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Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SMT. BEENA PILLAI & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These two appeals filed by assessee are against the orders of Ld. National Faceless Appeal Centre (NFAC), Delhi, vide order nos. ITBA/NFAC/S/250/2024-25/1068868982(1) and ITBA/NFAC/S/250/2024-25/1068869698(1), dated 19.09.2024, passed against the assessment orders by Income-tax Officer, Ward – 28(2)(4), Mumbai, u/s. 143(3) and 143(3) r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 19.12.2019 and 20.04.202, for Assessment Years 2017-18 and 2018-19 respectively.
2. Grounds taken by the Assessee are reproduced as under:
1. “1. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has failed to appreciate that the appellant is a Co-operative Credit Society exclusively engaged in providing credit facilities to the members and therefore, he was not justified denying the bonafide claim of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 and Ld. CIT(A) also erred in sustaining the disallowance made by the Assessing Officer.
2. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has wrongly interpreted the definition of "Primary Co-operative Bank" as laid down u/s 56(ccv) of the Banking Regulation Act, 1949 and thereby treating the appellant Society as Co-operative Bank and denying the deduction u/s 80P(2)(a)(i) of the Act.
3. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer as well as CIT(A) has failed to appreciate that the appellant is a a Co- operative Credit Society and transactions of the said Society are confined to members only and therefore, the judgement of Hon'ble Bombay High Court in case of Quepem Urban Co-operative Credit Society vs ACIT (2015)120DTR(Bom.) 153 is applicable to the appellant Society.
4. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer and CIT (A) has failed to follow binding precedents as the ITAT in appellant's own case has allowed the deduction u/s 80P of the Act.
5. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has wrongly disallowed the bonafide claim of deduction of commission paid to the person specified u/s 40A(2)(b) of the Income Tax Act, 1961.
6. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has wrongly treated the tower rent as "Income from other sources" and also failed to give deduction of expenses incurred to earn the said income. Further, CIT(A) has also erred in sustaining the said disallowance.
7. On the facts and in the circumstances of the case and in law, the Id. Assessing Officer and CIT (A) have failed to consider the expenses incurred to earn tower rent income and wrongly treated entire gross receipts as income under the head "Income from Other Sources".
1. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has failed to appreciate that the appellant is a Co-operative Credit Society exclusively engaged in providing credit facilities to the members and therefore, he was not justified denying the bonafide claim of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 and Ld. CIT(A) also erred in sustaining the disallowance made by the Assessing Officer.
On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has wrongly interpreted the definition of "Primary Co-operative Bank" as laid down u/s 56(ccv) of the Banking Regulation Act, 1949 and thereby treating the appellant Society as Co-operative Bank and denying the deduction u/s 80P(2)(a) (i) of the Act.
3. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer as well as CIT(A) has failed to appreciate that the appellant is a a Co- operative Credit Society and transactions of the said Society are confined to members only and therefore, the judgement of Hon'ble Bombay High Court in case of Quepem Urban Co-operative Credit Society vs ACIT (2015)120DTR(Bom.) 153 is applicable to the appellant Society.
4. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer and CIT (A) has failed to follow binding precedents as the ITAT in appellant's own case has allowed the deduction u/s 80P of the Act.
5. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has wrongly treated the tower rent as "Income from other sources and also failed to give deduction of expenses incurred to earn the said income. Further, CIT(A) has also erred in sustaining the said disallowance.
6. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer and CIT (A) have failed to consider the expenses incurred to earn tower rent income and wrongly treated entire gross receipts as income under the head "Income from Other Sources".
3. There is a delay of 22 days noted by the registry in filing the present appeal for which petition of condonation of delay along with affidavit is placed on record. According to assessee, the delay in filing the return was due to non availability of its Authorised Representative, as he was suffering from medical issues and therefore undergone intensive medical treatment for which all clinical reports such as pathology, MRI scan of brain and angiography, X-ray, etc., followed by medication and complete rest almost for two months. Thereafter, assessee proceeded to file the present appeal along with petition for condonation of delay and affidavit. According to the assessee, the delay in filing appeal was unintentional and bonafide and hence prayed for condoning the same.
3.1. We have considered the petition for condonation of the said delay along with an affidavit. Upon perusal of the same and hearing both sides, we deem it fit to condone the delay on the ground that there was sufficient cause for the said delay. Accordingly, we condone the delay to take up the matter for adjudication.
The issue involved in both the appeals relate to disallowance of claim of deduction u/s. 80P(2)(a)(i) of the Act in respect of interest income earned by the assessee from term deposits made by it as well as addition of commission paid to the person specified u/s 40A(2)(b). Since, common issue is involved in both the appeals, we draw the facts from the appeal in to arrive at our finding which will apply mutatis mutandis on the other appeal also.
Brief facts of the case as culled out from records are that assessee is cooperative credit society registered under Maharashtra State Cooperative Societies Act, 1960, carrying on the activity of providing credit facilities to the members. The object of the society mainly consists of acceptance of deposit from members and giving loan to the members amongst other incidental objects, to encourage and promote habit of thrift, self-help and cooperation among the members, to accept deposit from members, to provide credit facilities to its members, to develop self employment by providing credit facilities to the members for small scale and house hold businesses, to manage and protect properties of the society and to raise loans and funds for being used on the objects of the society. Assessee filed its return of income on 27.10.2017 reporting total income at Rs.19,44,880/- after claiming deduction u/s. 80P of the Act for Rs.83,68,337/-.
5.1. In the course of assessment, assessee was asked to explain about its claim of deduction u/s.80P(chapter VI-A), assessee made its detailed submission by placing reliance on several judicial precedents including that of Hon'ble Jurisdictional High Court of Bombay in the case of the Quepem Urban Cooperative Credit Society Ltd. vs. ACIT in 23 & 24 of 2015. However, ld. Assessing Officer observed that with the insertion of section 80P(4) w.e.f. 01.04.2007, the benefit of deduction shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. He thus, held that assessee is a cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank and disallowed the claim of deduction of Rs.91,17,627/-. Aggrieved, assessee went in appeal before the ld. CIT(A).
Before the ld. CIT(A), assessee submitted that ld. Assessing Officer ignored the correct factual position while referring to Part V of the Banking Regulation Act,1949 and applied the provisions of Banking Regulation Act, 1949 on the Co-operative Society. According to the assessee, in the Banking Regulation Act,1949, in Section 56, definition of Co-operative Credit Society is as under: - (ccii) co-operative credit society means a co-operative society, the primary object of which is to provide financial accommodation to its members and includes a co- operative land mortgage bank. The expression financial accommodation, used in the definition of Co-operative Credit Society is not defined in Part V of Banking Regulation Act, 1949. However, in common parlance, it is understood to be accepting deposits and granting loan or advance. But it is different from business of banking since business of banking can be done in India only under license from Reserve Bank of India (RBI). Ld. Assessing Officer thus, considered Credit Cooperative Society synonymous to Cooperative Bank, contested by the assessee.
6.1. According to the assessee, co-operative banks are functioning at par with other commercial banks, which do not enjoy any tax benefit. It was, therefore, proposed to amend section 80P by inserting a new subsection (4). It also submitted that requirement of transacting banking business is not a prerequisite for a Central or a State co- operative bank. The assessee has not claimed itself to be a Primary Co- operative Agricultural and Rural Development Bank. Rather, it is a co- operative society consisting of members being the residents of the territory of Navi Mumbai. The objects of the assessee include acceptance of deposits and granting of loans to members together with other activities but do not include banking. Moreover, the assessee has not granted any loan to or accepted a deposit from a person who is not a member.
6.2. Assessee placed reliance on the decisions of the Hon’ble Supreme Court in the case of The Mavilayi Service Cooperative Bank Ltd. and others Vs. CIT [Civil Appeal Nos. 7343 to 7350 of 2019 dated 12.01.2021]which dealt with the issue relating to deduction u/s.80P(2)(a)(i) r.w.s. 80P(4). The relevant extract from para 45 to 48 is as under: “45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, 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.Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm’s way, all the assessees in the present case are 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.
It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, ‘nominal members’ are ‘members’ as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions’ Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held:
“8. The expression “members” is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression “members” in Section 80- P(2)(a)(/) must, therefore, be construed in the context of theprovisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression “members” in Section 80-P(2)(a)(/) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: “2. (n) ‘Member’ means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to ‘members’ anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;”
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).
Further, unlike the facts in Citizen Cooperative Society Ltd.(supra), the Kerala Act expressly permits loans to non-members undersection 59(2) and (3), which reads as follows: “59. Restrictions on loans:- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank.
Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society.
(2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit. (3) Granting of loans to members or to non-members under sub-section (2) and recovery thereof shall be in the manner as may be specified by the Registrar."Thus, the giving of loans by a primary agricultural credit society to nonmembers is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra).”
Resultantly, the impugned Full Bench judgment is set aside. The appeals and all pending applications are disposed of accordingly. These appeals are directed to be placed before appropriate benches of the Kerala High Court for disposal on merits in the light of this judgment.”
6.3. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of Kerala State Agricultural and Rural Development Bank Ltd. Vs. Assessing Officer in civil appeal No.10069 of 2016 dated 14.09.2023, wherein the Hon’ble Court dealt with its earlier decision in The Mavilayi Service Cooperative Bank (supra) and analysed in depth provisions of section 80P,highlighting the distinction between eligibility for deduction and attributability of amount of profits and gains from the activity of providing credit facilities to the members as well as deriving income from investments made with other cooperative societies. The relevant observations and findings are as under:
“In Mavilayi Service Co-operative Bank, it has been observed that Section 80P of the Act is a beneficial provision which was enacted in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and therefore, has to be read liberally in favour of the assessee. That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of Section 80P must be given by way of deduction vide Citizen Co-operative Society. This is because subsection (4) of Section 80P is in the nature of a proviso to the main provision contained in subsections (1) and (2) of Section 80P. The proviso excludes cooperative banks, which are co-operative societies which must possess a licence from the Reserve Bank of India to do banking business. In other words, if an entity does not require a licence to do banking business within the definition of banking under Section5(b) of the BR Act, 1949, then it would not fall within the scope of sub-section (4) of Section 80P.
2. While analysing Section 80P of the Act in depth, the following points were noted by this Court:
1. Firstly, the marginal note to Section 80P which reads “Deduction in respect of income of co-operative societies” is significant as it indicates the general “drift” of the provision.
2. Secondly, for purposes of eligibility for deduction, the assessee must be a “cooperative society”.
Thirdly, the gross total income must include income that is referred to in sub-section (2). 4. Fourthly, sub-clause (2)(a)(i) speaks of a co-operative society being “engaged in”, inter alia, carrying on the business of banking or providing credit facilities to its members. 5. Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under Section 80P. 6. Sixthly, the expression “providing credit facilities to its members” does not necessarily mean agricultural credit alone. It was highlighted that 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. 7. Seventhly, under Section 80P(1)(c), the co-operative societies must be registered either under Co-operative Societies Act, 1912, or a State Act and may be engaged in activities which may be termed as residuary activities i.e. activities not covered by subclauses (a) and (b), either independently of or in addition to those activities, then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub-clause (c). 8. Eighthly, sub-clause (d) states that where interest or dividend income is derived by a co-operative society from investments with other co-operative societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the co- operative movement as a whole. Conclusion: In the instant case, although the appellant society is an apex cooperative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of Section 5(b) read with Section 56 of the BR Act, 1949. In the result, the appeals filed by the appellant are allowed and the order(s) of the Kerala High Court and other authorities to the contrary are set aside. Consequently, we hold that the appellant is entitled to the benefit of deduction under Section 80P of the Act. The questions for consideration are answered accordingly.”
6.4. Ld. CIT(A) took note of the decision of Hon’ble Supreme Court in the case of Citizen Co-operative Bank Ltd. vs ACIT, 397 ITR 1 (SC) for confirming the action of AO in denying the claim of deduction u/s.80P(2)(a)(i) of the Act to the assessee. Aggrieved, assessee preferred appeal before the Tribunal.
Before us, ld. Counsel for the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of PCIT vs. M/s. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. Civil Appeal No. 8719/2022, wherein the Hon'ble Court has further analysed the issue whether, Cooperative Credit Societies are bank or not. While dismissing the appeal filed by the Revenue, Hon'ble Supreme Court has observed that assessee cannot be termed as bank/Co-operative bank and that being a credit society they are entitled to exemption u/s.80P(2)(a)(i) of the Act. Even otherwise on merit also and taking into CBDT circulars and even definition under the banking regulation act the respondent/Assessee Society cannot to be said to be a Co-operative Bank and therefore section 80P(4) shall not be applicable and that the respondent/assessee Society shall be entitled to exemption / benefit u/s. 80(P)(2) of the Income-tax Act.
Admittedly, assessee is a primary agricultural credit co-operative society and is governed by Karnataka Co-operative Societies Act, 1956 and it is carrying out its co-operative business with its members, the claim of deduction u/s 80P(2)(a)(i) of the Act cannot be denied. Also, assessee does not hold a banking license issued by RBI so as to give it a status of Co-operative Bank. Hence, respectfully following the decision of Hon’ble Supreme Court and Hon’ble Madras High Court in the cases referred above, in the given similar facts and circumstances, we reverse the orders of lower authorities and allow this issue in the appeal of assessee.
