THE COMMISSIONER OF INCOME TAX, PANAJI. vs. M/S VPK URBAN CO-OP CREDIT SOCIETY LTD.

The above appeal challenges the orders passed by the authorities below whereby the respondent/assessee was held to be 2 entitled for deduction as provided under Section 80P(2)(a)(i) of the Income Tax Act. The learned Counsel for the appellant submits that though the CIT(Appeals) has come to the conclusion that the respondent/assessee is not a co-operative bank nevertheless, the Income Tax Appellate Tribunal whilst examining the appeal preferred by the appellant has come to the conclusion that the respondent/assessee were not carrying out banking business. The learned Counsel further points out that CIT(Appeals) has come to the conclusion that the respondent/assessee did not satisfy one of conditions of the definition of a primary co-operative Bank. The learned Counsel has extensively taken us through the impugned order of the Appellate Tribunal to point out that the Tribunal has found that the respondent/assessee was not carrying out banking business. The learned Counsel, as such, submits that the substantial questions of law as proposed by the appellant be framed and the appeal be admitted.

On the other hand, Mr. Sardessai, learned Senior Counsel appearing for the respondent has submitted that the Income Tax Appellate Tribunal at para (8) has observed as follows:- "The deposits so accepted are used by the Assessee co-operative society for lending or investment. Even out of the deposits so received,

While disposing of the appeal in the case of M/s. The Quepem Urban Co-operative Credit Society Ltd., (supra), the Division Bench of this Court, wherein one of us (F.M. Reis, J.) was a party, has observed at paras 9, 10, 11, 12, and 13, thus :

Therefore the issue that arises for consideration is whether the appellant satisfies condition No.(1) and (3) above. The impugned order after referring to the definition of 'Banking Business' as defined in Section 5b of the Banking Regulation Act, held that the principal business of the Appellant is Banking. Section 5b of the Banking Regulation Act defines banking to mean accepting of deposits for the purpose of lending or investment, of deposit of money from the public repayable on demand or otherwise. The impugned order juxtaposes the above definition with the finding of fact that the appellant did deal with non members in a few cases by seeing deposits. This read with Bye law 43 leads to the conclusion that it is carrying on banking business. This fact of accepting deposits from people who are not members has been so recorded by the CIT(A) in his order dated 15 July, 2014. Before the Tribunal also the appellant did not dispute the fact that in a few cases they have dealt with non members. However so far as accepting deposits from non

In the above view, the alternative contention of the appellant that it is not in the business of Banking as the sine quo non to carry on banking business is a licence to be issued by the Reserve Bank of India, which it admittedly does not have, is not being considered.

So far as condition No.3 of the definition/meaning of Primary Cooperative Bank as provided in Section 5(ccv) of the Banking Regulation Act is concerned, the same requires the Bye laws of society to contain a prohibition from admitting any other cooperative society as its member. In fact the bye-laws of the appellant society originally in bye-law 9(d) clearly provided that no co-operative society shall be admitted to the membership of the society. Thus there was a bar but the same was amended w.e.f. 12 January, 2001 as to permit a society to be admitted to the membership of the society. Therefore for the subject assessment years there is no prohibition to admitting a society to its membership and one of three cumulative conditions precedent to be a primary cooperative bank is not satisfied. However the impugned order construed the amended clause 9(d) of the appellant's bye laws to mean that it only permits a 8 society to be admitted to the membership of the appellant and not a co-operative society. According to the impugned order, a society and a co-operative society are clearly words of different and distinct significance and the membership is only open to society and not to a co-operative society. As rightly pointed out on behalf of the appellant the word society as referred to bye law 9(d) would include the co- operative society. This is so as the definition of a society under the Co-operative Act is co-operative society registered under the Cooperative Act. Besides the qualifying condition 3 for being considered as a primary Cooperative bank is that the bye laws must not permit admission of any other cooperative society. This is a mandatory condition i.e. the bye laws must specifically prohibit admission of any other cooperative society to its membership. The Revenue has not been able to show any such prohibition in the bye laws of the appellant. Thus even the aforesaid qualifying condition (3) for being considered as a primary cooperative bank is not satisfied. Thus, the three conditions as provided under Section 5 (CVV) of the Banking Regulation Act, 1949, are to be satisfied cumulatively and except condition (2) the other two qualifying conditions re not satisfied. Ergo, appellant cannot be considered to be a co-operative bank for the purposes of Section 80P(4) of the Act. Thus, the 9 appellant is entitled to the benefit of deduction available under Section 80P(2)(a)(i) of the Act.

The contention of Ms. Dessai, learned Counsel for the revenue that the appellant is not entitled to the benefit of Section 80P(2)(a)(i) of the Act in view of the fact that it deals with non-members cannot be upheld. This for the reason that Section 80P(1) of the Act restricts the benefits of deduction of income of co- operative society to the extent it is earned by providing credit facilities to its members. Therefore, to the extent the income earned is attributable to dealings with the nonmembers are concerned the benefit of Section 80P of the Act would not be available. In the above view of the matter, at the time when effect has been given to the order of this Court, the authorities under Act would restrict the benefit of deduction under Section 80P of the Act only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members.”

Taking note of the said observations, we find that the issues sought to be raised in the above appeal stand concluded by the said decision, as it was pointed out by the learned Counsel appearing for the appellant that no appeal has been preferred against the said judgment. Considering the concurrent findings of facts in the present