R.S. Padvekar, Judicial Member - In this appeal, the assessee has challenged impugned order of the Ld CIT(A)-II, Aurangabad dated 25.2.2011 for the A.Y. 2007-08. The issue in controversy, whether the assessee Credit Society is entitled to the benefit of Section 80P(2)(a)(i).
2. The facts reveal from the record are as under. As observed by the A.O, the assessee is a Co-operative Credit Society engaged in providing credit facilities to its Member. It is claimed that the primary object of Society is to receive the deposits and to meet all the financial requirements of its members and to provide credit facilities to the members as per the byelaws. Assessee also claimed that it has no control by the Reserve Bank of India (RBI) on its activities. Assessee claimed the deduction u/s. 80P(2)(a)(i) of the I.T. Act to the extent of Rs. 32,15,717/-. The A.O had reservation in allowing claim to the assessee u/s. 80P(2)(a)(i) of the Act. A.O. referred to the clause (viia) to Sec. 2(24) of the I.T. Act which has been inserted to include the profit and gains of any business of Bank (including providing credit facilities) carried on by a cooperative society with its members extending the scope of definition of income. In the opinion of the A.O. the definition of the business of banking is enlarged under the Income Tax Act to include such Co-operative Societies which are engaged in providing credit facilities to the members. The A.O. has observed that in view of insertion of the of sub-sec. (4) to Sec. 80P with effect from 1.4.2007, the said section will not apply to any Co-operative Bank other than a primary agricultural credit society or primary co-operative agricultural and rural development bank. As per interpretation given by the AO, in view of sub-section-4 to Sec. 80P, the assessee is not entitled to deduction u/s. 80P(2)(a)(i) in respect of profits and gains from its business providing credit facilities to its members as activity of the assessee is in the nature of the banking business. A.O. also referred to part-V of the Banking Regulation Act 1949 (in short B.R. Act) which reference is given in the Explanation below 80P(4). A.O. after examining the primary objects of the assessee society which are reproduced in the assessment order (para No. 6.3) proceeded to examine whether the activities of the assessee Co-operative Society are akin to the activities mentioned in the B.R. Act. A.O. also referred to the term "banking" which is defined in Section-5 (b) of the B.R. Act. A.O. also referred to Sec. 6 which describes the nature of business which banking company may engage. In sum and substance, the A.O. finally concluded that if a Co-operative Society conducts any business which comes within the ambit of the definition of the Banking business, as defined in Sec. 5(b) of the B.R. Act or as described in Sec. 6(1), it can be inferred that the said Co-operative Society is engaged in business and is the primary Co-operative Bank. He, therefore, denied the deduction to the assessee claimed u/s. 80P(2)(a)(i) of the Act by giving the reason that the assessee is the primary Co-operative Bank referred to in Sec. 5(c)(i) of the Banking Regulation Act 1949 which is referred to in Explanation below Sub-sec. (4) of Sec. 80 P and assessee is not entitled for the deduction claimed of Rs. 32,15,717/-. The Assessee challenged the assessment order before the Ld CIT(A) on this issue and found favour. The Ld CIT(A) allowed the claim of the assessee and reversed the order of the A.O. The operative part of the order of Ld CIT(A) is as under:
"6. I have carefully considered the assessment order of the A.O. and submissions of the appellant. The issue to be decided is whether the "credit cooperative societies" are "co-operative banks" as the deduction u/s 80P(2)(a)(i) is available to credit cooperative societies providing credit facilities to its members. The cooperative banks are not entitled to deduction u/s 80P(2)(a)(i) in view of amendment to section 80P(4) by Finance Act, 2006 w.e.f. 01/04/2007. The relevant portion of amended section 80P(4) reads as under -
"(4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank.
Explanation-For the purposes of this sub-section,-
(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 (30 of 1949)
6.1 In view of the above explanation, the cooperative bank shall have the meaning stated in part V of the Banking Regulation Act. According to section 56 of the Banking Regulation Act - "co-operative bank" means a State Cooperative Bank, a Central Cooperative and a Primary Cooperative Bank.
