Lokmanya Multipurpose Co. Op. Soc Ltd., Belgaum V. Income Tax Officer Ward-2 (2), Belgaum

ITA 2/PAN/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84742 (ITAT-PANAJI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2014

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. 02 /PNJ/201 4 : (ASST. YEAR :200 9 - 1 0 ) LOKMANYA MULTIPURPOSE CO - OPERATIVE SOCIETY LTD, PLOT NO.8, S. NO. 21/2, KHANAPUR ROAD, TILAKWADI, BELGAUM - 590 006 . PAN : AAA AL0403B (APPELLANT) VS. INCOME TAX OFFICER, WARD 2 (2), BELGAUM. (RESPONDENT) A PPELLANT BY : SHRI AVINASH S. DIXIT , C. A. RE SPONDENT BY : S HRI NISHANT K. , LD. D.R . DATE OF HEARING : 04 /0 9 /2014 DATE OF PRONOUNCEMENT : 26 /0 9 /2014 O R D E R PER P.K. BANSAL THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), BELGAUM DTD. 29 . 1 0.2013 FOR THE ASSESSMENT YEAR 200 9 - 1 0 BY TAKING THE FOLLOWING GROUN DS OF APPEAL : - 1. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN NOT ACCEPTING APPELLANTS CLAIM OF THE ENTIRE INCOME OF RS.30,99,595/ - AS EXEMPT U/S 80 P(2)(A)(I) OF THE INCOME TAX ACT, 1961. 2. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN NOT ACCEPTIN G EXPLANATIONS GIVEN BY THE APPELLANT IN CONNECTION WITH ITS CLAIM OF EXEMPTION U/S 80 P (2)(A)(I) OF THE INCOME TAX ACT, 1961. 3. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN NOT ACCEPTING THE FACT THAT THE SOCIETY IS CARRYING ON ACTIVITIES AKIN TO BANKI NG. 4. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN CONFIRMING ASSESSING OFFICERS STAND ON WITHDRAWING DEDUCTION U/S 80P (2) (A) (I) OF I.T.ACT,1961 ON THE PRESUMPTION THAT OUR MULTIPURPOSE CO - OPERATIVE SOCIETY IS A CO - OPERATIVE BANKAS DEFINED U/S.56(C CV) OF PART V OF BANKING REGULATION ACT, 1949. 2 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) 5. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN CONSIDERING THE FACT, THAT ON AMENDMENT OF SECTION 2(24) (VIIA) W.E.F. 1 - 04 - 2007, THE DEFINITION OF INCOME HAS EXPANDED TO INCLUDE WITHIN ITS AMBIT PRO FITS AND GAINS FROM ANY BUSINESS OF BANKING INCLUDING PROVIDING CREDIT FACILITIES CARRIED ON BY CO - OPERATIVE SOCIETY WITH ITS MEMBERS. ON THE CONTRARY, THE AMENDMENT WAS INSERTED TO SPECIFICALLY COVER INCOME FROM ANY BANKING BUSINESS INCLUDING CREDIT FA CILITIES PROVIDING TO ITS MEMBERS WHICH ARE CO - OPERATIVE BANKS, AS SECTION 80P(4) SPECIFICALLY WITHDRAWS DEDUCTION U/S 80P(2) (A)(I) OF THE INCOME TAX ACT, 1961 IN THE HANDS OF CO - OPERATIVE BANKS. 6. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN ACCEPTING T HE RELIANCE OF ASSESSING AUTHORITY ON DEFINITION OF PRIMARY CO - OPERATIVE BANK U/S 56(CCV) OF THE BANKING REGULATION ACT, 1949 TO CONSIDER APPELLANT AS CO - OPERATIVE BANK AND HAS ERRED IN IGNORING THE FACT THAT THE PROVISIONS OF SECTION 5(B), SECTION 7, SEC TION 22 R.W.S. SECTION 56(F) AND 56(O) OF THE BANKING REGULATION ACT, 1949 AS APPLICABLE TO CO - OPERATIVE BANK WHICH CLEARLY MAKES IT MANDATORY OBTAINING OF BANKING LICENSE FROM RESERVE BANK OF INDIA AND USING OF THE WORDS BANK, BANKER OR BANKING COMP ANY IN ITS NAME FOR CARRYING OF BANKING BUSINESS. 7. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN NOT CONSIDERING THE FACT THAT THE INCOME TAX ACT 1961 SECTION 80P(4) OR IN ANY OTHER PROVISIONS DOES NOT DEFINE THE WORD CO - OPERATIVE BANK AND IT STATES THAT THE TERM CO - OPERATIVE BANK WILL HAVE MEANING AS ASSIGNED IN BANKING REGULATION ACT, 1949. AS SUCH HE HAS ERRED IN IGNORING THE FACT THAT TO DECIDE WHETHER APPELLANT IS CO - OPERATIVE BANK IN ADDITION TO SECTION 56 (CCV) HE SHOULD HAVE RELIED ON PROVISIONS O F SECTION 5(B), SECTION 7, SECTION 22 AND SECTION 56(F) AND 56(O) OF BANKING REGULATION ACT, 1949 APPLICABLE TO CO - OPERATIVE BANKS. 8. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN NOT CONSIDERING THE FOLLOWING CASE LAWS CITED WHEREIN IT WAS HELD THAT 80P(4) IS APPLICABLE ONLY TO CO - OPERATIVE BANKS AND NOT TO CO - OPERATIVE SOCIETIES CARRYING ON CREDIT FACILITIES TO ITS MEMBERS. (I) JUDGEMENTS OF INCOME TAX APPELLATE TRIBUNAL ; 1. ORDER OF INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B DATED 08 /04/2011 IN CASE OF ITA NO.1069/BANG/2010 FOR THE A.Y.2007 - 08 IN CASE OF ASSISTANT COMMISSIONER OF INCOME TAX(APPEALS)3 BANGALORE VS BANGALORE COMMERCIAL TRANSPORT CO - OPERATIVE CREDIT SOCIETY, CHAMRAJPETH, BANGALORE, WHEREIN 3 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) IT WAS HELD THAT PROVISIONS OF SECTION 80P(4) ARE APPLICABLE TO CO - OPERATIVE BANKS AND NOT COOPERATIVE CREDIT SOCIETIES. 2. ORDER OF APPELLATE TRIBUNAL, BENCH B PUNE, IN CASE OF ITA NO.598/2011, ITO WARD 1(4), PUNE VS JANKALYAN NAGRI SAHAKARI PATH SANSTHA LTD, WHEREIN IT WAS HELD THAT PROVISIONS OF SECTION 80P(4) ARE NOT APPLICABLE TO CO - OPERATIVE CREDIT SOCIETIES AND IT IS NOT A PRIMARY CO - OPERATIVE BANK AND IS ENTITLED FOR DEDUCTION U/S 80P (2)(A)(I) OF THE INCOME TAX ACT, 1961. FURTHER, HE HAS RELIED ON CBDT CIRCULAR BEARING NO. 3/2 008 DATED 12 - 3 - 2008 WHICH MAKES IT CLEAR THAT THE AMENDMENT TO SECTION 80P(4) HAS WITHDRAWN THE DEDUCTION U/S.80P IN RESPECT OF CO - OPERATIVE BANKS ONLY. FURTHER, AMENDMENT TO SECTION 36(1)(VIIA) BY FINANCE ACT, 2007 W.E.F. 2007 ALSO PROVIDES THAT THE DEDUC TION IN RESPECT OF BAD DEBTS SHALL BE ALLOWABLE ALSO TO COOPERATIVE BANKS. THIS AMENDMENT ALSO SUGGESTS THAT THE DEDUCTION U/S 80P HAS BEEN WITHDRAWN BY FINANCE ACT, 2006 W.E.F 1 - 4 - 2007 IN RESPECT OF CO - OPERATIVE BANKS ONLY. 3. ORDER OF APPELLATE TR IBUNAL, PANAJI (2012) VI TAX CORP(A.T.)28134 (PNJ) IN CASE OF THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, PANAJI, GOA VS JAYLAKSHMI MAHILA VIVIDODESHAGALA SOUHARD SAHAKARI LTD, BY ITS ORDER HELD THAT PROVISIONS OF SECTION 80P(4)ARE NOT APPLICABL E AND THE CO - OPERATIVE SOCIETY IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961. IT IS THE ORDER OF JURISDICTIONAL TRIBUNAL BENCH. 4. ORDER OF APPELLATE TRIBUNAL, BANGALORE IN CASE OF INCOME TAX OFFICER VS VASVI CREDIT CO - OPERATIVE S OCIETY LTD DATED 14/12/2012, WHEREIN IT WAS HELD THAT PROVISIONS OF SECTION 80P(4) ARE APPLICABLE TO CO - OPERATIVE BANK ONLY AND NOT TO CO - OPERATIVE CREDIT SOCIETIES. (II) JUDGEMENTS OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1) ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), II BANGALORE IN CASE OF APPEAL NO.130/AC/3(1)/CIT(A) - II/2009 - 10, IN CASE OF BANGALORE COMMERCIAL TRANSPORT CO - OPERATIVE SOCIETY VS. ACIT CIR 3(I) BANGALORE WHEREIN IT WAS HELD THAT PROVISIONS OF SECTION 80P(4) ARE APP LICABLE TO CO - OPERATIVE BANKS BUT NOT APPLICABLE TO CO - OPERATIVE CREDIT SOCIETIES AND 4 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) ELIGIBLE FOR EXEMPTION US/ 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961. 2) ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), VI BANGALORE IN CASE OF APPEAL NO.202/203/20 4/ DCIT/CC/PANAJI/CIT(A)VI/2010 - 11DATED 20/10/2011 IN CASE OF M/S. DWARAKA SOUHARD CREDIT SAHAKARI LTD, ANKOLA, KARWAR VS DCIT CENTRAL CIRCLE, PANAJI, GOA FOR THE A.Y.2007 - 08, A.Y.2008 - 09 AND A.Y.2009 - L0 STATING THAT PROVISIONS OF SECTION 80P(4) ARE NOT AP PLICABLE TO CO - OPERATIVE CREDIT SOCIETIES AS IT IS NOT A PRIMARY CREDIT BANK AND ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961. III) CLARIFICATION OF CBDT NO. 133/06/2007 - 08 TPL DATED 09 - 05 - 2008 IN CASE OF THE DELHI CO - OP URBAN T AND C SOCIETY LTD, WHEREIN IT WAS CLARIFIED THAT PROVISIONS OF 80P(4) WILL NOT APPLY AND DEDUCTION CLAIMED U/S 80P(2)(A)(I) WILL BE APPLICABLE. 