ITO, BANGALORE vs. M/S SRI. PRAJA CO-OPERATIVE CREDIT SOCIETY LTD.,, BANGALORE

O R D E R Per Vijay Pal Rao,, Judicial Member

This appeal by the Revenue is directed against the order dated 09.02.2015 of the CIT(Appeals) for the assessment year 2010-11.

“1) The order of the CIT(A) is clearly opposed to law as far as the findings are perverse, contrary to the facts and circumstances of the case and hence not sustainable. 2) The CIT(A) erred in granting deduction u/s 80P(2)(a)(i) of the IT Act, as the assessee is a Co-operative Society carrying on banking business. 3) The CIT(A) erred in granting deduction u/s 80P(2)(a)(i) relying on the decision of the ITAT in the case of M/s Bangalore Commercial Transport Credit Co-operative Society Ltd. 4) The CIT(A) erred in not appreciating the facts that the main motto of the Co-operative Society is lending for its members, which is in the nature of banking transaction and comes under the purview of section 80P subsection 4 of the IT Act. 5) The Ld.CIT(A) erred in not appreciating the fact that the provisions of section 80P(4) is equally applicable to the assessee. 6) For these and such other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) is set aside and the order of the Assessing Officer be restored.”

“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 license. 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.

In the instant case, when the status of the assessee is a Co- operative society and is not a Co-operative bank, the order passed by the Assessing Authority extending the benefit of exemption from payment of tax under Section 80P(2)(a)(i) of the Act is correct. There is no error. When there is no error, the question of order being prejudicial would not arise . The Tribunal has rightly entertained the appeal and set-aside the order. Therefore, the said order is in accordance with law and cannot be found fault with. The substantial question of law is answered in favour of the assessee and against the revenue.”

Pronounced in the open court on this 10th day of November, 2015.