M/s. Athani Mahila Co-op Credit Society Ltd. v. The Commissioner of Income Tax (Appeals) / The Income Tax Officer Ward No.1(1)
[Citation -2015-LL-0921-34]

Citation 2015-LL-0921-34
Appellant Name M/s. Athani Mahila Co-op Credit Society Ltd.
Respondent Name The Commissioner of Income Tax (Appeals) / The Income Tax Officer Ward No.1(1)
Court HIGH COURT OF KARNATAKA CIRCUIT BENCH AT DHARWAD
Relevant Act Income-tax
Date of Order 21/09/2015
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags business of banking • co-operative bank • co-operative society
Bot Summary: As the assessee is not a Co-operative 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. Society cannot open bank account, current savings bank account, account, overdraft current account, issue account, cash credit letter of credit, account, issue letter of discounting bills of credit, discounting bills exchange, issue of exchange, issue cheque, demand drafts, cheques, demand drafts pay orders, gift , Pay orders, Gift cheques, lockers, bank cheques, lockers, bank guarantees etc. Use of The word bank , The word bank , words banker , banking can banker , banking be used by a co- cannot be used by a co- operative bank. If an assessee society does not fulfill any of the above three conditions as defined under Section 5(ccv) of Banking Regulation Act, 1949, it cannot be treated as a primary co-operative bank and as such will be eligible to get the deduction under Section 80P(2)(a)(i) Attention is also drawn to the relevant portion of the Finance Minister s Budget Speech explaining the reasons for withdrawal of tax benefits to some Societies by way of insertion of sub-section 80P(4) and insertion of new sub-clause in clause of Section 2 definition of income by the Finance Act, 2006, with effect from 1.4.2007, is as under: 20 The Co-operative banks are functioning at par with other commercial banks, which do not enjoy any tax benefits. Section 5(cci) states as under: Co-operative bank means a state co-operative bank, a central co-operative bank and a primary co- operative bank. In part V of the Banking Regulation Act, Co-operative Bank means a State co-operative bank, 29 a Central Co-operative Bank and a primary Co- operative bank. Proposition: The assessee Society has not obtained Banking Licence from the R.B.I: It is contended that it is also pertinent to note that it is necessary that a co-operative society should have a banking licence as per the definition under the Income Tax Act, for carrying on banking business and if the required licence is not 30 obtained as per other laws, it can only be termed as an illegal banking business under a particular statute prescribing the same.


1 IN HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS 21ST DAY OF SEPTEMBER, 2015 PRESENT HONOURABLE MR.JUSTICE ANAND BYRAREDDY AND HONOURABLE MRS.JUSTICE S.SUJATHA INCOME TAX APPEAL NO.100070 OF 2014 BETWEEN M/s. Athani Mahila Co-op Credit Society Ltd., CTS No.3362A/2, Kalagi Galli, Athani, Belgaum. Represented by its Secretary Bharati Suresh Pujari, Aged major, Occupation: Service, Resident of Belgaum. ... APPELLANT. (By Shri Sangram S. Kulkarni, Advocate) AND 1. Commissioner of Income Tax (Appeals), 3rd Floor, Phiroz Khimji Complex, Opposite to Civil Hospital, Dr. Ambedkar Road, Belagavi-590 001. 2. Income Tax Officer Ward No.1(1), 2 Opposite to Civil Hospital, Dr. Ambedkar Road, Belgaum-590 001. ... RESPONDENTS. (By Sri. Y V RAVIRAJ, ADVOCATE) THIS ITA IS FILED U/SEC.260A OF INCOME-TAX ACT, 1961 AGAINST ORDER PASSED IN ITA NO.434/PNJ/2013 DATED 27.06.2014 ON FILE OF INCOME TAX APPELLANT TRIBUNAL, PANAJI BENCH, PANAJI, DISMISSING APPEAL FILED BY ASSESSEE, AND ETC. This appeal having been heard and reserved, and coming on for pronouncement of judgment, this day, Anand Byrareddy J., delivered following: JUDGMENT This appeal is by assessee under Income Tax Act, 1961 (Hereinafter referred to as 'IT Act, for brevity). assessee is said to be Co-operative Society registered under Karnataka State Co-operative Societies Act, 1956, (Hereinafter referred to as KCS Act , for brevity). 