14. We have heard both the parties and perused the record. First, we will take up the ground no.3, wherein the assessee is disputing the ld. ClT (A)’s finding that entire income of the appellant is out side the purview of section 80P. We find that the Id. CIT(A) came to the above conclusion for the following reasons :-
1) The assessee co-operative society did not conform to the stipulation and limitation of the types of activities in which a banking company is allowed to engage as per the Banking’ Regulation Act, 1949.
2) The other businesses carried on by the assessee were not only with its members, but also with non- members.
15. Part V of Banking Regulation Act 1949 deals with application of the Act to co-operative societies. The relevant provisions of the Banking Act 1949, which are applicable in the assessee’s case are reproduced here under:-
1. Section 5(ccv) :- “Primary co-operative bank means a co-operative society, other than primary agricultural credit society.
1. Primary objects or principal business of which is the transaction of banking business :
2. The paid up share capital and reserves of which are not less than of Rs.
3. Bye-laws of which do not permit admission of any other co-operative society as a member provided that this clause shall apply to the admission of a co-operative bank member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for that purpose.
2. 5 A- Act to override bye laws, etc –
i. The provisions of this Act shall have effect, not with standing anything to the contrary contained in the bye- laws of a cooperative society before or after the commencement of Banking Laws (application to Cooperative Societies Act, 1965).
ii. Any provision contained in the bye-laws,… …….. – to the extent to which it is repugnant to the provisions of this Act become or be void, as the case may be. “
3. Section 7 .-Use of words ‘bank’, ‘banker’ or ‘banking’ :-
i. No co-operative society other than a co-operative bank shall use as part of its name or in connection with its business any of the word ‘bank’ ‘banker’, or ‘banking’, and no cooperative society shall carry on the business of banking in India unless it uses as part of its name at least one of such words.
15. In the statement of fact the assessee has clearly admitted that it is a ‘Primary Agricultural Co-operative Credit Society’. As per section 5(ccv) of the Banking Regulation Act, the assessee cannot be a ‘Bank*. Thus, we uphold the finding of the ld. CIT(A) that the assessee is not a co-operative bank and therefore, not entitled to any deduction u/s.80P(2)(a) (i) of the Act as a bank. But as it is a primary co-operative credit society, it may be entitled to some deductions on the income earned by it from its transactions with its members.
16. Section 80 P of the Act reads as under :-
80P (1) Where, in the case of an assessee being a cooperative 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 that total income of the assessee. (2) The sums referred to in sub-section (I) shall be the following, namely –
(a) in the case of a co-operative society engaged in
(i) carrying on the business of Ranking 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
(v) the processing without the aid of power, of the agricultural produce of its members, or
(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, the catching, curing processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members], the whole of the amount of profits and gains of business attributable to any one or more of such activities.
(c ) in the case of a co-operative society engaged in activities” other than those specified in clause(a) or * clause(b) (either independently of or in addition to, all or any of the activities so specified), so much of its profits and gains attributable” to such activities as [does not exceed
i) where such co-operative society is a consumers’ co-operative society, [one hundred] thousand rupees, and
(ii) in any other case, [fifty] thousand rupees. Explanation- in this clause, ‘consumers’ co-operative society’ means a society for the benefit of the consumers]
(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;
(e) in respect of any income derived by the co-operative society from the letting of godowns or warehouse for storage, processing or facilitating the marketing of commodities, the whole of such income.
From sub section (1) of the section it is amply clear that in the case of co-operative society income as referred to in sub-section (2) should be allowed as deduction, if the requisite conditions arc fulfilled.
17. In sub-section( 2) the expression used is as under :-
“Whole of the amounts of profits and gains of business attributable to any one or more of such activities”. It would show that such a co-operative society would be entitled to deduction under any other clauses of section 80P(2)(a). Reading of section 80P as a whole would show that further deduction is admissible to a co-operative society as per section 80P(2) (d) & (e). The Id .CIT(A) has not brought on record any evidence or case law in support of his finding that separate deductions in terms of sub clause (d) and (e) are not allowable. In this view of the matter, we are of the considered opinion that the ld. CIT(A) was not justified in holding that the assessee was not entitled to any deduction u/s.80P of the Act. Thus ground no.3 taken by the assessee is allowed to the above extent.
18. Coming to the issue, when the assessee is required to deal only with its members for getting deduction u/s.80I and it also deals with non- » members whether whole of the income attributable to such activity should go out of the ambit of Sec.80P, we find that the Hon’ble Apex Court in the case of CIT Vs. Bankipur Club Ltd 226 ITR 97 (SC), with reference to a members’ club, has held that when there are mutual as well as non-mutual activities, only activities relating to non-members would go out of the ambit of taxation. We, therefore, are of the view that only that income, which is attributable to dealing with non-members excluding activities covered by S.80P(2)(d) & (e) ] will not be entitled to deduction u/s.80P of the Act. We hold accordingly. Ground no.5 taken by the assessee is allowed to the above extent.
19. Ground nos. l & 4 taken by the assessee are inter-linked. As regards ground no. l, we have already held that the assessee is not a co-operative bank. Thus, there is no question of creation of SLR & CRR and no question of investment made out of such reserve or voluntary reserve. Thus, ground no. 1 taken by the assessee is rejected.