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Income Tax Appellate Tribunal, D Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R Per Ravish Sood, JM The present appeals filed by the revenue are directed against the consolidate order of the CIT(A)-33, Mumbai dated 27.10.2016 which in turn arises from the order passed by the A.O under Sec.143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 27.10.2016, 23.03.2015 and 17.02.2016 for A.Y 2010-11, A.Y. 2012-13 and A.Y 2013-14, respectively. As a common issue is involved in the aforementioned appeals, therefore, the same are being taken up together and are disposed off by way of a consolidate order. We shall first take up the appeal of the revenue for A.Y. 2010-11. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of the deduction u/s 80P(2)(a)(i) of Rs. 30,83,113/- without appreciating the addition of the AO.
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2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that primary object of the assessee is to engage in carrying of business of banking as mentioned in Audit Report.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee fulfills the conditions laid down u/s 56(c)(ccv) of Part V of Banking Regulation Act, 1949 and covered under purview of co-operative bank and attracts the provisions of section 80P(4) of the Income Tax Act, 1961 and thus the assessee is not eligible for deduction u/s 80P(2)(a)(i) r.w.s. 80P(4) of the Income Tax Act, 1961. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the assessee provides loan and advances to its members, such activities are carried out only by a scheduled bank or non scheduled bank or a cooperative bank. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that are different in this case than the judgment of Hon’ble Bombay High Court in the case of Quepem Urban Cooperative Credit Society Ltd. Vs. ACIT, dt. 17.04.2015 (2015) 58 Taxmann.com 113(Bombay). 6. The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 7. The appellant craves leave to amend or to alter any grounds or add a new ground which may be necessary.”
Briefly stated, the assessee which is a co-operative credit society carrying on finance/banking business i.e. financing their members and collecting deposits from them by way of FD‟s etc. had filed its return of income for A.Y. 2010-11 on 12.11.2010, declaring total income of Rs.nil. The case of the assessee society was selected for scrutiny assessment and the assessment was completed under Sec.143(3) on 27.12.2012, accepting the returned income. Subsequently, the case of the assessee was reopened under Sec.147 of the Act.
On a perusal of the income and expenditure account and balance sheet of the assessee co-operative society as on 31.03.2010, it was observed by the A.O that major receipts of Rs.1,74,87,355/- were by way of “interest on loan” and “interest on FD‟s with bank”. Further, on the expenditure side the major item of expenditure was towards “interest on bank deposits” of Rs.1,34,95,347/-. Other receipts of the income were by way of service charges, form fees, notice fees etc. In the backdrop of the aforesaid facts, it was observed by the A.O that the activity being carried out by the assessee P a g e | 3 7572 & 7573/Mum/2016 The ITO-(2)(3) Vs. More Mauli was accepting deposits and extending loan facilities to its members. It was noticed by the A.O that the assessee had shown a gross total income of Rs.30,83,113/- in its „return of income‟, which was claimed as a deduction under Sec. 80P of the Act. However, the A.O was not persuaded to subscribe to the aforesaid claim of deduction raised by the assessee under Sec.80P of the Act. The A.O held a conviction that the assessee being a primary cooperative bank was hit by the provisions of Sec. 80P(4), and thus was not eligible to claim deduction under Sec. 80P(2)(a)(i). The contention of the assessee that it was a co-operative credit society providing banking/credit facilities only to its members and was not a co-operative bank providing banking/credit facility to the public at large, did not find favour with the A.O. It was observed by the A.O that deduction allowable under Sec.80P (2)(a)(i) in the case of cooperative credit society engaged in carrying on the business of banking (co-operative banks) was withdrawn by the legislature in all its wisdom from the assessment year 2007-08, except in the case of a “primary agricultural credit society” or “a primary co-operative agricultural and rural development bank”. It was noticed by the A.O that subsection (4) of Sec.80P was inserted by the finance Act, 2006 w.e.f. 01.04.2007, which provided that provision of Section 80P shall not apply in relation to any co- operative bank other than a “primary agricultural credit society” or a “primary co-operative agricultural and rural development bank”. Further, It was observed by him that the Explanation to Sec. 80P(4) clearly defined the expressions “co-operative bank”, “primary agricultural credit society” and “primary cooperative agricultural and rural development bank”. It was also noticed by him that as per the Finance Act, 2006 sub-clause (viia) to Sec.2(24) had been inserted, so as to provide that the profit and gains of any business of banking (including providing credit facilities) carried out by a co- operative society with its members shall be included in the definition of „income‟. On the basis of the aforesaid deliberations, it was observed by the A.O that as the assessee fulfilled all the three conditions laid down under Sec.56(c)(ccv) of Part V of the Banking Regulation Act, 1949 viz. (i) the primary object of the principal business of the co-operative society is the transaction of banking business; (ii) the paid-up share capital and reserves P a g e | 4 7572 & 7573/Mum/2016 The ITO-(2)(3) Vs. More Mauli of the co-operative society are not less than one lakh of rupees -; and (iii) the bye laws of the co-operative society did not permitted admission of any other co-operative society as a member, therefore, it clearly fell within the category of a primary co-operative bank. In the backdrop of his aforesaid deliberations the A.O was of the view that the assessee being a primary co- operative bank would thus be hit by the provision of Sec. 80P (4) of the Act, and as such w.e.f A.Y 2008-09 would not be eligible for claim of deduction under the said section. On the basis of his aforesaid observations the A.O declined the claim of deduction of the assessee society under Sec.80P and assessed its income at Rs.30,83,113/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating at length on the contentions advanced by the assessee observed that the assessee was a co-operative credit society providing banking/credit facilities to its members, and was not a co- operative bank providing banking/credit facility to the public at large. It was noticed by the CIT(A) that sub-section (4) of Sec. 80P which was inserted by the Finance Act, 2006 w.e.f 01.04.2007 provided that the provisions of the said section shall not apply in relation to any co-operative bank other than a “primary agricultural credit society” or “a primary agricultural and rural development bank”. Further, it was observed by the CIT(A) that Sec. 80P(2)(a)(i) provided that the deduction was available to a society in respect of the whole of the amount of profits and gains of business “attributable to” the specified activities of the co-operatives society. The CIT(A) was of the view that the term “attributable to” which was much wider in impact than the expression “derived from”, would also cover receipts from other activities related to the business of banking.
The CIT(A) further deliberating on the issue as to whether the assessee as observed by the A.O could be held to be a primary co-operative bank referred to the judgment of the Hon‟ble High Court of Bombay in the case of Quepem Urban Credit Society Ltd. Vs. ACIT, (2015) 58 Taxman.com 113 (Bom). It was observed by the CIT(A) that the Hon‟ble High Court in its P a g e | 5 7572 & 7573/Mum/2016 The ITO-(2)(3) Vs. More Mauli aforesaid judgment has held that an assessee cannot be considered to be a co-operative bank for the purposes of Sec.80P(4) unless the 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 one lac. (iii) its bye laws do not permit admission of any other co-operative society as its member.
