TUPURWADI CO OP CREDIT SOCIETY LTD,MUMBAI vs. ITO 21(3)(4), MUMBAI

Tupurwadi Co-Op Credit Society Ltd Assessment Year:2012-13 Income Tax Officer-21(3)(4), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 30/03/2015 determining total income of the assessee at Rs.26,74,590/- as against Nil return e-filed by the assessee on 28/09/2012. In the quantum assessment, the assessee has been denied deduction u/s 80P which is the sole subject matter of this appeal. The assessee has raised additional grounds of appeal vide letter dated 12/03/2018. The same being legal grounds and do not require appreciation of new facts and therefore, taken on records. The effective grounds, thus raised reads as follows:-

At the outset, so far as the exclusion provided by Section 80P(4) is concerned, Ld. Authorized Counsel for Assessee [AR] has rightly placed the reliance on recent decision of Hon’ble Apex Court rendered in The Citizen Cooperative Society Limited Vs. ACIT [397 ITR 1 dated 08/08/2017] where the Hon’ble Court has observed as under:- 23. With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a co-operative bank. However, if it is a primary agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act.

Undoubtedly, if one has to go by the aforesaid definition of ‘co-operative bank’, the appellant does not get covered thereby. 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 licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P.

Section 80P of the Act provides deduction in support of income of co-operative societies. Subsection (1) allows deduction to Cooperative Society to the extent its gross income includes any income referred to in subsection (2) in computing its total income. Subsection (2) refers to various incomes to which the deduction under subsection (1) is available. In this case we are concerned with clause (a)(i) of subsection (2), which refers to a cooperative 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. We are not concerned with the other subclauses of Subsection (2) or Subsection (3) of Section 80P(4) of the Act for the purposes of this case. Subsection (4) provides that Section 80P of the Act will not apply in relation to a cooperative bank other than a primary agricultural credit society or primary agricultural and rural development bank. Before us, 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 subsection (4) of Section 80P of the Act.

There is no dispute between the parties that the appellant is a co- operative 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) 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 bank 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 80P of the Act the meaning of the words Cooperative Bank is the meaning assigned to it in Chapter V of the Banking Regulation Act, 1949. A cooperative bank is defined in Section 5(cci) of Banking Regulation Act to mean a State Cooperative Bank, a Central Cooperative Bank and a primary cooperative bank. Admittedly, the appellant is not a State Cooperative Bank, a Central Cooperative Bank. Thus what has to be examined is whether the appellant is a primary Cooperative Bank as defined in Para V of the Banking Regulation Act. Section 5(ccv) of the Banking Regulation Act defines a primary cooperative bank to mean a cooperative society which cumulatively satisfies the following 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 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 not satisfied.

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 Tupurwadi Co-Op Credit Society Ltd Assessment Year:2012-13 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 CIT(A) in his order dated 15 July, 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 then 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 are 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 bye-law 43 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 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 of the Act. The impugned order sets out the object clause of the appellant, which has 24 objects but thereafter draws no sequiter to conclude that the primary object is Banking. 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 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-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 w.e.f. 12 January, 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 cooperative 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 Tupurwadi Co-Op Credit Society Ltd Assessment Year:2012-13 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 a 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 cooperative 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 cooperative 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) of the Act. Thus, the appellant is entitled to the 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 that Section 80P(1) of the Act 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 of the Act 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 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.

Accordingly, the substantial question of law as framed is answered in the negative i.e. in favour of the appellant and against the respondent-Revenue.

Proceeding further, we find that the assessee has claimed deduction u/s 80P(2)(d) which provides for deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society. We find that this deduction is available only if the income or dividends are derived by the assessee from cooperative society. A perusal of the impugned order reveals that the assessee has derived income from various Banks, cooperative or otherwise, and not from any co-operative Society. Extending the same logic and finding clear-cut distinction between ‘cooperative society’ and ‘cooperative bank’, we hold that the assessee was not entitled for deduction u/s 80P(2)(d). This ground of assessee’s appeal stands dismissed.

Now the only question that survives for our consideration is alternative claim of the assessee u/s 80P(2)(a)(i) which provides for deduction with respect to profits and gains of business attributable to carrying on the business of banking or providing credit facilities to its members. For the said claim, Ld. AR has placed reliance on certain decisions as placed in the paper book to contend that deduction thereof was available to the assessee. However, we find that this issue would require examination of Tupurwadi Co-Op Credit Society Ltd Assessment Year:2012-13 certain financial aspects and Ld. first appellate authority has not examined the claim of the assessee u/s 80P(2)(a)(i). Therefore, without delving much deeper, we deem it fit to restore the matter back to the file of Ld. CIT(A) for adjudication thereof. Resultantly, this ground of assessee’s appeal stands allowed for statistical purposes.

Resultantly, the appeal stands partly allowed for statistical purposes in terms of our above order.