2. appeal pertains to Assessment year 2010-11. appellant - Society had filed its return of income for assessment year 2010-11, and after claiming deduction under 3 Section 80 P(2) (a) (i) of IT Act, total income was declared as 'nil'. Assessing Officer had however, opined that assessee was not entitled to deduction, as claimed, for reason, inter alia, that activity of appellant was covered by Section 2 (24 (vii a) of IT Act, which requires inclusion of profits and gains of any business of banking (including providing credit facilities) carried on by co- operative society. Reference was made to Explanation appended to Section 80 P (4) - which lays down that co-operative bank and primary agricultural credit society, shall have same meaning assigned to them in Part V of Banking Regulation Act, 1949 (Hereinafter referred to as 'BR Act' , for brevity.) It was held that Bye -laws of Assessee indicated that their primary object was transactions that were apparently in nature of banking. In that, assessee was receiving deposits from its members and providing loans to other members and hence it satisfied all three conditions contemplated under 4 Section 56 (ccv) of BR Act. For this premise, Assessing Officer had proceeded on basis that primary co-operative bank, meant Co-operative Society. Therefore, Assessing Officer held that appellant society being primary co- operative bank, was not eligible for deduction under Section 80 P of IT Act. 3. appellant - Society had then preferred appeal before Commissioner of Income Tax (Appeals) challenging above order of Assessing Officer. same was said to have been dismissed. appellant had then approached Income Tax Appellate Tribunal. Tribunal having affirmed concurrent findings of above authorities, appellant is before this court. 4. questions of law that arise for our consideration in this appeal are : i. Whether benefit of deduction, under Section 80 P (2) (a) (i) of IT Act, could be denied to assessee on footing that, though appellant was said to be Co-operative 5 Society, it was in fact co-operative bank, within meaning as assigned to such bank under Part V of BR Act. ii. Whether Authorities under IT Act were competent and possessed jurisdiction to resolve controversy as to whether assessee was co-operative society or co-operative bank, as defined under provisions of BR Act? 5. In addressing above, it would be useful to extract relevant provisions for ready reference. 80P. (1) Where, in case of assessee being co-operative society, gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to provisions of this section, sums specified in sub-section (2), in computing total income of assessee. (2) sums referred to in sub-section (1) shall be following, namely : (a) in case of co-operative society engaged in (i) carrying on business of banking or providing credit facilities to its members, or 6 (ii) x x x x x (iii) x x x x x xxxxx (4) provisions of this section shall not apply in relation to any co-operative bank other than primary agricultural credit society or primary co- operative agricultural and rural development bank. Explanation.-- For purposes of this sub- section, (a) co-operative bank and primary agricultural credit society shall have meanings respectively assigned to them in Part V of Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bank means society having its area of operation confined to taluk and principal object of which is to provide for long-term credit for agricultural and rural development activities.] Section 56 of BR Act:- Act to apply to co-operative societies subject to modifications. provisions of this Act, as in force for time being, shall apply to, or in relation to, co- operative societies as they apply to, or in relation to 7 banking companies subject to following modifications, namely: (a) throughout this Act, unless context otherwise requires, (i) references to banking company or company or such company shall be construed as references to co-operative bank; (ii) references to commencement of this Act shall be construed as references to commencement of Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965); (b) in section 2, words and figures Companies Act, 1956 (1 of 1956) and shall be omitted; (c) in section 5, [(i) after clause (cc), following clauses shall be inserted, namely: (cci) Co-operative bank means state co- operative bank, central co-operative bank and primary co-operative bank; (ccii) co-operative credit society means co- operative society, primary object of which is to provide financial accommodation to its members and includes co- operative land mortgage bank; (cciia) co-operative society means society registered or deemed to have been registered under any Central Act for time being in force relating to multi-State co-operative societies, or any other Central or 8 State law relating to co-operative societies for time being in force;] (cciii) director in relation to co-operative society, includes member of any committee or body for time being vested with management of affairs of that society; [(cciiia) multi-State co-operative bank means multi-State co-operative society which is primary co- operative bank;] [(cciiib) multi-State co-operative society means multi-State co-operative society registered as such under any Central Act for time being in force relating to multi-State co-operative