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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Sh. T. S. Kapoor
ORDER These four appeals have been filed by assessee against separate orders of ld. Commissioner of Income Tax (Appeals) all dated 31.10.2018. 2. The assessee has taken similar grounds of appeal and these were heard together. Therefore, for the sake of convenience a common and consolidated order is being passed.
The grounds of appeal taken by assessee in are reproduced below: “1. Because the Id. C1T(A) has erred on law and facts in confirming the assessment order making an addition of Rs 29,82,822/-.
ITA Nos. 123 to 126/Del/2019 2 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd.
Because the CIT(A) has grossly erred in upholding disallowance of the deduction u/s 80P of the Act as she failed to follow the decision of Hon’ble Delhi ITAT in the appellant’s own case in 2015 as the issue is squarely covered by the aforesaid judgment which is binding on her.
3. Because the CIT(A) has erred on law and facts and failed to appreciate that appellant is not a Cooperative bank in terms of Sec. 80P(4) of the Act, and thus the appellant is duly entitled to deduction in terms of sec 80P(2)(a)(i) of the Act.
Because the C1T(A) has further erred in recording wrong facts, and wrongly invoking the principle of mutuality while the present case is not for exemption on the principle of mutuality but it is a case of deduction u/s 80P of the Act.
Because the C1T(A) has even failed to appreciate that the revenue has allowed deduction u/s 80P under same facts and circumstances and as such principle of consistency defeated.”
4. At the outset, the ld. Authorized Representative submitted that the Hon’ble Tribunal in assessment year 2010-11 vide order dated 17.02.2017 has already decided the similar issue in favour of assessee and in this respect our attention was invited to page 21 to 39 where a copy of the order of the Tribunal was placed. The ld. Authorized Representative submitted that the ld. Commissioner of Income Tax (Appeals) has dismissed the appeals of the assessee in these years though the order of Tribunal was provided to her. It was submitted that ld. CIT(A) has misread the figures in the profit and loss account and has wrongly inferred that assessee had given loans and advances to persons other than members and has wrongly inferred that assessee had received and made payments to Shri Ram Piston which was not a Member of the society. to 126/Del/2019 3 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. The ld. Authorized Representative in this respect took us to the ld. CIT(A)’s order where she had reproduced the figures from the cash book of the assessee. It was submitted that the ld. CIT (A) has observed that assessee had paid interest to non members amounting to Rs.4,92,936/- whereas this payment of interest was made to members only as is apparent from the copy of profit and loss account and in respect of filed a copy of profit and loss account wherein column 8, the same amount was mentioned to have been paid to members only. It was further stated that though the document reproduced by ld. CIT(A) contains the words profit and loss but this is infact receipts and payments which is clear from the fact that there is a Closing Balance of cash in hand. As regards the observation of ld. CIT(A) regarding receipt from Shri Ram Piston, the ld. AR stated that these are the contra entries appearing on both sides of the cash book and therefore, the observation of ld. CIT(A) is not correct.
5. As regards, the observation of ld. CIT(A) regarding dividend income from Zila Sehkari Bank Ltd., the ld. AR submitted that assessee was under statutory obligation to make investments in Zila Sehkari Bank Ltd. and in this respect filed a copy of U.P. Co-operative Societies Act, 1965 wherein under clause 59 regarding investment of funds, the assessee was subjected to make investment with any bank approved by the Registrar or in any other mode as may be prescribed. As regards, the reliance placed by ld. CIT(A) on the order of Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. Vs ACIT (2017) 397 ITR 1, the ld. AR submitted that in that case, the Hon’ble Apex Court had found that assessee was carrying to 126/Del/2019 4 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. on the activities which were in violations of provisions of MACSA under which it was formed and the Hon’ble Court had also observed that non members were also making deposits with the assessee. The ld. AR submitted that in fact the said judgment of Hon’ble Supreme court is in favour of the assessee and in this respect our attention was invited to paras 22 to 24 of the said order.
The ld. Departmental Representative, on the other hand, submitted that ld. CIT(A) has distinguished the case law decided by the Hon’ble Tribunal and when the Hon’ble Tribunal had decided the issue in favour of the assessee, the order of Hon’ble Supreme Court order in the case of Citizen Co-operative Society Ltd. Vs ACIT (supra) was not available. The ld. DR heavily placed his reliance on the orders of authorities below.
I have heard the rival parties and have gone through the material placed on record, I find that the Hon’ble Tribunal in assessment year 2010-11 has already allowed relief to the assessee on similar issue by holding as under: “12. I have considered the submissions of both the parties and perused the record of the case. There is no dispute about the nature of activity carried on by assessee viz. providing credit facilities to its members only and not to general public. No deposits had been received from general public. The assessee had claimed deduction u/s 80P(2)(a)(i), however, the Assessing Officer invoked section 80P(4) holding the assessee as a co-operative bank. Therefore, the main issue to be decided is as to whether assessee falls u/s 80P(2)(a)(i) or u/s 80P(4). The assessee society had been formed for the benefit of employees of M/s Sri Ram Pistons and Rings Ltd. and was extending credit facilities to its members/employees on the basis of cooperative principles. This was primarily for the benefit of its members only. Before coming to any conclusion, it would be useful to consider section 80P(2)(a)(i) and section 80P(4), which reads as under:- to 126/Del/2019 5 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. “80P(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 .......... “80P(4) The provisions of this section 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.” 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. 13. A bare reading of aforementioned section makes it clear that section 80P(2)(a)(i) uses the term ‘carrying on the business of banking’ whereas section 80P(4) uses the term ‘co-operative bank’. Explanation to section 80P(4) defines co-operative bank as meaning assigned to them in Part V of the Banking Regulations Act. This takes me to section 3 of BRA which restricts its applicability to co-operative societies as under :- (a) a primary agricultural credit society; (b) a co-operative land mortage bank; and (c) any other co-operative society, except in the manner and to the extent specified in Part V of BRA. Thus, it is evident that to a very limited extent the BRA has been made applicable to co-operative societies. Therefore, very strict interpretation is to be made. 14. Now coming to section 5 of the BRA. This reads as under:- to 126/Del/2019 6 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. 5. Interpretation – (In this Act) unless there is anything repugnant in the subject or context – 15. This implies that the terms defined in section 5 shall have same meaning throughout the Act unless the context otherwise requires. Therefore, the term ‘banking’ as defined in section 5(b) cannot be understood in any other manner throughout the Act other than as defined in section 5(b), which reads as under :- “5(b) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise;” 16. Admittedly, this condition and also other aspects, as noted above, in ld. counsel’s argument have not been fulfilled in the case of assessee and, therefore, at the very threshold it can be concluded that the assessee does not come within the ambit of term ‘banking’. For a co-operative society to come within the ambit of section 80P(4), it is necessary that it should come within the term ‘banking’ as mandated under BRA. On examination of the provisions of section 80P(2)(a)(i), I find that the said section has two limbs (a) cooperative society should be engaged in carrying on the business of banking; and, (b) providing credit facilities to its members. Thus, it is clear that every kind of banking activity, other than the one to be carried on by co- operative bank as defined in Part V of BRA, will come within section 80P(2)(a)(i). Had the intention of legislature been to deny the benefit of all kinds of banking activity, it would not have retained section 80P(2)(a)(i) after introducing section 80P(4). 17. From the above, it is evident that merely because a co- operative society is carrying on the business of banking, the deduction u/s 80P could not be denied unless it comes within the ambit of cooperative bank as contemplated u/s 80P(4). Therefore, even if, it is held that assessee was carrying on activity of banking still since, it did not answer the description of ‘banking’ as contemplated under the Banking Regulations Act, 1949, it cannot be held to be cooperative bank. Ld. CIT(A) has referred to the provisions of section 56(ccv) of Banking Regulations Act, 1949 for concluding the assessee as ‘primary cooperative bank’. In this regard, it is necessary to examine as to what is the ITA Nos. 123 to 126/Del/2019 7 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. primary object or principal business of assessee. From the forgoing discussion, it is clear that there cannot be any dispute that if the primary object or principal business is banking as contemplated under BRA then only the cooperative society will come within the ambit of primary cooperative bank. Now what is banking has been defined in section 5(b) of the Banking Regulations Act, 1949 and section 56, nowhere states that the context in which primary cooperative bank has been defined is in context different from that as contemplated u/s 5(b) of the Banking Regulations Act, 1949. Therefore, only those transactions of banking business come within the ambit of clause (ccv) of section 56 which meet the mandate of section 5(b) of the Banking Regulations Act, 1949. I find that Hon’ble Karnataka High Court in the case of Shri Laxmi Credit Souhard Sahakari Ltd. (supra) has upheld the claim of assessee under identical circumstances and, therefore, respectfully following the decision of Hon’ble Karnataka High Court, the assessee’s claim is allowed.”
The ld. CIT(A) did not accept the order of Tribunal and tried to distinguish it by pointing out certain figures from the profit and loss account reproduced by her in her order. The first observation is regarding interest paid to others. The ld. AR had filed a complete set of balance sheet and profit and loss account wherein the said figure has been mentioned against the column of interest paid to members and further the balance sheet shows that there was no deposits or loans to non members. As regards the observations of ld. CIT(A) that assessee had earned income from non members such as Zila Sehkari Bank Ltd., I find that as per U. P. Co-operative Society Act, 1965 vide clause 59, the assessee is statutorily required to invest its funds in the shares or debentures of any other co-operative society or with any bank approved for this purposes by the Registrar or any other mode as prescribed by that law. The ld. CIT(A) has not examined this fact as to whether the income from Zila Sehkari Bank Ltd. was from the bank or Co-operative Society duly approved by the Act. As regards, the observation of ld. CIT(A) that assessee had made payments of Shri Ram Piston which was to 126/Del/2019 8 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. a non member, I find that these entries are contra entries wherein the same amount has been shown as receipts as well as payments.
As regards, the reliance placed by ld. CIT(A) on the order of the Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd., I find that this case laws is in fact in favour of the assessee as has been observed by the Hon’ble Supreme court from paras 18 to 24 which for the sake of completeness is reproduced below: “18. We may mention at the outset that there cannot be any dispute to the proposition that Section 80P of the Act is a benevolent provision which is enacted by the Parliament in order to encourage and promote growth of co-operative sector in the economic life of the country. It was done pursuant to declared policy of the Government. Therefore, such a provision has to be read liberally, reasonably and in favour of the assessee (See – Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 (SC). It is also trite that such a provision has to be construed as to effectuate the object of the Legislature and not to defeat it (See – CIT v. Mahindra & Mahindra Ltd. [1983] 144 ITR 225/15 Taxman 1 (SC). Therefore, it hardly needs to be emphasised that all those co-operative societies which fall within the purview of Section 80P of the Act are entitled to deduction in respect of any income referred to in sub-section (2) thereof. Clause (a) of sub-section (2) gives exemption of whole of the amount of profits and gains of business attributable to anyone or more of such activities which are mentioned in sub-section (2). 19. Since we are concerned here with sub-section (i) of clause (a) of sub-section (2), it recognises two kinds of co- operative societies, namely: (i) those carrying on the business of banking and; (ii) those providing credit facilities to its members. 20. In the case of Kerala State Cooperative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814/98 Taxman 313, this Court, while dealing with classes of societies covered by Section 80P of the Act, held as follows: "6. The classes of societies covered by Section 80-P of the Act are as follows: to 126/Del/2019 9 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. (a) Engaged in business of banking and providing credit facilities to its members; 7. We may notice that the provision is introduced with a view to encouraging and promoting growth of cooperative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a cooperative society is exempt from tax what has to be seen is whether income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption..." 21. In the case of CIT v. Punjab State Co-operative Bank Ltd. [2008] 300 ITR 24/169 Taxman 290, while dealing with an identical issue, the High Court of Punjab and Haryana held as follows: "8. The provisions of section 80P were introduced with a view to encouraging and promoting the growth of the co- operative sector in the economic life of the country and in pursuance of the declared policy of the Government. The different heads of exemption enumerated in the section are separate and distinct heads of exemption and are to be treated as such. Whenever a question arises as to whether any particular category of an income of a co- operative society is exempt from tax, then it has to be seen whether such income fell within any of the several heads of exemption. If it fell within any one head of exemption,.... It means that a co-operative society engaged in carrying on the business of banking and a co- operative society providing credit facilities to its members will be entitled for exemption under this sub-clause. The carrying on the business of banking by a cooperative society or providing credit facilities to its members are two different types of activities which are covered under this sub-clause. 13. So, in our view, if the income of a society is falling within any one head of exemption, it has to be exempted ITA Nos. 123 to 126/Del/2019 10 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. from tax notwithstanding that the condition of other heads of exemption are not satisfied. A reading of the provisions of section 80P of the Act would indicate the manner in which the exemption under the said provisions is sought to be extended. Whenever the Legislature wanted to restrict the exemption to a primary co- operative society, it was so made clear as is evident from clause (f) with reference to a milk co-operative society that a primary society engaged in supplying milk is entitled to such exemption while denying the same to a federal milk co-operative society."
The aforesaid judgment of the High Court correctly analyses the provisions of Section 80P of the Act and it is in tune with the judgment of this Court in Kerala State Cooperative Marketing Federation Ltd. (supra).
With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a co-operative bank. However, if it is a primary agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act.
Undoubtedly, if one has to go by the aforesaid definition of 'co-operative bank', the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P.”
Upto para 24, the Hon’ble Apex Court has held that the assessee was not hit by the provisions of Sub-section (4) of Section 80P of the Act. However, in para 25, the Hon’ble Court has noted the observation of Assessing Officer whereby he had observed that assessee was making deposits and making loans to non members to 126/Del/2019 11 Shri Ram Piston and Rings Employees Salary Earners Co-op. Credit and Thrift Society Ltd. also and therefore, on this specific findings the Hon’ble Court had arrived at the conclusion that principle of mutuality was missing in that case.
In view of the above facts and circumstances, I deem it appropriate to remit the issue back to ld. CIT(A) who should decide the issue afresh after keeping into account the judgment of Hon’ble Supreme Court vis-à-vis activities of the assessee. The ld. CIT(A) should also re-examine the entries in the Profit and Loss Account & Balance Sheet to arrive at the conclusion as to whether assessee was dealing with non members or not. Needless to say that assessee should be provided sufficient opportunity of being heard.
In the result, the appeals of the assessee are allowed for statistical purposes. (Order pronounced in the Court on 29t h day of May, 2019 at New Delhi)