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Income Tax Appellate Tribunal, “SMC-A” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
M/s. Pavamana Credit Co- operative Society Ltd., No. 51, Sriram Madhva The Income Tax Sangha Building, 5th Main Officer, vs. Road, Ward – 5 (2) (4), Chamrajpet, Bangalore. Bangalore – 560 018. PAN: AAABP0320J APPELLANT RESPONDENT Appellant by : Shri R.E. Balasubramanyam, CA Respondent by : Shri A. Ramesh Kumar, JCIT (DR) Date of hearing : 16.01.2019 Date of Pronouncement : 18.01.2019 O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against the order of ld. CIT (A)-5, Bangalore dated 28.09.2018 for Assessment Year 2015-16.
The grounds raised by the assessee are as under. “The Appellant objects to the order of the Ld.CIT (A) on the grounds:
Tax Effect in Grounds Raised
INR
1. That the impugned order is opposed to facts and law in so far as it is pre-judicial to General Ground the interests of the Appellant.
2. That the Ld.CIT(A) erred in confirming the order of the Ld.AO denying the deduction under section 80P of the Income Tax Act and in doing so he failed to appreciate the fact 7,76,489 that the Assessee is a co operative society without a banking license and is not at all involved in the banking activity and is as such eligible for deduction under 80P(2).
3. That the Ld. CIT(A) misdirected himself in applying the ratio of Citizen Co-operative Society Ltd. Hyderabad vs. ACIT Hyderabad same as above (SC) inasmuch as the Appellant is engaged in the business of extending credit solely to its members.
4. That the Ld.CIT(A) erred in denying the deduction under section 80P(2) of the Income Tax Act in respect of interest income received from various bank and in doing so a) The Ld.CIT (A) failed to appreciate that the interest income from other banks are attributable to profits and gains of the business of extending credit facilities to Appellant's members. b) The Ld.CIT(A) erred in applying the Decision same as above of the Honorable Supreme Court in the case of Totagars Co-Operative Society and failed to appreciate that the business of the Appellant consists entirely of extending credit facilities only to its members and the interest income from various banks arose only on account of keeping the surplus funds for the time being in anticipation of lending the same to the members as there were no ready borrowers for the said amount.
Without prejudice to Ground no.4 and as an alternate plea the Appellant further submits that the income earned is entitled for deduction u/s 80P (2) (d) of the Act inasmuch as the co- operative banks are also co-operative societies as per section 2(b1) of Karnataka Co-operative Societies Act, 1959.
The appellant prays for leave to add, delete, modify and/or adduce additional ground at any time before the appeal is disposed off. For these and such other grounds that may be adduced or removed in time to time, it is requested that the Hon'ble ITAT may be pleased to examine the case in the light of justice and grant the relief sought for.”
It was submitted by ld. AR of assessee that in the present appeal, the decision is required on two aspects. He submitted that the first aspect is this as to whether the assessee is a co-operative bank or not. He submitted that the authorities below has followed the judgment of Hon’ble Apex Court rendered in the case of The Citizen Co-operative Society Ltd. Vs. ACIT as reported in 397 ITR 1 and held that the assessee is a co-operative bank and therefore, not eligible for deduction u/s. 80P. He submitted that as per this judgment of Hon’ble Apex Court, if the assessee is not holding any license from RBI to do banking business, then the assessee cannot be considered Page 3 of 5 as co-operative bank. At this juncture, the bench pointed out that as per the same judgment of Hon’ble Apex Court, in Para 24, it was held that in that case, the assessee has filed certificate from Reserve Bank of India regarding the nature of business of the assessee and in the same case, the RBI has itself clarified that the business of the assessee does not amount to that of a co-operative bank. The bench pointed out that in the present case also, the assessee has to obtain a certificate from RBI regarding his nature of business. In reply, it was submitted by ld. AR of assessee that if the matter is restored back to the file of AO then the assessee will obtain and submit certificate from RBI within reasonable time.
Thereafter he submitted that the second issue to be decided is whether the deduction is allowable in respect of interest from bank. He submitted that on this issue, although the judgment of Hon'ble Karnataka High Court rendered in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. as reported in 395 ITR 611 (Karn) is against the assessee but another judgment of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO as reported in 230 Taxman 309 is in favour of the assessee and in the facts of present case, this judgment in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra) is applicable. At this juncture also, the bench pointed out that the facts of present case has to be examined in the light of these two judgments and if it is found that the facts of the present case are in line with the facts in the case PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. (supra) then the issue should be decided against the assessee and if it is found that the facts of the present case are in line with the facts in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra) then only the issue can be decided in favour of the assessee and since there is no finding of any of the authorities below on this aspect, this issue also has to go back to the file of AO for fresh decision after examining the facts of present case in the light of these two judgments of Hon'ble Karnataka High Court. In reply, ld. AR of assessee also agreed to this proposition put forward by the bench. The ld. DR of revenue supported the orders of authorities below.
5. I have considered the rival submissions and in view of above discussion, I set aside the order of CIT (A) and restore the matter back to the file of AO for fresh decision on two aspects. First aspect to be decided by him is this as to whether the assessee is a co-operative bank or not. For deciding this aspect of the matter, the assessee is directed to obtain certificate from RBI regarding the nature of business of assessee society within reasonable time and if it is certified by RBI that the assessee’s business is not that of a co- operative bank then it cannot be said that the assessee is a co-operative bank. If it is found that assessee is a co-operative bank then assessee cannot be allowed any deduction u/s. 80P but if it is found that the assessee is not a co-operative bank then in respect of deduction u/s. 80P for interest income from bank, the facts of the present case has to be examined in the light of these two judgments of Hon'ble Karnataka High Court rendered in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. (supra) and Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra) and if it is found that the facts of present case are in line with the facts in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. (supra), then the issue should be decided against the assessee and if it is found that the facts of present case are in line with the facts in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra), then the issue should be decided in favour of the assessee. The AO should pass necessary order as per law in the light of above discussion after providing reasonable opportunity of being heard to assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.