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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GAGAN GOYAL&
The Brief facts of the case are that assessee is a co-operative housing society, registered under the Maharashtra Cooperative Societies Act, 1961, filed its return of income on 25.09.2014, declaring income at Rs. NIL after claiming deduction u/s. 80P (2)(d) of the Act on FDs and saving account with other co-operative banks amounting to Rs. 75,77,053/- and Rs. 1,83,843/- respectively. Case of the assessee was selected for scrutiny and deductions claimed by assessee mentioned (supra) were disallowed and added back to the income of assessee. Assessee being aggrieved with the same, preferred an appeal before the Ld. CIT (A), who in turn relying on the decision of Hon’ble Supreme Court in the case of Totgar’s Cooperative Sales Society Ltd. vs. ITO [2010] 188 Taxmann 282 (SC), confirmed the order of AO. Assessee being further aggrieved and dis-satisfied with the order of Ld. CIT (A) preferred this present appeal before us.
We have gone through the order of AO and Ld. CIT (A) alongwith submissions and grounds raised by the assessee. We observed that the whole issue in the appeal is roaming around the decision of Hon’ble Apex Court in Totgar’s Cooperative Sales Society Ltd. (supra). Assessee earned interest on FDs and saving account from investment in another co-operative banks as mentioned in assessment order. It was a categorical finding of AO as per the assessment order that assessee deposited certain sum out of the surplus funds of the society in cooperative banks as per details in para 5.5 of the assessment order. It was also held by AO that investment of funds in bank by the assessee is in the nature of income from other sources. For sake of clarity and ready reference we are reproducing the relevant provisions of section 80P as under: “Deduction in respect of income of co-operative societies.
80P. (1) Where, in the case of an assessee being a co-operative 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 the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: — (a) In the case of a co-operative society engaged in— (i) Carrying on the business of banking 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: Provided that in the case of a co-operative society falling under sub-clause (vi), or sub- clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely: — (1) The individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) The co-operative credit societies which provide financial assistance to the society; (3) The State Government; (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to— (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) The Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial
Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), The whole of the amount of profits and gains of such business; (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 warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation. —For the purposes of this section, an "urban consumers' co-operative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment. (3) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80- I or section 80-IA or section 80J, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80HHB, section 80HHC, section 80HHD, section 80-I, section 80-IA, section 80J and section 80JJ. (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.”
In view of above provisions, it is crystal clear without discussing any judicial pronouncements for the time being that as per section 80P (2) (a) (i) of the Act, transactions of the assessee with its members are exempted. Certainly, relying on various judicial pronouncements and principal of mutuality transactions carried out with non-members and general public are not entitled for the benefit of section 80P(2)(a)(i) of the Act. There is no finding of AO and Ld. CIT (A) that assessee ever dealt with outsiders or violated any norms of Governing Act or Bye Laws of the Society.
5. As far as deposits with other cooperative banks whatever may be the form, income arising to the assessee is squarely covered by the provisions of section 80P (2) (d) of the Act. The main foundation of the case as laid down by the Ld. CIT(A) and AO is based on section 80P (4), which is in the nature of a proviso restricting the claim of a cooperative society u/s. 80P if the cooperative society is a cooperative bank or cooperative societies possess a license from the RBI to do the banking business. In this case, assessee is neither a cooperative bank nor a cooperative society possessing a license from the RBI to do banking business.
6. In view above discussion, in our considered opinion, assessee is fully entitled for deduction u/s 80P (2) (a)(i) on the transaction entered into with the members of the society.
As far as assessee’s claim u/s 80P(2)(d) is concerned as discussed (supra), assessee is entitled for the same as assessee is not falling in section 80P (4) which is applicable only in the case of cooperative banks /cooperative societies having licences from RBI to do banking business. The whole foundation as laid down by the AO and Ld. CIT (A) is on wrong appreciation of the facts and misinterpretation of relevant sections. To further substantiate our findings, we are reproducing and discussing the judicial pronouncements of Hon’ble Apex Court on the issue i.e., 80P(2)(d) and 80P (4) of the Act as under: - [2023] 150 taxmann.com 173 (SC) PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. “3. Apart from the fact that against the relied upon decision in the case of M/s. Quepem Urban Co-operative Credit Society Ltd. (supra),the Special Leave Petition has been dismissed, having heard learned counsel appearing on behalf of the respective parties, the issue involved in the present appeal is squarely covered against the Revenue in view of the decision of this Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161/279 Taxman 75/431 ITR 1/ [2021] 7 SCC 90. This Court, in the aforesaid decision has specifically observed and held that primary Agricultural Credit Societies cannot be termed as Co-operative Banks under the Banking Regulation Act and, therefore, such credit societies shall be entitled to exemption under section 80(P)(2) of the Income-tax Act, 1961. 4. Ms. Aakansha Kaul, learned counsel appearing on behalf of the appellant/Revenue has tried to submit that the respondent/Assessee will fall under the definition of Co-operative Bank as their activity is to give credit/loan. However, it is required to be noted that merely giving credit to its members only cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act. The banking activities under the Banking Regulation Act are altogether different activities. There is a vast difference between the credit societies giving credit to their own members only and the Banks providing banking services including the credit to the public at large also.
There are concurrent findings recorded by CIT(A), ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under section 80(P)(2) of the Income-tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4) shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under section 80(P)(2) of the Income-tax Act.
In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee.”
[2021] 123 taxmann.com 161 (SC) Mavilayi Service Co-operative Bank Ltd. v. CIT, Calicut “Section 80P being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the revenue in the present case by adding the word 'agriculture' into section 80P(2)(a)(i) when it is not there. Further, section 80P (4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e., engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Clearly, therefore, once section 80P (4) is out of harm's way, the assessee is entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. [Para 45]. It must also be mentioned here that 'nominal members' are 'members' as defined under the Kerala Act. Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). [Para 46]. The above material would clearly indicate that the limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e., which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society shall carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. [Para 39]. What is important to note is that, the expression 'providing credit facilities to its members' does not necessarily mean agricultural credit alone. Section 80P being a beneficial provision must be construed with the object of furthering the co-operative movement generally, and section 80P(2)(a)(i) must be contrasted with section 80P(2)(a)(iii) to (v), which expressly speaks of agriculture. It must also further be contrasted with sub-clause (b), which speaks only of a 'primary' society engaged in supplying milk etc. thereby defining which kind of society is entitled to deduction, unlike the provisions contained in section 80P(2)(a)(i). Also, the proviso to section 80P(2), when it speaks of sub-clauses (vi) and (vii), further restricts the type of society which can avail of the deductions contained in those two sub-clauses, unlike any such restrictive language in section 80P(2)(a)(i). Once it is clear that the co-operative society in question is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle the society in question from availing of the deduction. The distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted. [Para 33].”
In view of the above factual and legal discussion, we are not in agreement with the order of Ld. CIT (A). Accordingly, the grounds raised by the assessee are allowed and order of Ld. CIT(A) find to be unsustainable, hence set-aside.
ITA No. 1746/Mum/2023 (A.Y. 2015-16)
All the grounds (Except ground no. 7) in this appeal are identical to A.Y. 2014-15 decided (supra), result will apply Mutatis- Mutandis to this appeal also. Ground no. 7 pertains to allowability of standard deduction @ 30% on Income from House Property. As this standard deduction is a statutory deduction available to all the assessee on Income from House Property, the same is to be allowed to assessee also, AO is directed accordingly.
In view of the above factual and legal discussion, we are not in agreement with the order of Ld. CIT (A). Accordingly, the grounds raised by the assessee are allowed and order of Ld. CIT(A) find to be unsustainable, hence set-aside.
In the result, both the appeals of the assessee are allowed.