80P(4) are applicable only to the cooperative banks and not to cooperative credit society

80P(4) are applicable only to the cooperative banks and not to cooperative credit society

 

ITO vs M/s Vasvi Credit Co-op Society Ltd

Dated: 14^th December 2012

 

The assessee is a credit cooperative society providing credit facilities to its members. A.Y 2008-09, return of income was filed declaring NIL income after claiming exemption under section 80P. The claim of the assessee u/s  80P(2)(a)(i) was rejected by the AO determining the total income at Rs.61,03,934/- . On appeal the Ld. CIT(A) relied on order passed in 2011 by ITAT in assessee’s own case Vasavi Credit and held that the assessee is a cooperative credit society and not a cooperative bank and therefore, is entitled to deduction under section 80P(2)(a)(i) of the Act. It was held that there was a clear distinction between cooperative bank and cooperative credit society and the provisions of section 80P(4) are applicable only to thecooperative banks and not to cooperative credit society like that of the assessee.

 

The revenue being aggrieved is in appeal before ITAT.

 

Whether the CIT(A) is justified in granting deduction under section 80P(2)(a)(i) of the Act.

 

The ld. DR submitted that the main business of the assessee was carrying on banking business/lending to its members, which is in the nature of banking transaction and comes within the purview of section 80P(2)(a)(i) of the Act (inserted in Finance Act 2006 w.e.f. 1/4/2007). She brought to our notice the definition of primary cooperative bank under section 56(ccv) of the Banking Regulation Act, 1949 and contended that a cooperative society like that of the assessee is not a primary agricultural credit society and therefore, section 80P(4) has application to the facts of the case.

 

CA Shri K Kotresh appeared on behalf of assessee other hand submitted that the issue in question is squarely covered in favour of the assessee by the order of the ITAT in the case of M/s BCTC Credit Co-operative Society Ltd, where ITAT bench held that If the intention of the legislature was not to grant deduction u/s 80P(2)(a)(i) to cooperative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted.

 

ITAT bench observed that in the case of M/s BCTC Credit Co-operative Society Ltd, the bench have laid down the difference between a cooperative bank and a cooperative society are as follows

 

 

Nature	Cooperative society registered under Banking Regulation Act, 1949	Cooperative society registered under Karnataka Cooperative Society Act, 1959.
Registra -tion	Under  the  Banking  Regulation  Act,  1949  and Cooperative Societies Act, 1959.	Cooperative Societies Act, 1959.
Nature of business	1.    As defined in section 6 of Banking Regulation Act. 2.      Can   open   savings   bank   account,   current account, overdraft account, cash credit account, issue   letter   of   credit,   discounting   bills   of exchange, issue cheques, demand drafts (DD), Pay Orders, Gift cheques, lockers, bank guarantees etc. 3.    Cooperative Banks can act as clearing agent for cheques, DDs, pay orders and other forms. 4.    Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI).	1.    As per the bye laws of the cooperative society. 2.    Society cannot open savings bank account, current   account,   issue   letter   of   credit, discounting bills of exchange, issue cheques, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3.    Society cannot act as clearing agent, for cheques, DDs, pay orders and other forms. 4.    Society are bound by rules and regulations as specified by in the cooperative societies act.
Filing  of returns	Cooperative banks have to submit annual return to RBI every year.	Society has to submit the annual return to Registrar of Societies.
Inspec­tion	RBI has the power to inspect accounts and overall functioning of the bank.	Registrar has the power to inspect accounts and overall functioning of the bank.
Part V	Part V of the Banking Regulation Act is applicable to cooperative banks.	Part V of the Banking Regulation Act is not applicable to cooperative banks.
Use of words	The word ‘bank’, banker’, ‘banking’ can be used by a cooperative bank.	The word ‘bank’, banker’, ‘banking’ cannot be used by a cooperative society.

 

 

 

Held, following the M/s BCTC Credit Co-operative Society of the coordinate bench order of the Tribunal, hold that the CIT(A) is justified in directing the Assessing Officer to grant deduction under section 80P(2)(a)(i) of the Act.

 

Must Read:

 

1. ACIT vs Dediasan Industrial Co. Credit Society Ltd. held that the appellant is not allowed to do banking business as defined under Banking Regulation Act and therefore, is not a co-operative bank. Therefore, it is not excluded from the benefit of deduction u/s 8OP(2)(a)(i) as it does not fall under the exceptions as provided u/s 8OP(4). However, the AO is directed to find out whether there was any interest income on the short term bank deposits and securities taxable u/s 56 included in the total income of this society which has been claimed by them as exempt following the decision of M/s. The Totgars' Cooperative Sale Society Limited vs ITO (SC).

 

2. (2012) 6 TaxCorp (A.T.) 29049 (PUNE) held, Co-operative credit society is distinct and separate from co-operative bank or primary co-operative bank. Co-operative credit society Is entitled for deduction under section 80P(2)(a)(i)

 

3. (2012) 6 TaxCorp (A.T.) 28134 (PANAJI) held, New proviso to section 80P(4) which is brought into statute is applicable only to co-operative banks and not to credit co-operative societies.

 

4. ACIT vs M/s BCTC Credit Co-operative Society Ltd, held that If the intention of the legislature was not to grant deduction u/s 80P(2)(a)(i) to cooperative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted.

 

5. (2012) 6 TaxCorp (A.T.) 28736 (HYDERABAD) held, If the carrying on banking business is not approved by the RBI or the assessee is not having requisite license to carry out the banking business, the authorities could have taken action against the society or stop the Society activity. Once the assessee is allowed to carry on the banking business, then the assessee is bound by the relevant provisions of the Banking Regulations Act. The bank for all its banking activities is strictly governed by the Banking Regulations Act 1949"

 

The Society is carrying on the Banking business and for all practical purpose it acts like a co-op bank. The ITAT observed that the society is governed by the Banking Regulations Act. Therefore the Society being a co-op bank providing banking facilities to members is not eligible to claim the deduction u/s 80P(2)(i)(a) after the introduction of sub section (4) to section 80P.