societies but does not include national co-operative society and federal co-operative;] (cciv) primary agricultural credit society means co-operative society, (1) primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including marketing of crops); and (2) bye-laws of which do not permit admission of any other co-operative society as member: Provided that this sub-clause shall not apply to admission of co-operative bank as member by reason of such co-operative bank sub-scribing to share capital of such co-operative society out of funds provided by State Government for purpose; 9 (ccv) primary co-operative bank means co- operative society, other than primary agricultural credit society, (1) primary object or principal business of which is transaction of banking business; (2) paid-up share capital and reserves of which are not less than one lakh of rupees; and (3) bye-laws of which do not permit admission of any other co-operative society as member: Provided that this sub-clause shall not apply to admission of co-operative bank as member by reason of such co- operative bank subscribing to share capital of such co-operative society out of funds provided by State Government for purpose; (ccvi) primary credit society means co- operative society, other than primary agricultural credit society, (1) primary object or principal business of which is transaction of banking business; (2) paid-up share capital and reserves of which are less than one lakh of rupees; and (3) bye-laws of which do not permit admission of any other co-operative society as member: Provided that this sub-clause shall not apply to admission of co-operative bank as member by reason of such co-operative bank subscribing to share capital of such co-operative socie-ty out of funds provided by State Government for purpose. 10 Explanation. If any dispute arises as to primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), determination thereof by Reserve Bank shall be final; xxxxxx 6. In so far as first question of law is concerned, there are series of decisions of this court wherein it has been repeatedly answered in favour of assessee. Two of said decisions are as follows : 1. CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha in ITA No.5006/2013 2. CIT vs. Bangalore Commercial Transporter Credit Society in ITA No.351/2011 & ITA No.599/2013 In interpreting Section 80 P (4) in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha of I T Act, it was held as follows : If Co-operative Bank is exclusively carrying on banking business, then income derived from said business cannot be deducted in computing total income of assessee. said income is liable for tax. Co-operative bank 11 as defined under Banking Regulation Act includes primary agricultural credit society or primary co-operative agricultural and rural development bank. Legislature did not want to deny said benefits to primary agricultural credit society or primary co-operative agricultural and rural development bank. They did not want to extend said benefit to Co- operative bank which is exclusively carrying on banking business i.e. purport of this amendment. Therefore, as assessee is not Co-operative bank carrying on exclusively banking business and as it does not possess licence from Reserve Bank of India to carry on business, it is not Co-operative bank. It is Co-operative society which also carries on business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on business of banking for providing credit facilities to its members. object of aforesaid amendment is not to exclude benefit extended under Section 80P(1) to such society. Therefore, there was no error committed by Assessing Authority. 12 In CIT vs. Bangalore Commercial Transporter Credit Society (supra), this court has cited with approval following differences between co-operative society and co-operative bank - as depicted by Tribunal, in tabular form thus : Nature Co-operative society Co-operative Society registered under registered under Banking Regulation Karnataka Co- Act, 1949 operative Society Act, 1959 Registration Under Banking Co-operative Societies Regulation Act, 1949 Act, 1959 and Co-operative Societies Act, 1959 Nature of 1. As defined in 1. As per bye laws business Section 6 of Banking of co-operative Regulation Act. society. 2. Can open savings 2. Society cannot open bank account, current savings bank account, account, overdraft current account, issue account, cash credit letter of credit, account, issue letter of discounting bills of credit, discounting bills exchange, issue of exchange, issue cheque, demand drafts, cheques, demand drafts pay orders, gift (DD), Pay orders, Gift cheques, lockers, bank cheques, lockers, bank guarantees etc. guarantees etc. 3. Society cannot act 3. Co-operative Banks clearing agent, for can act as clearing cheques, DDs, pay 13 agent for cheques, orders and other forms. DDs, pay orders and other forms. 4. Society are bound by rules and regulations as 4. Banks are bound to specified by in co- follow rules, operative societies act. regulations and directions issued by Reserve Bank of India (RBI). Filing of Co-operative banks Society has to submit returns have to submit annual annual return to return to RBI every Registrar of Societies. year. Inspection RBI has power to Registrar has power inspect accounts and to inspect accounts and overall functioning of overall functioning of Bank. bank. Part V Part V of Banking Part V of Banking Regulation Act is Regulation Act is not applicable to co- applicable to co- operative banks. operative banks. Use of word bank , word bank , words banker , banking can banker , banking be used by co- cannot be used by co- operative bank. operative society. And this court had dismissed appeal of revenue following decision in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (supra ). same view has been taken in following decisions : 14 1. CIT vs. Bangalore Credit Co-operative Society Ltd. in ITA No.598/2013 2. CIT vs. Yeshwanthpur Credit Co-operative Society Ltd. in ITA 237/2012 3. CIT vs. Mysore University Employees Co-operative Credit Society Ltd. in ITA 298/2013 4. CIT vs. Vasavi Credit Co-operative Society Ltd. in ITA No.118/2012 5. CIT vs. Sri Vasavi Multi Purpose Souharda Sahakari Sangha Niyamitha in ITA No.505/2013 6. CIT vs. General Insurance Employees Co-operative Society Ltd. in ITA No.273/2013. 7. learned counsel Shri A. Shankar while drawing attention of this court to tenor of relevant provisions of law and above decisions, would contend that this court has categorically held that assessee, as co-operative society, was entitled to benefit of deduction under Section 80 P (2) (a) (i) of IT Act. Notwithstanding aforesaid decisions of 15 this court, Tribunal which was bound by same, has ignored said decisions. It is also pointed out that though other benches of Appellate Tribunal had followed dictum of this court, and which circumstance was brought to attention of Tribunal, it had not chosen to distinguish said decisions nor has it chosen to refer matter to special bench, as propriety demanded. It is hence contended that point of law as to entitlement of deduction under Section 80 P (2) (a) (i) in so far as assessee is concerned, would have to be held in its favour. He would contend that all co-operative banks may be co- operative Societies, but all co-operative Societies are not necessarily co-operative banks. It is further contended that activity of "banking", is defined under Section 5 (b) of BR Act as follows : 16 5(b) banking means accepting, for purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise; It is asserted that assessee did not carry on any such activity. And if they did carry on any such activity, it would be illegal and becomes subject to rigour of Section 37 of BR Act. It is further contended that even if there was disputed question as to whether assessee was indeed co- operative bank. authorities under IT Act were not competent and did not have jurisdiction to arrive at finding in that regard and attention is drawn to Explanation appended to clause (ccvi ) to Section 56 of BR Act, which reads as follows : Explanation- If any dispute arises as to primary object or principal business of any co- operative society referred to in clauses (cciv), (ccv) and (ccvi), determination thereof by Reserve Bank shall be final; 17 It is hence contended that appeal be allowed and judgment of Tribunal be set aside. 8. On other hand, learned counsel Shri Y.V. Raviraj, appearing on behalf of Revenue contends as follows : Section 80P(2)(a)(i) provides deduction of income of co- operative societies carrying on business of banking or providing credit facilities to its members . However, exception to this is provided under Section 80P(4) which provides that this deduction will not be available to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. For purpose of sub-section 80P(4), co-operative bank has been given meaning assigned to them in Part V of Banking Regulation Act, 1949. 18 In Part V of Banking Regulation Act, 1949, section 5(b), co-operative bank means State Co-operative Bank, Central Co-operative Bank and Primary Co-operative Bank. Primary Co-operative Bank is defined in section 5(ccv) of Banking Regulation Act, 1949 as co-operative society which fulfills three conditions namely: i) primary object or principal business of which is transaction of banking business. ii) paid-up share capital and reserves of which are not less than one lakh of rupees and iii) bye-laws of which do not permit admission of any other co-operative society as member. If co-operative society fulfills all above three conditions, it is to be treated as co-operative bank for purpose of section 80P(4) and benefit of deduction under Section 80P(2)(a)(i) is denied. After insertion of Section 80P(4), provisions of Section 80P(2)(a)(i) were not amended and co-operative 19 societies engaged in carrying on business in banking with its members continued to be entitled for deduction. embargo put under Section 80P(4) are applicable only to co-operative society, treated as bank by legal fiction created under Section 80P(4) as defined in Explanation to said section with reference to Part V of Banking Regulation Act, 1949. However, if assessee society does not fulfill any of above three conditions as defined under Section 5(ccv) of Banking Regulation Act, 1949, it cannot be treated as primary co-operative bank and as such will be eligible to get deduction under Section 80P(2)(a)(i) Attention is also drawn to relevant portion of Finance Minister s Budget Speech explaining reasons for withdrawal of tax benefits to some Societies by way of insertion of sub-section 80P(4) and insertion of new sub-clause (viia) in clause (24) of Section 2 definition of income by Finance Act, 2006, with effect from 1.4.2007, is as under: 20 Co-operative banks are functioning at par with other commercial banks, which do not enjoy any tax benefits. It is, therefore proposed to amend section 80P by inserting new sub-section (4) so as to provide that provisions of said section shall not apply in relation to any co-operative bank other than primary credit society or primary co-operative agricultural and rural development bank. It is also proposed to define expressions co-operative bank , primary agricultural credit society and primary co-operative agricultural and rural development bank . It is also proposed to insert new sub-clause (viia) in clause (24) of Section 2 so as to provide that ttheprofits and gains of any business of banking (including providing credit facilities) carried on by co-operative society with its members shall be included in definition of income . Section 2(24(viia) of Income Tax Act inserted by Finance Act, 2006, with effect from 1.4.2007 includes following in its definition of income as under: profits and gains of any business of banking (including providing credit facilities) carried on by co-operative society with its members. 21 relevant portion of Section 80P is as under: 80P(1): Where, in case of assessee being co-operative society, gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with subject to provisions of this section, sums specified in sub-section (2), in computing total income of assessee. (2) sum referred to in sub-section (1) shall be following, namely:- (a) case of co-operative society engaged in :- (i) Carrying on business of banking or providing credit facilities to its memebrs, or (ii) .. (iii) .. (iv) .. (v) .. (vi) .. (vii) .. whole of amount of profits and gains of business attributable to any one or more of such activities. Section 80P(4) which came to be introduced in statute by Finance Act, 2006, with effect from 1.4.2007, reads as under: 22 80P(4) provisions of this section shall not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. Explanation:- For purposes of this sub-section, (a) co-operative bank and primary agricultural credit society shall have meanings respectively assigned to them in Part V of Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bank means society having its area of operation confined to taluk and principal object of which is to provide for long-term credit for agricultural and rural development activities. Part V of Banking Regulation Act, 1949, section 5(cci): In order to examine in given case of assessee society whether it is co-operative bank or not as defined in Part V of Banking Regulation Act, 1949, of said Act has to be looked into. Section 5(cci) states as under: Co-operative bank means state co-operative bank, central co-operative bank and primary co- operative bank. 23 primary co-operative bank is defined under Section 5(ccv) of BR Act as under: primary co-operative bank means co-operative society, other than primary agricultural credit society (1) primary object or principal business of which is transaction of banking business: (2) paid-up share capital and reserves of which are not less than one lakh of rupees and (3) bye-laws of which do not permit admission of any other co-operative society as member: Provided that this sub-clause shall not apply to admission of co-operative bank as member by reason of such co-operative bank subscribing to share capital of such Co-operative society out of funds provided by State Government for purpose . Section 5(cciia) of Banking Regulation Act, 1949 defines Co-operative Society as under: Co-operative Society means society registered or deemed to have been registered under any Central Act for time being in force relating to multi-State co-operative societies or any other Central 24 or State law relating to co-operative societies for time being in force; Section 5(b) of Banking Regulation Act, will also have to be looked into to examine whether primary object or principal business of co-operative society is transaction of banking business. section is as under: banking means accepting, for purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise learned counsel would incidentally contend that Tribunal while taking cue from decisions of this Court in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha and other cases, in certain other appeals apart from present has also formed opinion on certain further propositions, namely: Proposition: Assessee society has not fulfilled third condition mentioned in Section 5(ccv) of BR Act and as 25 such, cannot be treated as primary co-operative bank as defined therein: Tribunal has referred to section 16 of Karnataka State Co-operative Societies Act, 1959 and held that said provisions permit admission of any other co-operative society as member. Tribunal however has erred in not examining whether bye-laws of assessee society permits other co- operative society to become member as per Section 5(ccv) of Banking Regulation Act, 1949. Provisions of Section 16(1) and 16(2) of Karnataka State Co-operative Societies Act, 1959 does not help in any way to come to conclusion that bye-laws in case of particular assessee society permits admission of any other co-operative society as member. Proposition: Tribunal has referred to section 20 to 21A of Karnataka Souhardha Sahakari Co-operative Societies Act, 1997, and held that said provisions permit admission of any other co-operative society as member. Tribunal however ought to have examined into aspect as to whether bye-laws in case of particular 26 assessee society permits admission of any other co-operative society as member. Proposition: Referring to bye-laws of assessee society, Tribunal has observed that Societies registered under Karnataka Societies Registration Act, 1960 are allowed to become members. Tribunal had failed to appreciate that society registered under Karnataka Societies Registration Act, 1960 is established or created for different purposes and cannot be treated as that of one registered under Karnataka Co- operative Societies Act, 1959 or that registered under Karnataka Souhardha Sahakari Co-operative Societies Act, 1997. Proposition: issue is covered by decision of Division Bench of this Hon ble Court in case of Sri. Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot in ITA No.5006/2013 dated 5th February 2014: 27 substantial question of law pleaded on behalf of Revenue in said case was as follows: In facts and circumstances of this case, whether Revisional Authority was justified in invoking his power under Section 263 of Act without foundational fact of assessee being co-operative bank was not there? It is pointed out that this Court, in above case, had not examined applicability of provisions of definition of co-operative bank as per Part V of Banking Regulation Act, 1949 by reading Explanation to section 80P(4). facts of above case are clearly distinguishable and are not applicable. However, Review Petition was filed in said case and subsequently, memo had been filed to withdraw said Review Petition, which is pending. It is submitted that matter is being taken up by Revenue in appeal before Hon ble Apex Court. 28 It is also stated that in some matters, Tribunal has granted relief by holding that Section 80P(4) is not applicable, by referring to one circular of CBDT No.133 of 2007 dated 9.5.2007 which provided as under:- Subject: clarification regarding admissibility of deduction under Section 80P of Income Tax Act, 1961. 1. Please refer to your letter No.DCUS/30688/2007, dated 28.03.2007 addressed to Chairman, Central Board of Direct Taxes, on above given subject. 2. In this regard, I have been directed to state that sub-section (4) of section 80P provides that deduction under said section shall not be allowable to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. For purpose of said sub-section, co-operative bank shall have meaning assigned to it in part V of Banking Regulations Act, 1949. 