By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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Section 80P and section 5(b), 5(cci) and 5(ccv) of Banking Regulation Act,1959–assessee society engaged in business of providing credit facilities to its members and collecting deposits–section 80P was amended w.e.f. 01-04-2007 and hence AO denied deduction as assessee was a co-operative bank– Held that principal business of assessee was not to accept deposits from the public for the purpose of lending or investment—hence, principal business was not banking business–assessee society entitled to deduction u/s. 80P(2)(a)(i).
Facts:
The assessee-society was engaged in business of providing credit facilities to its members by granting loans for various purposes. It also collected deposits. It availed deduction u/s. 80P. However, section 80P was amended w.e.f. 01-04-2007 whereby s/s. (4) was introduced which denied the deduction u/s. 80P to co-operative banks (other than primary agricultural credit society or a primary rural development bank). The AO denied deduction to assessee holding assessee as being a co-operative bank. The CIT(A) allowed deduction to assessee.
Held:
As per explanation to s/s. (4) of 80P, co-operative bank as defined in section 5(cci) of the Banking Regulation Act, 1959 means a state co-operative bank, a central co-operative bank and a primary cooperative bank. Assessee is not a state or central co-operative bank. The primary co-operative bank as defined in section 5(ccv) means a co-operative society (other than agricultural credit society) (1) the primary object or principal business of which is transaction of banking business, (2) the paid-up share capital and reserves of which are not less than one lakh of rupees and (3) the bye-laws of which do not permit admission of any other co-operative society as a member. The conditions No. (2) and (3) are applicable to assessee.
Banking business as defined u/s. 5(b) means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.
Going through the aims and objects of the assessee society, it is observed that none of the aims and objects allows the assessee to accept deposits of money from the public for the purpose of lending or investment. The assessee is therefore held as not to be a primary co-operative bank and in consequence thereof, it cannot be a co-operative bank as defined in the Banking Regulation Act, 1949. Thus the assessee is entitled to deduction u/s. 80P.
