Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI B. R. BASKARAN, AM & SHRI AMARJIT SINGH, JM
सुनवाई की तारीख / Date of Hearing: 30.10.2018 घोषणा की तारीख /Date of Pronouncement: 31.10.2018 आदेश / O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 26.05.2017 passed by the Commissioner of Income Tax (Appeals) -1, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2013- 14.
The revenue has raised the following grounds: - "
.1 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition A.Y.2013-14 of Rs.68,21,517/- on account of disallowance u/s 80P(2)(a)(i) of the Act. 2 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting above relief to the assessee without appreciating the fact that the assessee is carrying on the business of accepting deposits and advancing loans to its members which are the primary activities of any bank whether co-operative or otherwise. 3 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting above relief to the assessee by relying upon the decision of Hon’ble High Court in the case of Quepem Urban Cooperative Credit Society Ltd and the decision of the ITAT ‘C’ Bench Mumbai in the assessee’s own case for the A.Y. 2012-13 without appreciating the fact that both the decisions were not accepted by the revenue on merits and SLP was filed by the revenue against the judgment of Bombay High Court.
4. The order of the CIT(A) may be vacated and that of the AO may be restored.”
3. The brief facts of the case are that the assessee filed its return of income on 29.03.2016 declaring total income to the tune of Rs.39,900/- after claiming the deduction u/s 80P(2)(a)(i) of the I.T. Act of Rs.68,21,517/-. The return was selected for scrutiny under CASS. Statutory notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The show-cause notice was issued to the effect that the claim u/s 80P(2)(a)(i) of the Act was not allowable in accordance with law. The assessee filed the reply on 10.12.2015 and considering the reply, the AO denied the claim u/s 80P(2)(a)(i) of the Act and assessed the income to the tune of Rs.68,61,417/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
2 A.Y.2013-14
All the issues are in connection with the allowance of the claim by the CIT(A) u/s 80P(2)(a)(i) of the Act. The Ld. Representative of the Revenue has argued that the assessee was doing the banking business, therefore, the assessee was not entitled to the claim u/s 80P(4) of the Act but the CIT(A) has wrongly allowed the claim of the assessee, therefore, the finding of the CIT(A) is wrong against law and facts and 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 deemed it necessary to advert the finding of the CIT(A) on record: - “8. 1 have carefully considered the appellant's submissions, observations of the AO in the assessment order and the facts of the case. The appellant is a Primary Co-operative Credit Society accepting deposits and providing credit facilities from and to its members only. The issue involved in this case is whether the appellant is a Co-operative Bank or not because if the appellant is held to be a Co-operative Bank as has been held by the AO, men deduction allowed u/s. 80P(l) is taken away in terms of section 80P{4) of the I.T. Act, otherwise, if the appellant is a Co-operative Credit Society providing credit facilities to members, then whole of the profits earned by the appellant Society arc allowed to the society as deduction u/s, 80P(2)(a)(i), as claimed by the appellant. The main reason why the AO has disallowed deduction to the appellant is that according to the AO though the appellant is not a Co-operative Bank but as the appellant had accepted deposits and provided credit facilities to its members, the same was the primary activity of any bank. The same issue has been discussed and decided in detail in the appellants' own case for A.Y. 2012-13 by the CIT(A) by holding as under - "8. I have carefully considered the appellant's submissions, observations of the AO in the assessment order and the facts of the case. The appellant is a Primary Co-operative Credit Society accepting deposits and providing credit facilities from and members only. The issue involved in this case is whether the appellant is a Co-operative Bank or not because if the appellant is 3 A.Y.2013-14 held to be a Co-operative Bank as has been held by the AO, then deduction allowed u/s. SOP(J) is taken away in terms of section 80P(4) of the I.T. Act, otherwise, if the appellant is a Co-operative Credit Society providing credit facilities to its members, then whole of the profits earned by the appellant Society are allowed to the society as deduction u/s. 80P(2)(a)(i)l fix claimed by the appellant. The main reason why the AO had disallowed deduction to the appellant h that according to the AO though the appellant is not a Co-operative Bank but as the appellant had accepted deposits and provided credit facilities to Us members, the same was akin to the primary activity of any bank. The fact that the appellant accepts deposits and provide credit facilities members only, has not been disputed by the AO. Under these circumstances, cannot be held to be engaged in the business of banking as held in relied upon by the appellant as under – 9. In the case of Quepem Urban Co-op Credit Society Ltd (supra) the Hon'ble Bombay High Court held as under - 9. There is no dispute between the parties that the appellant is a cooperative society as the same is registered under the Co- operative Societies Ad. The appellant is claiming deduction of income earned on providing credit facilities to its members as provided tinder Section 80P(2)(a)(i) of the Act. It is appellant's case that, it is not carrying on the business of the banking. Consequently, not being a co-operative hank the provisions of Section 80P(4) of the Act would not exclude the appellant from claiming the benefit of deduction under Section 80P(2)(a}(i) of the Act However in terms of Section SOP of the Act the meaning of the words Cooperative Bank is the meaning assigned fail in Chapter F of the Banking Regulation Act, 1949. A cooperative bank is defined in Section 5(cci) of Banking Regulation Act lo mean a State Cooperative Bank a Central Cooperative Bank and a primary cooperative bank. Admittedly the appellant if, not a State Cooperative Bunk, a Central Cooperative Bank. Thus what has to be examined is whether the appellant is a primary Cooperative Bank as defined in Para f of he Banking Regulation Act. Section 5{ccv) of the Banking Regulation Act defines a primary cooperative bunk to mean a cooperative society which cumulatively satisfies the following three conditions:
4 A.Y.2013-14 (!) Its principal business or primary object should be banking business of Banking; (2) Its paid up share capital and reserves should not be less that rupees one lakh. (3) Its bye-laws do not permit admission of any other cooperative society as its member. It is accepted position that condition No. (2) is satisfied as the share capital in an excess of rupees one lakh. It has been the appellant's contention that the conditions No. (1) and (3) provided above are no! satisfied.
