Rani Channamma Mahila Co. Op. Crdit Soc. Ltd., Belgaum V. Income-Tax Officer (Ward) 1,

ITA 165/PAN/2013

• Counselvise Citation: 16524114 RSA 2013
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-02-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 01-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT K LD
• Assessee Lawyers: SHRIKRISHNA KELKAR
• Keywords: Source of fund

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. 164 & 165 / PNJ /201 3 : (ASST. YEAR : 200 9 - 1 0 & 2010 - 11 ) RANI CHANNAMMA MAHILA URBAN CO - OPERATIVE CREDIT SOCIETY LTD. KABBUR, TAL. CHIKODI, DIST. BELGAUM (APPELLANT) PAN : AAA AR4422J VS. INCOME TAX OFFICER , WARD - 1, NIPANI (RESPONDENT) ASSESSEE BY : SHRIKRISHNA KELKAR, C.A REVENUE BY : NISHANT K. , LD. DR DATE OF HEARING : 24 / 02/ 2014 DATE OF PRONOUNCEMENT : 28 /0 2 /2014 O R D E R PER P.K. BANSAL 1. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THESE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) BOTH DT. 25.3.2013, THEREFORE, BOTH THE APPEALS ARE DECIDED BY THIS COMMON ORDER. IN BOTH THE ASSESSMENT YEARS THE ASSESSEE HAS TAKEN THE FOLLOWING COMMON GROUNDS OF APPEAL : 1. THE LD. CIT(APPEALS) HAS ERRED IN LAW AS WELL AS ON FACTS IN REJECTING THE CLAIM OF THE APPELLANT IN RESPECT OF GRANT OF DEDUCTION U/S 80P(2)(A)(I). THE APPELLANT PRAYS FOR GRANT OF THE DEDUCTION AS CLAIMED. 2. THE LD. CIT(APPEALS) HAS FAILED TO CONSIDER THAT THERE IS NO PROHIBITION IN THE BYE - LAWS OF THE APPELLANT SOCIETY AND THE MEMBERSHIP IS OPEN TO ANY PERSON WHO IS COMPETENT TO CONTRACT UNDER THE INDIAN CONTRACT ACT AND THUS, ERRED IN HOLDING THE APPELLANT SOCIETY AS A CO - OPERATIVE BANK IN TERMS OF SECTION 80P(4). 3. THE LD. CIT(APPEALS) ERRED IN LAW AS WELL AS ON FACTS IN MAKING A DISTINCTION BETWEEN A CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY. 2 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) 2. BOTH THE PARTIES AGREED THAT WHATEVER VIEW IS TAKEN FOR THE A.Y 2009 - 10, THE SAME VIE W MAY BE TAKEN FOR THE A.Y 2010 - 11, THEREFORE THESE APPEALS ARE DISPOSED OFF ON THE BASIS OF THE FACTS INVOLVED FOR THE A.Y. 2009 - 10. 3. THE BRIEF FACTS OF THE CASE 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. 11,23,145 / - 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. 11,69,110 / - . 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) DISMISSED THE APPEAL OF THE ASSESSEE. 3.1 THE ASSESSEE FILED THE FOLLOWING WRITTEN SUBMISSION : THE ISSUE IN APPEAL RELATES TO INTERPRETATION OF THE WORD BANKING WITH REFERENCE TO THE BUSINESS OF CO - OPERATIVE CREDIT SOCIETIES. WHEN SECTION 80P(4) IS ANALYZED, IT TAKES INTO ITS AMBIT THE COOPERATIVE BANK AND FOR THIS PURPOSE THE DE FINITION IS BORROWED FROM BANKING REGULATION ACT. IN THIS DEFINITION UNDER BANKING REGULATION ACT, CO - OPERATIVE BANK IS DEFINED TO BE A CENTRAL CO - OPERATIVE BANK, A STATE CO - OPERATIVE BANK OR A PRIMARY CO - OPERATIVE BANK. TO BE A PRIMARY CO - OPERATIVE BANK T HE FIRST VERY STIPULATION IS THAT IT SHOULD BE CARRYING ON BUSINESS OF BANKING. THIS FACT OF CARRYING ON THE BUSINESS OF BANKING IS A PRE - REQUISITE TO DESIGNATE ITSELF AS A PRIMARY CO - OPERATIVE BANK. AS SUCH THE TERM BANKING BUSINESS HAS TO BE