3. In part V of Banking Regulation Act, Co-operative Bank means State co-operative bank, 29 Central Co-operative Bank and primary Co- operative bank. 4. Thus, if Delhi Co-op Urban T and C Society Ltd. does not fall within meaning of Co- operative Banks as defined in part V of Banking Regulation Act, 1949, sub-section (4) of Section 80P will not apply in this case. 5. issues with approval of Chairman, Central Board of Direct Taxes. learned counsel contends that above circular has only clarified that if societies do not fall within meaning of co-operative bank as per Part V of Banking Regulation Act, 1949, then exception under Section 80P(4) will not apply. Proposition: assessee Society has not obtained Banking Licence from R.B.I: It is contended that it is also pertinent to note that it is necessary that co-operative society should have banking licence as per definition under Income Tax Act, for carrying on banking business and if required licence is not 30 obtained as per other laws, it can only be termed as illegal banking business under particular statute prescribing same. Income Tax Act, however is concerned with taxing of income as per provisions of Income Tax Act and income if any, has to be taxed whether it is from legal or illegal business. Hence, it is contended by learned counsel that, by insertion of Section 2(24(viia) and Section 80P(4), by adopting words primary co-operative bank means co-operative society other than in clause (ccv) of BR Act, Legislature has created legal fiction for purpose of taxing under certain circumstances, Society which is to be treated as bank for purposes of Income Tax Act, 1961 while dealing with issue of its claim of deduction under Section 80P. Further, when Statute enacts that something shall be deemed to be treated as something else, which in fact is not true, Court shall appreciate and ascertain for what purposes 31 statutory fiction is resorted and then give full effect to statutory fiction to carry it to logical conclusion. Therefore, in case of assessee Co-operative Society claiming deductions under Section 80P, examination of factual aspects will have to be conducted by Revenue authorities on basis of facts and materials on record to conclude whether assessee Society is to be treated as primary co-operative bank which fulfills above three conditions. 9. In light of above contentions and on examination of relevant legal provisions, it is to be noticed at outset that this court in appeal in ITA 351/ 2011, CIT v. Bangalore Commercial Transport Credit Co-operative Society Limited, decided on 27.6.2014, had framed following substantial questions of law : (i) Whether Tribunal was correct in holding that provision of sub-section (4) of Section 80P of Income Tax Act are applicable only to co- operative Banks and not to credit Co-operative 32 Societies, which are engaged in business of banking, including providing credit facilities to their members? (ii) Whether Tribunal was correct in holding that assessee is co-operative society and not co- operative Bank in terms of sub-section (4) of Section 80P of Income Tax Act without considering meaning of co-operative Bank as envisaged under Part V of Banking Regulation Act, 1949, wherein it is defined that co-operative Bank includes primary co- operative Bank, which is further defined as co- operative Society with primary object of transactions of Banking business? said issues were answered in favour of Assessee. 10. We are in respectful agreement with general view taken as to interpretation of relevant provisions of law, by co-ordinate bench of this court, in above and several other judgments adopting same view. However, it is to be noticed that there is seriously disputed question of fact which Authorities under IT Act have taken upon themselves to interpret in face of BR Act prescribing that in event of dispute as to primary object or principal business of any 33 co-operative society referred to in clauses (cciv), (ccv) and (ccvi) of Section 56 of BR Act, determination thereof by Reserve Bank shall be final, would require dispute to be resolved by Reserve Bank of India, before authorities could term assessee as co-operative bank, for purposes of Section 80 P of IT Act. Any opinion expressed therefore is tentative and is not final. view expressed by this court, however, as to assessee being co-operative society and not co-operative bank in terms of Section 80P (4) of IT Act, shall hold field and shall bind authorities unless held otherwise by Reserve Bank of India. In result, above questions are answered in favour of assessee and appeal is allowed as prayed for. Sd/- JUDGE Sd/- JUDGE KS* M/s. Athani Mahila Co-op Credit Society Ltd. v. Commissioner of Income Tax (Appeals) / Income Tax Officer Ward No.1(1)
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