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Income Tax Appellate Tribunal, PANAJI
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
आदेश / ORDER
PER RAVISH SOOD, JM :
The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals), Gulbarga, dated 29.12.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (for short “Act”), dated 31.10.2014 for assessment year 2012-13. Before us the assessee has assailed the impugned order on the following grounds of appeal:
“1.The learned CIT(A), Belgaum has erred in facts and law upholding the Assessing Officer order in disallowing the appellant’s claim u/s.80P(2)(a)(i) of the Income Tax Act, 1961 treating the activity of lending as akin to the banking business even though there is no Banking license from RBI (i) In the High Court of Karnataka (Dharwar Bench) in the case of CIT Vs. Shri GurubasavaPattinSahakari Sang Nyt dated 05.02.2014, it has held “ as the assessee is not a co-operative bank carrying on exclusively banking business and as it does not possess license from Reserve Bank of India to carry on banking business so it is not a co-operative bank. It is a co-operative society which also carries on the business of lending money to its members which is covered under section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilities to its members. (ii) CIT Vs. Jafari Momin Vikas Co-op credit society ltd. No.442, 443 & 863 dated 15.01.2014, Gujrat High Court.
2. The appellant prays to add, alter or submit any additional ground or written submissions etc.”
3 Shri Doodhganga Credit SouhardaSahakari Ltd. Vs. ITO
Briefly stated, the assessee which is a co-operative society registered under the Karnataka Co-operative Credit society Act and is engaged in the business of providing credit facilities to its members, had filed its return of income for the assessment year 2012-13 on 29.08.2012, declaring an income of Rs. Nil. Subsequently, the case of the assesee was selected for scrutiny assessment u/s. 143(2) of the Act. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee had claimed deduction of interest income of Rs.5,83,710/- u/s.80P(2)(a)(i) of the Act. Observing, that on a conjoint perusal of Section 80P(2)(a)(i) r.w.s. 2(24)(viia) of the Act AND Part V of the Banking Regulation Act, 1949, the assessee co-operative credit society was to be held to be a Primary Co-operative Bank, which as per the amendment made available on the statute vide the Finance Act, 2006 i.e, w.e.f. 01.04.2007, as per Section 80P(4) of the Act was no more eligible for deduction u/s. 80P of the Act, the Assessing Officer declined the assessee’s claim for deduction of Rs. 5,83,710/- u/s.80P(2)(a)(i) of the Act. Accordingly, the Assessing
4 Shri Doodhganga Credit SouhardaSahakari Ltd. Vs. ITO Officer vide his order passed u/s.143(3) of the Act, dated 31.10.2014, assessed the income of the assessee society at Rs.5,83,710/-.
Aggrieved, the assessee carried the matter in appeal before the CIT (Appeals), but without any success.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements relied upon by them. As observed by us hereinabove, the A.O held a conviction that as the assessee was hit by the provisions of Sec. 80P(4) of the Act, therefore, it was not eligible for claim of deduction under Sec. 80P(2)(a)(i). The claim of the assessee that it was a co-operative credit society providing banking/credit facilities only to its members and was not a co-operative bank providing banking/credit facility to the public at large did not find favour with the A.O. As is discernible from the records, the A.O was of the view that deduction under Sec.
5 Shri Doodhganga Credit SouhardaSahakari Ltd. Vs. ITO 80P(2)(a)(i) in the case of a co-operative credit society engaged in the business of banking (i.e co-operative banks) was withdrawn by the legislature, vide the Finance Act, 2006 w.e.f 01.04.2007, except for in the case of a "primary agricultural credit society" or "a primary co- operative agricultural and rural development bank". Further, It was observed by the A.O that the “Explanation” to Sec. 80P(4) clearly defined the expressions "co-operative bank", "primary agricultural credit society" and "primary cooperative agricultural and rural development bank". It was also noticed by him that as per the Finance Act, 2006 sub-clause (viia) to Sec.2(24) had been inserted, which provided that the profit and gains of any business of banking (including providing credit facilities) carried out by a co-operative society with its members shall be included in the definition of “income‟. On the basis of his aforesaid deliberations, it was observed by the A.O that as the assessee fulfilled all the three conditions laid down under Sec.56(c)(ccv) of Part V of the Banking Regulation Act, 1949, viz. (i) the primary object of the principal business of the co-operative society was the transaction of banking business; (ii) the paid-up share capital
6 Shri Doodhganga Credit SouhardaSahakari Ltd. Vs. ITO and reserves of the co-operative society was not less than one lakh of rupees; and (iii) the bye laws of the co-operative society did not permitted admission of any other co-operative society as a member, therefore, it clearly fell within the category of a primary co-operative bank. In the backdrop of his aforesaid deliberations, the A.O concluded, that the assessee being a primary co-operative bank would not be eligible for claim of deduction under Sec. 80P(2)(a)(i). It was on the basis of his aforesaid observations that the assesses claim for deduction of Rs. 5,83,710/- under Sec.80P of the Act was declined by the A.O.
We have deliberated at length on the issue under consideration and are unable to persuade ourselves to accept the view taken by the A.O. As per sub-section (4) of Sec. 80P that was inserted by the Finance Act, 2006 w.e.f 01.04.2007, the provisions of the said section were not to apply in relation to any co-operative bank other than a "primary agricultural credit society" or "a primary agricultural and rural development bank". As is discernible from a perusal of Sec. 80P(2)(a)(i), the same envisages a deduction in respect of the whole
7 Shri Doodhganga Credit SouhardaSahakari Ltd. Vs. ITO of the amount of profits and gains of a business "attributable to" the specified activities of the co-operative society. In our considered view, the term "attributable to" which is much wider in impact than the expression "derived from", would thus also cover receipts from other activities related to the business of banking. As to whether the assessee can be held to be a co-operative bank, the same can be answered in the backdrop of the judgment of the Hon'ble High Court of Bombay in the case of Quepem Urban Credit Society Ltd. Vs. ACIT, (2015) 58 taxmann.com 113 (Bom). It was observed by the Hon‟ble High Court in its aforesaid judgment that an assessee cannot be considered to be a co-operative bank for the purposes of Sec.80P(4) unless the following three conditions are satisfied: (i) the principal business or primary objective should be business of banking. (ii) its paid up share capital and reserves should not be less than rupee one lac. (iii) its bye laws do not permit admission of any other co-operative society as its member. In our considered view, the word “banking‟ means accepting for the purpose of lending or investment of deposits of money from the public,
8 Shri Doodhganga Credit SouhardaSahakari Ltd. Vs. ITO repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. As in the case of a co-operative credit society the acceptance and lending of money is only from the members and not from the public, therefore, it can safely be concluded that the principal business or primary objective of the said co-operative credit society is not the business of banking. As such, the first condition mentioned hereinabove can safely be held to have not been satisfied by the assessee before us. Apart from that, there is a clear distinction between co-operative banks registered under the Banking Regulations Act, 1949 and co-operative societies registered under the Co-operative Societies Act. In our considered view, the assessee which is a co- operative credit society cannot be categorised as a co-operative bank which is governed under the Banking Regulations Act, 1949. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Karnataka in the case of Shri Vardhaman Urban Co-operative Credit Society Ltd. Vs. CIT [ITA No. 100038 of 2014, dated 21.09.2015]. In the said case, the Hon‟ble High Court while deliberating on the scope of Sec. 80P(4), had observed, that all the co-operative credit societies
9 Shri Doodhganga Credit SouhardaSahakari Ltd. Vs. ITO are eligible for deduction under Sec.80P(2)(a)(i) unless they were declared as a bank by the Reserve Bank of India. Since the assessee society before us is not recognized as a bank by the Reserve Bank of India, therefore, in our considered view it cannot be treated as a co- operative bank. On the basis of our aforesaid observations, we are of the considered view that as the assessee is a co-operative credit society and not a co-operative bank, therefore, it would not be hit by the provisions of Sec. 80P(4) of the Act.
As the assessee before us is a co-operative credit society and not a co-operative bank, therefore, it would not be hit by the provisions of Sec. 80P(4) as had been made available on the statute by the Finance Act, 2006 w.e.f 01.04.2007. In fact, as observed by us hereinabove, it is absolutely mandatory for a co-operative society to seek a licence from the Reserve Bank of India to form and operate as a co-operative bank. Further, a perusal of Circular No. 312 of the Reserve Bank of India reveals the process involved for conversion of a co-operative credit society into a primary co-operative bank. Admittedly, in the case before us, as the assessee being a co-operative credit society is neither
10 Shri Doodhganga Credit SouhardaSahakari Ltd. Vs. ITO authorized nor had undertaken any of the banking business activities as are carried out by a co-operative bank, but had only provided financial assistance/credit to its members, therefore, it can safely be concluded that it cannot be held to be a co-operative bank. Accordingly, in the totality of the facts involved in the case before us, we are unable to concur with the view taken by the A.O which thereafter had been sustained by the CIT (Appeals). We, thus, not finding favor with the view taken by the lower authorities set-aside the order of the CIT(A) and vacate the disallowance of Rs.5,83,710/- made by the A.O.
In the result, appeal of the assessee is allowed in terms of our aforesaid observations.
Order pronounced in Open Court on 31st day of March, 2022.