On analysis of the above conditions, it was observed by the CIT(A) 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 backdrop of his aforesaid view the CIT(A) held a conviction that as in the case of assessee co- operative society the acceptance and lending of money was only from the members and not from the public, thus it could safely be concluded that the principal business or primary objective of the assessee co-operative credit society was not the business of banking. On the basis of his aforesaid observations the CIT(A) was of the view that first condition mentioned hereinabove was not satisfied by the assessee. Further, it was noticed by the CIT(A) that there was a clear distinction between Co-operative banks registered under the Banking Regulations Act, 1949 and Co-operative societies registered under Co-operative Societies Act. The CIT(A) was thus of the view, that the assessee could not be categorised as a Co-operative bank governed under the Banking Regulations Act, 1949. In support of his aforesaid view the CIT(A) relied on the judgment of the Hon‟ble High Court of Karnataka in the case of Shri Vardhaman Urban Co-operative Credit Society Ltd. Vs. CIT [ITA No. 100038 of 2014, dated 21.09.2015], wherein in context of Sec. 80P(4), it was held by the Hon‟ble High Court that all the co- operative credit societies are eligible for deduction under Sec.80P(2)(a)(i), unless they were declared as a bank by the Reserve Bank of India. Since the assessee was not recognized as a bank by the Reserve Bank of India, P a g e | 6 7572 & 7573/Mum/2016 The ITO-(2)(3) Vs. More Mauli therefore, the CIT(A) was of the view that it could not be treated as a Co- operative bank. On the basis of his aforesaid observations the CIT(A) concluded that as the assessee was a Co-operative credit society and not a primary co-operative bank, hence, it would not be hit by the provisions of Sec. 80P(4) of the Act. In the backdrop of his aforesaid deliberations, the CIT(A) observing that the assessee not being a primary co-operative bank was thus duly entitled for claim of deduction under Sec.80P(2)(a)(i) allowed the appeal of the assessee.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that despite the fact that the respondent assessee was put to notice as regards the date of hearing of the appeal however, neither it had put up an appearance nor any application seeking an adjournment has been filed before us. In the backdrop of the aforesaid facts we are constrained to proceed with as per Rule 25 of the Appellate Tribunal Rules, 1963 and dispose off the appeal after hearing the appellant revenue. The ld. Departmental Representative (for short „D.R‟) has relied on the order passed by the A.O. It was submitted by the ld. D.R that the CIT(A) had wrongly held that the assessee being a co-operative credit society would be eligible for claim of deduction under Sec.80P(2)(a)(i) of the Act.
7. We have heard the ld. D.R and have perused the orders of the lower authorities. We have deliberated at length on the orders of the lower authorities and are persuaded to subscribe to the observations of the CIT(A) that as the assessee which is a co-operative credit society is not a primary co-operative bank, hence, it would not be hit by the provisions of Sec.80P(4) as had been made available on the statute by the Finance Act, 2006, w.e.f 01.04.2007. In this regard, we find ourselves as being in agreement with the observations of the CIT(A) that it is absolutely mandatory for a co-operative society to seek a licence from the Reserve Bank of India to form and operate as a co-operative bank. Further, a perusal of Circular No. 312 of Reserve Bank of India, reveals the process involved for conversion of a co-operative P a g e | 7 7572 & 7573/Mum/2016 The ITO-(2)(3) Vs. More Mauli credit society into a primary co-operative bank. Admittedly, in the case before us the assessee being a co-operative credit society is neither authorized nor had undertaken any of the banking business activities as are carried out by a primary co-operative bank, but had only provided financial assistance/credit to its members, thus it can safely be concluded that the assessee cannot be held to be a co-operative bank. On the basis of our aforesaid deliberations, we are persuaded to be in agreement with the observations of the CIT(A) that the assessee would not be hit by the provisions of Sec.80P(4) of the Act. We thus being in agreement with the view taken by the CIT(A) that the claim of the assessee under Sec. 80P(2)(a)(i) was in order, thus uphold the same.
The appeal of the revenue is dismissed.
A.Y. 2012-13 10. We shall now advert to the appeal of the revenue for A.Y 2012-13. The revenue has assailed the order of the CIT(A) on the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of the deduction u/s 80P(2)(a)(i) of Rs. 61,51,883/- without appreciating the addition of the AO.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that primary object of the assessee is to engage in carrying of business of banking as mentioned in Audit Report.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee fulfills the conditions laid down u/s 56(c)(ccv) of Part V of Banking Regulation Act, 1949 and covered under purview of co-operative bank and attracts the provisions of section 80P(4) of the Income Tax Act, 1961 and thus the assessee is not eligible for deduction u/s 80P(2)(a)(i) r.w.s. 80P(4) of the Income Tax Act, 1961.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the assessee provides loan and advances to its members, such activities are carried out only by a scheduled bank or non scheduled bank or a cooperative bank.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that are different in this case than the judgment of Hon'ble Bombay High Court in the case of Quepem Urban Cooperative Credit Society Ltd. Vs. ACIT, dt. 17.04.2015 (2015) 58 Taxmann.com 113(Bombay).
P a g e | 8 7572 & 7573/Mum/2016 The ITO-(2)(3) Vs. More Mauli 6. The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 7. The appellant craves leave to amend or to alter any grounds or add a new ground which may be necessary.”
Briefly stated, the assessee had e-filed its „return of income‟ for A.Y. 2012-13 on 04.09.2012, declaring total income at Rs.nil. The case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. The A.O being of the view that the assessee being a primary co-operative bank would be hit by the provisions of Sec. 80P(4), thus declined its claim of deduction under Sec.80P (2)(a)(i) of Rs.61,51,883/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A) The CIT(A) being of the view that as the assessee was not a primary co- operative bank but a co-operative credit society, hence it would not be hit by the provisions of Sec.80P(4) of the Act. On the basis of his aforesaid observations the CIT(A) allowed the appeal of the assessee.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the revenue in the assesses own case for A.Y 2010-11, i.e therefore, our order passed while disposing off the said appeal shall apply mutatis mutandis for the disposal of the present appeal. In terms of our aforesaid observations, the appeal of the revenue for the year under consideration viz. A.Y. 2012-13 in , in the same terms is dismissed.
The appeal of the revenue is dismissed in terms of our aforesaid observations. A.Y. 2013-14 15. We shall now advert to the appeal of the revenue for A.Y. 2013-14. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal:
P a g e | 9 7572 & 7573/Mum/2016 The ITO-(2)(3) Vs. More Mauli “1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of the deduction u/s 80P(2)(a)(i) of Rs. 71,17,204/- without appreciating the addition of the AO.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that primary object of the assessee is to engage in carrying of business of banking as mentioned in Audit Report.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee fulfills the conditions laid down u/s 56(c)(ccv) of Part V of Banking Regulation Act, 1949 and covered under purview of co-operative bank and attracts the provisions of section 80P(4) of the Income Tax Act, 1961 and thus the assessee is not eligible for deduction u/s 80P(2)(a)(i) r.w.s. 80P(4) of the Income Tax Act, 1961.
On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the assessee provides loan and advances to its members, such activities are carried out only by a scheduled bank or non scheduled bank or a cooperative bank.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that are different in this case than the judgment of Hon’ble Bombay High Court in the case of Quepem Urban Cooperative Credit Society Ltd. Vs. ACIT, dt. 17.04.2015 (2015) 58 Taxmann.com 113(Bombay).
6. The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored..
The appellant craves leave to amend or to alter any grounds or add a new ground which may be necessary.”
Briefly stated, the assessee society had filed its return of income for A.Y. 2013-14 on 25.09.2013, declaring total income of Rs.nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2) of the Act.
The A.O being of the view that the assessee being a primary co- operative bank would be hit by the provisions of Sec. 80P(4), thus declined the claim of deduction of Rs. 71,17,208/- that was raised by the assessee under Sec.80P(2)(a)(i).
Aggrieved, the assessee carried the matter in appeal before the CIT(A) The CIT(A) being of the view that as the assessee was not a primary co- operative bank but a co-operative credit society, hence it would not be hit by the provisions of Sec.80P(4) of the Act. On the basis of his aforesaid observations the CIT(A) allowed the appeal of the assessee.
P a g e | 10 7572 & 7573/Mum/2016 The ITO-(2)(3) Vs. More Mauli 19. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the revenue in the assesses own case for A.Y 2010-11, i.e ITA No. 7571/Mum/2016, therefore, our order passed while disposing off the said appeal shall apply mutatis mutandis for the disposal of the present appeal. In terms of our aforesaid observations, the appeal of the revenue for the year under consideration viz. A.Y. 2013-14 in ITA No. 7573/Mum/2016, in the same terms is dismissed.
The appeal of the revenue is dismissed in terms of our aforesaid observations.
The appeals of the revenue for A.Y: 2010-11 in A.Y: 2012-13 in A.Y: 2013- 14 in ITA No. 7573/Mum/2016, are dismissed in terms of our aforesaid observations.