUNDS BY MEANS OF DEPOSITS AND BORROWINGS T HEREAFTER TO LEND TO MEMBERS OF THE SOCIETY AT MODERATE RATE OF INTEREST. III. TO CARRY ON THE BUSINESS OF ADVANCING MONEY IN GENERAL. IV. TO LEND MONEY TO SMALL SCALE INDUSTRIES AND TRADERS. V. TO ADVANCE LOANS TO THE MEMBERS OF SOCIETY ON PLEDGE OF GOLD OR SILVER OR ORNAMENTS MADE OF THEM. VI. TO GRANT LOANS ON THE INDUSTRIAL AND COMMERCIAL PRODUCE ACTUALLY PLEDGED WITH THE SOCIETY. VII. TO DO SUCH OTHER THINGS IN THE FURTHERANCE OF THE ABOVE OBJECTS WITH PRIOR APPROVAL OF THE REGISTRAR. ON THE BASIS OF THESE OBJECTS WHETHER IT CAN BE SAID THAT TH E 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' MEANS THE ACCEPTING, FOR THE PURPOSE OF LENDING OR IN VESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWABLE BY CHEQUE, DRAFT, ORDER OR OTHERWISE . FROM THE SAID DEFINITION IT IS CLEAR THAT BANKING MEANS ACCEPTING DEPOSIT OF MONEY FROM THE PUBLIC WHICH IS REPAYABLE ON DEMAND OR OTHERWISE AND WITHDRAWAL OF THESE DEPOSITS BY CHEQUE, DRAFT, ORDER OR OTHERWISE AND THESE DEPOSITS ARE ACCEPTED FOR THE PURPOSE OF LENDING OR INVESTMENT. THESE DEPOSITS MUST BE ACCEPTED FROM THE PUBLIC, NOT ONLY FROM THE MEMBERS. THESE DEPO SITS MUST BE REPAYABLE ON DEMAND OR OTHERWISE AND COULD BE WITHDRAWN BY THE DEPOSITOR BY CHEQUE, DRAFT OR OTHERWISE. WE NOTED THAT THE CIT(A) ON THE BASIS 10 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) OF THE REMAND REPORT OF THE AO DT. 13.2.2013 HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAS A CCEPTED DEPOSITS FROM THE GENERAL PUBLIC WHO WERE NOT MEMBERS. THE RELEVANT PORTION OF THE REMAND REPORT READS AS UNDER : THE SOCIETY ACCEPTS DEPOSITS FROM DEBTORS WHO ARE REGULAR MEMBERS HAVING A CLASS MEMBERS HAVING VOTING RIGHTS AND ALSO DEPOSITORS WHO ARE NOMINAL MEMBERS WHO ARE NOT VOTING RIGHTS. WE ALSO ACCEPT DEPOSITS FROM GENERAL PUBLIC WHO ARE NON - MEMBERS OF THE SOCIETY. THE DEPOSITS SO ACCEPTED ARE USED BY THE ASSESSEE CO - OPERATIVE SOCIETY FOR LENDING OR INVESTMENT. THIS FACT HAS NOT BEEN DENIED. EVEN OUT OF THE DEPOSITS SO RECEIVED, THE LOANS HAVE BEEN GIVEN TO THE MEMBERS OF THE SOCIETY IN ACCORDANCE WITH THE OBJECTS A S ENUMERATED ABOVE. THUS, IN OUR OPINION, CONDITION NO. 1 STANDS SATISFIED AND IT CANNOT BE SAID THAT THE ASSESSEE SOCIETY WAS NOT CARRYING ON BANKING BUSINESS AS IT WAS ACCEPTING DEPOSITS FROM THE PERSONS WHO WERE NOT MEMBERS. SO FAR AS THE SECOND CONDI TION IS CONCERNED, THERE IS NO DISPUTE THAT THE PAID UP SHARE CAPITAL AND RESERVES IN THE CASE OF THE ASSESSEE IS MORE THAN RS. 1 LAC. THEREFORE, THE ASSESSEE SATISFIES THE SECOND CONDITION. SO FAR AS THE THIRD CONDITION IS CONCERNED, WE NOTED THAT SEC. 16 OF THE KARNATAKA STATE CO - OPERATIVE SOCIETIES ACT, 1959 PERMITS ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. THE PROVISIONS OF SEC. 16 ARE LAID DOWN AS UNDER : 1 6. PERSONS WHO MAY BECOME MEMBERS - [(1) SUBJECT TO THE PROVISIONS OF SECTION 17, NO PERSON SHALL BE ADMITTED AS A MEMBER OF A CO - OPERATIVE SOCIETY EXCEPT THE FOLLOWING, NAMELY: -- [(A) AN INDIVIDUAL WHO NEEDS THE SERVICES OF SUCH CO - OPERATIVE SOCIETY [AND IS RESIDING IN THE AREA OF THE OPERATION OF THE SOCIETY] AND IS COMPETENT TO ENTER INTO CONTRACT UNDER THE CONTRACT ACT, 1872 (CENTRAL ACT IX OF 1872);] [(A - 1) A DEPOSITOR;] (B) ANY OTHER CO - OPERATIVE SOCIETY; (C) THE STATE