9. THE LEARNED APPELLATE AUTHO RITY HAS ERRED IN ACCEPTING THE ASSESSING OFFICERS RELIANCE ON FOLLOWING CASE LAWS FO R REJECTING DEDUCTION CLAIMED BY THE APPELLANT U/S 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961 BY APPLYING PROVISIONS OF SECTION 80P(4) WHEREIN AS PER THE FACTS OF THE CASE THE INCOMES WERE NOT FROM CREDIT FACILITIES GIVEN TO ME MBERS BUT FROM OTHER TRANSACTIONS SUCH AS SALE OF GOODS ON CREDIT AND INTEREST ON OUTSTANDING CREDIT BALANCES OUT OF SUCH TRANSACTION AS NOT ELIGIBLE FOR EXEMPTION U/S 80P(2) AND INTEREST FROM CREDIT FACILITIES GIVEN TO MEMBERS STILL CONTINUES TO ENJOY EXEMPTION U/S 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961. (A) KERALA CO - OPERATIVE CONSUMERS FEDERATION LTD VS CIT (170 1TR 455) (B) ADDL. CIT VS U.P. CO - OPERATIVE CANE UNION (114 ITR 70) (C) CIT VS CO - OPERATIVE SUPPLY AND COMMISSION SHOP LTD (204 ITR 713) 10. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN NOT CONSIDERING THE BUDGET SPEECH OF HONOURABLE FINANCE MINISTER P. CHIDAMBARAM AND HIS REPLY IN PARLIAMENT ON STARRED QUESTION RAISED WHEREIN HE HAS CLEARLY STATED THA T ONLY THE CO - OPERATIVE BANKS WHICH ARE CARRYING ON BUSINESS SIMILAR TO COMMERCIAL AND PRIVATE BANKS ARE PROPOSED TO BE COVERED BY SECTION 80P(4) WHICH ARE 2288 IN NUMBERS AND NOT APPLICABLE FOR OTHER CO - OPERATIVE SOCIETIES 105735 IN NUMBERS WHIC H 5 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) INCLUDES CO - OPERATIVE CREDIT SOCIETIES WHICH ARE NOT CO - OPERATIVE BA NKS AS THEY DO NOT HOLD BANKING LICENSE FROM RESERVE BANK OF INDIA. 11. THE LEARNED APPELLATE AUTH ORITY HAS ERRED IN HOLDING THAT APPELLANT IS COLLECTING DEPOSITS FROM PUBLIC RELYING O N OBJECT CLAUSE 5(C) WHICH STATES THAT TO RAISE FUNDS FOR THE BUSINESS OF SOCIETY WHICH NO WHERE STATES THAT IT IS TO BE FROM PUBLIC AND IGNORES OBJECT CLAUSE 5(E) WHICH CLEARLY STATES TO ACCEPTS DEPOSITS FROM MEMBERS. 12. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN RELYING ON REMAND REPORT DATED 14.8.2013 OF ASSESSING OFFICER CONFIRMING THAT THE APPELLANT ACCEPTS DEPOSITS FROM GENERAL PUBLIC WHO ARE NOT MEMBERS. IN A REPLY GIVEN TO ASSESSING OFFICER BY APPELLANT IN REL ATION TO REMAND REPORT FROM YOUR OFFICE, WE HAVE CLEARLY STATED THAT WE ACCEPTS DEPOSITS FROM MEMBERS AND GIVE LOANS TO MEMBERS AND HAS GIVEN DETAILS OF TOTAL NUMBER OF MEMBERS AS ON 31.03.2009. FROM THIS IT IS CLEAR THAT WE HAVE NOT STATED T HAT WE ACCEPT DEPOSITS FROM GENERAL PUBLIC. 13. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN RELYING ON JUDGMENT OF HYDERABAD BENCH OF INCOME TAX APPELLATE TRIBUNAL IN CASE OF CITIZEN CO - OPERATIVE SOCIETY VS ADDITIONAL CIT RANGE 9 HYDERABAD, ITA - 1003/ HYDERABAD/ 2011 AND IN ITA - 1004/HYDERABAD/2011 WHEREIN IT WAS HELD THAT THE SOCIETY IS CARRYING ON CERTAIN ACTIVITIES OF BILLS DISCOUNTING, PROVIDING ACCOMMODATION OF CHEQUES BY TAKING CASH FROM MEMBE RS AND CERTAIN OTHER A CTIVITIES WHICH ARE NOT COMPLYING WITH THE REQUIREMENT OF PRINCIPLES OF CO - OPERATIVE SOCIETY, HENCE, EXEMPTION U/S 80P (2)(A)(I) OF INCOME TAX ACT, 1961 WAS REJECTED, IGNORING THE FACT THAT IN CASE OF APPELLANT NO SUCH ACTIVITIES ARE NOT PERMITTED BY BYE LAWS INCLUDING OF A CTIVITIES OF BILLS DISCOUNTING, PROVIDING ACCOMMODATION OF CHEQUES IS BEING UNDERTAKEN AND AS SUCH HAS ERRED IN CONFIRMING DISALLOWANCE OF EXEMPTION BY ASSESSING OFFICER BY APPLYING PROVISIONS OF SECTION 80P(4) OF THE INCOME TAX ACT, 1961. 