6.2 In view of the above provision in part-V of the Banking Regulation Act, it is clear that cooperative society is not regarded as "co-operative bank". Further, it has also been laid down in section 56(ccii), part-V of Banking Regulation Act, that "Co-operative Credit Society" means a co-operative society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank. In view of this provision, it is clear that the meaning of co-operative credit society is separately given and it does not include co-operative bank other than co-operative land mortgage bank.
6.3 Further, CBDT circular bearing No. 3/2008 dated 12/03/2008 also makes it clear that the amendment to section 80P(4) has withdrawn the deduction u/s 80P in respect of co-operative banks. Further, the amendment to section 36(1)(viia) by Finance Act, 2007 w.e.f. 01/04/2007 also provides that the deduction in respect of bad debts shall be allowable also to co-operative banks. This amendment also suggest that the deduction u/s 80P has been withdrawn by Finance Act, 2006 w.e.f. 01/04/2007 in respect of co-operative banks only.
6.4 It is also to be noted here that the Central Board of Direct Taxes vide clarification bearing F.No. 133/06/2007-TPL vide letter dated 09/05/2008 has clarified that the Delhi Co-operative Urban Thrift & Credit Society Ltd., does not fall within the meaning of co-operative banks as defined in part-V of the Banking Regulation Act, 1949. Sub-section-4 of section 80P will not apply in its case. The CBDT has also clarified that in part-V of the Banking Regulation Act, 1949 "Co-operative Banks" means a State Co-operative Bank, a Central Co-operative Bank and Primary Co-operative Bank. From the clarification, it is evident that credit co-operative societies are not covered by the meaning of Co-operative Banks as defined in part-V of the Banking Regulation Act, 1949 and are entitled to deduction u/s 80P(2)(a)(i) of the Act.
6.5 The contentions raised by the A.O. are not in accordance with the provisions of the Income Tax Act and circular and clarification issued by the CBDT. The decisions relied on by the A.O. are not applicable to the facts of the case of the appellant.
6.6 In view of the above discussion, I am of the considered view that the co-operative society is not a co-operative bank and therefore, the appellant credit cooperative society is entitled to deduction u/s 80P(2)(a)(i) of the Act. The A.O. is not justified in disallowing the deduction of Rs. 32,15,717/- claimed by the appellant society and hence directed to allow the same. Ground No. 1 to 4 are, therefore, stand allowed. As the ground No. 1 to 4 are decided in favour of the appellant, the remaining grounds need no adjudication."
3. Now, the revenue is in appeal before us.
4. We have heard the rival submissions of the parties and perused the records. In this case, as per the facts on record, the assessee is a Co-operative Credit Society. Section 80P has undergone an amendment w.e.f. 1.4.2007 by insertion of Sub-sec. (4) which 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.
Explanation - For the purpose of this sub-section,-
(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 and the principal object of which is to provide for long-term credit for agricultural and rural development activities."
5. It is to be mention here that up to A.Y. 2006-07, any Co-operative Society which was engaged in the business of carrying on banking was eligible for deduction in respect of the whole of the amount of profit attributable to its banking activities. For the benefit of deciding the present issue, it is necessary to consider the legal position as applicable up-to the A.Y. 2006-07, more particularly in view of Sub-Section (2) of Sec. 80-P. Section 80 P (2) reads as under :-
"80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub- section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, Namely :-
(a) In the case of a co-operative society engaged in -
(i) Carrying on the business of banking or providing credit facilities to its members, or
(ii) a cottage industry, or
(iii) the marketing of agricultural produce grown by its members, or
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
6. Sub-section (4) was introduced for withdrawing the deduction to the Co-operative Bank other than Primary Agriculture Credit Society or Primary Co-operative Agriculture and Rural Development Bank. In view of Explanation below Sub-sec. (4) of Sec. 80P, the definition of the Co-operative Bank as assigned in Para 5 of the Banking Regulation Act is to be considered. In the opinion of the A.O. as the nature of the activities of the assessee Credit Society are analogous to the banking activities, which are more specifically describe in the Banking Regulation Act and hence, assessee partakes the character of 'Primary Co-operative Bank' as defined in clause (ccii) of the Banking Regulation Act 1949. Clause (cci) of Sec 5 of BR Act defines the Co-operative Bank means State Co-operative Bank, Central Co-operative Bank and Primary Co-operative Bank.