GOVERNMENT OR THE CENTRAL GOVERNMENT; (D) THE LIFE INSURANCE CORPORATION OF INDIA, STATE WAREHOUSING CORPORAT ION AND SUCH OTHER INSTITUTIONS AS MAY BE APPROVED BY THE STATE GOVERNMENT; 11 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) (E) A FIRM, A COMPANY OR ANY OTHER BODY CORPORATE CONSTITUTED UNDER ANY LAW FOR THE TIME BEING IN FORCE INCLUDING A SOCIETY REGISTERED UNDER THE KARNATAKA SOCIETIES REGISTRATION AC T, 1960 (KARNATAKA ACT 17 OF 1960); (F) A MARKET COMMITTEE ESTABLISHED UNDER THE KARNATAKA AGRICULTURAL PRODUCE MARKETING (REGULATION) ACT, 1966 (KARNATAKA ACT 27 OF 1966); (G) A LOCAL AUTHORITY. EXPLANATION. - FOR THE PURPOSE OF THIS CLAUSE, LOCAL AUTHORIT Y MEANS, A MUNICIPAL CORPORATION, MUNICIPAL COUNCIL, TOWN PANCHAYAT, ZILLA PANCHAYAT, TALUK PANCHAYAT OR GRAMA PANCHAYAT CONSTITUTED UNDER ANY LAW FOR THE TIME BEING IN FORCE] (2) NO CO - OPERATIVE SOCIETY SHALL, WITHOUT SUFFICIENT CAUSE, REFUSE ADMISSION T O MEMBERSHIP TO ANY PERSON DULY QUALIFIED THEREFOR UNDER THE PROVISIONS OF THIS [ACT, RULES AND BYE - LAWS] THE AFORESAID PROVISION OF SEC. 16 MANDATES ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER OF THE CO - OPERATIVE SOCIETY. THE WORD USED IN S EC. 16(1) IS SHALL. THIS FACT IS CLARIFIED FURTHER BY SUB - SECTION (2) AS RE - PRODUCED 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 CO - OPERATIVE 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). 3.3.7 WE HAVE GONE THROUGH THE COPY OF THE BYLAWS FIL ED BY THE ASSESSEE. WE NOTED THAT BYLAW 14 TO 20 DEALS WITH THE MEMBERSHIP. NONE OF THE BYLAWS OF THE SOCIETY PERMITS THE ADMISSION OF ANY OTHER COOPERATIVE SOCIETY TO BE THE MEMBER OF THE IMPUGNED SOCIETY. THUS THE THIRD CONDITION ALSO IN OUR OPINION 12 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) S TAND COMPLIED WITH. THUS, WE NOTED THAT ALL THE THREE CONDITIONS IN THE CASE OF THE ASSESSEE FOR BECOMING PRIMARY COOPERATIVE BANK STAND COMPLIED WITH. 3.3.8 WE HAVE GONE THROUGH THE DECISION OF THE HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF THE CITIZEN COOPERATIVE SOCIETY VS. ADDL. CIT ( SUPRA ). WE NOTED THAT THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE BEFORE US. IN THIS DECISION, UNDER PARA 23 THE TRIBUNAL HAS GIVEN A FINDING THAT THE ASSESSEE IS CARRYING ON BANKING BUSINESS AND FO R ALL PRACTICAL PURPOSES IT ACTS LIKE A CO - OPERATIVE BANK. THE SOCIETY IS GOVERNED BY THE BANKING REGULATIONS ACT. THEREFORE, THE SOCIETY BEING A CO - OPERATIVE BANK PROVIDING BANKING FACILITIES TO MEMBERS IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80P(2)(A)(I ) AFTER THE INTRODUCTION OF SUB - SECTION (4) TO SECTION 80P. IN VIEW OF THIS FINDING, THE ASSESSEE WAS DENIED DEDUCTION U/S 80P(2)(A)(I). WE HAVE ALSO GONE THROUGH THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DIVYAJYOTHI CRED IT CO - OPERATIVE SOCIETY LTD. ( SUPRA ) IN ITA NO. 72/BANG/2013. IN THIS CASE, WE NOTED THAT THE HON'BLE TRIBUNAL CONFIRMED THE ORDER OF CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCLE 3(1), BANGALORE VS. M/S. BANGALORE COMMERCIAL T RANSPORT CREDIT CO - OPERATIVE SOCIETY LTD. IN ITA NO. 1069/BANG/2010 HOLDING THAT SEC. 80P(2)(A)(I) IS APPLICABLE ONLY TO A CO - OPERATIVE BANK AND NOT TO CREDIT CO - OPERATIVE SOCIETY. WITH DUE REGARDS TO THE BENCH, WE ARE UNABLE TO FIND ANY TERM CREDIT CO - O PERATIVE SOCIETY