Income Tax Officer (Ward) -1, Belgaum V. Shri. Bhagyalaxmi Souhard Sahakari Niyamit., Belgaum

ITA 58/PAN/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8427 (ITAT-PANAJI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS SONAL LAXMIDAS LD
• Assessee Lawyers: NADAGOUDA
• Keywords: Gift; Opportunity of being heard
• Section: 143(3); 263

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. 58 /PNJ/2014 (ASSESSMENT YEAR - 2009 - 10) THE INCOME TAX OFFICER, WARD - 1, GOKAK . (APPELLANT) VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT. P.O: GHATAPRABHA, TAL: GOKAK DIST: BELGAUM PAN: AAAAS5624D (RESPONDENT) APPELL ANT BY : MRS. SONAL LAXMIDAS , LD. DR RESPONDENT BY : SHRI S.H. NADAGOUDA , CA DATE OF HEARING : 1 3 /08 /2014 DATE OF PRONOUNCEMENT : 22 /08/2014 O R D E R PER: D.T. GARASIA (JM) THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAI NST THE ORDER OF CIT(A) - BELGAUM , DATED 4 TH DECEMBER, 2013 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE FOLLOWING GROUNDS ARE RAISED IN THIS APPEAL AS UNDER: - A. THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY WHICH FULFILLS ALL THE THREE CONDITIONS OF BEING HELD A PRIMARY CO - OPERATIVE BANK AS GIVEN IN SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949. B. THE LEARNED CIT(APPEALS) ERRED IN RELYING ON THE PROVISIONS OF THE KARNATAKA SOCIETIES ACT, 1959 WHICH GIVES THE DEFINITION OF A COOPERATIVE SOCIETY TO MEAN A SOCIETY R EGISTERED OR DEEMED TO BE REGISTERED UNDER THAT ACT. THE ABOVE DEFINITION OF CO - OPERATIVE SOCIETY APPEARS IN THE KARNATAKA CO - OPERATIVE SOCIETIES ACT, 1959 AND THE DEFINITION OF CO - OPERATIVE SOCIETY MEANS A SOCIETY REGISTERED UNDER THAT ACT. C. THE LEARNE D CIT(APPEALS) ERRED IN LAW AND ON FACTS IN RELYING ON THIS DEFINITION WHICH WAS APPLICABLE TO THE KARNATAKA CO - OPERATIVE SOCIETIES ACT, 1959 ONLY TO DEEM IT TO INCLUDE CO - OPERATIVE SOCIETIES UNDER THE KARNATAKA SOCIETIES REGISTRATION ACT, 1960. THE KARNAT AKA SOCIETIES REGISTRATION ACT, 1960 DOES NOT 2 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT APPLY TO A CO - OPERATIVE SOCIETY BUT ONLY APPLIES TO THE SOCIETIES REGISTERED UNDER THAT ACT. D. THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION UNDER SECTION 80P(2)(A)(I) TO THE ASSESS EE IGNORING THE FACT THAT THE ASSESSEE DOES NOT PERMIT CO - OPERATIVE SOCIETIES TO BECOME A MEMBER AND AS SUCH, SATISFY CONDITIONS TO BECOME PRIMARY CO - OPERATIVE BANK. E. THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE DEFINITION OF A CO - OPERATIVE BANK WHICH AS PER EXPLANATION BELOW SECTION 80P(4) THE CO - OPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART - V OF THE BANKING REGULATION ACT, 1949. F. THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE ASSESSEE SOCIETY BEING A CREDIT COOPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS IS A PRIMARY COOPERATIVE BANK WITHIN THE DEFINITION OF SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949 AND AS SUCH, NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 8 0P (2)(A)(I) OF THE I.T. ACT, 1961 . 2.1. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE S OCIETY REGISTERED UNDER THE KARNATAKA SOUHARDA CO - OPERATIVE SOCIETIES ACT, 1997. THE ASSESSEE FILED RETURN OF INCOME ON 29/09/2009 DECLARING GROS S TOTAL INCOME OF RS. 25,42,040/ - AND AFTER CLAIMING DEDUCTION UNDER SECTION 80P(2)(A)(I) UNDER CHAPTER VIA, THE TOTAL INCOME IS DECLARED AT RS. NIL. IT WAS, THEREFORE, CLAIMED THAT THE SOCIETY IS ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) UNDER CHAP TER VIA AS IT IS A CO - OPERATIVE SOCIETY, CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. HOWEVER, THE CLAIM OF THE ASSES SEE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) WAS REJECTED BY THE ASSESSING OFFICER VIDE HIS ORDER U/S. 143(3) OF THE I.T. ACT DATED 07/12/2011. THE ASSESSING OFFICER DENIED THE DEDUCTION ON A GROUND THAT THE APPELLANT IS A CO - OPERATIVE BANK AND HENCE, NOT ENTITLED TO CLAIM DEDUCTION BY VIRTUE OF SECTION 80P(4). 2.2. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 6 . I HAVE CAREFULLY PERUSED AND CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND THE CONTENTS OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. I HAVE ALSO PERUSED THE CASE LAWS RELIED UPON BY THE APPELLANT AND 3 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT ASSESSING OFFICER. THE ASSESSING OFFICERS REMAND REPORT DATED 14 - 08 - 2013 HAS ALSO BEEN CONSIDERED BY ME. THE MAIN PLANK OF ARGUMENT OF THE ASSESSING OFFICER HAS BEEN THAT AFTER CAREFUL ANALYSIS OF SECTION 80P(4) READ WITH SECTION 2(24)( VIIA) OF THE INCOME - TAX ACT, 1961 AND PART V OF THE BANKING REGULATION ACT AND THE FACTS OF THE CASE, THE APPELLANT ASSESSEES CO - OPERATIVE CREDIT SOCIETY IS HELD TO BE A PRIMARY CO - OPERATIVE BANK HENCE IS NOT ELIGIBLE FOR DEDUCTION UNDER SEC.80P(2)(A)(I) IN VIEW OF THE NEWLY INSERTED PROVISIONS OF SECTION 80P(4). THE ASSESSING OFFICER HAS ARRIVED AT A CONCLUSION THAT IF A COOPERATIVE SOCIETY SATISFIES ALL THE THREE CONDITIONS AS LAID DOWN IN THE DEFINITION AS GIVEN U/S 5(CCV) IN PART V OF THE BANKING REGU LATION ACT, 1949, THEN IT BECOMES A PRIMARY CO - OPERATIVE B ANK , AND THEREFORE DEDUCTION U/S 80P(2)(A)(I) CAN BE DE NIED BY VIRTUE OF SEC.80P(4). 6.1 THE RELEV ANT PART OF SECTION 80P OF THE I .T ACT UNDER WHICH THE APPELLANT COOPERATIVE SOCIETY HAS CLAIMED D EDUCTION READS AS UNDER: DEDUCTION IN RESPECT OF INCOME OF CO - OPERATIVE SOCIETIES. 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 O F CO - OPERATIVE SOCIETY ENGAGED IN - (I ) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR (II) ........................................................................ THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSIN ESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES: 6.1.1 THE CLAUSE (4) OF SEC.80P INSERTED BY THE FINANCE ACT,2006 W.E.F. 01 - 04 - 2007, WHICH HAS BEEN INVOKED BY THE ASSESSING OFFICER TO DENY DEDUCTION TO THE APPELLANT CO - OPERATIVE SOCIETY READS AS UNDER: (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 - SEC TION: (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 MEAN S 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. BY VIRTUE OF INTRODUCTION OF CLAUSE(4) IN SEC.80P, THE CO - OPERATIVE BANKS HAVE BEEN TAKEN OUT OF THE PURVIEW OF EXEMPTION GRANTED UNDER SEC.80P WHEREAS OTHER ENTITIES/COOPERATIVE SOCIETIES SPECIFIED IN OTHER CLAUSES OF SEC.80P CONTINUE TO ENJOY 4 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT SUCH EXEMPTIONS. THE EXPLANATION TO SEC.80P PROVIDES THAT 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). 