7. The primary co-operative Bank is treated as Co-Operative Bank in view of Cl. (cci) of sec 5 of the B.R. Act, 1949. Definition of 'Primary Co-operative Bank is given in cl. (ccv) of sec. 5 of B.R. Act, 1949, which reads as under;
'Primary co-operative bank means a co-operative society other than a primary agricultural credit society -
(i) The primary object or principal business of which is the transactions of banking business;
(ii) The paid-up share capital and reserves of which are not less than one lack of rupees; and
(iii) The by-laws of which do not permit admission of any other co-operative society as a member:
Provided that this sub-clause shall not apply to the admission of co-operative bank as a 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 the purpose."
On careful perusal of above definition it is seen that basic mandate any co-operative society to cover in definition of 'Primary Co-Operative Bank' is that it's primary object or principal business should be transactions of banking business. The term 'banking' is defined in B.R. Act and as per said definition there is no restriction that depositor should be member of said society but it is public at large with whom business transactions can be carried out. Other two conditions as mentioned in cls. (ii) & (iii) are on fulfilling first condition given in cl. (i). In present case nothing is on record to suggest that all three conditions are fulfilled to hold that assessee which is a co-operative society is a "Primary Co-Operative Bank.
8. It is pertinent to note here that the definition of the Co-operative Credit Society is given in Clause (ccii) of Sec. 5 which reads as under :
"co-operative credit society" means a Co-operative Society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank; "
9. The Banking Regulation Act, 1949 defines of Co-operative bank in cl. (cci) of sec. 5 (as inserted by sec. 56 of the said Act) and Co-operative Credit Society is not included but its identity is kept separate by way of independent definition in view of Clause (ccii) of Sec. 5 of the Banking Regulation Act which defines what is meaning of 'Credit Co-operative Society'. On plain reading of the Banking Regulation Act, 1949, nowhere it is suggested that the term "Co-operative Bank" also includes 'Co-Operative Credit Society" also. Meaning of any term or expression is to be ascertained in the context of provisions of referred Act. As per Sub-sec. (4) of Sec. 80P of the I.T. Act, Co-operative Bank means State Co-operative Bank, a Central Co-operative Bank and a Primary Co-operative Bank. It is seen that Co-operative Bank is deprived of the benefit of the deduction u/s. 80P(2)(a)(i) of the Act. As per the interpretation given by the AO, assessee Co-Operative Credit Society partakes the character of the Primary Co-operative Bank and as the Primary Co-operative Bank is included in the definition of the Co-operative Bank and hence, is not entitled to the benefits of Sec. 80P(2)(a)(i) of I.T. Act. In our opinion, this is not the correct interpretation. It is well settled principle in the interpretation of the 'taxing provisions' that the same are to be strictly construed and there is n room for any intendment. There is no presumption as to tax. Nothing is to be read or nothing is to be implied. One has to fairly look into language used by the Parliament. The Parliament has adopted the definition of the Co-operative Bank by referring the same as given in the Banking Regulation Act, 1949. It is called Legislation by reference and we have to give the strict interpretation while interpreting the effect of Sub-sec. (4) to Sec. 80 P. In our opinion, Co-operative Credit Society is distinct and separate from the Co-operative Bank nor it can be said as a Primary Co-operative Bank within the meaning of Banking Regulation Act, 1949. Hence, the assessee being a Co-operative Credit Society is entitled for deduction u/s. 80 P(2)(a)(i) of the Act. We accordingly uphold the order of the Ld CIT(A).
10. In result, revenue's appeal is dismissed.
Comments