I. T. A. No. 1504 /Bang/ 2014 (assessment year 2011-12).

N. V. VASUDEVAN (Judicial Member) and ABRAHAM P. GEORGE (Accountant Member)

P. Dhivahar for the appellant.
None for the respondent.

ORDER

The order of the Bench was delivered by

1. N. V. Vasudevan (Judicial Member).-This appeal by the Revenue is directed against the order dated September 12, 2014 of the Commissioner of Income-tax (Appeals), Belgaum relating to the assessment year 2011-12.

2. None appeared on behalf of the assessee at the time of hearing. The assessee has filed written submissions. However, we proceed to dispose of the case on merits considering the material on record and after hearing the learned Departmental representative.
3. The only issue involved in this appeal by the assessee is denial of deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as "the Act" in short) by the Revenue authorities.

4. The assessee is a co-operative society registered under the Karnataka State Co-operative Societies Act, 1959. It is engaged in providing credit facility to its members. The assessee had claimed deduction under section 80P(2)(a)(i) of the Act. Under section 80P(2)(a)(i) of the Act where the gross total income of a co-operative society includes income from carrying on the business of banking or providing credit facilities to its members, the same is allowed deduction. By the Finance Act, 2006 with effect from April 1, 2007, Sub-section (4) was inserted in section 80P which provides as follows :

"(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 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 (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. In the course of scrutiny assessment proceedings under section 143(3), the Assessing Officer was of the view that after amendment by the Finance Act, 2006 with effect from April 1, 2007 by which sub-section (4) was inserted, the assessee which was a co-operative society carrying on banking business was not entitled to deduction under section 80P(2)(a)(i) of the Act. According to the Assessing Officer, the assessee was a co-operative bank and therefore the deduction under section 80P(2)(a)(i) cannot be allowed. In coming to the above conclusion, the Assessing Officer noticed that the nature of the activity of the assessee, though registered as a credit co-operative society, is that of a banking institution notwithstanding the fact that receipt of and lending of money is limited to its members. That the deduction from gross total income of certain receipts is available only to primary agricultural credit societies or primary co-operative agricultural and rural development banks ; and that the benefit of such deduction is not available to institutions like the assessee-society since it was situated in urban area and having urban members to whom credit facilities were provided. The Assessing Officer also referred to the provisions of the Banking Regulation Act to bring the assessee into the concept of a banking institution. The Assessing Officer referred to the objects of the assessee- society in its bye-laws that the activities of the assessee fall within the Banking Regulations Act and held that its activities are in the nature of banking . According to the Assessing Officer, none of the criteria contemplated in sub-section (4) were fulfilled in the case of the assessee.

6. In the light of the abovementioned observations, the Assessing Officer held that the appellant was not entitled to exemption under section 80P(2)(a)(i) of the Act and brought the same to tax.

7. On appeal by the assessee, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee for deduction under section 80P(2)(a)(i) of the Act following the judgment of the hon'ble jurisdictional High Court in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot I. T. A. No. 5006 of 2013 dated February 5, 2014 [2014] 369 ITR 86 (Karn), wherein the hon'ble jurisdictional High Court took the view that when the status of the assessee is a co-operative society and not a co-operative bank, the order passed by the Assessing Officer extending the benefit of exemption from payment of tax under section 80P(2)(a)(i) of the Act is correct and such an order is not erroneous and therefore, jurisdiction under section 263 of the Act cannot be invoked.

8. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue has filed the present appeal before the Tribunal.

9. We have heard the learned Departmental representative and perused the material on record. The issue raised by the assessee in these appeals has already been considered and decided by this Tribunal in the case of Asst. CIT v. Bangalore Commercial Transport Credit Co-operative Society Ltd. in I. T. A. No. 1069/Bang/2010, wherein this Tribunal held that section 80P(4) is applicable only to co-operative banks and not to credit co-operative societies. The intention of the Legislature of bringing in co-operative banks into the taxation structure was mainly to bring in par with the commercial banks. Since the assessee is a co-operative society and not a co-operative bank, the provisions of section 80P(4) will not have application in the assessee's case and therefore, it is entitled to deduction under section 80P(2)(a)(i) of the Act. The following were the relevant observations of the Tribunal :

"9. We have heard the rival submissions and perused the material on record. The assessee was denied the deduction under section 80P(2)(a)(i) of the Act for the reason of introduction of sub-section (4) to section 80P. Section 80P(4) reads as follows :
'(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 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 (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.'

