The Jamakhandi Minority Co-Operative ... vs Assessee

ITA.958/Bang/2014 Page - 1

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE

BEFORE ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

AND

SHRI. VIJAYPAL RAO, JUDICIAL MEMBER

I.T.A No.958/Bang/2014 (Assessment Year : 2009-10)

The Jamakhandi Minority Co-op erative Credit Society Ltd, Gavali Galli, Jamkhandi, Bagalkot District 587 301 .. Appellant PAN : AAALT0276H

v.

Income-tax Officer, Ward - 2, Bijapur .. Respondent

Assessee by : Shri. Ramasubramanian, CA Revenue by : Dr. P. K. Srihari, Addl.CIT

Heard on : 22.06.2015 Pronounced on : 30.06.2015 ORDER

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :

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.

02. 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

ITA No.5006/2013 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.

03. 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.

04. 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:-

ITA.958/Bang/2014 Page - 3

"5. The Tribunal held that as the assessee is not a Cooperative Bank, Section 80P(4) has no application. Moreover, the power under Section 263 of the Act could be invoked by the Revisional Authority only, if the order is erroneous and thereby is prejudicial to the interest of revenue, In the instant case as the assessee is not a Co-operative Bank i.e. there is no error committed by the Assessing authority much less, the said order was prejudicial to the interest of revenue and therefore, the order passed by the Revisional Authority was set-aside.

6. Aggrieved by the said order, the Revenue has preferred this appeal.

7. 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."

05. 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.

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

Order pronounced in the open Court on the 30th day of June, 2015.

Sd/- Sd/-

(VIJAYPAL RAO) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER