M/S. MILLENNIUM CREDIT CO-OPERATIVE SOCIETY LIMITED,BENGALURU vs. INCOME TAX OFFICER, WARD-5(2)(3), BENGALURU

The Assessing Officer has concluded that the assessee is a cooperative bank falling u/s.80P(2)(d) of the Act, in para 6 and 7 of the order, as under : 6. The assessee fulfils all the criteria laid down in section 5(cci) and is consequently a primary co-operative bank referred to in section 5(cci) of the Banking Regulation Act, 1949, referred to in Explanation below sub-section (4) of section 80P. Hence, the Provisions of section 80P(4) are attracted as per which the assessee is not eligible for claiming a deduction under section 80P(2)(a)(i) of the Income Tax act, 1961. 7. As per the details furnished by the assessee, it has earned net interest income of Rs 17,65,921 from deposits in banks. The Hon'ble Supreme Court of India in the case of the Totgars Co- operative Sale Society Ltd v/s Income Tax Officer in Appeal No. 1622 of 2010 decided on 8th February 2010 has held that the Interest earned by co-operative society on surplus funds invested in short term deposits with banks and in Govt. Securities are not eligible for deduction u/s 80P. The words "the whole of the amount of profits and gains of business" in section 80P(2)(a) emphasizes that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. In view of the above discussion, the claim on this interest income is also to be disallowed as per the provisions of Section 80P(2)(d).

On appeal, the assessee submitted before the CIT (A) that the assessee is not a cooperative bank, but a cooperative society, that was doing the business of lending credit to its members only. However, the CIT (A) relying on the judgment of the Hon’ble Supreme Court in Citizen Cooperative Society v. ACIT,[397 ITR 1] has denied the claim of the assessee on the following two folds : i) That the assessee is lending funds to its non-members ; ii) The activities of its business falls within the realm of cooperative bank, Therefore the assessee is not entitled to the benefit of Section 80P.

Before us, the Ld. AR submitted that the assessee is not having the banking licence and therefore is entitled to the benefit of Section 80P as per para 24 of the judgment of the Hon’ble Supreme Court in Citizen Cooperative Society (supra), which reads as under :

We have heard the rival contentions and perused the material on record. As per para 24 of the Hon’ble Supreme Court in Citizen Cooperative Society (supra), which is reproduced supra, it is incumbent upon any society / bank to have the licence from RBI for the purposes of doing the business of banking. In the case before the Hon’ble Supreme Court, the assessee had obtained a certificate from the RBI clarifying that the assessee’s business does not fall under the category of cooperative bank. In our view, it will be equitable in the interest of justice if the matter is remanded back to the file of the AO with a direction to verify the activities of the assessee and further the assessee is directed to furnish the certificate / circular from the RBI to the effect that the activity / business functions of the assessee do not attract the Banking Regulations Act and hence do not require any licence from RBI. Needless to say if the assessee furnishes the certificate from the RBI clarifying that the activity of the assessee do not fall under the activity of cooperative bank then the AO shall allow the claim of deduction u/s.80P(4) of the Act.

With respect to the second dispute whether the assessee is a cooperative society or not, in many cases, the Tribunal has held that the stand of the Revenue that a Souharda is a cooperative but not a co operative society under the ACT and hence, not eligible for deduction u/s.80P. In a recent order in the matter of M/s. Udaya Souharda Credit Co operative Society Ltd [ITA No.2831/Bang/2017, dt.17.08.2018, it was noted that Karnataka State has notified Karnataka Co – Operative Societies Act, 1959 as well as the Karnataka Souharda Sahakari Act, 1997 and both Acts are in force. Therefore, conversion from one into another is possible. Thereafter the Tribunal held that the deduction u/s.80P can only be applied to a cooperative society registered under the Karnataka Co- Operative Societies Act, 1959 and thereafter the matter was restored back to the AO for fresh decision after making necessary enquiry and investigation.

In the light of above observation / direction in Para 6 and 8, appeals of the assessee are treated as allowed for statistical purpose.