14. THE LEARNED APPELLATE AUTHORITY HAS ERRED IN NOT CONSIDERING THE POINT RAISED IN GROUNDS OF APPEAL AT NO.8 WHEREBY ASSESSEE IS ADOPTING GROSS TOTAL INCOME OF RS.61,99,190/ - INSTEAD OF GROSS TOTAL INCOME DECLARED IN INC OME RETURNED OF RS.30,99,595/ - WITHOUT GIVING ANY REASONS OR BASIS FOR NO T 6 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) ADOPTING GROSS TOTAL INCOME RETURNED AND HAS NOT CONSIDERED SECTION 80P DEDUCTION ALLOWED BY HIM IN COMPUTATION SHEET OF RS.30,99,595/ - . 2. THE BRIEF FACTS OF THE CASE FOR THE ASSESSMENT YEAR 2010 - 11 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 , 99 , 595 / - AND CLAIMED DEDUCTION U/S 80P(2)(A)(I) AND THE REFORE 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 ,9 9 , 595 / - . 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. 2.1 THE LD. AR BEFORE US VEHEMENTLY C ONTENDED THAT THE PROVISIONS OF SEC. 80P(4) ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE MAIN CONTENTIONS OF THE ASSESSEE ARE THAT ASSESSEE IS NOT A CO - OPERATIVE BANK BUT A CO - OPERATIVE CREDIT SOCIETY . THE ASSESSEE IS A CO - OPERATIVE SOCIETY DULY R EGISTERED UNDER THE KARNATAKA STATE CO - OPERATIVE SOCIETIES ACT, 1959.THE PRIMARY OBJECT OF THE ASSESSEE IS TO PROMOTE SOCIAL AND ECONOMIC BETTERMENT OF MEMBERS THROUGH SELF - HELP AND MUTUAL AID IN ACCORDANCE WITH CO - OPERATIVE PRINCIPLES AS SPECIFIED IN FIRS T SCHEDULE OF THE ACT . FOR THIS, OUR ATTENTION WAS DRAWN TOWARDS THE BYE - LAWS OF THE ASSESSEE FROM ( A ) TO ( J ). THE ASSESSEE IS A CREDIT SOCIETY. HE CONTENDED THAT THE WORD CREDIT IS OF OUTMOST IMPORTANT TO DECIDE THE STATUS OF THE ASSESSEE UNDER THE BANKI NG REGULATION ACT, 1949. ACCORDING TO HIM THE ASSESSEE IS A CO - OPERATIVE CREDIT SOCIETY BUT WHEN WE QUESTION THAT SECTION 80P DOES NOT TALK OF CO - OPERATIVE CREDIT SOCIETY, HE COULD NOT REPLY THERETO BUT RELIED ON BANKING REGULATION ACT FORGETTING THAT THE SECTION 80P ONLY USES THE WORD CO - OPERATIVE SOCIETY ENGAGED IN - . THE ACTIVITIES OF THE ASSESSEE ARE LIMITED TO 7 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) ITS MEMBERS. HE ALSO RELIED ON CBDT CIRCULAR NO.133 OF 2007 DATED 9.5.2007 FOR THE PROPOSITION THAT SECTION 80P(4) WILL NOT APPLY TO AN ASSESS EE WHICH IS NOT A COOPERATIVE BANK. THE PAID 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 LTD. 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 KARNATA KA & ORS. FOR THE PROPOSITION OF LAW BY REFERRING 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 ACTIVITIES 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 SOCIETY. RE LIANCE 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. RELIANCE WAS ALSO PLACED ON THE DECISION OF PANAJI BENCH IN ITA NO. 229 & 230/PNJ/2013 IN THE CASE OF TARARANI MAHILA CO - OPERATIVE CREDIT SOCIETY, VS ITO. RELIANCE WAS ALSO PLACED IN ACIT VS PALHAWAS PRIMARY AGRICULTURE CO - OPERATIVE SOCIETY LTD, 23 TAXMAN.COM 318 (DELHI), ITO VS JANKALYAN NAGRI SAHAKARI PAT SANSTHA LTD, 24 T AXMAN.COM 127 (PUNE). RELIANCE WAS ALSO PLACED ON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS SRI BILURU GURUBASAVA PATTANA SAHAKARI SANGH NIYAMITHA DATED 5.2.2014, WHICH RELATES TO AN APPEAL FILED AGAINST THE ORDER PASSED U/S 263 AND THE Q UESTION INVOLVED WAS WHETHER THE 8 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) REVISIONAL AUTHORITY WAS JUSTIFIED IN INVOKING HIS POWER U/S 263 WITHOUT THE FOUNDATIONAL FACT OF THE ASSESSEE BEING CO - OPERATIVE BANK. 2.2 THE LD. DR, ON THE OTHER HAND VEHEMENTLY CONTENDED THAT THE ASSESSEE IS A CO - OPE RATIVE 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 BUS INESS, 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. 