In respect to the disallowance u/s.40A(2)(b) of the Act, ld. Assessing Officer asked assessee to furnish the copy of bills raised and name and address of the person to whom the person covered u/s.40A(2)(b) collected the deposits, amount-wise on the basis the commission was given. The details of the commission payments made by the assessee are given below: i. LATA B. TAKAVALE - Rs1,81,978/-
ii. ROHINI D. TELE - Rs. 1,16,608/- iii. SHOBHA A. PATIL - Rs. 70,031/- iv. KRISNA P. DHUMAL - Rs. 2,64,914/- v. SHASHIKANT P DHUMAL - Rs. 3,02,059/- vi. KAILAS V KHOPADE - Rs. 1,35,824/- -------------------- Rs. 10,71,414/-
Ld. Assessing Officer concluded that assessee failed to prove the genuine services provided by the above related parties on the basis the assessee has given the commission. Ld. Assessing Officer thus, disallowed and added the entire payment of alleged commission to the total income of the assessee and initiated penalty proceedings u/s.270A separately for under reporting of income. Aggrieved, assessee went in appeal before the ld. CIT(A), who confirmed the addition by the ld. Assessing Officer, on the basis that the assessee failed to justify the transactions, since it could not furnish the copy of bills raised by the related parties in respect of commission.
Assessee, in its paper book submitted during the course of hearing has contended that during the year under consideration, assessee has devised a “Daily Deposit Scheme” by appointing collection agents who are also members of the Society. They collect daily saving deposit by way of door collection from the members. The daily deposit collection agents are paid collection charges at a uniform rate of 3% and w.e.f. from 01.07.2016, date of 2.5% of the deposits so collected by them and the said amount is paid on monthly basis. Copy of statement showing details of deposits collection and commission paid on the same is submitted by assessee and placed as Annexure-G in its paper book.
We have heard both the parties and gone through the material on record as well as the judicial precedents relied upon. During the year under consideration assessee had appointed 114 daily deposit commission agents out of which five such collection agents are either director or their relative. Assessee had paid uniform rate of 2.5% as commission to such five agents and therefore, the said payment is covered u/s, 40A(2)(b) of the Act. However, the commission paid to such persons is at par with commission made to other collection agents also. The agreement of appointment of daily deposit commission agent is submitted by the assessee during the course of hearing. The Commission agents mentioned in assessment order have regularly filed the Income Tax Returns and copies of ITR acknowledgement is also submitted by the assessee during the time of first appellate proceedings.
12.1. Assessee had also paid salary to Shashikant Dhumal as senior clerk and relative of director. The Salary is paid to Shashikant Dhumal as per his employment agreement and same is at par with other senior clerks in the Society. Assessee has also deducted TDS on the said commission and such deductee parties have also shown the said income in their Income Tax Return. However, ld. Assessing Officer and ld. CIT(A) wrongly treated the said payment of Rs. 10,71,414/- as the commission paid towards non-genuine services. Ld. Assessing Officer and ld. CIT(A) has also wrongly observed that assessee has failed to furnish the copy of bills raised by the person. However, system generated daily collection received from members and commission paid on same is already submitted by the assessee. In view of the said facts the said payment is not excessive and accordingly, the disallowance made in this respect is deleted.
In respect to issue relating to rent of Rs.5,21,436/- added as Income from other sources, assessee has received rent for renting out the terrace space from VIOM Network Limited now known as ATC Telecom Infrastructure Pvt. Ltd. The rent received was offered to tax by the assessee under the head “Income from House Property”. Ld. Assessing Officer did not accept the contentions submitted by the assessee and made an addition of Rs.5,21,436/- as “Income from other sources”, by submitting that the rent is only for fixing the tower, so it cannot be treated as part of building, nor could it be treated as land appurtenant, thereto. Aggrieved, assessee went in appeal before the ld. CIT(A).
Before, ld. CIT(A), assessee relied upon the decision of Coordinate Bench of ITAT, Mumbai in the case of Maker Tower premises Cooperative Society Ltd., Vs. ACIT, wherein it was held that rent is for space to host the antennas and not for the antennas. As long as the rent is for the space, terrace and roof space in this case and which space is certainly a part of the building, the rent can only be taxed as “Income from house property”. Ld. CIT(A), after considering the submissions made by the assessee confirmed the addition made by the ld. Assessing Officer. Aggrieved, assessee is in appeal before the Tribunal.
In view of the above discussions, and as the rent received by the assessee for use of space, by Telecom Companies, in a building, or part thereof, owned by the assessee, in our considered view, the rent so received must be taken into account in computation of annual value to be taxed under the head "income from house property". Accordingly, as ld. Counsel for the assessee rightly contends, the deduction under section 24 is admissible on the facts of the present case. Assessee has already submitted leave and license agreement at the time of assessment proceedings and the first appellate proceedings. In view of the said decision, the rent received is offered to tax under the head "Income form House Property" and therefore the ld. Assessing officer as well as ld. CIT(A) has wrongly treated the same under "Income from Other Sources" and therefore the same is deleted.
In the result, both the appeals of the assessee are allowed.
Order is pronounced in the open court on 29 April, 2025