10. Therefore the issue that arises for consideration is -whether the appellant satisfies condition No. (I) and (3) above. The impugned order after referring to the definition of 'Banking Business' as defined in Section 5b of the Banking Regulation Act, held that the principal business of the Appellant is Banking. Section 5b of the Banking Regulation Act defines banking to mean accepting of deposits for the purpose of lending of investment^ of deposit of money from the which: repayable on demand or otherwise. The impugned order juxtaposes the definition with the finding of fact that the appellant did deal with non members in a few cases by seeing deposits. this read with Bye taw 43 leads to conclusion that it is carrying on banking business. This fact of accepting deposits from people who are not members has been so recorded by she C1T(A) in his order dated 15 July, 2014. Before the Tribunal Also She appellant did tint dispute the fad that in a Jew cases they have dealt with non members. However, so far as accepting deposits from non-members is concerned it is submitted that the Bye-law 43 only permits the society to accept deposits from its members, it is submitted that Bye laws 43 does not permit receipt of deposits from persons other than members, the word "any person" is a gloss added the impugned order as it is not found in Bye law 43. Il is undisputed that the transactions with non-members. On the above basis it cannot be concluded that the appellant's principal business is of accepting deposits from public and therefore it is in banking business. In fact the impugned order erroneously relies upon bye- law 4$ of the society which enables the society to receive deposits to conclude that it can receive deposits from public. However, the impugned order relies upon bye-law 43 lo conclude that ii enables 5 A.Y.2013-14 the appellant to receive deposits from any person is riot correct. Thus in the present fads she finding that the appellant's principal business is of Banking is perverse as it is not supported by the evidence on record So far as the issue of primary object of the appellant is concerned the impugned order gives no finding on that basis to deprive the appellant the benefit of Section 80P of the Act. The impugned order sets out the object clause of the appellant, which has 24 objects hut thereafter draws no sequiter to conclude that the primary object ja flanking. Consequently there is no occasion to deal with the same as that is not the basis on which the impugned order holds that is a Primary Cooperative Bank.
In the above view, the alternative contention of the appellant that it is not in the business of Banking as the. sine quo non to carry on banking business is a licence to be issued by the Reserve Bank of India, which it admittedly does not have, is not being considered.
So far as condition No 3 of the definition/meaning of Primary cooperative Bank as provided in Section 5(ccv) of the Banking Regulation Act is concerned, the same requires the Bye laws of society to contain a prohibition from admitting any other cooperative society as its member. In fact the bye-laws of the appellant society originally in bye-taw 9(d) clearly provided no co- operative society shall he admitted to She membership of the society. Thus there was a bar but the same was amended w.e.f. 12 January, 2001 is to permit a society to be admitted to the membership of the society. Therefore, for the subject assessment years there is no prohibition to admitting a society to and one of three cumulative conditions precedent to be it cooperative hank is not satisfied. However the impugned order the amended clause 9(d) of the appellant's bye lows to mean that it ii society lo be admitted to the membership of the appellant and '-operative society. According to the impugned order, a society and a co- operative society are clearly words of different and distinct significance and the membership w only open so society aid not to a co-operative society. As rightly pointed out on behalf of the appellant the word society ax referred to bye law 9(d) would include the co-operative society. This is TO as the definition of a 6 A.Y.2013-14 society under the Co-operative Act is co-operative society registered under the Cooperative Act. Besides She qualifying condition 3 for being considered as a primary Cooperative bunk 14- that the bye laws must not permit admission of any other cooperative society. This is a mandatory condition i.e. the bye laws must specifically prohibit admission of arty other cooperative society to its member ship. The Revenue has not been able to show any such prohibition in the bye laws of the appellant. Thus even the aforesaid qualifying condition (3) for being considered us a primary cooperative bank is not satisfied Thu the three conditions tis provided under Section 5(CVV) of the Banking Regulation Act. 1949 are to be satisfied cumulatively and except condition are not satisfied. Ergo two qualifying conditions are not satisfied. Ergo, appellant cannot be considered to be a co-operative bank for the purposes of Section 80P(4) of the Act. Thus, the appellant is entitled to ihe benefit of deduction available under Section 80P(2)(a)(i) of the Act.
The contention of Ms. Dessai, learned Counsel for the revenue that the appellant is not entitled to the benefit of Section 80P(2)(a)(i) of the Act in view of the fact that it deals 'with non- members cannot be upheld. This for the reason (hat Section 80P(l) of the Act restricts the benefits of deduction of income of co- operative society So the extent it is earned by providing credit facilities to Us members. Therefore^ to the extent the income earned is attributable to dealings with the non-members fire concerned the benefit of Section 80P of the Act would not be available. In the above view of the matter, a! the time when effect has been given to the order of this Court, the authorities under Act would restrict the benefit of deduction under Section 80P of the Act only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. 14 Accordingly, the substantial question of law as framed is answered in the negative i.e. in favour of the appellant find against the Respondent-Revenue.
In view of the detailed facts of the case discussed as above and relying on judgments of the Hon'ble Bombay High Court Gujrat High Court and High Court, a? discussed above, it is held that the appellant is a primary Credit Society providing credit facilities to 7 A.Y.2013-14