THE JAMAKHANDI MINORITY CO-OPERATIVE CREDIT SOCIETY LIMITED,BAGALKOT vs. ITO, BIJAPUR

In this appeal filed by assessee, its grievance is that AO denied deduction u/s.80P(2)(a)(i) of the Income-tax Act, 1961 (‘the Act’in short), and applied Section 80P(4) of the Act, for the assessment year 2009-10.

Ld. AR submitted that the issue relating to deduction u/s. 80P(2)(a)(i) of the Act stood decided by the Hon’ble jurisdictional High Court in the case of CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot in ITA.958/Bang/2014 Page - 2 dated 5.2.2014. According to him, the bye laws of the assessee society did not prohibit any other cooperative society from becoming a member.

Per contra, the ld. DR submitted that the assessee was a cooperative bank falling within the definition of Banking Regulation Act, 1949 and therefore the prohibition prescribed in section 80P(4) clearly applied to it.

We have perused the orders and also heard the rival contentions. The claim of the assessee for deduction u/s. 80P(2)(a)(i) was disallowed by the AO for the reason that the assessee fell within the realm of Banking Regulation Act, 1949. No doubt, the assessee had satisfied two of the three primary conditions mentioned in section 5(ccv) of the Banking Regulation Act, 1949 viz., it had the primary object of banking and it had share capital which was in excess of Rs. One lakh. But, we find from the membership qualification as set out in the bye law, which has been reproduced by the Assessing Officer at page 37 of his order that there was nothing which forbid a cooperative society from becoming a member. It is clearly stated that every person competent to contract under section 11 of the Indian Contract Act, 1872 could become a member, provided other conditions are satisfied. A person will definitely include a cooperative society. In any case, we find that the Hon’ble jurisdictional High Court in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot (supra) in relation to a similar issue, has held at paragraphs 5 to 8 of its judgment as follows:-

The only substantial question of law which arises for our consideration in this appeal is:- In the facts and circumstances of this case, whether the Revisional Authority was justified in invoking his power under Section 263 of the Act without the foundational fact of assessee being Co-operative bank was not there? 8. In the assessment order, the Assessing authority has clearly stated that the assessee is a Cooperative 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 its 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 Finance Act, 2006 with effect from 01.04.2007 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 ITA.958/Bang/2014 Page - 4 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 Cooperative bank carrying on exclusively banking business and as it does not possess a licence from 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 interest of the Revenue. The condition precedent for the commissioner to invoke the power under Section 263 is that the twin condition should be satisfied. The order should be erroneous and it should be prejudicial to the interest of the revenue.”

We therefore, direct that assessee be given the claim sought by it u/s 80P(2)(a)(i) of the Act, for the impugned year.

In the result, the appeal of the assessee is allowed.