6.1.2 FOLLOWING THE PROVISIONS OF A FORESAID EXPLANATION TO SEC.80P , THE ASSESSING OFFICER, WITH A VIEW TO FIND OUT THE DEFINITION OF CO - OPERATIVE BANK HAS TAKEN RECOURSE TO THE RELEVANT PROVISIONS OF THE BANKING REGULATION ACT, 1949. SL. NO. CATEGORY CLAUSE/SECTION OF DEFINITION THE BANKING REGULATION ACT,1949 DEFINITION 1 2 3 4 1 CO - OPERATIVE BANK CLAUSE (CCI) OF SECTION 5 CO - OPERATIVE BANK MEANS A STATE COOPERATIVE BANK, A CENTRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK 2 PRIMARY CO - OPERATIVE BANK CLAUSE (CCV) OF SECTION 5 PRIMARY CO - OPERATIVE BANK MEANS A COOPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY - (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (2) THE PAID UP SHARE CAPITAL AND RESERVES OF WHICH ARE NO T LESS THAN ONE LAKHS OF RUPEES; AND (3) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. THE ASSESSING OFFICER HAS THUS MENTIONED THAT THE CO - OPERATIVE BANK INCLUDES PRIMARY CO - OPERATIVE BANK AND PRI MARY CO - OPERATIVE BANK MEANS CO - OPERATIVE SOCIETY (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (2) THE PAID UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT L ESS THAN ONE LAKHS OF RUPEES; AND (3) THE BYE - LA WS OF WHICH DO NOT PER MIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. 6.1.3 THE ASSESSING OFFICER HAS CONCLUDED THAT THE APPELLANT CO - OPERATIVE SOCIETY SATISFIES ALL THE ABOVE MENTIONED THREE CONDITIONS AND THEREFORE IT IS HELD TO BE A PRIMARY COOPERATIVE BANK AND HENCE ITS CLAIM OF DEDUCTION U/S 80P(2)(A)(I) HAS BEEN DENIED U/S 80P(4). BEFORE ARRIVING AT THIS CONCLUSION THE ASSESSING OFFICER HAS ALSO REFERRED TO THE NEWLY INSERTED PROVISIONS OF SEC.2(24)(VIIA), INSERTED BY THE FINANCE ACT,2006 W.E.F. 01 - 04 - 2007 WHICH READS AS UNDER: (24) INCOME INCLUDES - (VILA) THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS; THE ASSESSING OFFICER HAS C ONTENDED THAT THE PURPOSE OF INTRODUCTION OF THESE PROVISIONS WAS TO TAX THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING 5 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS. THE ASSESSING OFFICER HAS ALSO REFERRED TO THE DEFINITION OF BANKING AS PROVIDED IN SEC.5(B) OF THE BANKING REGULATION ACT,1949 WHICH READS AS UNDER: (B)BANKING MEANS THE ACCEPTING FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSIT OF MONEY FROM PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWAL BY CHEQUE, DRAFT, ORDER OR OTHERWISE. THE A.O HAS COME TO THE CONCLUSION THAT THE APPELLANT CO - OPERATIVE SOCIETY IS DOING BANKING BUSINESS AS PROVIDING CREDIT FACILITIES TO MEMBERS IS AKIN TO BANKING BUSINESS AND SINCE THE MEMBERSHIP IS O PEN TO PUBLIC, IT IS ACCEPTING DEPOSITS FROM PUBLIC WHICH CAN BE WITHDRAWN BY ANY ONE OF THE SPECIFIED MEANS WITHIN THE MEANING OF ABOVE MENTIONED DEFINITION OF BANKING. 6.2 THE APPELLANT ON THE OTHER HAND HAS CHALLENGED THE INTERPRETATION OF SECTIONS 80P (2), 80P(4) AND RELEVANT PROVISION OF THE BANKING REGULATION ACT, 1949 AS ADOPTED BY THE AO IN HIS ASSESSMENT ORDER. THE MAIN ARGUMENT OF THE APPELLANT HAS BEEN THAT THE APPELLANT DOES NOT SATISFY THE THIRD CONDITION AS LAID DOWN IN TH E DEFINITION OF PRIM ARY CO - OPERATIVE BANK AS GIVEN U/S 5(CCV) OF THE BANKING REGULATION ACT, 1949 AND THEREFORE ION U/S 80P(2)(A)(I) CANNOT BE DENIED TO IT. THE APPELLANT HAS ALSO CONTENDED THAT THE INTENTION OF THE LEGISLATURE AS REVEALED BY THE SPEECH OF THE FINANCE MINIST ER WAS NOT TO DENY DEDUCTION TO ALL THE COOPERATIVE SOCIETIES BY INTRODUCTION OF SEC.80P(4). 6.2.1 IT HAS ALSO BEEN A CONTENTION OF THE APPELLANT THAT TO FULFILL THE FIRST CONDITION FOR BECOMING A PRIMARY CO - OPERATIVE BANK, THE SOCIETY SHOULD CARRY ON THE BUSINESS OF BANKING AS PER THE DEFINITION OF BANKING IN BANKING REGULATION ACT, 1949. THE APPELLANT HAS ALSO CONTENDED THAT THE APPELLANT ASSESSEE SOCIETY IS CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITY TO ITS MEMBERS AND IS NOT ALLOWED TO I SSUE CHEQUES, DRAFTS, PAY ORDERS, ETC. AS PER THE BANKING REGULATION ACT, PERMISSION OF RESERVE BANK OF INDIA IS REQUIRED TO ISSUE CHEQUES, DRAFTS AND PAY ORDERS, ETC. AND APPELLANT HAS NOT OBTAINED ANY SUCH LICENSE/PERMISSION FROM THE RESERVE BANK OF INDI A TO CARRY ON THE BUSINESS OF BANKING.] 6.2.2 IN THE CASES OF SOME OTHER APPELLANT COOPERATIVE SOCIETIES IN WHOSE CASES ALSO THE SAME ISSUE OF DENIAL OF DEDUCTION U/S 80P(2)(A)(I) BY VIRTUE OF INTRODUCTION OF SEC.80P(4) IS INVOLVED, IT HAS BEEN CONTENDED THAT THE EXPLANATORY NOTE TO THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE B1II,2006 WHEREIN THE HONBLE FINANCE MINISTER EXPLAINS THE REASONS FOR WITHDRAWAL OF TAX BENEFITS AVAILABLE TO CERTAIN CO - OPERATIVE BANKS, THE RELEVANT PORTION OF THE SAI D NOTES IS REPRODUCED HEREI NBELOW: SECTION 80P, INTER ALIA, PROVIDES FOR A DEDUCTION FROM THE TOTAL INCOME OF THE COOPERATIVE SOCIETIES ENGAGED IN THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR BUSINESS OF COTTAGE INDUSTRY, OR OF MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS, OR PROCESSING, WITHOUT THE AID OF POWER, OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS, ETC. 6 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT THE CO - OPERATIVE BANKS ARE FUNCTIONING AT PAR WITH OTHER COMMERCIAL BANKS, WHICH DO NOT ENJOY ANY TAX BENEFITS. IT IS, THEREFORE, PROPOSED TO AMEND SECTION 80P BY INSERTING A NEW SUB - SECTION (4) SO AS TO PROVIDE THAT THE PROVISIONS OF THE SAID SECTION SHALL NOT APPLY IN RELATION TO ANY CO - OPERATIVE BANK OTHER THAN PRIMARY CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGR ICULTURAL AND RURAL DEVELOPMENT BANK. IT IS ALSO PROPOSED TO DEFINE THE EXPRESSIONS CO - OPERATIVE BANK, PRIMARY AGRICULTURAL CREDIT SOCIETY AND PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. IT IS ALSO PROPOSED TO INSERT A NEW SUB - CLAUSE (VII A) IN CLAUSE (24) OF THE SECTION 2 SO AS TO PROVIDE THAT THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING / PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION OF INCOME. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 2007 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2007 - 08 AND SUBSEQUENT YEARS. THE APPELLANTS HAVE THUS CONTENDED THAT IT WAS CLEAR THAT THE INTENTION OF THE FINA NCE MINISTER WAS TO TAX CO - OPERATIVE BANKS ONLY. 6.2.3 THE APPELLANT HAS RELIED ON THE DECISION IN THE CASE OF DCIT, CENTRAL CIRCLE, PANAJI, GOA VS. M/S. JAYALAXMI MAHILA VIVIDODESH AGALA SOUHARDA SAHAKARI LIMITED & DWARAKA SOUHARDA CREDIT SAHAKARI LTD, ITA NO. O1 - 03/PNJ/2012 AND CIT (APPEALS - II, BANGALORE IN ITA NO. 130/AC - 3( 1)/CIT(A) - LL/09 - 1O IN CASE OF M/ S. BANGALORE COMMERCIAL TRANSPORT CREDIT CO - OPERATIVE SOCIETY LTD VS. ACIT, CIRCLE - 3(1), BANGALORE. WHEREIN IT WAS HELD THAT INCOME EARNED BY CO - OPER ATIVE SOCIETY FROM ITS ACT OF LENDING MONEY TO MEMBERS SHALL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. 