9.1 The above sub-section 4 of section 80P provides that deduction under the said section shall not be available to any co-operative bank other than a primary agricultural credit society or rural development bank. For the purpose of the said sub-section, co-operative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949. In Part V of the Banking Regulation Act, 'co-operative bank' means a State Co-operative Bank, a Central Co-operative Bank and a Primary Co-operative Bank.

9.2 From the above section, it is clear that the provisions of section 80P(4) has got its application only to co-operative banks. Section 80P(4) does not define the word 'co-operative society'. The existing sub-section 80P(2)(a)(i) shall be applicable to a co-operative society carrying on credit facility to its members. This view is clarified by the Central Board of Direct Taxes vide its clarification No. 133/06/ 2007-TPL dated May 9, 2007. The difference between a co-operative bank and a co-operative society are as follows :

9.3 If the intention of the Legislature was not to grant deduction under section 80P(2)(a)(i) to co-operative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted. The 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. The intention of the Legis lature of bringing in co-operative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a co-operative society and not a co-operative bank, the provisions of section 80P(4) will not have application in the assessee's case and therefore, it is entitled to deduction under section 80P(2)(a)(i) of the Act. Hence, we are of the view that the order of the Commissioner of Income-tax (Appeals) is correct and in accordance with law and no interference is called for."

10. The hon'ble Gujarat High Court in the case of Tax Appeal No. 442 of 2013 with Tax Appeal No. 443 of 2013 with Tax Appeal No. 863 of 2013 in the case of CIT v. Jafari Momin Vikas Co-op. Credit Society Ltd. [2014] 362 ITR 331 (Guj) by judgment dated January 15, 2014 had to deal with the following question of law (page 332) :

"Whether the hon'ble Tribunal is correct in allowing deduction under section 80P(2)(a)(i) to the assessee's society even though the same is covered under section 80P(4) read with section 2(24)(viia) being income from providing credit facilities carried on by a co-oper ative society with its member ?"

The hon'ble court held as follows (page 333) :

"4. As per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. As per the Explanation, the terms "co-oper ative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949.

5. The Assessing Officer held that by virtue of section 80P(4), the respondent-assessee would not be entitled to benefits of deduction under section 80P. The Commissioner of Income-tax (Appeals) as well as the Tribunal reversed the decision of the Assessing Officer on the premise that the respondent-assessee not being a bank, exclusion provided in sub-section (4) of section 80P would not apply. This, irre spective of the fact that the respondent would not fall within the expression 'primary agricultural credit society'.

6. Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of sub- section (4) only co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then the Legislature specified primary agricultural credit societies along with primary co-operative agricultural and rural development banks for exclusion from such exclusion and, in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplified by virtue of the Central Board of Direct Taxes Circular No. 133 of 2007 dated May 9, 2007. Circular provides as under :

'Subject : Clarification regarding admissibly of deduction under section 80P of the Income-tax Act, 1961.

1. Please refer to your letter No. DCUS/30688/2007, dated March 28, 2007 addressed to Chairman, Central Board of Direct Taxes, on the above given subject.

2. In this regard, I have been directed to state that sub-section (4) of section 80P provides that deduction under the said section shall not be allowable to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub-section, co-operative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949.

3. In Part V of the Banking Regulation Act, "co-operative bank" means a State co-operative bank, a Central co-operative bank and a primary co-operative bank.

4. Thus, if the Delhi Co-op. Urban Thrift and Credit Society Ltd. does not fall within the meaning of "co-operative bank" as defined in Part V of the Banking Regulation Act, 1949, sub-section (4) of section 80P will not apply in this case.

5. This is issued with the approval of Chairman, Central Board of Direct Taxes."

7. From the above clarification, it can be gathered that sub- section (4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by the Central Board of Direct Taxes, Delhi Co-op. Urban Thrift and Credit Society Ltd. was under consideration. The circular clarified that the said entity not being a co-operative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue's conten tion that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained therein but also credit societies, which are not co-operative banks. In the present case, the respondent-assessee is admittedly not a credit co-operative bank but a credit co-operative society. The exclusion clause of sub- section (4) of section 80P, therefore, would not apply. In the result, the tax appeals are dismissed."

11. We find that in the assessee's own case for the assessment year 2010-11 on identical facts, the issue was decided in favour of the assessee, following the decision of the Tribunal cited supra and the judgments of the hon'ble High Court of Karnataka and the hon'ble Gujarat High Court cited supra. Therefore, we uphold the order of the learned Commissioner of Income- tax (Appeals) on the issue of allowing deduction under section 80P(2)(a)(i) of the Act to the assessee. It is ordered accordingly.

12. In the result, the appeal by the Revenue is dismissed.

The order pronounced in the open court on this 8th day of May, 2015.