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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI SATBEER SINGH GODARA & SHRI AMARJIT SINGH
demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Thus, it is only when a co-operative society is conducting banking business in terms of the definition referred to above that it becomes a co-operative bank and in such a case, Section 22 of the BR Act, 1949 would apply wherein it would require a licence to run a co-operative bank. In other words, if a co-operative society is not conducting the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co-operative bank and not so within the meanings of a state co-operative bank, a central co-operative bank or a primary co- operative bank in terms of Section 56(c)(i)(cci). Whereas a co- operative bank is in the nature of a banking company which transacts the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949. But if a cooperative society does not transact the business of banking as defined in clause (b) of Then the definitions under the NABARD Act, 1981 would not apply. If a co-operative society is not a co-operative bank, then such an entity would be entitled to deduction but on the other hand, if it is a co-operative bank within the meaning of Section 56 of BR Act, 1949 read with the provisions of NABARD Act, 1981 then it would 62 not be entitled to the benefit of deduction under sub-section (4) of Section 80P of the Act.
15.9. Section 56 of the BR Act, 1949 begins with a non- obstante clause which states that notwithstanding anything contained in any other law for the time being in force, the provisions of the said Act, shall apply to, or in relation to, co- operative societies as they apply to, or in relation to, banking companies subject to certain modifications. The object of Section 56 is to provide a deeming fiction by equating a co-operative society to a banking company if it is a co-operative bank within the meaning of the said provision. This is because Chapter V of the BR Act, 1949, deals with application of the Chapter to co- operative societies which are co-operative banks within the is relevant is that throughout the BR Act, 1949, unless the context otherwise requires, - references to a “banking company” or “the company” or “such company” shall be construed as references to a co-operative bank. Therefore, while considering the meaning of a co-operative bank inherently, such a cooperative society must be a banking company then only it would be construed as a co- operative bank requiring a licence under Section 22 of BR Act, 1949 in order to function as such a bank.
15.10. Further, while considering the definition of a co-operative bank under Section 56(cci) of the BR Act, 1949, to mean a state cooperative bank, a central co-operative bank and a primary co- operative 63 bank which is defined in (ccviii) thereof, to have meanings respectively assigned to them in the NABARD Act, 1981 would imply that if a state co-operative bank is within the meaning of NABARD Act, 1981 then it would be excluded from the benefit under Section 80P of the Act. Conversely, if a co- operative society is not a co-operative bank within the meaning of of deduction under Section 80P of the Act.
15.11. Looked at from another angle, a co-operative society which is not a state co-operative bank within the meaning of NABARD Act, 1981 would not be a co-operative bank within the meaning of Section 56 of the BR Act, 1949. In the instant case, as already noted in A.P. Varghese case, the Kerala State Co- operative Bank being declared as a state co-operative bank by the Kerala State Government in terms of NABARD Act, 1981 and the appellant society not being so declared, would imply that the appellant society is not a state co-operative bank.
15.12. In fact, in Citizen Co-operative Society Ltd., this Court held that the appellant therein was having both members as well as nominal members who were depositing and availing loan facilities from the appellant therein and therefore, appellant therein was not entitled to the benefit of Section 80P of the Act as it was functioning as a cooperative bank. But, the appellant herein is not a co-operative bank and neither has it been so declared under the provisions of NABARD Act, 1981 or the State 1969, the Kerala State Co-operative Bank has been so declared by the Government of Kerala as a co-operative bank.
15.13. Further, under the provisions of the State Act, 1984, ‘agricultural and rural development bank’ means the Kerala Cooperative Central Land Mortgage Bank Limited, registered under Section 10 of the Travancore-Cochin Co-operative Societies Act, 1951, which shall be known as Kerala State Co-operative Agricultural and Rural Development Bank Limited i.e. the appellant herein. Thus, from a conjoint reading of all the relevant statutory as alluded to hereinabove, it is quite clear that the appellant is not a co-operative bank within the meaning of sub- section (4) of Section 80P of the Act. The appellant is a co- operative credit society under Section 80P(2)(a)(i) of the Act whose primary object is to provide financial accommodation to its members who are all other co-operative societies and not members of the public.
15.14. Therefore, when the definition of “co-operative bank” in Section 56 of BR Act, 1949 is viewed in terms of Sections 2(u) of bank would be within the scope and meaning of a banking company under Section 2(c) of the BR Act, 1949 on obtaining licence under Section 22 of the said Act.
Conclusion:
In the instant case, although the appellant society is an apex cooperative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of Section 5(b) read with Section 56 of the BR Act, 1949.
In the result, the appeals filed by the appellant are allowed and the order(s) of the Kerala High Court and other authorities to the contrary are set aside. Consequently, we hold that the appellant is entitled to the benefit of deduction under Section 80P of the Act.
The questions for consideration are answered accordingly.
Parties to bear their respective costs.”
The Revenue’s next vehement submissions that the assessee has derived it’s impugned interest income from District Cooperative Bank and other Bank(s) which is found to be covered in assessee’s [2022] 442 ITR 141 (Ker) as under : - “12.2 Section 80P deals with Co-operative Societies' computation of income. As already noted, it has four sections and several sub- sections and clauses. The Parliament has considered the various situations in which the exigible income and the deductable income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co-operative Society registered under Kerala Co-operative Societies Act. The interest income earned from District Co-operative Bank/State Co- operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co- operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co-operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.”
We adopt the above detailed discussion mutatis mutandis in the case of assessee’s identical submission on s. 80P deduction.
Necessary computation shall follow as per law in very terms.
Coming to the assessee’s last substantive ground challenging sec.40(a)(ia) disallowance of Rs.9,61,580/- on account of alleged non- deduction of TDS involving payment of interest to non-members, we support the department’s case. This is indeed coupled with the fact that CBDT’s circular no.37/2016 has already settled the issue that such a disallowance in case of assessee which is otherwise eligible of Chapter-VI deduction(s) enhances it’s business profits only. We thus accept the assessee’s instant last substantive ground as well in very terms. Necessary computation shall follow as per law in consequential proceedings. Ordered accordingly.
This assessee’s appeal is allowed in above terms.