COMMISSIONER OF INCOME TAX-III, vs. M/S FAMOUS COMMERCIAL COMPLEX,

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 27TH DAY OF JUNE, 2014 PRESENT

THE HON’BLE MR. JUSTICE N KUMAR

AND

THE HON’BLE MR. JUSTICE B MANOHAR

ITA No. 118/2012

BETWEEN:

Ward-9(4),

Bangalore.

…Appellants

(By Sri E.I. Sanmathi, Adv.)

AND:

M/s. Vasavi Credit Co-operative Society Limited No.108/1, Sri Kanikaparameshwari Temple Compound,

Malleswaram, 8th Cross, Bagnalore.

…Respondent

(By Sri K.R. Prasad, Adv.)

************ This ITA filed under Section 260-A of I.T. Act, 1961 arising out of order dated 29.12.2011 passed in ITA No.46/Bang/2010, for the Assessment year 2007-08, praying to (i) formulate the substantial questions of law stated therein; (ii) set aside the common appellate order dated 29.12.2011 passed by the ITAT, ‘A’ Bench, Bangalore, in appeal proceedings ITA No.46/Bang/2010.

This ITA coming on for hearing this day, N. KUMAR J delivered the following:

J U D G M E N T

This appeal is preferred by the revenue challenging the order passed by the Tribunal, wherein it is held that sub-section (4) of Section 80P of the Income Tax Act, 1961 is applicable only to co-operative banks and not to credit co-operative societies.

“Whether on the facts and the circumstances of the case, the ITAT was right in law in holding that Section 80P(4) is applicable only for the assessment year 2008-09 onwards inspite of the fact that the explanatory notes of the Finance Act 2006 makes it abundantly clear that this provision is applicable from assessment year 2007-08?”

Nature Co-operative society registered under Banking Regulation Act, 1949 Co-operative Society registered under Karnataka Co-operative Society Act, 1959 Registration Under the Banking Regulation Act, 1949 and Co-operative Societies Act, 1959 Co-operative Societies Act, 1959 Nature of business 1. As defined in Section 6 of Banking Regulation Act. 2. Can open savings bank account, current account, overdraft 1. As per the bye laws of the co- operative society. 2. Society cannot open savings bank account, current

account, cash credit account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts (DD), Pay orders, Gift cheques, lockers, bank guarantees etc. 3. Co-operative Banks can act as clearing agent for cheques, DDs, pay orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI) account, issue letter of credit, discounting bills of exchange, issue cheque, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act clearing agent, for cheques, DDs, pay orders and other forms. 4. Society are bound by rules and regulations as specified by in the co-operative societies act.

Filing of returns

Co-operative banks have to submit annual return to RBI every year

Society has to submit the annual return to Registrar of Societies. Inspection RBI has the power to inspect accounts and over all functioning of the Bank Registrar has the power to inspect accounts and over all functioning of the bank. Part V Part V of the Banking Regulation Act is applicable to co- operative banks Part V of the Banking Regulation Act is not applicable to

co-operative banks. Use of words The word ‘bank’ ‘banker’, ‘banking’ can be used by a co- operative bank. The word ‘bank’ ‘banker’, ‘banking’ cannot be used ay a co-operative society

“If a Co-operative Bank is exclusively carrying 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 rural development bank. The Legislature did not want to deny the said benefit 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 the amendment. If the assessee is not a Co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then 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 facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society.”

Therefore, the said issue was held in favour of the assessee and against the revenue.

The appeal is dismissed. The substantial question of law is answered in favour of the assessee and against the revenue.

(SD/-) JUDGE

(SD/-) JUDGE VP/-