CHEERANCHIRA SERVICE CO-OPERATIVE BANK LIMITED,KOTTAYAM vs. ITO, WARD 1&TPS, THIRUVALLA

per clause (o) of Section 56 thereof which states that no

cooperative society shall carry on banking business in India

unless it is a co-operative bank and holds a licence issued in that

behalf by the Reserve Bank, subject to such conditions, if any, as

the Reserve Bank may deem fit to impose. Secondly, a co-

operative society must obtain a licence under Section 22 of the BR

Act, 1949, only if it functions as a co-operative bank and not

otherwise. Thus, a co-operative society including a co-operative

credit society which is not a co-operative bank does not require a

licence to function as such.

15.5. Further, Section 2(d) of NABARD Act, 1981 defines central

cooperative bank while Section 2(u) defines a state co-operative

bank to mean the principal co-operative society in a State, the

primary object of which is financing of other co-operative societies

in the State which 59 means, it is in the nature of an apex co-

operative bank having regard to the definition under Section 56 of

the BR Act, 1949, in relation to cooperative bank. The proviso

states that in addition to such principal society in a State, or

15 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. where there is no such principal society in a State, the State

Government may declare any one or more co-operative societies

carrying on business of banking in that State to be also or to be a

state co-operative bank or state co-operative banks within the

meaning of the definition. Section 2(v) of NABARD Act, 1981

defines state land development bank to mean the co-operative

society which is the principal land development bank (by

whatever name called) in a State and which has as its primary

object the providing of long-term finance for agricultural

development.

15.6. Section 2(w) states that words and expressions used in the

NABARD Act, 1981 which are not defined therein but defined in

the RBI Act, shall have the meanings respectively assigned to

them in that Act. Section 2(x) of the said Act states that words

and expressions used in the NABARD Act, 1981 and not defined

either in the said Act or in the RBI Act, but defined in the BR Act,

1949, shall have the meanings respectively assigned to them in

the BR Act, 1949. Therefore, we revert back to BR Act, 1949.

16 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. 15.7. What is central to the controversy in this batch of cases is,

whether, the appellant bank is a co-operative bank. What is of

significance to know is, a state co-operative bank or central co-

operative 60 bank under the NABARD Act, 1981 is essentially a

principal cooperative society either in a district or in a State,

respectively, the primary object of which is the financing of other

co-operative societies in the district or the State respectively.

Further, NABARD Act, 1981 does not define banking business.

Hence, reliance is to be placed, on the definition of banking

business in terms of clause (w) of Section 2 of NABARD Act, 1981

which means the RBI Act has to be seen. When the RBI Act is

perused, it is noted that clause (i) of Section 2 defines

“cooperative bank”, “co-operative credit society”, “director”,

“primary agricultural credit society”, “primary co-operative bank”

and “primary credit society” to have the meanings respectively

assigned to them in Part V of the BR Act, 1949. Therefore, we

have to again fall back on Part V of the BR Act, 1949 which has

defined a co-operative bank in Section 56 (c)(i)(cci) to be a state co-

operative bank, a central co-operative bank and a primary co-

17 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. operative bank and central co-operative bank and state co-

operative bank to have the same meanings as NABARD Act,

1981.

15.8. Since the words ‘bank’ and ‘banking company’ are not

defined in the NABARD Act, 1981, the definition in sub-clause (i)

of clause (a) of Section 56 of the BR Act, 1949 has to be relied

upon. It states that a cooperative society in the context of a co-

operative bank is in relation to or as a banking company. Thus,

co-operative bank shall be construed as references to a banking

company and when the definition of banking 61 company in

clause (c) of Section 5 of the BR Act, 1949 is seen, it means any

company which transacts the business of banking in India and

as already noted banking business is defined in clause (b) of

Section 5 to mean the accepting, for the purpose of lending or

investment, of deposits of money from the public, repayable on

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,

18 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. 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

Section 5 of the BR Act, 1949, it would not be a cooperative bank.

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.

19 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. 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 meaning of the said

chapter. For the purpose of these cases, what 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-

20 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. 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

Section 56 of the BR Act, 1949, it would be entitled to the benefit

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

21 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. 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

Act. On the other hand, under the provisions of State 64 Act,

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

22 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. 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

the NABARD Act, 1981, it is clear that only a state co-operative

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

23 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. 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.”

provided loans to it’s members for non-agricultural sector as well.

hon'ble apex court’s foregoing landmark decision in Mavilayi Service

Co-operative Bank Ltd., vs. CIT [2021] 431 ITR 1 (SC). We thus

conclude in these peculiar facts that the assessee’s impugned sec.80P

detailed discussion claim of Rs.1,31,00,399/- indeed deserves to be

accepted in very terms. Ordered accordingly. Necessary computation

shall follow as per law in very terms.

24 ITA No. 98/Coch/2024 Cheeranchra Service Co-op. Bank Ltd. 6. This assessee’s appeal is allowed in above terms.

Order pronounced in the open court on 23rd October, 2024.

Sd/- Sd/- (Amarjit Singh) (Satbeer Singh Godara) Accountant Member Judicial Member Cochin, Dated: 23rd October, 2024 VBP/- Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order

Assistant Registrar ITAT, Cochin