7. THE IMPORTANT ASPECTS RELATING TO THE ISSUES IN THIS CASE HAVE BEEN CONSIDERED AND DECIDED BY VARIOUS ITATS ACROSS THE COUNTRY . AMONG THEM THE DECISIONS BY THE BANGA L ORE BENCH, PANAJI BENCH AND HYDERABAD BENCH COVERING ENTIRE GAMUT OF ISSUES ARE NOTEWORTH Y AND THEY ARE DISCUSSED BELOW. 7.1 IN THE CASE OF THE ASST. COMMISSIONER OF INCOME TA X, CIRCLE - 3(1), BANGALORE VS. M/ S BAN GALORE COMMERCIAL TRANSPORT CREDIT CO - OPERATIVE SOCIETY LTD., BAN GALORE ITA NO. 1069/B AN G/2010 (ASSESSMENT YEAR 2007 - 08), THE HONBLE ITAT HAS HELD AS FOLLOWS: 9.2 FROM THE ABOVE SECTION, IT IS CLEAR THAT THE PROVISIONS OF SECTION 80P(4) HAS GOT ITS AP PLICATION ONLY TO CO - OPERATIVE BANKS. SECTION 80P(4) DOES NOT DEFINE THE WORD CO - OPERATIVE SOCIETY. THE EXISTING SUB - SECTION 80P(2)(A)(I) SHALL BE APPLICABLE TO A CO - OPERATIVE SOCIETY CARRYING ON CREDIT FACILITY TO ITS MEMBERS. THIS VIEW IS CLARIFIED BY CENTRAL BOARD OF DIRECT TAX VIDE ITS CLARIFICATION NO. 133/06/2007 - TPL DATED 9 TH MAY, 2007. THE DIFFERENCE BETWEEN A CO - OPERATIVE BANK AND A CO - OPE RATIVE SOCIETY ARE AS FOLLOWS: 7 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT NATURE CO - OPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT, 1949. CO - OPERATIVE SOCIETY REGISTERED UNDER KARNATAKA CO - OPERATIVE SOCIETY ACT, 1959. REGISTRATION UNDER THE BANKING REGULATION ACT, 1949 AND CO - OPERATIVE SOCIETIES ACT, 1959. CO - OPERATIVE SOCIETIES ACT, 1959. NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING REGULATION ACT, 2. CAN OPEN SAVING BANK ACCOUNT, CURRENT ACCOUNT, OVERDRAFT ACCOUNT, CASH CREDIT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS (DD), PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. CO - OPERATIVE BANKS CAN ACT AS CLEARING AGENT FOR CHEQUES, DOS, PAY ORDERS AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA(RBI). 1. AS PER THE BYE - LAWS OF THE CO - OPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVING BANK ACCOUNT., CURRENT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS, PAY ORDERS, GIFT CHEQUES ETC. 3. SOCIETY CANNOT ACT AS CLEARING AGENT, FOR CHEQUES, DDS, PAY ORDER AND OTHER FORMS. 4. SOCIETIES ARE BOUND BY RULES AND REGULATIONS AS SPECIFIED BY IN THE CO - OPERATIVE SOCIETIES ACT. FILLING OF RETURNS CO - OPERATIVE BANKS HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR. SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIE TIES INSPECTION RBI HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANKS. REGISTRAR HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANKS. PART V PART V OF THE BANKING REGULATION ACT IS APPLICABLE TO CO - OPERATIVE BANKS PART V OF THE BANKING REGULATION ACT IS NOT APPLICABLE TO CO - OPERATIVE SOCIETY USE OF WORDS THE WORD BANK, BANKER, BANKING CAN BE USED BY A CO - OPERATIVE BANK. THE WORD BANK, BANKER, BANKING CANNOT BE USED BY A CO - OPERATIVE SOCIETY. 8 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT 9.3 IF THE INTENTION OF THE LEGISLATURE WAS NOT TO GRANT DEDUCTION U/S 80P(2)(A)(I) TO CO - OPERATIVE SOCIETIES CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, THEN THIS SECTION WOULD HAVE BEEN DELETED. THE NEW PROVISION TO SECTION 80P(4) WHICH IS BROUGHT INTO STATUE IS APPLICABLE ONLY TO CO - OPERATIVE BANKS AND NOT TO CREDIT CO - OPERATIVE SOCIETIES. THE INTENTION OF THE LEGISLATURE OF BRINGING IN COOPERATIVE BANKS INTO THE TAXATION STRUCTURE WAS MAINLY TO BRING IN PAR WITH COMMERCIAL BANKS. SINCE THE ASSESSEE IS A CO - OPERATIVE SOCIETY AND NOT A COOPERATIVE BANK, THE PROVISIONS OF SECTION 80P(4) WILL NOT HAVE APPLICATION IN THE ASSESSEES CASE AND THEREFORE, IT IS ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. HENCE, WE ARE OF THE V IEW THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED FOR. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED ON FRIDAY, THE 8T17 DAY OF APRIL, 2011 AT BAN GALORE. 7.1.1 IT IS THUS SEEN THAT THE DECISION OF THE BANGALORE BENCH OF THE HON.BLE SUPRA, IS MAINLY BASED ON THE INTENTION OF THE LEGISLATURE TO TAX ONLY THE CO - OPERATIVE BANKS AND NOT THE CO - OPERATIVE SOCIETIES WHICH ARE HELD TO BE DIFFERENT FROM THE CO - OPERATIVE BANK S. 7.2 IN THE CASE OF DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, PANAJI, GAO. VS. JAYALAXMI MAHILA VIVIDODESHA GALA SOUHARDA SAHAKARI LTD. [2012) 23 TAXMAN.COM 313(PANAJI), THE HONBLE ITAT PANJI BENCH HAS CONSIDERED THE AFORESAID DECISION IN THE C ASE OF BAN GALORE COMMERCIAL TRANSPORT CREDIT CO - OPERATIVE SOCIETY LTD OF THE BANGALORE BENCH OF THE ITAT, CITED SUPRA AS DISCUSSED IN ITS ORDER IN PARA 5. 7.2.1 IN THE CASE OF JAYALAXMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. [2012123 TAXMAN.COM 313 (PANAJI), CITED SUPRA, THE HONBLE ITAT PAN A JI BENCH AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE PROVISIONS OF SECTIONS 80P(2)(A)(I), 80P(4) AND EXPLANATION TO SEC.80P(4), HAS HELD AS FOLLOWS: 8. IN VIEW OF THIS DEFINITION THE QUESTION BEFORE US IS WH ETHER THE ASSESSEE IS A CO - OPERATIVE BANK OR NOT. CLAUSE (B ) OF THE EXPLANATION TO SECTION 80P(4) IN ANY CASE IS NOT APPLICABLE IN THE CASE OF ASSESSEE. IN CASE ASSESSEE IS A CO - OPERATIVE BANK, THE ASSESSEE WILL BE HIT BY SECTION 80P(4) BUT IN CASE ASSESSE E IS NOT A CO - OPERATIVE BANK, IT WILL NOT HIT BY SECTION 80P(4) AND THE ASSESSEE WILL BE ENTITL ED FOR THE DEDUCTION U/S 80P(2)(A)(I. THE CO - OPERATIVE BANK IS DEFINED IN PART V OF THE BANKING REGULATION ACT, 1949 AS UNDER: - I AFTER DISCUSSING THE DEFINITIONS OF THE CO - OPERATIVE BANK AND PRIMARY CO - OPERATIVE BANK AS DEFINED U/S 5(CCI) AND U/S 5(CCV) RESPECTIVELY IN PART V OF THE BANKING REGULATION ACT, 1949 AND ALSO THE DEFINITION OF BANKING AS PROVIDED U/S 5(B) OF THE BA NKING REGULATION ACT, 1949, THE HONBLE PAN A JI BENCH OF THE ITAT IN ITS DECISION CITED SUPRA HAS HELD AS FOLLOWS: 9 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT 11.FROM THE SAID DEFINITION, IT IS CLEAR THAT THE BANKING MEANS ACCEPTING THE DEPOSITS OF MONEY FROM THE PUBLIC WHICH IS REPAYABLE ON DEMAN D OR OTHERWISE AND WITHDRAWAL OF THESE DEPOSITS BY CHEQUE, DRAFT OR OTHERWISE AND THESE DEPOSITS ARE ACCEPTE D FOR THE PURPOSE OF LENDING IN VESTMENT. THIS CLEARLY STATES THAT THE DEPOSITS MUST BE ACCEPTED FROM THE PUBLIC F OR THE PURPOSE OF LENDING OR IN VEST MENT. THESE DEPOSITS MUST BE REPAYABLE ON DEMAND OR OTHERWISE AND COULD BE WITHDRAWN BY THE DEPOSITOR BY CHEQUE, DRAFT OR OTHERWISE. FOR DECIDING WHETHER THE ASSESSEE IS CARRYING ON THE BANKING BUSINESS AS DEFINED ABOVE, WE HAVE REFER TO THE AIMS AND OBJEC TS OF THE ASSESSEE AS WELL AS THE PROFIT AND LOSS ACCOUNT. THE AIMS AND OBJECTS AS GIVEN IN THE BYE - LAWS (AS PER ENGLISH TRANSLATION FILED BEFORE US) ARE REPRODUCED FOR OUR READY REFERENCE AS UNDER: - AFTER CONSIDERING THE AIMS AND OBJECTS OF THE ASSESSEE SOCIETY, THE HONBLE PANJI BENCH OF THE ITAT IN ITS DECISION CITED SUPRA HAS FURTHER HELD AS FOLLOWS: 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 WI TH 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. THE ASSESSEE, THEREFORE, CANNOT BE REGARDED TO BE A 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 EXPLANATION THEREUNDER WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSEE, T HEREFORE, 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. 13. IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE IN THE CASE OF BOTH THE CASES ARE DISMISS ED. 7.2.2 IT IS THUS SEEN THAT THE DECISION OF THE PANAJI BENCH OF ITAT IN THE CASE, CITED SUPRA IS MAINLY BASED ON SATISFACTION OF THREE C ONDITIONS AS LAID DOWN FOR A CO - OPERATIVE SOCIETIES IN THE DEFINITION AS GIVEN U/S 5(CCV) IN PART V OF THE BANKING R EGULATION ACT, 1949 FOR BECOMING PRI MARY CO - OPERATIVE BANK. IN THIS CASE SINCE ON FACTS NONE OF THE ASSESSEES AIMS AND OBJECTS ALLOWED ASSESSEE TO ACCEPT DEPOSITS OF MONEY FROM PUBLIC FOR THE PURPOSES OF LENDING OR INVESTMENT, IT COULD NOT BE SAID THAT P RINCIPLE BUSINESS OF THE ASSESSEE WAS BANKING BUSINESS. 7.2.3 IN THE PRESENT CASE AS REVEALED BY AFORESAID SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER, THE ONLY CLAUSE OF THE BYE LAWS OF THE APPELLANT DIRECTLY DEALING WITH COLLECTION OF FUNDS IS CLAUSE ( 1) WHICH SAYS: 10 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT 1. TO DEVELOP SAVINGS THRIFT, SELF HELP AND CO - OPERATION AMONGST THE MEMBERS AND DEPOSITORS OF THE SOCIETY. IT IMPLIES THAT THE SOURCE COLLECTION OF FUNDS IS NOT RESTRICTED ONLY TO MEMBERS AND THE APPELLANT IS FREE TO COLLECT FUNDS FROM PUBLIC AND FROM OTHER PERSONS LIKE ANY OTHER SOCIETY OR A BANK. THERE IS NO EXPRESS PROVISION RESTRICTING THE COLLECTION OF FUNDS ONLY FROM MEMBERS. HOWEVER, AS MENTIONED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, TTW PRIMARY OBJECT O F TH E ASSESSEE BEING A SOUHARDA C O - OPERATIVE SOCIETY IS THE TRANSACTION OF BANKING BUSINESS. IT IS MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE TAKES DEPOSITS FROM THE MEMBERS AND GIVES LOANS TO THE MEMBERS. IT DOES NOT SAY THAT THE APPELLANT TAKES DEPO SITS ONLY FROM MEMBERS. PROVIDING CREDIT FACILITIES TO THE MEMBERS IS AKIN TO BANKING BUSINESS. WITHOUT PREJUDICE TO THE ABOVE, IT MAY BE MENTIONED HERE THAT THE MEMBERSHIP IS OPEN TO GENERAL PUBLIC. IT MAY ALSO BE MENTIONED HERE THAT THE DEFINITION OF BA NKING GIVEN IN SECTION 5(B) OF THE BANKING REGULATION ACT, 1949 ENVISAGES ACCEPTANCE OF DEPOSIT OF MONEY FROM PUBLIC AND IT MAKES NO DISTINCTION BETWEEN MEMBER OR NON - MEMBER. B Y BECOMING A MEMBER, A PERSON DOES NOT CEASE TO BE PUBLIC. A SECTION OF PUBLI C IS ALSO PUBLIC. FURTHER, THE WORD PUBIC HAS NEITHER BEEN DEFINED IN THE INCOME TAX ACT NOR IN THE BANKING REGULATION ACT 1949. HOWEVER, SOME ACTS LIKE THE INDIAN PENAL CODE DEFINE PUBLIC AS: SECTION 12. THE WORD PUBLIC INCLUDES ANY CLASS OF PUBLIC OR ANY COMMUNITY. THE OXFORD ENGLISH DICTIONARY GIVES THE MEANING OF PUBLIC, INTER ALIA, AS: A SECTION OF THE COMMUNITY HAVING A PARTICULAR INTEREST IN A SPECIAL CONNECTION PERSON OR THING SPECIFIED. THEREFORE, THE ACCEPTANCE OF DEPOSITS FROM MEMBERS AL SO AMOUNTS TO ACCEPTANCE OF FUNDS FROM PUBLIC. THUS, THE APPELLANT IN THE PRESENT CASE ACCEPTS DEPOSITS FROM PUBLIC. WITHOUT PREJUDICE TO THE FOREGOING, IT MAY BE ADDED HERE THAT DURING THE COURSE OF APPELLANT PROCEEDINGS, THE AO WAS SPECIFICALLY ASKED TO CLARIFY THIS ISSUE. THE REMAND REPORT DATED 14 - 08 - 2013 OF THE AO CONFIRMS THAT THE APPELLANT ACCEPTS DEPOSITS FROM GENERAL PU BLIC WHO ARE NOT MEMBERS. THE RELEVANT PORTION OF THE REMAND REPORT READS AS UNDER: WE ARE ACCEPTING DEPOSITS FROM MEMBERS AS WELL AS NON - MEMBERS. 3 IN THE CASE OF THE CITIZEN CO - OPERATIVE SOCIETY V. ADDI. CIT, RANGE - 9, IN ITA NO.1003/HYD/201, IN ITA NO.1004 /HYD/2011 A.Y. 2008 - 09 DATED 2.7.2012, THE H ONBLE ITAT HAS HELD AS UNDER: 21. SECTION 80P(2)(A)(I) PROVIDES FOR DEDUCTIO N FROM GROSS TOTAL INCOME FOR COOPERATIVE SOCIETIES PROVIDING BANKING OR CREDIT FACILITIES TO ITS MEMBERS. IN THE PRESENT CASE THE ASSESSEE IS A CO - OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE SOCIETY IS HAVING 63,000 MEMBERS SPREAD O VER 23 BRANCHES MAINLY ITS ACTIVITY IS DOING BANKING BUSINESS FOR ITS MEMBERS. THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN HIS ORDER ARE THAT THE BENEFICIARIES AND THE 11 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT CONTRIBUTORS ARE DIFFERENT. IT IS NOT NECESSARILY THE CONTRIBUTORS AND BENEFICIARI ES ARE SAME IN THE CASE OF CO - OPERATIVE SOCIETY. WHAT IS REQUIRED TO BE OBSERVED IS THAT THE DEPOSITORS AS WELL AS THE BORROWERS SHALL BE THE MEMBERS OF THE SOCIETY. IN THE PRESENT CASE ALL THE DEPOSITORS AND BORROWERS ARE MEMBER OF THE SOCIETY. HOWEVER, I T IS THE FACT THAT CERTAIN ACTIVITIES CARRIED ON BY THE ASSESSEE NOT COMPLYING WITH THE REQUIREMENTS OF THE PRINCIPLES OF COOPERATIVE SOCIETY, MORE SO, THE ASSESSEE ALSO ENGAGED IN THE ACTIVITY OF BILL DISCOUNTING, PROVIDING ACCOMMODATION CHEQUES BY TAKING CASH FROM THE MEMBER, BEING SO, FOR THE ASSESSMENT YEAR 2006 - 07 THE CLAIM OF THE ASSESSEE U/S 80P(2)(A)(I) CANNOT BE ALLOWED. 22. FOR ASSESSMENT YEAR 2007 - 08 & 2008 - 09, WE HAVE TO CONSIDER THE AMENDMENT BROUGHT OUT TO THE SECTION WITH EFFECT FROM 01/04/20 07 BY FINANCE ACT, 2006 WHEREBY SECTION 80P(4) WAS INSERTED. THE AMENDMENT CLEARLY BARRED ALL THE COOPERATIVE BANKS OTHER THAN PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS FROM CLAIMING EXEMPTION UND ER THE SECTION. THE PRIMARY ACTIVITY OF THE SOCIETY IS TO PROVIDE BANKING FACILITIES TO ITS MEMBERS. THE SOCIETY IS DEALING LIKE A BANK WHILE ACCEPTING DEPOSITS FROM ITS MEMBERS. THIS ISSUE WAS EXAMINED BY THE HONBLE ITAT IN THE ASSESSEE OWN CASE WHILE DE LETING THE PENALTY U/S 271D AND 271E. THE HON BLE ITAT HELD AS UNDER. IF THE CARRYING ON BANKING BUSINESS IS NOT APPROVED BY THE RBI OR THE ASSESSEE IS NOT HAVING REQUISITE LICENSE TO CARRY OUT THE BANKING BUSINESS, THE AUTHORITIES COULD HAVE TAKEN ACTION AGAINST THE SOCIETY OR STOP THE SOCIETY ACTIVITY. ONCE THE ASSESSEE IS ALLOWED TO CARRY ON THE BANKING BUSINESS, THEN THE ASSESSEE IS BOUND BY THE RELEVANT PROVISIONS OF THE BANKING REGULATIONS ACT. THE BANK FOR ALL ITS BANKING ACTIVITIES IS STRICTLY GOVE RNED BY THE BANKING REGULATIONS ACT 1949 23. THE SOCIETY IS CARRYING ON THE BANKING BUSINESS AND FOR ALL PRACTICAL PURPOSE IT ACTS LIKE A CO - OP BANK. THE ITAT OBSERVED THAT THE SOCIETY IS GOVERNED BY THE BANKING REGULATIONS ACT. THEREFORE THE SOCIETY BEIN G A CO - OP BANK PROVIDING BANKING FACILITIES TO MEMBERS IS NOT ELIGIBLE TO CLAIM THE DEDUCTION U/S 80P(2)(I)(A) AFTER THE INTRODUCTION OF SUB SECTION (4) TO SECTION 80P. 24. I N VIEW OF THE ABOVE WE ARE OF THE OPINION THAT THE SOCIETY IS NOT ELIGIBLE TO CLAI M DEDUCTION U/S 80P(2)(A)(I). THEREFORE WE ARE OF THE OPINION THAT THE ASSESSEE IS NOT EN TITLED FOR DEDUCTION U/S 80P (2)(A)(I) FOR ASSESSMENT YEAR 2006 - 0 7, 2007 - 08 & 2008 - 09 AND ALLOWED THE GRO UND RAISED BY THE REVENUE AND DI SMISS THE GROUND TAKEN BY THE ASSESSEE ON THIS ISSUE. 