3. W E 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 ENTIT LED 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 RE FERENCE 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 SECTI ON, 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 O F 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 - OPE RATIVE 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, 9 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) (A) 'CO - OPERATIVE BANK' AND 'PRIMARY AGRICULTURAL CREDIT SOCIETY' SHALL HAV E 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. 3.1 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 PROVI DING 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 - OPERAT IVE 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 REGULATION ACT, 1949. IT IS NOT THE CASE OF EITHER OF THE PARTIES THAT THE ASSESSEE IS A PRIMARY CO - OPERATIVE AGRI CULTURAL 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) MAN DATES 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 SO CIETY 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 CONTINUED TO BE ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I). THIS PRE - 10 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) SUPPOSES THAT EVERY CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING CANNOT BE REGARDED TO BE A CO - OPERATIVE BAN K. 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 P ROVISIONS 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 DEV ELOPMENT 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 SOCIET Y 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. T HIS SECTION 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). 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 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 11 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) CO - OPERATIVE SOCIETY C ARRIES 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 FACI LITIES TO ITS MEMBERS. BOTH THE ACTIVITIES CAN 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 CO - OPERATIVE SOCIETIES IN RESPECT OF BUSINESS RELATING TO ITS MEMBERS. 4.1 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: 5. FROM THE DEFINITION OF CO - OPERATIVE BANK IT IS APPARENT THA T 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 WHETHE R THE ASSESSEE IS A PRIMARY CO - OPERATIVE BANK. 6. THE PRIMARY CO - OPERATIVE BANK IS DEFINED UNDER SECTION 5 CLAUSE (CCV) OF BANKING REGULATION ACT 1949 AS UNDER: - 12 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) (CCV) PRIMARY CO - OPERATIVE BANK MEANS A CO - OPERATIVE SOCIETY, OTHER THAN A PRIMARY AGRI CULTURAL 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 ADMIS SION 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. 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 - OPE RATIVE BANK. IF CO - OPERATIVE SOCIETY DOES NOT FULFIL L 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 CO - OPERATIVE BANK AND THE PROVISIONS OF SEC. 80P(4), IN OUR OPINION, WILL NOT BE APPLICABLE IN T HE 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. 