Income Tax Officer, Ward -1(3), Belgaum., Belgaum V. The Belgaum Taluka Rural Industrial Co-op. Society Ltd. Belagavi., Belgaum

ITA 429/PAN/2014

• Counselvise Citation: 42924114 RSA 2014
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 22-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NATARAJ S LD

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. 4 29 /PNJ/201 4 : (ASST. YEAR :20 11 - 1 2 ) INCOME TAX OFFICER, WARD 1 ( 3 ), BELGAUM. (APPELLANT) VS. THE BELGAUM TALUKA RURAL INDUSTRIAL CO - OPERATIVE SOCIETY LTD . , FULBAG GALLI , BELGAUM . PAN : AAAA T4653R . (RESPONDENT) APPELLANT BY : SHRI NATARAJ S. , LD. D.R. RESPONDENT BY : NONE (WRITTEN SUBMISSION) . DATE OF HEARING : 04 / 0 3 /201 5 DATE OF PRONOUNCEMENT : 20 / 03 /201 5 O R D E R PER P.K. BANSAL THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), BELGAUM DTD. 0 3 . 1 1 .2 01 4 . THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES TO THE CLAIM OF THE DEDUCTION U/S 80P( 2)(A)(I). 2. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER WRITTEN SUBMISSIONS WERE FILED. AFTER HEARING THE LD. D.R AND PURSUING THE WRITTEN SUBMISSIONS , WE NOTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS DULY COVERED BY THE DECISION OF THIS BENCH I N ITA NO. 392 /PNJ/2013 IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IN WHICH T HE TRIBUNAL VIDE ORDER DATED 11.02.2015 FOLLOWING THE ORDER IN ASSESSEES CASE IN ITA NO.325/PNJ/2013 DATED 28.02.2014 2 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) FOR THE ASSESSMENT YEAR 2010 - 11 ALLOWED THE APPEAL FILED BY THE ASSESSEE IN THE ORDER DATED 28.02.2014, THIS TRIBUNAL HAS HELD AS UNDER : - 2.3 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 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 MEM BERS, 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 P RIMARY 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 I TS AREA O F OPERATION CONFINED TO A TALUKA 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 I S 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 APPAR ENT THAT THIS SECTION DENIES DEDUCTION TO A CO - OPERATIVE BANK OTHER THAN A PRIMARY 3 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) 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 PA RTIES 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) TO GETHER, WE FIND THAT THE PROVISIONS OF SEC. 80P(4) MANDATES THAT THE PROVISIONS OF SEC. 80P WILL NOT APPLY TO ANY CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK BUT AS PER THE PROVISIONS OF SEC. 80P(2)(A)(I), A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS ENTITLED FOR DEDUCTION. AFTER THE INSERTION OF SEC. 80P(4), THE PROVISIONS OF SEC. 80P(2)(A)(I) WER E 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 CARRY ON BUSINESS OF BANKING FACILITIES TO ITS MEMBERS EV EN IF IT IS NOT A CO - OPERATIVE BANK. IF WE READ THE PROVISIONS IN THE MANNER THAT EVERY CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING EVEN FOR ITS MEMBERS IS REGARDED TO BE A CO - OPERATIVE BANK, THEN, THE PROVISIONS OF SEC. 80P(2)(A)(I) W ILL 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 SOCI ETY 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 - OPERAT IVE BANK 4 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) 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. 2.3.1 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 AR E 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 EITHE R 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 I N 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 I S 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 RE LATING 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 BUSINE SS 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 RELATIN G TO ITS MEMBERS. 5 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) 2.3.2 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 CEN TRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK: 2.3.3 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 CE NTRAL CO - OPERATIVE BANK. WE HAVE THEREFORE TO FIND WHETHER THE ASSESSEE IS A PRIMARY CO - OPERATIVE BANK. 2.3.4 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 NO T APPLY TO THE ADMISSION OF A CO - OPERATIVE BANK AS A MEMBER BY REASON OF SUCH CO - OPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO - OPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE 2.3.5 FROM THE AFORESAID DEFINITI ON, IT IS APPARENT THAT IF THE CO - OPERATIVE SOCIETY COMPLIED WITH ALL THE THREE CONDITIONS; FIRSTLY THAT THE PRIMARY OBJECT OR PRINCIPLE BUSINESS TRANSACTED BY IT IS A BANKING BUSINESS, SECONDLY, THE PAID UP SHARE CAPITAL AND RESERVE OF WHICH ARE 1 LAKH OR MORE AND THIRDLY, BY LAWS OF THE CO - OPERATIVE SOCIETY DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER, IT WILL BE REGARDED TO BE PRIMARY CO - OPERATIVE BANK. IF CO - OPERATIVE SOCIETY DOES NOT 6 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) 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 NO T 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. 8 0P(4), THE ASSESSEE, IN OUR OPINION, WILL BE ELIGIBLE TO GET DEDUCTION U/S 80P(2)(A)(I) IN RESPECT OF WHOLE OF THE INCOME WHICH THE ASSESSEE DERIVES FROM CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. 2.3.6 WHETHER COND ITION 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 : - (A) TO FINANCE ARTISANS AND INDUSTRIALISTS INTERESTED OR ENGAGED IN THE ESTABLISHMENT AND CONDUCT OF COTTAGE INDUSTRIES, VILLAGE INDUSTRIES OR SMALL SCALE INDUSTRIES. (B) TO PROMOTE THRIFT, SELF - HELP AND MUTUAL HELP AMONGST MEMBERS. (C) TO PERCEIVE DEPOSITS OF EVERY KING FROM MEMBERS. (D) TO RAISE LOANS FROM THE BELGAUM DI STRICT CENTRAL CO - OP. BANK UPTO ITS BORROWING LIMIT. (E) TO RAISE LOANS TO MEMBERS OF TERMS DECIDED UPON BY THE BOARD, SUBJECT TO THE PROVISIONS OF THESE BYE - LAWS AND THE RULES APPROVED BY THE REGISTRAR OF CO - OPERATIVE SOCIETIES. (F) TO CREATE FUNDS BY M EANS OF DEPOSITORS AND BORROWING HEREAFTER TO LEND TO MEMBERS OF THE SOCIETY AT MODERATE RATES OF INTEREST. (G) TO OPEN BRANCHES, SUB - BRANCHES, OFFICES ETC., BY WHATEVER NAME CALLED WITHIN THE AREA OF OPERATION OF THE SOCIETY, WITH THE PRIOR PERMISSION OF THE REGISTRAR AND TO FRAME RULES FOR THEIR WORKING. 7 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) (H) TO BECOME MEMBERS OF THE DISTRICT CENTRAL CO - OP. BANK LTD., AND DISTRICT CO - OPERATIVE UNION LTD., FOR THE FURTHERANCE OF ITS OBJECTS. 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 : ' BAN KING' 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 DEPOSITS ARE ACCEPTED FOR THE PURPO SE 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, DRAFT OR OTHERWISE. FROM THE AFORESAID OB JECTS, IT IS APPARENT THAT NONE OF THE AIMS AND OBJECTS ALLOWS THE ASSESSEE CO - OPERATIVE SOCIETY TO ACCEPT DEPOSITS OF MONEY FROM THE PUBLIC FOR THE PURPOSE OF LENDING OR INVESTMENT. IN OUR OPINION, UNTIL AND UNLESS THIS CONDITION IS SATISFIED, IT CANNOT BE SAID THAT THE PRIME OBJECT OR PRINCIPAL BUSINESS OF THE ASSESSEE IS BANKING BUSINESS. THEREFORE, IN THIS CASE, THE ASSESSEE WILL NOT COMPLY WITH THE FIRST CONDITION AS LAID DOWN IN THE DEFINITION AS GIVEN U/S 5(CCV) OF THE BANKING REGULATION ACT, 1949 FOR BECOMING PRIMARY CO - OPERATIVE BANK. WE MAY CLARIFY THAT IF THE BUSINESS OF THE ASSESSEE IS LIMITED ONLY TO THE MEMBERS AND EVEN IF IT IS A BANKING BUSINESS, THE ASSESSEE WILL BE ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I). 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 ASSESSEE SATISFIES THE SECOND CONDITION. SO FAR AS THE THIRD CONDITION IS CONCERNED, WE NOTED THAT SEC. 16 OF THE KARNATAKA 8 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) 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 : 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 SUCH CO - OPERATIVE SOCIETY [AND IS RESIDING IN THE AREA OF THE OPERATION OF THE SOCIETY] AND IS COMPETENT TO ENTE R 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; (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 A CT, 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 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 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 A S 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 ADMITT ED AS A 9 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) 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). 