1IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 21ST DAY OF SEPTEMBER, 2015
THE HONOURABLE MR.JUSTICE ANAND BYRAREDDY
THE HONOURABLE MRS.JUSTICE S.SUJATHA
INCOME TAX APPEAL NO.100110 OF 2014
BETWEEN
1. The Commissioner of Income Tax,
Dr. B.R. Ambedkar Road,
Belgaum.
2. The Income Tax Officer,
Ward –2(1),
Belgaum.
... APPELLANTS.
(By SHRI Y V RAVIRAJ, ADVOCATE)
The Mercantile Co-operative
Credit Society Limited,
Kadolkar Galli,
Belgaum.
... RESPONDENT.
(RESPONDENT SERVED BUT UNREPRESENTED)
2This ITA is filed under Section 260A of the Income Tax
Act, 1961, against the order passed in ITA No.24/PNJ/2014
dated 13.06.2014 for the assessment year 2007-08 on the file of
the Income Tax Appellate Tribunal, Panaji Bench, Panaji,
allowing the appeal filed by the assessee.
This appeal having been heard and reserved and coming
on for pronouncement of judgment, this day, Anand Byrareddy
J., delivered the following:
JUDGMENT
This appeal is by the revenue under the Income Tax Act,
1961 (Hereinafter referred to as the 'IT Act, for brevity). The
assessee is said to be a Co-operative Society registered under
the Karnataka State Co-operative Societies Act, 1956,
(Hereinafter referred to as the ‘KCS Act’, for brevity).
2. The appeal pertains to the Assessment year 2007-08.
The respondent - Society had filed its return of income for the
assessment year 2007-08 and after claiming deduction under
Section 80 P(2) (a) (i) of the IT Act, the total income was
declared as 'nil'.
The Assessing Officer had however, opined that the
assessee was not entitled to the deduction, as claimed, for the
reason, inter alia, that the activity of the respondent was
3covered by Section 2 (24 (vii a) of the IT Act, which requires
the inclusion of profits and gains of any business of banking
(including providing credit facilities) carried on by a co-
operative society.
Reference was made to the Explanation appended to
Section 80 P (4) - which lays down that a co-operative bank and
a primary agricultural credit society, shall have the same
meaning assigned to them in Part V of the Banking Regulation
Act, 1949 (Hereinafter referred to as the 'BR Act' , for brevity.)
It was held that the Bye -laws of the Assessee indicated that
their primary object was transactions that were apparently in the
nature of banking. In that, the assessee was receiving deposits
from its members and providing loans to other members and
hence it satisfied all the three conditions contemplated under
Section 56 (ccv) of the BR Act. For this premise, the Assessing
Officer had proceeded on the basis that a primary co-operative
bank, meant a Co-operative Society. Therefore, the Assessing
Officer held that the respondent - society being a primary co-
4operative bank, was not eligible for deduction under Section 80
P of the IT Act.
3. The respondent - Society had then preferred an appeal
before the Commissioner of Income Tax (Appeals) challenging
the above order of the Assessing Officer. The same was said to
have been allowed.
The appellant - Revenue had then approached the Income
Tax Appellate Tribunal. The Tribunal having accepted the case
of the respondent, it was held that:
i) The assessee – Society had satisfied condition no.1
mentioned in Section 5(ccv) of the BR Act, to become primary
co-operative bank as the assessee is carrying on banking
business by accepting deposits from persons who are not
members.
ii) The second condition was also satisfied by the
assessee since paid up share capital and reserves is more than
Rs.1 lakh.
iii) With regard to the last condition, i.e., the bye-laws of
the society whether permits other co-operative society to
5become a member, the Tribunal held that the said condition is
not satisfied since the bye-laws of the society permits other co-
operative society to become its member.
The Tribunal held that the assessee – Society is not to be
regarded to be a primary co-operative bank as all the three basic
conditions are not complied with and therefore, it is not a co-
operative bank and the provisions of section 80P(4) are not
applicable in the case of the assessee and the assessee is entitled
for deduction under Section 80P(2)(a)(i).
Hence, the Revenue is in appeal before this Court.
4. The questions of law that arise for our consideration in
this appeal are :
i. Whether the benefit of deduction, under Section 80 P
(2) (a) (i) of the IT Act, could be denied to the assessee on the
footing that, though the respondent was said to be a Co-
operative Society, it was in fact a co-operative bank, within the
meaning as assigned to such bank under Part V of the BR Act.
ii. Whether the Authorities under the IT Act were
competent and possessed the jurisdiction to resolve the