PARIJAT CO OP CREDIT SOCIETY LTD,NAVI MUMBAI vs. INCOME TAX OFFICE 28 2 1, VASHI NAVI MUMBAI

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.

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/-.

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.

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.”

“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.

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.”

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/-

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.

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.