INCOME TAX OFFICER, BAGALKOT vs. SHRI SHIVASHAKTI SOUHARD PATTINA SAKAHARI NIYAMIT, BAGALKOT

Per Shri Vijay Pal Rao, J.M. : This appeal by the revenue is directed against the order dt.06.10.2016 of Commissioner of Income Tax (Appeals), Belagavi for the Assessment Year 2013-14.

8. In the assessment order, the assessing authority has clearly stated that the assessee is a co-operative society and has not obtained any banking licence. The business of the assessee is to provide credit facilities to its members. Since the assessee cannot carry on any banking business, the interest on investment is taxable as income from other source. Therefore, the aforesaid facts, which is not in dispute clearly establishes that it is not a co-operative bank. In fact, the revisional authority also in his order has categorically stated that the assessee is a co-operative society, which provides credit facilities. Section 80P of the Act deals with the deduction of income of a society. In the case of any assessee being a co-operative society, the whole of the amounts of profits and gains of business attributable to any of other activities referred to sub-section (2) of section 80P shall be deducted in computing the total income of the assessee. In other words, the said income is not taxable. It is a benefit given to the co- operative society. Section 80P(4) was introduced by the Finance Act, 2006, with effect from April 1, 2007, excluding the said benefit to a co-operative bank. The said provision 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.... (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 its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities."

Therefore, the intention of the Legislature is clear. If a co-operative bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary co-operative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking business, i.e., the purport of this amendment. Therefore, as the assessee is not a co-operative bank carrying on exclusively banking business and as it does not possess a licence from the Reserve Bank of India to carry on business, it is not a co-operative bank. It is a co-operative society which also carries on the business of lending money to its members which is covered under section 80P(2)(a)(i), i.e., carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under section 80P(1) to such society. Therefore, there was no error committed by the assessing authority. The said order was not prejudicial to the interests of the Revenue. The condition precedent for the Commissioner to invoke the power under section 263 is that the twin conditions should be satisfied. The order should be erroneous and it should be prejudicial to the interests of the Revenue.

Accordingly, when the issue is covered by the binding precedent of Hon'ble jurisdictional High Court (supra), I do not find any error or illegality in the order of the CIT (Appeals).