25. THUS, THE ISSUE RELATING TO THE DISALL OWANCES OF DEDUCTION U/S 80P(2)(A)(I ), IS DECIDED IN FAVOUR OF THE REVENUE. 7.3.1. IT IS THUS SEEN THAT IN THIS CASE, THE HONBLE ITAT HYDERABAD BENCH ON THE FACTS IN THIS CASE HAS HELD THAT THE COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT SOCIETY WAS NOT ELIGIBLE TO CLAIM THE DEDUCTION U/S 80P(2)(I)(A) AFTER THE INTR ODUCTION OF SUB SECTION (4) TO SECTION 80P AS THE SOCIETY WAS CARRYING ON THE BANKING BUSINESS AND FOR ALL PRACTICAL PURPOSES IT ACTED LIKE A CO - OPERATIVE BANK. 12 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT 8. AS PER THE STANDING ORDER UNDER INCOME - TAX (APPELLATE TRIBUNAL) RULES,1963, THE BANGALORE BE NCH OF ITAT HAS THE APPELLATE JURISDICTION OVER ALL APPEALS AND APPLICATIONS FROM, INTER ALIA, THE DISTRICTS OF BAGALKOT AND BIJAPUR, STATE OF KARNATAKA. SIMILARLY, THE PAN A JI BENCH HAS APPELLATE JURISDICTION OVER THE ALL APPEALS A ND APPLICATIONS FROM INTE R ALIA , THE DISTRICT OF BELGAUM, STATE OF KARNATAKA. THE COMMISSIONER OF INCOME TAX(APPEALS), BELGAUM EXERCISES APPELLATE JURISDICTION OVER THE DISTRICTS OF BELGAUM, BAGALKOT AND BIJAPUR, STATE OF KAR NATAKA WHICH MEANS THAT BOTH THE BANGALORE BENCH OF ITAT AND THE PAN A JI BENCH OF ITAT ARE JURISDICTIONAL ITATS FOR THE COMMISSIONER OF INCOME TAX(APPEALS), BELGAUM. 9. MOST OF THE ARGUMENTS RAISED BY THE APPELLANT HAVE ALREADY BEEN SUCCESSFULLY MET BY THE A.O IN HIS ORDER, THE RELEVANT PORTION OF WHICH HAS BEE N REPRODUCED ABOVE. THE APPELLANT HAS ARGUED THAT IF THE INTENTION OF THE LEGISLATURE WAS TO DENY DEDUCTION TO THE COOPERATIVE SOCIETIES U/S 80P(4), THEN SEC.80P(2)(A)(I) WOULD HAVE BEEN DELETED. IN THIS CONNECTION, IT MAY BE CLARIFIED THAT THE SEC .80 P(4) ITSELF PROVIDES IN THE FO RM OF EXCEPTIONS AS TO WHICH CO - OPERATIVE SOCIETIES ARE NOT COVERED BY SEC 80P(4) AND IT IS FOR THE BENEFIT OF THOSE EXCEPTIONS AND ALSO FOR THE BENEFIT OF THOSE CO - OPERATIVE SOCIETIES WHICH FAIL TO QUALIFY TO BE CO - OPERATIVE BA NKS THAT THE PROVISIONS OF SEC.80P(2)(A)(I) HAVE BEEN RETAINED. THE APPELLANT HAS ALSO RAISED THE ARGUMENTS LIKE THE PROVISIONS OF BANKING REGULATIONS ACT A ND NEGOTIABLE INSTRUMENT ACT DO NOT APPLY TO IT AND THEREFORE IT IS NOT A BANK. IN THIS CONNECTION IT MAY BE MENTIONED HERE THAT THE RELEVANT PROVISIONS OF INCOME TAX ACT DO NOT MANDATE THE APPLICABILITY OF THESE ACTS AS PREREQUISITES FOR A COOPERATIVE SOCIETY TO BE TREATED AS CO - OPERATIVE BANK. THE ONLY CONDITIONS TO BE SATISFIED FOR A CO - OPERATIVE SO CIETY TO TREATED AS CO - OPERATIVE BANK AND AS ALSO HELD BY THE PANAJI BENCH OF THE ITAT IN ITS DECISION CITED SUPRA ARE THE THREE CONDITIONS GIVEN U/S 5(CCV) IN PART V OF THE BANKING REGULATION ACT, 1949. SAME RATIONALE ALSO APPLIES TO THE APPELLANTS AR GUMENT THAT IT HAS NOT OBTAINED LICENSE FROM THE RBI. THE DEFINITION OF BANKING AS PROVIDED IN SEC.5(B) OF THE BANKING REGULATION ACT,1949 HAS THREE LIMBS. FIRST, ACCEPTING FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSIT OF MONEY FROM PUBLIC; SECOND, REPAYABLE ON DEMAND OR OTHERWISE, AND; THIRD, WITHDRAWAL BY CHEQUE, DRAFT, ORDER OR OTHERWISE. AS DISCUSSED ABOVE IN PARA 7.2.3, THE APPELLANT ACCEPTS DEPOSITS FROM PUBLIC. THE MONEY OF THE DEPOSITOR IS REPAYABLE ON DEMAND OR OTHERWISE AND THE DEPO SITOR CAN WITHDRAW MONEY BY ANY ONE OF THE MEANS. IT IS NOT NECESSARY THAT ONLY CHEQUE, DRAFT OR ORDER SHOULD BE USED FOR WITHDRAWAL. THEREFORE, ALL THE THREE LIMBS OF THE DEFINITION OF BANKING ARE APPLICABLE TO THE APPELLANTS CASE. ON THE FACTS OF THE C ASE IT IS ALSO SEEN THAT THE APPELLANT CARRIES ON THE BANKING BUSINESS AND FOR ALL PRACTICAL PURPOSES IT ACTS LIKE A CO - OPERATIVE BANK. ON THIS ISSUE THE CASE OF THE REVENUE ALSO GETS STRENGTH FROM THE DECISION OF THE HYDERABAD BENCH OF ITAT IN THE CASE OF THE CIT IZEN COOPERATIVE SOCIETY V. ADDL. CIT, RAN GE - 9, HYDERABAD, CITED SUPRA. THIS ARGUMENT GETS FURTHER STRENGTH FROM THE INSERTION OF 2(24)(VII) W.E.F 01 - 04 - 2007, WHEREBY THE DEFINITION OF INCOME HAS BEEN EXPANDED TO INCLUDE THE PROFITS AND GAINS OF ANY 13 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT BUSINESS (INCLUD ING PROVIDING CREDIT FACILITIES ) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS. 9.1 OUT OF THE TWO DECISIONS OF THE JURISDICTIONAL ITATS IN THE CASES OF THE JAYALAXMI MAHILA VIVIDODESHAGALA SOUHARADA SAHAKARI LTD. [2012] 23 TAXM AN.COM 313(PANAJI), OF THE HONBLE ITAT PANAJI BENCH AND BANGLORE COMMERCIAL TRANSPORT CREDIT CO - OPERATIVE SOCIETY LTD. OF THE BANGLORE BENCH OF THE ITAT, CITED SUPRA, THE DECISION OF THE PAN A JI BENCH IS DELIVERED LATER IN TIME AND IN THIS DECISION THE HO NBLE PAN A JI BENCH HAS ALSO CONSIDERED THE DECISION OF THE BANGALORE BENCH CITED SUPRA WHICH WAS PRONOUNCED MUCH EARLIER. THEREFORE THE RATIO AND THE BASIS OF THE DECISION OF THE PAN A JI BENCH, CITED SUPRA IS BEING FOLLOWED HERE. AS DISCUSSED ABOVE THE APPE LLANT ACCEPTS DEPOSITS FROM THE PUBLIC, THUS SATISFYING THE FIRST CONDITION AND IT ALSO SATISFIES THE SECOND CONDITIONS LAID DOWN FOR A CO - OPERATIVE SOCIETIES IN THE DEFINITION AS GIVEN U/S 5(CCV) IN PART V OF THE BANKING REGULATION ACT, 1949 FOR BECOMING PRIMARY CO - OPERATIVE BANK. HOWEVER, THE APPELLANT DOES NOT SATISFY THE THIRD CONDITION WHICH READS AS UNDER: (3) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER COOPERATIVE SOCIETY AS A MEMBER. RE GARDING ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS MEMBER, THE ASSESSING OFFICER PARA NO. 8 OF HIS ORDER HAS MENTIONED AS FOLLOWS: 6 A. THE FOLLOWING PERSONS CAN BECOME MEMBER OF THE SOCIETY PROVIDED A) HE IS LIVING PERMANENTLY WITHIN THE AREA OF OPERATION, HE HAS COMPLETED HIS 18 YEARS OF T HE AGE, NON - BANKRUPT AND INSANE PERSON. B) ANY PROPRIETARY OR PARTNERSHIP FIRMS OR SOCIETIES REGISTERED UNDER KARNATAKA SOCIETIES REGISTRATION ACT, 1960 C) ANY PERSON CREATED UNDER ANY PRESENT ACT IN THE FORM OF INSTITUTIONS (OTHER THAN REGISTERED UNDER KA RNATAKA SOUHARDA CO - OPERATIVE ACT.) FURTHER, THE ASSESSING OFFICER HAS AGAIN VID E HIS REMAND REPORT DATED 14 - 08 - 2013 ENCLOSING THEREWITH A CERTIFIED COPY OF ENGLISH TRANSLATION OF THE BYE - LAWS OF APPELLANT SOCIETY HAS CONFIRMED THE ABOVE BYE - LAWS OF THE SOCIETY. IT IS THUS SEEN THAT THE BYE LAWS OF THE APPELLANT EXPRESSLY ALLOW A SOCIETY TO BECOME ITS MEMBER. SECTION 2 (C) OF THE KARNATAKA SOCIETIES ACT 1959 DEFINES CO - OPERATIVE SOCIETY AS FOLLOWS: CO - OPERATIVE SOCIETY MEANS A SOCIETY REGISTERED OR DEEMED TO BE REGISTERED UNDER THIS ACT; BY VIRTUE OF ABOVE DEFINITION CO - OPERATIVE SOCIETY MEANS A SOCIETY REGISTERED OR DEEMED TO BE REGISTERED UNDER THE KARNATAKA SOCIETIES ACT, 1960. THEREFORE THE ASSESSING OFFICERS CONTEN TION THAT THE ASSESSEE SOUHA RDA/CO - OPERATIVE SOCIETY ALLOWS ONL Y OTHER SOCIETIES REGISTERED UNDER THE KARNATAKA SOCIETIES REGISTRATION 14 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT ACT,1960 AS MEMBERS WHEREAS IT DOES NOT ALLOW CO - OPERATIVE SOCIETIES TO BECOME ITS MEMBERS IS NOT CORRECT. 9.2 THE HONBLE ITAT, NAGPUR BENCH IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE IV VS. BULDANA URBAN CO - OPERATIVE CREDIT SOCIETY LTD., DECIDED IN ITA NOS.151 TO 153 AND 179 TO 181 (NAG) OF 2012 DATED 23.11.2012 HAS HELD THAT IF THE BYE LAWS OF ASSESSEE PERMITTED ADMISSION OF ANY CO - OPERATIVE SOCIETY TO BE A MEMBER OF THE ASSESSEES, THEN THE ASSESSEE COULD NOT BE REGARDED AS A PRIMARY CO - OPERATIVE BANK UNDER SECTION 5(CCV) OF BANKING REGULATION ACT, 1949 AND I T WOULD NOT BE HIT BY SECTION 80 P(4). 9.3 IT IS CLEAR THAT THE APPELLANT CO - OPERATIVE SOCIETY DOES NOT SATISFY THE THIRD C ONDITION LAID DOWN IN SECTION 5 (CCV) IN PART V OF THE BANKING REGULATION ACT. HENCE, THE APPELLANT ASSESSEE IS NOT A CO - OPERATIVE BANK WITHIN THE MEANING OF PART V OF THE BANKING REGULATION ACT, 1949. THEREF ORE, THE PROVISIONS OF SEC.80P(4) ARE NOT APPLICABLE TO IT AND IT IS ENTITLED TO DED UCTION U/S 80P(2)(A)(I) OF THE I .T. ACT. THE ASSESSING OFFI CER IS ACCORDINGLY DIRECTED TO ALLOW DEDUCTION U/S 80P(2)(A)(I) TO THE APPELLANT. 3. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ISSUE IN CONTROVERSY IS COVERED BY THE DECISION OF HONBLE ITAT PANAJI BENCH IN THE CASE OF ITO VS. SHIVA CREDIT SOUHARD SAHAKARI NIYAMIT, ITA NO. 418 & 41 9 / PNJ / 2013 WHEREIN THE TRIBUNAL HAS TAKEN THE SIMILAR VIEW BY HOLDING AS UNDER: 2.2 WE HEARD THE SUBMISSIONS OF LD. D.R AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW AS WELL AS THE DECISIONS AND THE ENTIRE MATERIAL AN D 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 MEMBERS, OR 15 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT 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 THI S 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 DEVELOPME NT 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. 2.3 FROM THE PLAIN READING OF SEC. 80P(2)(A)(I) IT IS APPAR ENT 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 PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THE PROVISIONS OF SEC. 80P(4) WAS INTRODUC ED 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. I T 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 - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CO - OPERATIVE AGRICULTURAL A ND 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), TH E PROVISIONS OF SEC. 80P(2)(A)(I) WERE NOT AMENDED, RATHER THE CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING FACILITIES TO ITS MEMBERS CONTINUED TO BE ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I). THIS PRE - SUPPOSES THAT EVERY CO - OPERATIVE SOC IETY 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 EVEN IF IT IS NOT A CO - OPERATIVE BANK. IF WE READ THE PROVISIONS IN THE MANNER THAT EVERY CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING EVEN FOR ITS MEMBERS IS REGARDED TO BE A CO - OPERATIVE BANK, 16 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT 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 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 C ASE 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. THIS ACTION 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 W ITH SECTION 80P(2)(A)(I). 2.4 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 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 BANKIN G FACILITIES TO ITS MEMBERS OR (B) CO - OPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS. BOTH THE ACTIVITIES MUST BE CARRIED ON BY THE CO - OPERATIVE SOCIETY FOR ITS MEMBERS. IF A CO - OPERATIVE SOCIETY IS ENGAGED IN CARRYING ON THESE A CTIVITIES/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. THEREFOR E, 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. NOW, THE QUE STION 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: 2.5 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 - 17 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT OPERATIVE BANK OR CENTRAL CO - OPERATIVE BANK. WE HAVE THEREFORE TO FIND WHETHER THE ASSESSEE IS A PRIMARY CO - OPERATIVE BANK. 2.6 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 WHIC H 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 S UCH CO - OPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO - OPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE. 2.7 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 ADMIS SION 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 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 - OP ERATIVE BANK AND THE PROVISIONS OF SEC. 80P(4), IN OUR OPINION, WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. ONCE, THE ASSESSEE WILL NOT FALL WITHIN THE PROVISIONS OF SEC. 80P(4), THE ASSESSEE, IN OUR OPINION, WILL BE ELIGIBLE TO GET DEDUCTION U/S 80P(2)(A)(I) IN RESPECT OF WHOLE OF THE INCOME WHICH THE ASSESSEE DERIVES FROM CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. 2.8 WHETHER CONDITION NO. 1 IS APPLICABLE IN THE CASE OF THE ASSESSEE, FOR THIS WE HAVE TO LO OK INTO THE BYE - LAWS OF THE ASSESSEE. THE OBJECTS OF THE ASSESSEE PRODUCED IN CIT(A)S ORDER IN THIS CASE ARE ENUMERATED AS UNDER : - 1. ENCOURAGEMENT TO MEMBERS OF THE SAHAKARI AND MEMBER DEPOSITORS FOR MINIMIZATION OF EXPENSES, SELF AND MUTUAL CO - OPERA TION. 2. ARRANGEMENT OF LOAN AND ADVANCES TO MEMBERS OF THE SAHAKARI FOR THEIR VARIED REQUIREMENTS. 3. ARRANGEMENTS OF SERVICES AND FACILITIES FOR VARIOUS GOVT., DEPOSITS AND SAVING SCHEMES. 18 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT 4. SERVICE LIKE PURCHASE / SALE OF GOVT. BONDS ETC., ON BEHALF O F MEMBERS. 5. CONTACTING FINANCIAL INSTITUTION FOR DAY TO DAY FINANCIAL AND CREDIT ACTIVITIES OF SAHAKARI. 6. TRANSFER REMITTANCE OF FUND ON BEHALF OF ITS MEMBERS. 7. RENDERING OF BANKING SERVICES EXCEPT ISSUE OF CHEQUE BOOKS ETC. 8. OBJECTIVES OF PURCHASE OF OFFICE PREMISES, CONSTRUCTION ETC FOR HIRE PURCHASE OF SMOOTH FUNCTIONING OF SAHAKARI. 9. LENDING LOANS FOR PURCHASES OF MOTOR VEHICLES, MACHINERY UNDER HIRE PURCHASE, HYPOTHECATION SCHEME. 10. TAKING PERMISSION FROM MEMBERS OF THE SAHAKARI AT ANNUAL GENERAL MEETING TO OPENING NEW BRANCHES AND FORMATION OF CREDIT ACTIVITIES. 11. FOR THE BENEFITS OF THE STAFF AND MEMBER OF THE SAHAKARI CREATING FUND FROM PROFIT IN THE MANAGEMENT COMMITTEE MEETING AND GET APPROVAL FROM ASM OF THE SAHAKARI. 12. TO ENCOURAGE FOR THE EDUCATION PURPOSE CREATE FUND FOR SAHAKARI MEMBERS CHILDREN AS PER THE APPROVAL OF ASM. 13. FUNDS CAN BE TRANSFERRED FROM SAHAKARI TO SAHAKARI FOR COMMON PURPOSE AS PER THE DIRECTION OF KARNATAKA STATE SOUHARDA FEDERAL LTD, BANGALORE. 14 . SAHAKARI CAN AUCTION THE PROPERTY WHICH IS IN THEIR CUSTODY TO RECOVER PART OR ENTIRE ARREARS. 15. WITH AN INTENTION TO FULLFILL THE CO - OPERATION GOALS A UNION IS TO BE FORMED SUBJECT TO RULES AND REGULATION. THE CORRESPONDING SAHAKARI PARTNERSHIP, PRO PRIETORSHIP IS TO BE FORMED. 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 : ' 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 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 COULD BE WITHDRAWN BY THE DEPOSITOR BY CHEQUE, DRAFT OR OTHERWISE. WE NOTED THAT THE ASSESSEE HAS CATEGORICALLY ACCEP TED BEFORE THE AUTHORITIES BELOW THAT THE ASSESSEE WAS ACCEPTING DEPOSITS OF MONEY FROM THE NON - MEMBERS. THIS FACT IS CLEAR AS PER THE REMAND REPORT OF A.O DATED 17.10.2013 BEFORE THE CIT(A) WHICH STATES AS UNDER : - 19 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT THUS, IT IS CLEAR THAT THE ASSESSE SOCI ETY ACCEPTS DEPOSITS FROM THE MEMBERS AND NON - MEMBERS. 2.9 THE DEPOSITS SO ACCEPTED ARE USED BY THE ASSESSEE CO - OPERATIVE SOCIETY FOR LENDING OR INVESTMENT. EVEN OUT OF THE DEPOSITS SO RECEIVED, THE LOANS HAVE BEEN GIVEN TO THE MEMBERS OF THE SOCIET Y IN ACCORDANCE WITH THE OBJECTS AS ENUMERATED ABOVE. THUS, IN OUR OPINION, CONDITION NO. 1 DOES NOT STAND SATISFIED AND IT CAN BE SAID THAT THE ASSESSEE SOCIETY WAS NOT CARRYING ON BANKING BUSINESS AS IT WAS NOT ACCEPTING DEPOSITS FROM THE PERSONS WHO WE RE NOT MEMBERS. 2.10 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. WHAT WE HAVE TO SEE WHETHER THE NATURE OF THE BUSINESS CARRYING ON BY THE ASSESSEE IS A BA NKING 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 TAX ACT UNDER THE SAME HEAD EVEN IF THE NATURE OF THE BUSI NESS IS ILLEGAL. 2.11 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 ASSESSEE SATISFIES THE SECOND CONDITION. 2.12 SO FAR AS THE THIRD CONDITION IS CONCERNED, WE NOTED THAT SEC. 20 OF THE KARNATAKA SOUHARDASAHAKARI ACT, 1997 PERMITS ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. THE PROVISIONS OF SEC. 20 ARE LAID DOWN AS UNDER : - 20. PERSONS WHO MAY BE ADMITTE D OR CONTINUED AS MEMBERS : - (1) SUBJECT TO THE PROVISIONS OF THIS ACT, NO PERSON SHALL BE ADMITTED AS A MEMBER OF A CO - OPERATIVE, - A) UNLESS HE NEEDS THE SERVICES OF THE CO - OPERATIVE AND ACCEPTS THE RESPONSIBILITY OF MEMBERSHIP AND IS COMPETENT TO CONTRACT UNDER THE CONTRACT ACT, 1872 (CENTRAL ACT IX OF 1872); B) IF HE CONDUCTS ANY BUSINESS, SUCH BUSINESS BEING IN CONFLICT OR COMPETITION WITH THE BUSINESS OF THE CO - OPERATIVE AS SPECIFIED IN THE BYE - LAWS; AND C) UNLESS HE FULFILS SUCH OTHER CONDITIO NS AS MAY BE SPECIFIED IN THE BYE - LAWS OF THE CO - OPERATIVE: PROVIDED THAT AFTER THE REGISTRATION OF A CO - OPERATIVE, THE MEMBERS SHALL BE ADMITTED ONLY BY THE ELECTED BOARD. (2) NO PERSON SHALL BE ELIGIBLE TO CONTINUE AS A MEMBER IF SUCH PERSON , - A) HAS NO T USED THE SERVICES OF THE CO - OPERATIVE FOR TWO CONSECUTIVE YEARS TO THE MINIMUM LEVEL SPECIFIED IN THE BYE - LAWS; OR B) HAS NOT ATTENDED THREE CONSECUTIVE GENERAL MEETINGS OF THE CO - OPERATIVE AND SUCH ABSENCE HAS NOT RECEIVED THE CONSENT OF THE GENERAL BOD Y; OR 20 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT C) IS IN DEFAULT REGARDING ANY PAYMENT TO BE MADE TO THE CO - OPERATIVE EXCEEDING AN AMOUNT AND FOR A PERIOD SPECIFIED IN THE BYE - LAWS. (3) IF A QUESTION ARISES AS TO THE ELIGIBILITY OR OTHERWISE OF A PERSON TO BECOME A MEMBER OR TO CONTINUE AS A MEMB ER, THE BOARD SHALL DECIDE THE QUESTION AFTER GIVING SUCH PERSON AN OPPORTUNITY OF BEING HEARD. THE DECISION OF THE BOARD SHALL BE FINAL. 21. REMOVAL OF MEMBERSHIP. - (1) THE BOARD MAY, BY A RESOLUTION PASSED BY A MAJORITY OF NOT LESS THAN TWO THIRDS OF TH E MEMBERS PRESENT AND VOTING, REMOVE THE MEMBERSHIP OF A PERSON IN THE CO - OPERATIVE FOR ACTS OR OMISSIONS WHICH ARE DETRIMENTAL TO THE INTEREST OF THE CO - OPERATIVE: PROVIDED THAT A MEMBER SHALL NOT BE REMOVED UNLESS A REASONABLE OPPORTUNITY OF MAKING - RE PRESENTATION IN THIS REGARD HAS BEEN PROVIDED TO HIM. (2) WHERE A MEMBER HAS BEEN REMOVED BY THE BOARD, AN APPEAL SHALL LIE TO THE GENERAL BODY AND THE DECISION OF THE GENERAL BODY SHALL BE FINAL. (3)A PERSON WHOSE MEMBERSHIP HAS BEEN REMOVED SHALL, SUBJECT TO THE PROVISIONS OF THIS ACT, RULES AND BYE - LAWS, BE INELIGIBLE FOR RE - ADMISSION AS A MEMBER OF THAT CO - OPERATIVE FOR A PERIOD OF ONE YEAR AFTER THE DATE OF SUCH REMOVAL. [(4) NOTWITHSTANDING SUCH REMOVAL, A PAST MEMBER SHALL BE LIABLE TO BE PR OCEEDED AGAINST, UNDER THIS ACT OR THE RULES OR THE BYE - LAWS FOR HIS ACTS OF COMMISSION OR OMISSION AS SUCH MEMBER] [21.A NOMINAL AND ASSOCIATE MEMBERS (1) NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 20, A CO - OPERATIVE MAY ADMIT, A) ANY INDIVIDUAL B ) ANY FIRM, COMPANY, CO - OPERATIVE SOCIETY, CO - OPERATIVE OR ANYBODY OR CORPORATION CONSTITUTED BY OR UNDER ANY LAW FOR THE TIME BEING IN FORCE: - AS A NOMINAL OR ASSOCIATE MEMBER FOR ANY SPECIFIC PURPOSE FOR ANY SPECIFIC PERIOD AS MAY BE MENTIONED IN THE B YE - LAWS. (2) A NOMINAL MEMBERS SHALL NOT BE ENTITLED TO ANY SHARE IN ANY FORM WHATSOEVER IN THE ASSETS OR PROFITS OF THE CO - OPERATIVE AND SHALL NOT BE ENTITLED TO BECOME AN OFFICE - BEARER OF THE CO - OPERATIVE. 