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 IN THIS CASE ARE ENUMERA TED AS UNDER : - 13 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) I) T O ENCOURAGE THRIFT, SELF - HELP AND CO - OPERATION AMONG THE MEMBERS . II) TO MOBILIZE FUNDS FOR ECONOMIC DEVELOPMENT OF MEMBERS UNDER FINANCIAL SCHEMES. III) TO TRANSACT TO ADVANCE LOANS TO MEMBERS . IV) TO IMPART FINANCIAL ASSISTANCE TO MEMBERS FOR AGRO - BASED INDUSTRIES AND SUCH SIMILAR INDUSTRIES. V) TO PREPARE AND FINANCE SCHEMES TO IMPROVE THE ECONOMIC AND EDUCATIONAL CONDITION AND DEVELOPMENT OF MEMBERS AND TO ENCOURAGE THEIR ADVANCEMENT. VI) TO PREPARE SCHEMES TO IMPROVE THE ECONOM IC CONDITION OF THE WEAKER SECTIONS OF SOCIETY. VII) TO PURCHASE SITES SUITABLE TO THE MEMBERS AND CONSTRUCT APPROPRIATE BUILDINGS THEREON. VIII) TO UNDERTAKE SCHEMES FOR SPECIAL ECONOMIC ADVANCEMENT OF MEMBERS BELONGING TO THE SCHEDULED CASTE/ SCHEDULE D TRIBE AND WOMEN MEMBERS. IX) TO LEND MONEY TO MEMBERS TO PURCHASE MACHINERIES AND MOTOR VEHICLES ETC. X) TO GRANT LOANS TO MEMBERS ON GOLD - SILVER ORNAMENTS. XI) TO GRANT LOANS TO INDUSTRIAL AND COMMERCIAL PRODUCTS BELONGING TO COMMERCIAL UNDERTAKINGS AN D SECURED TO THE SOCIETY. XII) TO PROVIDE FINANCIAL AND TECHNICAL ASSISTANCE TOT HE SELF EMPLOYED FOR ESTABLISHMENT OF THEIR OWN INDUSTRY. XIII) TO UNDERTAKE ALL SUCH FINANCIAL ACTIVITIES AS ARE INCIDENTAL, REQUIRED AND CONDUCIVE TO ACHIEVE FULFILLMENT OF THE OBJECTS ENUNCIATED UNDER THE BYE LAWS WITH PRIOR PERMISSION OF THE REGISTRAR . 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 H AS 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 INVESTMENT, 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 DEPOSIT S 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 COULD BE WITHDRAWN BY THE DEPOSITOR BY CHEQUE, DRA FT OR OTHERWISE. WE NOTED THAT THE 14 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) ASSESSING OFFICER SPECIFICALLY ASKED THE ASSESSEE WHETHER THE ASSESSEE IS AUTHORISED TO RECEIVE DEPOSITS AND ADVANCE LOANS TO THE MEMBERS. THE ASSESSEE VIDE ITS LETTER DATED 25.2.2013 CONFIRMED THAT AS PER BYE - LAWS SOCIETY CAN ACCEPT DEPOSITS AND ADVANCE LOANS TO THE MEMBERS ONLY BUT EXPRESSED HIS INABILITY TO PROVIDE THE RELEVANT INFORMATION TO PROVE THIS FACT BY STATING AS UNDER : - . AS PER OUR E - BANK SOFTWARE THE INFORMATION OF DEPOSITORS AND LOANEES WILL B E AT THE RESPECTIVE BRANCHES WHEREAS THE SHARE DEPARTMENT IS CENTRALIZED AND IS AT HEAD OFFICE. THEREFORE, TO GET THE REQUISITE DETAILS FROM THE BRANCHES, WE REQUIRE SOME ADDITIONAL TIME AND THEREAFTER AT HEAD OFFICE WE WILL BE IN A POSITION TO FURTHE R PROCESS IT FOR BEING FILED WITH YOUR OFFICE FOR THE F.Y.2008 - 09. YOU HAVE TO NOTE THAT WE HAVE GOT HEAD OFFICE AT BELGAUM AND WE HAVE GOT TOTAL 64 BRANCHES SITUATED 23 BRANCHES IN THE STATE OF KARNATAKA 12 BRANCHES IN THE STATE OF GOA AND 28 BRANCH ES IN THE STATE OF MAHARASHTRA AND THERE IS ONE MORE BRANCH AT BELGAUM WHICH IS ASSET RECOVERY BRANCH. WE HAVE ASKED THE BRANCHES TO PROCESS THE DATA AT THEIR END AND FORWARD IT TO HEAD OFFICE FOR FURTHER PROCESSING. 9. EVEN WE NOTED THAT WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) ASKED FOR THE REMAND REPORT. IN THE REMAND REPORT DATED 14.8.2013, THE ASSESSING OFFICER CONFIRMED THAT THE ASSEESSEE ACCEPTSD EPOSITS FROM THE GENERAL PUBLIC WHO ARE NOT MEMBERS. THE RELEVANT PORTION OF THE REMAND REPORT AS REPRODUCED BY CIT(A) AT PAGE 38 - 39 READ AS UNDER : - THUS IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE SOCIETY IS NOT DEALING WITH MEMBERS BUT ALSO WITH THE NO N - MEMBERS I.E., GENERAL PUBLIC FOR ACCEPT ANCE OF DEPOSITS . IN VIEW OF THI S FINDING OF FACT WHICH REMAIN UNCONTROVERTED BY THE ASSESSEE AS THE ONUS REMAINS ON THE ASSESSEE WE HOLD THAT THE ASSESSEE IS CARRYING ON THE BANKING BUSINESS THAT THE FIRST CONDITION STAND COMPLIED WITH FOR BECOMING PRIMARY CO - OPERATIVE BANK. WE MAY ALSO HOLD THAT THERE IS NO TERM USED CO - OPERATIVE CREDIT SOCIETY ELIGIBLE FOR EXEMPTION U/S 80P(2)(A)(I). 15 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) 10. THE AUTHORISED REPRESENTATIVE TOOK THE PLEA THAT THE ASSESSEE HAS NOT OBTAINED BANKING LICENCE. IN OUR OPINION IT IS NOT NECESSARY THAT THE CO - OPERATIVE SOCIETY SHOULD HAVE A BANKING LICENCE AS PER THE DEFINITION UNDER THE INCOME TAX ACT FOR CARRYING ON BANKING BUSINESS. IF LICENCE IS NOT OBTAINED IT MAY BE AN ILLEGAL BANKING BUSINESS UNDER THE OTHER STATUTE. WHAT WE HAVE TO SEE WHETHER THE NA TURE OF THE BUSINESS CARRYING ON BY THE ASSESSEE IS A BANKING BUSINESS OR NOT. THE INCOME TAX IN OUR OPINION IS NOT CONCERNED WHETHER THE BANKING BUSINESS CARRIED ON BY THE ASSESSEE IS LEGAL OR ILLEGAL. THE INCOME HAS TO BE ASSESSED U/S 14 OF THE INCOME TA X ACT UNDER THE SAME HEAD EVEN IF THE NATURE OF THE BUSINESS IS ILLEGAL. IF WE LOOK INTO THE BYE - LAWS WHICH CONSISTS OF FUND OF THE SOCIETY, WE NOTED THAT THE TYPES OF THE DEPOSITS WHICH THE ASSESSEE HAS ACCEPTED AS PER BYE - LAWS ARE THE SAME AS ARE BEING ACCEPTED DURING THE COURSE OF THE CARRYING OUT THE BANKING ACTIVITIES. 11. SO FAR AS THE SECOND CONDITION 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 ASSES SEE SATISFIES THE SECOND CONDITION. 12. 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. 1 6 ARE LAID DOWN AS UNDER : 16. 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 SU CH 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 GOV ERNMENT OR THE CENTRAL GOVERNMENT; 16 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) (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 LA W 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 (KARN ATAKA ACT 27 OF 1966); (G) A LOCAL AUTHORITY. 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 - OPERATIVE SOCIETY SHALL, WITHOUT SUFFICIENT CAUSE, REFUSE ADMISSION TO MEMBERSHIP TO ANY PERSON DULY QUALIFIED THEREFORE 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 OTHERWI SE, 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). 13. THE ASSESSEE DID NOT PRODUCE BEFORE US THE COPY OF THE BYE - LAWS. WE THEREFORE NOTED MEMBERSHIP CLAUSE FROM PAGE NO.9 OF THE ORDER OF THE CIT(A) WHICH STATES AS UNDER : - 17 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) A. ANY PERSONS CAN BECOME MEMBER OF THE SOCIETY PROVIDED - A) HE HAS APPLIED IN WRITING IN THE PRESCRIBED FORM. B) HE HAS PAID ADMISSION FEE OF RS. 25/ - AND ACQUIRED AT LEAST ONE SHARE OF THE SOCIETY. C) HE HAS GIVEN A DECLARATION THAT HE IS NOT A MEMBER OF ANY OTHER SIMILAR CO - OPERATIVE SOCIETY. D) HE HAS FULFILLED ALL OTHER CONDITIONS LAID DOWN IN THE ACTS, THE RULES AND THE BYE - LAWS. FROM THE CLAUSE, IT IS APPARENT THAT THE BYE - LAWS OF SOCIETY DOES NOT PERMIT THE ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS MEMBER. MEMBERSHIP IS PERMITTED ONLY TO INDIVIDUALS. THUS THE THIRD CONDITION FOR BECOMING PRIMARY CO - OPERATIVE BANK IS COMPLIED WITH. SINCE THE ASSESSEE SOCIETY DOES COMPL Y WITH ALL THE THREE CONDITIONS, THEREFORE, IN OUR OPINION THE ASSESSEE SOCIETY DOES BECOME A PRIMARY CO - OPERATIVE BANK AND IN VIEW OF EXPLANATION (A) OF SECTION 80P(4) IT HAS TO BE REGARDED AS A CO - OPERATIVE BANK AND IS HIT BY SECTION 80P(4). 14. WE HAVE GONE THROUGH THE DECISION OF THE HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF THE CIT IZEN 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 FOR A LL 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) AF TER 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 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 TRANSP ORT CREDIT CO - OPERATIVE 18 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) SOCIETY LTD. IN ITA NO. 1069/BANG/2010 HOLDING THAT SEC. 80P(2)(A)(I) IS APPLICABLE ONLY TO CREDIT CO - OPERATIVE SOCIETY A AND NOT TO CO - OPERATIVE BANK. WITH DUE REGARDS TO THE BENCH, WE ARE UNABLE TO FIND ANY TERM CREDIT CO - OPERAT IVE 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 HO N'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 REGISTER ED 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 M EMBERS. 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 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 CONTEMPLATED UNDER THE BANKING REGULATION ACT, 1949, INASMUCH AS T HESE 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 HAVE ALSO GONE THROUGH THE DECISION OF T HIS BENCH IN THE 19 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) 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 TH E 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 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 CONDIT ION 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 CONSEQUENCE THEREOF, IT CANNOT BE A CO - OP ERATIVE 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 OPI NION WILL BE ENTITLED FOR THE DEDUCTION U/S 80P(2)(A)(I). WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A) ALLOWING DEDUCTION TO THE ASSESSEE. 15. WE HAVE ALSO GONE THROUGH THE DECISION OF ACIT VS PALHAWAS PRIMARY AGRICULTURE CO - OPERATIVE SOCIETY LTD, 23 TAXMAN.C OM 318 (DELHI). SECTION 80P(4) CLEARLY EXCLUDES PRIMARY AGRICULTURE CREDIT SOCIETY FROM ITS DOMAIN. THEREFORE THIS DECISION WILL NOT ASSIST THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE DECISION OF PUNE BENCH IN THE CASE OF ITO VS JANKALYAN NAGRI SAHAKAR I PAD SANSTHA LTD, 24 TAXMAN.COM 127 PUNE. THIS WE HAVE ALREADY STATED THAT SECTION 80P(2)(A)(I) NOWHERE TALKS OF CO - OPERATIVE CREDIT SOCIETY AND THEREFORE THE DISTINCTION MADE UNDER THE BANKING REGULATION ACT CANNOT BE IMPORTED U/S 80P(2)(A)(I). THIS DECI SION IN OUR OPINION WILL NOT ASSIST THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE DECISION OF TARARANI MAHILA CO - OPERATIVE CREDIT SOCIETY LTD TO WHICH THE UNDERSIGNED IS THE AUTHOR SIMILAR FINDING AS HAS BEEN GIVEN IN THIS ARE GIVEN IN THAT CASE ALSO. THE DE CISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS SRI BILURU GURUBASAVA PATTANA SAHAKARI SANGH NIYAMITHA DATED 5.2.2014, RELATES TO AN APPEAL FILED AGAINST THE 20 ITA NO. 02 /PNJ/201 4 (ASST. YEAR: 200 9 - 1 0 ) ORDER PASSED U/S 263 AND THE QUESTION INVOLVED WAS WHETHER THE REVISIONAL AUTHORITY WAS JUSTI FIED IN INVOKING HIS POWER U/S 263 WITHOUT THE FOUNDATIONAL FACT OF THE ASSESSEE BEING CO - OPERATIVE BANK. THEREFORE, THIS DECISION IS NOT APPLICABLE. 16. WE, THEREFORE, IN VIEW OF OUR AFORESAID DISCUSSION HOLD THAT THE ASSESSEE HAS TO BE REGARDED TO BE A PRI MARY CO - OPERATIVE BANK AS ALL THE THREE BASIC CONDITIONS ARE NOT COMPLIED WITH, THEREFORE, IT IS A CO - OPERATIVE BANK AND THE PROVISIONS OF SEC. 80P(4) ARE APPLICABLE IN THE CASE OF THE ASSESSEE AND ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I). WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) NOT ALLOW ING DEDUCTION TO THE ASSESSEE U/S 80P(2)(A)(I) ON THE INCOME GENERATED FOR PROVIDING BANKING OR CREDIT FACILITIES TO ITS MEMBERS. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . 18. OR DER PR ONOUNCED IN THE OPEN COURT ON 26 .0 9 .2014. SD/ - SD/ - (D.T.GARASIA) JUDICIAL MEMBER (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 26 .0 9 .2014 *A* COPY TO : (1) APPELLANT (2) RE SPONDENT (3) CIT CONCERNED (4) CIT(A) CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER ASSISTANT REGISTRAR ITAT, PANAJI, GOA