U/S 80P(2)(A)(I) OR U/S 80P(4), THEREFORE, THIS DECISION CANNOT ASSIST US. WE NOTED THAT THE HON'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 13 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) 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 AR E 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 PURPOSE OF FINANCING ITS MEMBERS, THEY BORROW MONEY FROM THE FINANCING AGENCIES AND REPAY THE SAME. MERELY BECAUSE THE PETITIONERS - THE CO - OPERATIVE SOCIETIES IN QUESTION - ARE REQUIRED TO ADVANCE LOANS T O THEIR MEMBERS, THEY DO NOT CEASE TO BE CO - OPERATIVE SOCIETIES GOVERNED BY THE ACT NOR CAN THEY BE TREATED AS BANKING COMPANIES. IT IS ALSO NOT POSSIBLE TO HOLD THAT THESE ACTIVITIES OF THE PETITIONERS AMOUNT TO BANKING AS CONTEMPLATED UNDER THE BANKIN G REGULATION ACT, 1949, INASMUCH AS THESE CO - OPERATIVE SOCIETIES ARE NOT ESTABLISHED FOR THE PURPOSE OF DOING BANKING AS DEFINED IN SECTION 5(B) OF THE BANKING REGULATION ACT, 1949. THIS DECISION, IN OUR OPINION, IS NOT APPLICABLE TO THE CASE BEFORE US BECAUSE THE PROVISIONS OF SEC. 80P(2)(A)(I), AS WE HAVE ALREADY HELD IN THE PRECEDING PARAGRAPHS, ARE APPLICABLE TO A CO - OPERATIVE SOCIETY WHICH IS ENGAGED IN CARRYING ON BANKING BUSINESS FACILITIES TO ITS MEMBERS IF IT IS NOT A CO - OPERATIVE BANK. WE HAV E ALSO GONE THROUGH THE DECISION OF THIS BENCH IN THE CASE OF DCIT VS. JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. IN ITA NO. 1 TO 3/PNJ/2012 DT. 30.3.2012 ( SUPRA), FOR WHICH THE UNDERSIGNED IS THE AUTHOR. WHILE DISCUSSING THIS ISSUE, AFTER ANALYSING THE AIMS AND OBJECTS OF THE CO - OPERATIVE SOCIETY UNDER PARA 12 OF ITS ORDER, THIS TRIBUNAL HAS HELD AS UNDER : 12. FROM THE AFORESAID OBJECTS, IT IS APPARENT THAT NONE OF THE AIMS AND OBJECTS ALLOWS THE ASSESSEE COOPERATIVE SOCIETY TO ACCEPT DE POSITS OF MONEY FROM PUBLIC FOR THE PURPOSE OF LENDING OR INVESTMENT. IN OUR OPINION UNTIL AND UNLESS THAT CONDITION IS SATISFIED, IT CANNOT BE SAID THAT THE PRIME OBJECT OR PRINCIPAL BUSINESS OF THE ASSESSEE IS BANKING BUSINESS. THEREFORE, THE ASSESSEE W ILL NOT COMPLY WITH THE FIRST CONDITION AS LAID DOWN IN THE DEFINITION AS GIVEN U/S. 5(CCV) OF THE BANKING REGULATION ACT, 1959 FOR BECOMING PRIMARY COOPERATIVE BANK. THE ASSESSEE, THEREFORE, CANNOT BE REGARDED TO BE PRIMARY COOPERATIVE BANK AND IN CONSE QUENCE 14 ITA NOS. 142 & 143/PNJ/2013 (A . Y : 2009 - 10 & 2010 - 11) THEREOF, IT CANNOT BE A CO - OPERATIVE BANK AS DEFINED UNDER PART V OF THE BANKING REGULATION ACT 1949. ACCORDINGLY, IN OUR OPINION THE PROVISIONS OF SECTION 80P (4) READ WITH EXPLANATION THERE UNDER WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSEE, THEREFORE, IN OUR OPINION WILL BE ENTITLED FOR THE DEDUCTION U/S 80P(2)(A)(I). WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A) ALLOW ING DEDUCTION TO THE ASSESSEE. THE OTHER DECISIONS ALSO RELIED ON ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. 3.3.9. IN VIEW OF OUR AFORESAID DISCUSSION, WE HOLD THAT THE ASSESSEE IS A PRIMARY COOPERATIVE BANK AND THEREFORE HIT BY THE PROVISIONS OF SECTION 80P(4). 4. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE DISMISSED. 5. ORDER PRO NOUNCED IN THE OPEN COURT ON 14 .0 3 .2014. SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 1 4 .0 3 . 201 4 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER