INCOME TAX OFFICER 21(2)(2), MUMBAI vs. MAHAPALIKA KSHETRA MADHYAMIK SHIKSHAK SAHAKARI PATSANSTHA MARYADIT, MUMBAI

The revenue has filed the present appeal against the order dated 13.11.2017 passed by the Commissioner of Income Tax (Appeals) -33, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.

Under these issues the revenue has allowance of the claim u/s 80P(2)(a)(i) of the Act amounting to Rs.69,60,770/-. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly allowed the claim of the assessee, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-

Sub-section (4) of section SOP was introduced by the Finance Act, 2006 and reads as under: 'The provisions of this section shall not apply in relation to any co- operative bank other that a primary agricultural credit society or a primary co-operative agricultural and rural development bank."

From the plain reading of the above section, it is clear that the legislative intent behind the introduction of the above section was not to allow the benefit of deduction u/s 80P(2)(a)(i) to the Co-Operative Banks carrying on the business of banking for providing credit facilities to its members. The Co-Operative Banks have been defined in the Explanation to sub-section (4) to section 80P as under:- '80P(4)(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) 14. The Co-Operative Banks have been defined in the Part V of the BanKing Regulation Act, 1949 at section 56 (cci) as "Co-Operative Bank" means a state Co- Operative Bank, a Central Co-Operative Bank and a primary Co-Operative Bank. 15. Further the "Credit Co-Operative society" has been defined at section 56 (ccii) Banking Regulation Act, 1949, as a Co- Operative society, the primary object of which is to provide the financial accommodation to its members and includes a Co- Operative land mortgage bank. 16. It is clear from the above definition of Co-Operative Bank" and Credit Co- Operative society" as defined in the Part V of the Banking Regulation Act, 1949, that the "Co-Operative Bank" and "Credit Co-Operative Society" are two different institutions by virtue of their functions and the nature of activities being carried out by them. The very fact that the both the "Co-Operative Bank" and the "Credit Co-Operative Society" are defined separately in the said Act further makes it clear that these are two different institutions and these terms cannot be used interchangeably. 17. The relevant provisions of Section 80P of the I.T. Act 1961, read as under:- "Sec. 80P Deduction in respect of income of cooperative societies — 1. Where in the case of an assessee, being a cooperative society, the gross total income includes any income referred to in sub section (2), these shall be deducted, in accordance with and A.Y.2014-15 subject to the provisions of this section, the sums specified in sub section (2), in computing the total income of an assessee.

The sums referred to in sub section (1), shall be the following viz:- a. In the case of a cooperative society engaged in — Carrying on the business of banking of providing credit facilities to its members, or, the whole amount of profits and gains of business attributable to any one or more of such activities. b. …………….. C……………… d. In respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society, the whole of such income."

It is clear from the bare reading of the section 80P(2)(a)(i) that by virtue of the section, in the case of a Co-operative Society carrying on the business of banking or providing credit facilities to its members, whole of the profits or gains attributable to such activities are eligible for deduction. It is important to note that deduction is available to the society in respect of the profits and gains 'attributable to' specified activities of the co-operative society. The words used in the section are, the whole amount of profits and gains of business attributable to any one or more of such activities. At the outset it is imperative to explain the term 'attributable to'.

As has been held by the Hon'ble Supreme Court, in the case of Cambay Electric Supply Industrial Co. Ltd., the expression 'attributable to', is certainly much wider in impact than the expression 'derived from'. The Legislature has used the words 'attributable to', in the Section 80P, in conjunction with the phrase 'any one or more of such activities', which further underscores the proposition that for the purpose of interpreting Section 80P of the Act, and giving deduction thereunder, the word 'attributable' is much wider in impact than 'derived'. Its wide amplitude covers A.Y.2014-15 receipts from other activities related to the business of banking. If there is some commercial connection of the income with the said business/activity, it must be held as attributable to business. It would be sufficient for an appellant to establish a proximate connection between the income in question and the activity referred to in section 80P(2)(a)(i), to claim a deduction thereunder.

