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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue is directed against the order og the Commissioner of Income Tax (Appeals)-33, Mumbai dated 24.02.2017 and pertains to the assessment year 2013-14.
The grounds of appeal read as under:
1. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the A.O. on account of disallowance of deduction u/s. 80P(2)(a)(i) without appreciation the action of the A. O." 2. "On the facts and circumstances of the case, the Ld. CIT(A) erred in not considering the fact that the assessee has fulfilled all three conditions as laid down u/s 56(c)(ccv) of Part V of Banking Regulation Act, 1949 and on conjoint reading of Banking Regulation Act and Income-Tax Act, it is evident that the assessee is acting like a Co-operative Bank and therefore, hit by the provisions of section Siemens Employees co-operative Society Ltd. 80P(4) of the Act hence the assessee is not eligible for the deduction u/s 80P(2)(a)(i) of the Act." 3. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in ignoring the definition given in the sub-clause(cci) and (ccii) of clause (c) of Section 5 of Banking Regulation Act, and as per definition, the assessee has to be treated as Co-operative Bank by virtue of the activities of the assessee and therefore, attracts the provisions of section 80P(2)(a)(i) r.w.s. 80P(4) and thus, the assessee is not eligible for deduction u/s 80P(2)(a)(i) of the Act r.w.s. 80P(4) of the Act." 4. "On the facts and circumstances of the case, the Ld. CIT(A) erred in ignoring the fact that the facts are different in this case than the judgment of the Hon'ble Bombay High Court in the case of Quepem Urban Co-operative credit Society Ltd. Vs. ACIT dated 17.04.2015 (2015) 58 Taxmann.com 113 (Bombay) and the Ld. CIT(A) also erred in appreciating the fact that the assessee fulfills the conditions as laid down u/s 56(c)(ccv) of the Part V of Banking Regulation Act, 1949 and covered under purview of Co-operative Bank." 5. "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."
It can be adumbrated from the above grounds of appeal that the Revenue’s grievance is that the assessee is a co-operative credit society should be treated as co- operative bank inasmuch as it is acting as a co-operative bank. Hence, provision of section 80P(4) are attracted and hence the assessee is not eligible for deduction u/s.80P(2)(a)(i).
We have heard the ld. Departmental Representative. None appeared on behalf of the assessee. In our considered opinion, the issues raised can be adjudicated by hearing the ld. Departmental Representative and perusing the records.
Upon hearing the ld. Departmental Representative and perusing the records we are of the concerned opinion that the issue is covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Quepem Urban Co-operative
Siemens Employees co-operative Society Ltd. Credit Society Ltd. vs. ACIT [2015] 58 taxmann.com 113 (Bom). The Hon’ble Bombay High Court has held as under: [Head notes]
■ Section 80P provides deduction in support of income of co-operative societies. Sub-section (1) allows deduction to Co-operative Society to the extent its gross income includes any income referred to in sub- section (2) in computing its total income. Sub-section (2) refers to various incomes to which the deduction under sub-section (1) is available. In this case, the court is concerned with clause (a)(i) of sub- section (2), which refers to a co-operative society engaged in carrying on banking business or providing credit facilities to its members. Thus the deduction is available on either of the two activities i.e., banking business or providing credit facilities to its members. The court is not concerned with the other sub-clauses of sub-section (2) or sub-section (3) of section 80P(4) for the purposes of this case. Sub-section (4) provides that section 80P will not apply in relation to a co-operative bank other than a primary agricultural credit society or primary agricultural and rural development bank. Before the instant court, the appellant is not claiming to be a primary agricultural credit society or primary agricultural and rural development bank but it claims to be engaged in providing credit facilities and not a banking society. Thus, not hit by sub section (4) of section 80P. [Para 8] ■ There is no dispute between the parties that the appellant is a cooperative society as the same is registered under the Co-operative Societies Act. The appellant is claiming deduction of income earned on providing credit facilities to its members as provided under section 80P(2)(a)(i). It is appellant's case that, it is not carrying on the business of the banking. Consequently, not being a co-operative bank the provisions of section 80P(4) would not exclude the appellant from claiming the benefit of deduction under section 80P(2)(a)(i). However in terms of section 80P the meaning of the words Co-operative Bank is the meaning assigned to it in Chapter V of the Banking Regulation Act, 1949. A co-operative bank is defined in section 5(cci) of Banking Regulation Act to mean a State Co-operative Bank, a Central Co- operative bank and a primary co-operative bank. Admittedly, the appellant is not a State Co-operative Bank, a Central Co-operative Bank. Thus what has to be examined is whether the appellant is a primary co- operative bank as defined in Para V of the Banking Regulation Act. Section 5(ccv) of the Banking Regulation Act defines a primary co- operative bank to mean a co-operative society which cumulatively
Siemens Employees co-operative Society Ltd. satisfies its three conditions: (1) Its principal business or primary object should be banking business of Banking; (2) Its paid up share capital and reserves should not be less than rupees one lakh. (3) Its bye-laws do not permit admission of any other co-operative 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 not satisfied. [Para 9] ■ Therefore the issue that arises for consideration is whether the appellant satisfies condition no. (1) 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 or investment, of deposit of money from the public repayable on demand or otherwise. The impugned order juxtaposes the above 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-law 43 leads to the conclusion that it is carrying on banking business. This fact of accepting deposits from people who are not members has been so recorded by the Commissioner (Appeals) in his order dated 15-7-2014. Before the Tribunal also the appellant did not dispute the fact that in a few 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 in the impugned order as it is not found in Bye-law 43. It is undisputed that the transactions with non members were insignificant/miniscule. 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 by-law43 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 to conclude that it enables the appellant to receive deposits from any person is not correct. Thus in the present facts
Siemens Employees co-operative Society Ltd. the 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. Consequently there is no occasion to deal with the same as that is not the basis on which the impugned order holds that it is a Primary Co-operative Bank. [Para 10] ■ So far as condition no. 3 of the definition/meaning of primary Co- operative 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 co-operative society as its member. In fact the bye-laws of the appellant society originally in bye-law 9(d) clearly provided that no co-operative society shall be admitted to the membership of the society. Thus there was a bar but the same was amended with effect from 12-1-2001 as 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 its membership and one of three cumulative conditions precedent to be a primary co-operative bank is not satisfied. However the impugned order construed the amended clause 9(d) of the appellant's bye-laws to mean that it only permits a society to be admitted to the membership of the appellant and not a co-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 is only open to society and not to co-operative society. As rightly pointed out on behalf of the appellant the word society as referred to bye-law 9(d) would include the co-operative society. This is so as the definition of a society under the Co-operative Act is co-operative society registered under the Co- operative Act. Besides the qualifying condition 3 for being considered as a primary Cooperative bank is 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 any other co-operative society to its membership. 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 as a primary co-operative bank is not satisfied. Thus, the three conditions as provided under section 5(cvv) of the Banking Regulation Act, 1949, are to be satisfied cumulatively and except condition (2) the other two qualifying conditions are not satisfied. Ergo, appellant cannot be considered to be a co-operative bank for the purposes of section 80P(4). Thus, the appellant is entitled to the benefit of deduction available under section 80P(2)(a)(i). [Para 12]
Siemens Employees co-operative Society Ltd.
■ The contention of the revenue that the appellant is not entitled to the benefit of section 80P(2)(a) in view of the fact that it deals with non- members cannot be upheld. This for the reason that section 80P(1) restricts the benefits of deduction of income of co-operative society to the extent it is earned by providing credit facilities to its members. Therefore, to the extent the income earned is attributable to dealings with the non-members are concerned the benefit of section 80P would not be available. In the above view of the matter, at 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 only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. [Para 13] Therefore, appeal is held in favour of assessee and against revenue
Further, we find that this issue now is squarely covered in favour of the assessee by the decision Hon’ble Apex Court in Civil Appeal No. 10245 of 2017 in the case of the Citizen Co-operative Soceity Ltd. vs. ACIT vide order dated 08.08.2017. The Hon’ble Apex Court in this case has expounded that if one has to go by the definition of co-operative bank, the assessee does not get covered thereby. That it is also a matter of common knowledge that in order to do the business of a co- operative bank, it is imperative to have a license from the Reserve Bank of India which the assessee does not possess. In the present case, before me also the assessee co-operative society is not licensed from the Reserve Bank of India to act as co- operative bank. Hence, as per the ratio emanating from the afore-said Hon’ble Apex Court judgment, the assessee is not affected by the provisions of section 80P(4).
Siemens Employees co-operative Society Ltd. Since the facts are identical we follow the above referred decisions and uphold the order of the ld. Commissioner of Income Tax (Appeals) and decide the issue in favour of the assessee.
In the result, the Revenue’s appeal stands dismissed.
Order pronounced in the open court on 13.08.2018