PROPERLY ANA LYZED AND CONSIDERED. THERE IS ONE IMPORTANT JUDGMENT OF JURISDICTIONAL KARNATAKA HIGH COURT ON THE ISSUE OF THE BUSINESS CARRIED ON BY CO - OPERATIVE CREDIT SOCIETIES. (VYAVASAYA SEVA SAHAKARA SANGH...VS STATE OF KARNATAKA AND OTHERS, 19 TH MARCH, 1990 AVA ILABLE AT HTTP://INDIANKANOON.ORG/DOC/672072/) (COPY ENCLOSED.) THEIR L ORDSHIPS (IN A DECISION RENDERED BY BENCH) HAVE HELD THAT THESE ACTIVITIES OF CO - OPERATIVE 3 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) CREDIT SOCIETIES CAN NEVER BECOME BANKING BUSINESS. THIS JUDGMENT WAS DELIVERED IN THE CONTEXT OF THE CO - OPERATIVE CREDIT SOCIETIES CHALLENGING THE DECISION OF THE STATE GOVERNMENT OF KARNATAKA TO HAVE CEDING WITH DISTRICT CENTRAL CO - OPERATIVE BANKS. WHILE DISCUSSING THE ISSUE AND ROLE OF CO - OPERATIVE CREDIT SOCIETIES, THEIR LORDSHIPS WERE OF THE OPINION THAT THE CO - OPERATIVE CREDIT SOCIETIES ARE NOT BANKS AND ONLY THE STATE GOVERNMENT CAN GOVERN THEM UNDER THE KARNATAKA CO - OP SOCIETIES ACT, 1959. THEIR LORDSHIPS ALSO CAME TO AN IMPORTANT CONCLUSION THAT THE ACTIVITIES OF THESE SOCIETIES CANNOT BE BANKING AS CONTEMPLATED UNDER THE BANKING REGULATION ACT, 1949. (SEE PARA 10 AND 12) THE VERY SIMILAR VIEW IS TAKEN BY HON ITAT NAGPUR BENCH IN ACIT V. BULDANA URBAN CO - OPERATIVE SOCIETY LTD. REPORTED IN 32 TAXMANN.COM 69 (NAGPUR TRIB. ). WHEN THE PRIME OBJECT OR PRINCIPLE BUSINESS IS NOT BANKING BUSINESS, THE FIRST CONDITION AS LAID DOWN IN THE DEFINITION AS GIVEN U/S 5(CCV) OF THE BANKING REGULATION ACT 1959 FOR BECOMING PRIMARY CO - OP BANK IS NOT SATISFIED. AS SUCH THE BENEFIT OF SEC 80P CANNOT BE DENIED. WE BEG TO RELY ON THESE DECISIONS. WE SUBMIT BELOW THE IMPORTANT FACTS RELATED TO OUR SOCIETY AS BELOW: 1. OUR SOCIETY IS NOT PERMITTED TO USE THE WORD BANK NOR HAS A BANKING LICENSE FROM RESERVE BANK OF INDIA. 2. WE ARE GOVERNED BY THE CO - OPERATIVE SOCIETIES ACT ENACTED BY THE GOVERNMENT OF KARNATAKA AND ARE DUTY BOUND TO HONOR EVERY OF THE DIRECTION GIVEN BY THE STATE. 3. OUR DEPOSITS USED FOR THE PUR POSE OF LENDING ALTHOUGH AKIN TO OR SIMILAR TO THE TERM BANKING, IT CAN NEVER BE EQUAL TO THE TERM BANKING AS DEFINED UNDER BANKING REGULATION ACT. 4. THE RESERVE BANK OF INDIA IN ITS FAQS POSTED ON ITS WEBSITE RBI.ORG HAS CLARIFIED THAT NON BANKING FINAN CIAL COMPANIES DOING FUNCTIONS SIMILAR TO BANKS CAN NEVER BE TERMED AS BANKS. THE RELEVANT QUESTION AND ANSWER IS REPRODUCED BELOW: FAQS FROM RBI.ORG Q.NO 2 NBFCS ARE DOING FUNCTIONS SIMILAR TO BANKS. WHAT IS DIFFERENCE BETWEEN BANKS & NBFCS? ANS. NBFCS LEND AND MAKE INVESTMENTS AND HENCE THEIR ACTIVITIES ARE AKIN TO THAT OF BANKS; HOWEVER THERE ARE A FEW DIFFERENCES AS GIVEN BELOW: I . NBFC CANNOT ACCEPT DEMAND DEPOSITS; II. NBFCS DO NOT FORM PART OF THE PAYMENT AND SETTLEMENT SYSTEM AND CANNOT ISSUE CHE QUES DRAWN ON ITSELF; 4 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) III. DEPOSIT INSURANCE FACILITY OF DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION IS NOT AVAILABLE TO DEPOSITORS OF NBFCS, UNLIKE IN CASE OF BANKS. 5. IN THE WEBSITE OF NABARD, THE COMMENTS ARE OFFERED ON BANKING REGULATION ACT AS APPLICABLE TO SOCIETIES. THEREIN ALSO THERE IS A MENTION ABOUT THE ROLE OF CO - OPERATIVE CREDIT SOCIETIES. WHILE INTERPRETING SEC. 5(B) OF BANKING REGULATION ACT WHICH DEFINES THE TERM BANKING, IT IS CATEGORICALLY STATED THAT MERELY BECAUSE THE SOCIETIES ARE REQUIRED TO ADVANCE LOANS TO THEIR MEMBERS, THEY DO NOT CEASE TO BE CO - OPERATIVE SOCIETIES GOVERNED BY THE ACT NOR CAN THEY BE TREATED AS BANKING COMPANIES. THE ACTIVITIES CANNOT AMOUNT TO BANKING AS THE SOCIETIES ARE NOT ESTABLISHED FOR THE PURPOSE O F DOING BANKING AS DEFINED IN SEC. 5(B) OF THE BANKING REGULATION ACT. 6. WE DRAW YOUR KIND ATTENTION TO THE WORDS USED IN SEC. 80P(2)(A)(I) WHICH SEPERATE BANKING AND PROVIDING CREDIT FACILITIES AND THE SECTION IS WORDED AS .. IN THE CASE OF A CO - OPERAT IVE SOCIETY ENGAGED - IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS .. THIS CLEARLY BRINGS OUT THE TWO LIMBS WHEREIN THE ENACTMENT ITSELF HAS DISTINGUISHED THE WORDS BUSINESS OF BANKING WITH THAT OF PROVIDING CREDIT FACILITIES. IF THE INTENTION WAS NOT TO GRANT DEDUCTION TO ALL CO - OPERATIVES THEN THE SECTION WOULD NOT HAVE BEEN WORDED WITH THESE TWO LIMBS. 7. S E C. 8 0 P TALKS OF THE DEDUCTION AVAILABLE FROM THE GROSS TOTAL INCOME. IF THE SOCIETY EARNS THE INCOME FROM PR OVIDING CREDIT FACILITIES TO ITS MEMBERS THEN THE INCOME IS ENTITLED FOR THE BENEFIT. IT NOWHERE DISCUSSES THE SOURCE OF FUNDS BEING ACCEPTED FROM MEMBERS OR OTHERWISE. THEREFORE, WE SUBMIT THAT THE ONLY TEST TO BE APPLIED FOR 80P(2)(A)(I) IS TO FIND THE I NCOME GENERATED BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. 8. THE CO - OPERATIVE CREDIT SOCIETY CAN NEVER ISSUE CHEQUES OR DRAFTS AND CANNOT FORM PART OF ANY PAYMENT AND SETTLEMENT SYSTEM IN FORM OF A CLEARING HOUSE. PARTICIPATION IN CLEARING HOUSE SYSTEM IS AN IMPORTANT REQUISITE TO TERM ITSELF AS BANK. 9. MERE ACTIVITY OF EARNING INTEREST CANNOT BE EQUATED WITH THAT OF BANKING. BY NO STRETCH OF IMAGINATION, AN ACTIVITY OF EARNING INTEREST CAN BE EQUATED WITH THAT OF BANKING. BANKING BUSINESS IN IND IA HAS TO BE ONE WHICH THE RBI RECOGNIZES AS BANKING. RESERVE BANK IS VERY CATEGORICAL IN ALLOWING THE USE OF THE WORD BANK. NO ENTITY WITHOUT AN APPROVAL OF BANKING LICENSE CAN CARRY ON BANKING BUSINESS. MERE ACTIVITY OF BORROWING FOR THE PURPOSE OF LEN DING OR TO EARN INTEREST CANNOT BY ITSELF BE TERMED AS BANKING. A BANK HAS TO BE A BANK, PROPERLY RECOGNIZED AS SUCH ENJOYING THE LEGAL STATUS TO DESIGNATE ITSELF AS BANK. BANKING AS SUCH IS A SUBJECT OF CONTROL OF THE CENTRE AND NOT OF THE STATE. KEEP ING THIS VERY BASIC FACTOR, THE FURTHER DEVELOPMENTS CAN FIND FORCE. THE HONBLE FINANCE MINISTER WHEN HE DECLARES ON OPEN FORUM OF THE PARLIAMENT THAT AMENDMENTS BROUGHT U/S 80P(4) WILL NOT AFFECT ALL THE CO - OPERATIVE SECTORS UNDER FIELD OF CREDIT LENDING , IT MEANS THE INTENTION OF THE STATUTE IS TO COVER ONLY CO - OPERATIVE BANKS DOING BANKING BUSINESS. IN EXPLANATORY NOTES AND OTHER 5 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) RELEVANT DISCUSSIONS, THERE IS ONLY A REFERENCE ABOUT BRINGING THE CO - OPERATIVE BANKS AT PAR WITH THAT OF NATIONALIZED. 10. T HE DEFINITION OF PRIMARY CO - OPERATIVE BANK ALSO STATES A SITUATION WHERE THE BYE LAWS OF THE SOCIETY SHOULD NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS MEMBER. IN OUR CASE, ANY PERSON ELIGIBLE TO ENTER INTO A CONTRACT UNDER INDIAN CONTRACT AC T IS ELIGIBLE FOR MEMBERSHIP. THE TERM ANY PERSON IS ELIGIBLE TO ENTER INTO A CONTRACT TAKES INTO ITS AMBIT A CO - OPERATIVE SOCIETY AS WELL. WE DRAW YOUR KIND ATTENTION AND RELY ON A DECISION OF HONBLE ALLAHABAD HIGH COURT IN STATE OF UTTAR PRADESH V. KA NHALYALAL MAKUND REPORTED IN AIR 1956 ALL 383(COPY ENCLOSED). IN THIS JUDGEMENT, THE LORDSHIPS HAVE HELD THAT THE GREATER PART OF MODERN INDUSTRY AND COMMERCE IS FOUNDED ON CONTRACTS AND UNINCORPORATED BODIES HABITUALLY ENTER INTO CONTRACTS THUS HOLDING THAT THE WORD PERSON SHOULD NOT BE GIVEN A RESTRICTED MEANING. 11. IN OUR CASE, OUR BYE LAWS DO NOT PROHIBIT THE MEMBERSHIP TO ANY OTHER CO - OPERATIVE SOCIETY. TAKING INTO CONSIDERATION THE AVAILABILITY OF MEMBERSHIP TO ANY PERSON ELIGIBLE TO ENTER INTO A C ONTRACT, THE OTHER CO - OPERATIVES ALSO ARE ENTITLED FOR SUCH MEMBERSHIP. 12. WE RELY ON THE DECISION OF THE HONBLE ITAT, NAGPUR BENCH IN ACIT V. BULDANA URBAN CO - OPERATIVE SOCIETY LTD. REPORTED IN 32 TAXRNANN.COM 69 (NAGPUR TRIB. ) WHEREIN THE LORDSHIPS HAVE HELD THAT THE AIMS AND OBJECTS SHOULD CONSTITUTE THE PRINCIPAL BUSINESS OF THE ASSESSEE AS BANKING BUSINESS. IT IS ALSO HELD IN THIS VERY CASE BY THE LORDSHIPS THAT THE THIRD TEST OF MEMBERSHIP IF NOT SATISFIED, THE BENEFIT OF SEC.80P CANNOT BE DENIED . 13. IN OUR CASE, THE OBJECTS OF THE ASSESSEE SOCIETY HAVE BEEN REPRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ITSELF FOR A.Y.2009 - 10 AND 2010 - 11 AT PARA 7 PP 5 AND 6. IN PARA 9 (FOR A.Y.2010 - 11) AND AT PARA 8.3 PP 9 (FOR A.Y.2009 - 10), THE IS SUE OF MEMBERSHIP AVAILABLE TO PERSONS COMPETENT TO ENTER INTO CONTRACT IS DISCUSSED. 14. BASED ON THE ABOVE FACTS AND SUBMISSIONS, IT CAN BE CONCLUDED THAT THE APPELLANT SOCIETY IS ENTITLED FOR BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) AND PROVISIONS OF SEC. 80P(4) ARE NOT APPLICABLE IN THE CASE. 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 6 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) TRIBUN AL 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. 3.3 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 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 T HE 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 TOT AL 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 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 TH E 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 AGRIC ULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 7 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) 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 CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMA RY 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 SO CIETY 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 - OP ERATIVE 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 CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING FACILITIES TO ITS MEMBERS CON TINUED 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 - OPERAT IVE 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 I N CARRYING ON BUSINESS OF 8 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) 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 DEDUCT ION 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 - O PERATIVE 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. 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 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 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 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 FAC ILITIES 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 9 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) ENGAGED IN CARRYING ON BUSINESS OF BANKING FACILITIE S 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 DEDUCTIO N 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 - OPERAT IVE 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. 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 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 10 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) SUCH CO - OPERATIV E SOCIETY OUT OF FUNDS PROVIDED BY THE ST ATE GOVERNMENT 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 TR ANSACTED BY IT IS A BANKING BUSINESS, S ECONDLY, 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 CO - OPERATIVE SOCIETY 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 RE CORD 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 CO - OPERATIVE BANK AND THE PROVISIONS OF SEC. 80P(4), IN OUR OPINION, WILL NOT B E 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. 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 TH IS CASE ARE ENUMERATED AS UNDER : 1 . TO CREATE APPROPRIATE AWARENESS AMONG THE MEMBERS FOR THEIR ALL ROUND DEVELOPMENT IN THE SOCIETY; 2. TO PROMOTE CO - OPERATION AND SELF HELP ATTITUDE AND HABIT AMONG THE MEMBERS AND VOLUNTARY COLLECTIVE WORK; 11 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) 3. TO PROMOTE SAVINGS ATTITUDE AND HABIT AMONG THE MEMBERS FOR THEIR GOOD FUTURE AND TO ENCOURAGE THE MEMBERS TO COMMIT THEMSELVES TO A REGULAR SAVINGS SYSTEM; 4. TO MEET THE CREDIT NEEDS OF THE MEMBERS IN TIME FOR CONSUMPTION, INCOME GENERATION, ASSET CREATION AND OTHER APPROPRIATE PURPOSE; 5. TO HELP MEMBER IN ACQUIRING AND USE OF APPROPRIATE TECHNICAL KNOWLEDGE AND MANAGERIAL SKILLS IN RELATION TO THEIR OCCUPATION IN ORDER TO INCREASE PRODUCTIVITY; 6. TO PROVIDE APPROPRIATE SKILL TRAINING FOR THE ME MBERS ON NEED BASE AND TO HELP MEMBERS FOR SUBSIDIARY INCOME GENERATION OCCUPATIONS; 7. TO RAISE FUNDS FOR THE GROUP FROM APPROPRIATE SOURCES AS WELL AS THROUGH GROUP INCOME GENERATION ACTIVITIES. 8. TO PROMOTE FINANCIALLY AND ECONOMICALLY SPECIALLY MEMB ERS OF WOMEN, SCHEDULED CASTES AND SCHEDULED TRIBES; 9. ADVANCEMENT OF LOANS TO THE MEMBERS OF SOCIETY FOR PURCHASING OF MACHINES AND MOTOR VEHICLES; 10. TO GIVE LOANS, GOLD AND SILVER ORNAMENTS; 11. TO ENCOURAGE AND HELP FAMILIES FOR POSSESSION OF ALTE RNATE ENERGY SOURCES SUCH AS BIO - GAS PLANT, SOLAR SYSTEM ETC. 12. TO TRAIN AND GUIDE THE MEMBERS IN TRAINING PROGRAMME LIKE SELF EMPLOYMENT BY PROVIDING PROPER ASSISTANCE AND GUIDANCE; 13. THE RESTRICTION BEFORE THE RULES OF THE SOCIETY, AIMS AND OBJECTI VES, FUNDS, PROPERTY USED. 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 : 12 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) ' BANKING' MEANS THE ACCEPTING, FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC, REPAYA BLE 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 DEPOSI TS 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 DEPOSITS MUST BE REPAYABLE ON DEMAND OR OTHERWISE AND COUL D BE WITHDRAWN BY THE DEPOSITOR BY CHEQUE, DRAFT OR OTHERWISE. WE NOTED THAT THE ASSESSEE HAS CATEGORICALLY ACCEPTED BEFORE THE AUTHORITIES BELOW THAT THE ASSESSEE WAS ACCEPTING DEPOSITS OF MONEY NOT ONLY FROM THE MEMBERS BUT ALSO FROM THE RELATIVES OF TH E MEMBERS WHO ARE NON - MEMBERS. THE RELEVANT CONFIRMATION OF THE ASSESSEE IS RE - PRODUCED AS UNDER : OUR SOCIETY ADMITS AND ACCEPTS DEPOSITS FROM REGULAR WOMEN MEMBERS AS A CLASS MEMBERS HAVING VOTING RIGHTS. OTHER WOMEN MEMBERS AS NOMINAL MEMBERS HAVING NO VOTING RIGHTS. WE ALSO ADMIT MALE MEMBERS AS NOMINAL MEMBERS WHO DO NOT HAVE VOTING RIGHTS. THE SOCIETY ACCEPTS DEPOSITS FROM MEMBERS RELATIVES ALSO, WHO ARE NON - MEMBERS. 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 AS ENUMERATED ABOVE. THUS, IN OUR OPINION, CONDITION NO. 1 STANDS SATIS FIED 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 CONDITION IS CONCERNED, THERE IS NO DISPUTE THAT THE PAID UP SHARE CAPITAL A ND 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 13 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) THE KARNATAKA STATE CO - OPERATIVE SOCIETIES ACT, 1959 PERMITS ADMI SSION 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 187 2);] [(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 CORPORATION AND SUCH OTHER INSTITUTIONS AS MAY BE APPROVED BY THE STATE GOVERNMENT; (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 ACT, 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 AUTHORI TY. EXPLANATION. - FOR THE PURPOSE OF THIS CLAUSE, LOCAL AUTHORITY 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 - OPERA TIVE SOCIETY SHALL, WITHOUT SUFFICIENT CAUSE, REFUSE ADMISSION TO 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 SEC. 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 14 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) 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 LEGI SLATURE, THEY WOULD HAVE NOT USED THE WORDS THIS ACT, RULES AND BYE - LAWS IN SUB - SECTION (2). 3.3.7 THE ASSESSEE DID NOT FILE COPY OF ITS BYE - LAWS BEFORE US; NEITHER ARE THE PROVISIONS OF SEC. 17 OF THE KARNATAKA STATE CO - OPERATIVE SOCIETIES ACT, 1959. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION THAT THE AO SHALL LOOK INTO THE RULES AND BYE - LAWS OF THE ASSESSEE CO - OPERATIVE SOCIETY AND IN CASE THE AO FINDS THAT THE BYE - LAWS DID NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY, IT BE TREATED THAT THE ASSESSEE COMPLIES WITH ALL THE THREE CONDITIONS FOR BECOMING A PRIMARY CO - OPERATIVE BANK. IN CASE THE BYE - LAWS PERMIT FOR THE ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER, THE ASSESSEE WILL NOT BE NOT TREATED AS A CO - OPERATIVE BANK AND THE PROVISIONS OF SEC. 80P(4) WILL NOT APPLY TO THE ASSESSEE. THE ASSESSEE WILL BE ENTITLED IN THAT CASE, IN OUR OPINION, FOR THE DEDUCTION AS STIPULATED U/S 80P(1) R.W.S . 80P(2)(A)(I). 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 TH IS DECISION, UNDER PARA 23 THE TRIBUNAL HAS GIVEN A FINDING THAT THE ASSESSEE IS CARRYING ON BANKING BUSINESS AND FOR 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 15 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) INTRODUCTION OF SUB - SECTION (4) TO SECTION 80P. IN VIEW OF THIS FINDING, THE ASSESSEE WAS DENIED DEDUCTION U/S 80P(2)(A)(I). W E HAVE ALSO GONE THROUGH THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DIVYAJYOTHI CREDIT 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 TRANSPORT 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 - OPERATIVE 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 I N 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. I N 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 PROV ISIONS 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 BOR ROW MONEY FROM THE FINANCING AGENCIES AND REPAY THE SAME. MERELY BECAUSE THE PETITIONERS - THE CO - OPERATIVE SOCIETIES IN QUESTION - ARE REQUIRED TO ADVANCE LOANS TO 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 16 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) CONTEMPLATED UNDER THE BANKING REGULATION ACT, 1949, INASMUCH AS THESE CO - OPERATIVE SOCIETIES ARE NOT ESTABLISHED FOR THE PUR POSE 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 PARAGRAPH S, 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 HAVE ALSO GONE THROUGH THE DECISION OF THIS BENCH IN THE CASE OF DCIT VS. JAYALAKSHMI MAHILA VIVIDO DESHAGALA 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 TRIB UNAL 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 DEPOSITS 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 WILL NOT COMPLY WITH THE FIRST CONDITION AS LAID DOWN IN THE DEFINITION AS GIVEN U/S. 5(CCV) OF T HE BANKING REGULATION ACT, 1959 FOR BECOMING PRIMARY COOPERATIVE BANK. THE ASSESSEE, THEREFORE, CANNOT BE REGARDED TO BE PRIMARY COOPERATIVE BANK AND IN CONSEQUENCE THEREOF, IT CANNOT BE A CO - OPERATIVE BANK AS DEFINED UNDER PART V OF THE BANKING REGULATI ON 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. 3.3.9 WE, THEREFORE, IN VIEW OF OUR AFORESAID DISCUSSION SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I) TO THE FILE OF THE AO FOR ASCERTAINING FROM THE COPY OF THE RULES AND BYE - LAWS OF THE CO - OPERATIVE SOCIETY WHETHER THE BYE - LAWS OF THE ASSESSEE PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY. IN CASE THE AO FINDS THAT THE BYE - LAWS PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY, THE ASSESSEE 17 ITA NOS. 164 & 165 /PNJ/2013 (ASST. YEAR : 2009 - 10 & 2010 - 11) BE ALLOWED DEDUCTION U/S 80P(2)(A)(I). IN CASE THE AO FINDS THAT THE BYE - LAWS DO NOT PERMIT THE ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY, IN OUR OPINION, THE ASSESSEE WILL BE REGARDED AS A PRIMARY CO - OPERATI VE BANK AND WILL NOT BE ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I). 4. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE . 5. ORDER PRONOUNCED IN THE OPEN COURT ON 28 .02.2014. SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 28 .02. 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 SR. P RIVATE S ECRETARY ITAT, PANAJI, GOA