From the above, it is clear that legislature has used the words 'attributable' in the section 80P(2)(a)(i), which means that in the course of banking activity, if the society receives any income which is the outcome of the business of banking of such society, such an income is profits and gains of the business and therefore eligible for deduction under section 80P(2)(a)(i) and the principle is applicable in the case of the appellant society too.

The appellant is a Cooperative Credit Society and the sources of funds at it's disposal are from the deposits from its members and the appellant society in turn provides credit facilities to it members. The activities of the appellant society are providing credit facilities to members, which involve acceptance of deposits from members, which are repayable on demand, for the purpose of lending or investment. Since deposits are repayable on demand, the appellant society needs to maintain sufficient liquidity. The society is required to lend/invest its funds prudently in such a manner, which is beneficial to its members.

In this regard, I find that the issue involved in the instant case is covered by the decision of Hon'ble Bombay High Court in the case of Quepem Urban Co-operative Credit Society Ltd. vsACIT dated 17.04.2015 (2015) 58 taxmann.com 113 (Bombay) wherein it is held that the assessee cannot be considered as a co-operative Bank for the purposes of section 80P(4) of the Act, unless 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 1 lac (iii) its bye-laws do not permit admission of any other co-operative society as its A.Y.2014-15 member 23. On analysis of the above conditions, I find that the word "banking" means 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. In the appellant's case, acceptance and lending of money are from members only. Hence,condition 1 mentioned above is not applicable to the appellant. Apart from that, the appellant has demonstrated clear distinction between Co- operative Banks registered under Banking Regulations Act, 1949 and Co-operative societies registered under Co-operative Societies Act. From that it is apparent that the appellant does not fulfill the criteria to qualify itself as Co-operative Bank governed under Banking Regulations Act, 1949. The above judgment has been followed by the Hon'ble Mumbai ITAT in a no. of cases including ITO vs. Govt. Central Printing Press (ITA no. 5030/M/2013 dated 29.07.2015) 24. It is further observed that the Hon'ble Karnataka High Court in the case of Shri Vardhaman Urban Co-operative Credit Society Ltd. vs. Commissioner of Income Tax (ITA no. 100038 of 2014 dated 21- 09-2015), has held that all the Co-Operative Credit Societies are eligible for deduction u/s 80P(2)(a)(i) unless they are declared a bank by the Reserve Bank of India. The extract of the judgment is as follows: "It is to be noticed that there is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescribing that in the event of a dispute as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi) of Section 56 of the BR Act, a determination thereof by the Reserve Bank shall be final, would require the dispute to be resolved by the Reserve Bank of India, before the authorities could term the assessee as a co-operative bank, for purposes of Section 80P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed by this court, however, as to the assessee being a co-operative society and not a co-operative bank in terms of Section SOP (4) of the IT Act, shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India."

Similar view has been expressed by the Hon’ble Gujarat High Court in the case of CIT v/s. MIs. Jafari Momin Vikas Coop. Credit, 442, 443 and 863 of 2013 dated 15th January, 2014. The relevant portion of the decision is re-produced as under: "From CBDT circular No. 133 of 2007 dated 9.5.2007 it can be gathered that subsection (4) of section SOP will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Coop Urban Thrift & Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a cooperative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue's contention that section 80P(4) would exclude not only the cooperative banks other than those fulfilling the description contained therein but also credit societies, which are not cooperative banks. In the present case, respondent assessee is admittedly not a credit co-operative bank but a credit co- operative society. Exclusion clause of sub-section (4) of section 80P, therefore, would not apply."

In view of the facts and circumstances as well as the judicial pronouncements explained above, in my considered opinion, the appellant society is a Credit Cooperative Society and not a Co-Operative Bank and thus not covered under the provisions of sub-section (4) of section 80P. Therefore, appellant society would be eligible for deduction under the provision of section 80P(2)(a)(i). The AO is directed accordingly. The grounds of appeal