2.3.7 WE NOTED THAT NEITHER THE AO NOR THE CIT HAS GIVEN A FINDING THAT THE BYE - LAWS OF THE SOCIETY PERMIT THE ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER OF THE CO - OPERATIVE SOCIETY AND THIS IS NOT THE CASE OF THE REVENUE. SINCE THE BYE - LAWS OF THE SOCIETY PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER OF THE CO - OPERATIVE SOCIETY AS STIPULATED U/S 16 OF THE KARNATAKA STATE CO - OPERATIVE SOCIETIES ACT, 1959, WE ARE OF THE O PINION THAT THE ASSESSEE DID NOT COMPLY WITH THE THIRD CONDITION ALSO. SINCE THE ASSESSEE DID NOT COMPLY WITH TWO CONDITIONS OUT OF THE THREE CONDITIONS, THEREFORE, THE ASSESSEE CANNOT BE REGARDED, IN OUR OPINION, TO BE A PRIMARY CO - OPERATIVE BANK. 2. 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 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 - OPERATIV E 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 TH ROUGH 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 DEC ISION OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCLE 10 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) 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 IN THE CASE OF CIT V S. 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 VYAVA SAYA 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 I SSUE 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 PROVISIONS OF THE ACT PASSED BY THE STATE LEGISLATURE. CONSEQUENTLY, THE STATE GOVERNMENT HAS CONTR OL 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 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 P ETITIONERS AMOUNT TO BANKING AS CONTEMPLATED UNDER THE BANKING 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 11 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) APPLICABLE TO A CO - OPERATIVE SOCIETY WHICH IS ENGAGED IN CARRYING ON BANKING BUSINE SS 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 VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. IN ITA NO. 1 TO 3/PNJ/2012 DT. 30.3.2012 (SUPRA), FOR WHI CH 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 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 B USINESS 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 THE BANKING REGULATION ACT, 1959 FOR BECOMING PRIMARY COOPERATIVE BANK. THE ASSESSEE, THE REFORE, 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 REGULATION ACT 1949. ACCORDINGLY, IN OUR OPINION THE PROVISIONS OF SECTION 80P (4) READ WITH EXPLA NATION 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) ALLOWING DEDUCTION TO THE ASSESSEE. 2.3.9 WE, T HEREFORE, IN VIEW OF OUR AFORESAID DISCUSSION HOLD THAT SINCE THE ASSESSEE CANNOT BE REGARDED TO BE A PRIMARY CO - OPERATIVE BANK, THEREFORE, IT CANNOT BE A CO - OPERATIVE BANK AND THEREFORE THE PROVISIONS OF SEC. 80P(4) ARE NOT APPLICABLE IN THE CASE OF THE A SSESSEE AND ASSESSEE SHALL BE ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I). WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND ALLOW DEDUCTION TO THE ASSESSEE U/S 80P(2)(A)(I). 3. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 12 ITA NO. 4 29 /PNJ/201 4 (ASST. YEAR : 20 11 - 12 ) 3. RESPECTFULLY FO LLOWING THE AFORESAID ORDER IN THE CASE OF THE ASSESSE, WE CONFIRM THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION TO THE ASSESSE U/S 80P(2)(A)(I) ON THE INCOME WHICH THE ASSESSEE EARNED FROM ITS MEMBERS BY RENDERING BANKING AS WELL AS CREDIT FACILITIES TO THEM. WE THEREFORE, ALLOW THE APPEAL FILED BY THE ASSESSEE. 4. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. 5. ORDER P RONOUNCED IN THE OPEN COURT ON 20.03.2015. SD/ - SD/ - (D.T.GARASIA) JUDICIAL MEMBER (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 20 . 03 .201 5 *A* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER ASSISTANT REGISTRAR ITAT, PANAJI, GOA