21 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT (3) AN ASSOCIATE MEMBER MAY HOLD SHARES BUT SHALL NOT BE ENTITLED TO BECOME AN OFFICER - BEARER OF THE CO - OPERATIVE. (4) A NOMINAL OR ASSOCIATE MEMBER SHALL NOT HAVE THE RIGHT TO PARTICIPATE IN THE MANAGEMENT AND TO VOTE AT ANY MEETINGS OF THE CO - OPERATIVE INCLUDING THE ELECTION TO THE BOARD OF THE CO - OPERATIVE. (5) SAVE AS PROVIDED IN THIS SECTION, A NOMINAL OR ASSOCIATE MEMBER SHALL HAVE SUCH PRIVILEGES AND RIGHTS OF A MEMBER AND BE SUBJECT TO SUCH LIABILITIES OF A MEMBER AS MAY BE SPECIFIED IN THE BYE - LAWS OF THE CO - OPERATIVE. THE AFORESAID PRO VISION OF SEC. 20 TO 21A MANDATES ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER OF THE CO - OPERATIVE SOCIETY. THE WORD USED IN SEC.21A IS MAY. SECTION 21A FURTHER STATES THAT THE CO - OPERATIVE SOCIETY CAN BE ADMITTED AS NOMINAL OR ASSOCIATE MEM BER FOR ANY SPECIFIC PURPOSE FOR ANY SPECIFIC PERIOD AS MAY BE MENTIONED IN THE BYE - LAWS. THIS CLEARLY PROVES THAT IN CASE THE RULES AND BYE - LAWS OF THE OTHER CO - OPERATIVE SOCIETY PROVIDES OTHERWISE, THE CO - OPERATIVE SOCIETY MAY NOT BE ADMITTED AS A MEMBER OF THE CO - OPERATIVE SOCIETY. 2.13 THE MEMBERSHIP ADMISSION FROM THE BYE - LAWS OF THE ASSESSEE PRODUCED IN CIT(A)S ORDER IN THIS CASE ARE ENUMERATED AS UNDER : - ADMISSION TO MEMBERSHIP: TYPES OF MEMBERSHIP: 1 ) MEMBER 2) SUB - MEMBER 3) NOMINATED MEMBER FOLLOWING ARE QUALIFIED TO BE THE MEMBERS OF THE CO - OPERATIVE. 1 . (A) A PERSON RESIDING WITHIN THE LIMITS OF AREA OF OPERATIONS OF CO - OPERATIVE OR HAVING BUSINESS OR INDUSTRY WITHIN SUCH LIMITS OF CO - OPERATIVE, WHO HAS ATTAINED THE AGE OF 18 YEARS, NOT BEING INSOLVENT AND UNSOUND MIND. (B) PROPRIETARY CONCERN OR PARTNERSHIP FIRMS OR SOCIETY REGISTERED UNDER KARNATAKA SOCIETIES REGISTRATION ACT, 1960 (KARNATAKA 1960, SEC.17) (C ) ANYBODY CONSTITUTED UNDER THE PROVISIONS OF LAW PREVAILING IN FORCE. NOTE : ANY P ERSON ELIGIBLE TO ENTER CONTRACT U/S 11 OF THE INDIAN CONTRACT ACT, 1832. 2 . . FROM THIS, IT IS APPARENT THAT THE BYE - LAWS OF SOCIETY DOES PERMIT THE ADMISSION OF OTHER CO - OPERATIVE SOCIETY AS MEMBER. THUS THE THIRD CONDITION FOR BECOMING PR IMARY CO - OPERATIVE BANK IS NOT COMPLIED WITH. SINCE THE ASSESSEE SOCIETY DID NOT COMPLY ALL THE THREE CONDITIONS, THEREFORE, IN OUR OPINION THE 22 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT ASSESSEE SOCIETY CANNOT BE REGARDED TO BE A PRIMARY CO - OPERATIVE BANK AS ALL THE THREE CONDITIONS AS DISCUSSED B Y US IN THE PRECEDING PARAGRAPHS ARE NOT COMPLIED WITH AND IN CONSEQUENCE IT IS NOT A CO - OPERATIVE BANK AND THE ASSESSEE IS NOT HIT BY THE PROVISION OF SECTION 80P(4). 2.14 WE HAVE GONE THROUGH THE DECISION OF THE HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF THE CITIZEN COOPERATIVE SOCIETY VS. ADDL. CIT AS CITED BEFORE CIT(A). 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 - OPERATIVE BANK PROVIDING BANKING FACILITIES TO MEMBERS IS NOT ELIGIBLE TO CLAI M DEDUCTION U/S 80P(2)(A)(I) AFTER THE INTRODUCTION OF SUB - SECTION (4) TO SECTION 80P. IN VIEW OF THIS FINDING, THE ASSESSEE WAS DENIED DEDUCTION U/S 80P(2)(A)(I). WE HAVE ALSO GONE THROUGH THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DIVYAJYOTHI CREDIT CO - OPERATIVE SOCIETY LTD 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. BAN GALORE COMMERCIAL TRANSPORT CREDIT CO - OPERATIVE 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 AN Y 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 VS. JAFARI MOMIN VIKAS CO - OP. CREDIT SOCIETY LTD. IN TAX APPEALS NO. 442 OF 201 3, 443 OF 2013 AND 863 OF 2013 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 WE NOTED THAT THE ISSUE BEFORE T HE 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 RE GISTERED UNDER THE ACT, AND AS SUCH THEY ARE GOVERNED BY THE PROVISIONS OF THE ACT PASSED BY THE STATE LEGISLATURE. CONSEQUENTLY, THE STATE GOVERNMENT HAS CONTROL OVER THEM TO THE EXTENT THE ACT PERMITS. MAJOR ACTIVITIES OF THE PETITIONERS ARE TO FINANCE ITS MEMBERS. FOR THE PURPOSE OF FINANCING ITS MEMBERS, THEY BORROW MONEY FROM THE FINANCING AGENCIES AND REPAY THE SAME. MERELY BECAUSE THE PETITIONERS - THE CO - OPERATIVE SOCIETIES IN QUESTION - ARE REQUIRED TO ADVANCE LOANS TO THEIR MEMBERS, THEY DO NOT CE ASE TO BE CO - 23 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT 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, INASMUC H AS THESE CO - OPERATIVE SOCIETIES ARE NOT ESTABLISHED FOR THE PURPOSE OF DOING BANKING AS DEFINED IN SECTION 5(B) OF THE BANKING REGULATION ACT, 1949. THIS DECISION, IN OUR OPINION, IS NOT APPLICABLE TO THE CASE BEFORE US BECAUSE THE PROVISIONS OF SEC. 80P(2)(A)(I), AS WE HAVE ALREADY HELD IN THE PRECEDING PARAGRAPHS, ARE APPLICABLE TO A CO - OPERATIVE SOCIETY WHICH IS ENGAGED IN CARRYING ON BANKING BUSINESS FACILITIES TO ITS MEMBERS IF IT IS NOT A CO - OPERATIVE BANK. WE HAVE ALSO GONE THROUGH THE DECISIO N OF THIS BENCH IN THE CASE OF DCIT VS. JAYA LAKSHMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. IN ITA NO.1 TO 3/PNJ/2012 DT.30.3.2012, FOR WHICH THE UNDERSIGNED IS THE AUTHOR. WHILE DISCUSSING THIS ISSUE, AFTER ANALYSING THE AIMS AND OBJECTS OF THE CO - OPERATIVE SOCIETY UNDER PARA 12 OF ITS ORDER, THIS TRIBUNAL HAS HELD AS UNDER : - 12. FROM THE AFORESAID OBJECTS, IT IS APPARENT THAT NONE OF THE AIMS AND OBJECTS ALLOWS THE ASSESSEE COOPERATIVE SOCIETY TO ACCEPT 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 CONDITI ON 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 - OPE RATIVE 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 OPIN ION 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. WE HAVE ALSO GONE THROUGH THE DECISION OF ACIT VS PALHAWAS PRIMARY AGRICULTURE CO - OPERATIVE SOCIETY LTD, 23 TAXMAN.CO M 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. THE DECISION 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 ORDER PASSED U/S 263 AND THE QUESTION INVOLVED WAS WHETHER THE REVISIONAL AUTHORITY WAS JUSTIFIED 24 . ITA NO.58 /PNJ/2014 (A.Y.2009 - 10) ITO VS. SHRI BHAGYALAXMI SOUHARD SAHAKARI NIYAMIT IN INVOKING HIS POWER U/S 263 WITHOUT THE FOUNDATIONAL FACT OF THE ASSESSEE BEING CO - OPERATIVE BANK. THEREFORE, THIS DECISION IS NOT APPLICABLE. 2.15 WE, THEREFORE, IN VIEW OF OUR AFORESAID DISC USSION HOLD THAT THE ASSESSEE HAS NOT TO BE REGARDED TO BE A PRIMARY CO - OPERATIVE BANK AS ALL THE THREE BASIC CONDITIONS ARE NOT COMPLIED WITH, THEREFORE, IT IS NOT A CO - OPERATIVE BANK AND THE PROVISIONS OF SEC. 80P(4) ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I). WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION TO THE ASSESSEE U/S 80P(2)(A)(I) ON THE INCOME GENERATED FOR PROVIDING BANKING OR CREDIT FACILITIES TO ITS MEMBERS. WE RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE DEPARTMENT S APPEAL. 4 . IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER P RONOUNCED IN THE OPEN COURT ON 22 .8.2014. SD/ - SD/ - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTAN T MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 22 .8.2014 P.S. - *PK* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER