I.T.O., MUMBAI vs. THE CENTRAL RAILWAY EMPLOYEES CO-OPERATIVE CREDIT SOCIETY LTD., MUMBAI

We have heard the Ld. AR on behalf of the assessee and Ld. DR on behalf of the revenue. The Ld. AR apart from relying upon the decision of ITAT in assessee’s own case for A.Y. 2014-15, Bombay High Court judgment in Quepem Urban Co-operative Credit Society Ltd, 58 taxmann.com 113, has referred and relied upon the recent judgment of the Hon'ble Supreme Court of India reported as Principal Commissioner of Income Tax Vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. [2023] 150 taxmann.com 173(SC), order dated 20.04.2023. The Ld. DR on the other hand supported the judgment of the Ld. AO but submitted nothing regarding the judgments relied by the Ld. AR on behalf of the assessee.

We have considered the rival submission and examined the record. The observation of Ld. AO in para no. 9 of the order which also find reproduced in the subsequent order for the subsequent relevant year i.e. A.Y. 2018-19 & A.Y. 2020-21 The Central Railway Employees Co-operative Credit Society Ltd. 2018-19 and 2020-21 is relevant to appreciate the facts and to proceed further and is reproduced as under:

The Ld. CIT(A) has dealt with para no. 9 of the Ld. AO extracted above in the last para of the impugned order which is reproduced as under:

Now the questions before us for our consideration are as under:

We now proceed to decide these questions by appreciating the fact and law available and presented before us. We first take up the question no. 2. In that regard the judgment of the Hon'ble Allahabad High Court in K. N. Agarwal Vs. Commissioner of Income Tax, order dated 11.01.1991, [1991] 189 ITR 769B (ALL) is relevant which says, “Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing Officer and since he acts in a quasi-judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court, as the case may be. He cannot ignore it merely on the ground that A.Y. 2018-19 & A.Y. 2020-21 The Central Railway Employees Co-operative Credit Society Ltd. the Tribunal's order is the subject-matter of revision in the High Court or that the High Court's decision is under appeal before the Supreme Court. Permitting him to take such a view would introduce judicial indiscipline, which is not called for even in such cases.” In view of above, the Ld. AO and Ld. CIT(A) are bound by the ITAT order in assessee’s own case for A.Y. 2014-15.

Now we take up the question no. 1. In view of our decision of question no. 2, the order of the Ld. CIT(A) and the observation in last para extracted above supra are legally sustainable and justified and there is no illegality and perversity in the same. In the given facts and circumstances, it is the Ld. AO who is at fault for not following the order of the ITAT and the Hon'ble Bombay High Court in Quepem Urban Co-operative Credit Society Ltd Vs. ACIT (supra). Our view is further fortified by the judgment of the Hon'ble Apex Court in [2023] 150 taxmann.com 173(SC) referred (supra) and is reproduced are as under:

“Feeling aggrieved and dissatisfied with the impugned order dated 14-10-2019 passed by the High Court of Judicature at Bombay in by which the High Court has dismissed the said appeal preferred by the Revenue, relying upon its earlier decision in the case of M/s. Quepem Urban Co-operative Credit Society Ltd. Vs. Assistant Commissioner of Income Tax, 377 ITR 272, the Revenue has preferred the present appeal. Page | 9 A.Y. 2018-19 & A.Y. 2020-21 The Central Railway Employees Co-operative Credit Society Ltd.

The High Court considered the following question of law – “Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified as claimed by the assessee on the ground that the assessee, a co-operative credit society and is not a bank for the purpose of Section 80P(4) of the Act?”

Apart from the fact that against the relied upon decision in the case of M/s. Quepem Urban Co-operative Credit Society Ltd. (supra),the Special Leave Petition has been dismissed, learned counsel appearing on behalf of the respective parties, the issue involved in the present appeal is squarely covered against the Revenue in view of the decision of this Court in Mavilayi Service Cooperative Bank Limited and Others Vs. Commissioner of Income Tax, Calicut and Another (2021) 7 SCC 90. This Court, in the aforesaid decision has specifically observed and held that primary Agricultural Credit Societies cannot be termed as Co-operative Banks under the Banking Regulation Act and, therefore, such credit societies shall be entitled to exemption under Section 80(P)(2) of the Income Tax Act, 1961.

Ms. Aakansha Kaul, learned counsel appearing on behalf of the appellant/Revenue has tried to submit that the respondent/Assessee will fall under the definition of Co-operative Bank as their activity is to give credit/loan. However, it is required to be noted that merely giving credit to its members only cannot be said to be the Co- operative Banks/Banks under the Banking Regulation Act. The banking activities under the Banking Regulation Act are altogether different activities. There is a vast difference between the credit societies giving credit to their own members only and the Banks providing banking services including the credit to the public at large also.

There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under Section 80(P)(2) of the Income Tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co- Page | 10 A.Y. 2018-19 & A.Y. 2020-21 The Central Railway Employees Co-operative Credit Society Ltd. operative Bank/Bank and, therefore, Section 80(P)(4) shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under Section 80(P)(2) of the Income Tax Act.

In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee.

The Appeal is accordingly dismissed. No costs.”

Thus, in view of the above judgment of the Hon'ble Supreme relied by the assessee/appellant, there is no illegality and perversity in the impugned order challenged by the revenue.

Question No. 3: To decide this question, knowing the provisions of Section 80P(2)(a)(i) is necessary and reproduced as under:

The same ground was taken by the revenue in its appeal for the A.Y. 2014- 15 decided in order dated 27.03.2019 by the Ld. Coordinate Bench, Mumbai, wherein the order of the Ld. Coordinate Bench has decided the grounds against the revenue. Until the said judgment of the Coordinate Bench is set aside by the higher courts, in view of our observation earlier in the judgment, the Ld. AO as well as the other revenue authorities higher to it are bound by the judgment of the Coordinate Bench. Therefore, for the sake of dealing with arguments of revenue, we have examined the ground regarding reliance by the revenue on the judgment of the Hon'ble Supreme Court Totgars Cooperative Sales Society Limited (supra). The facts and circumstances and the business activity of the assessee in that case were different from the facts and circumstances and the business activity of the assessee in the case before us. Para 17 and 18 of the said judgment would make these facts clear and are reproduced as under:

Further, as stated above, the assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this “retained amount” which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee Society, was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80-P(2)(a)(i) of the Act or in Section 80- P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the assessing officer was right in taxing the interest income, indicated above, under Section 56 of the Act.”

It is thus evident from the above observation of the Hon'ble Apex Court in para no. 17 and 18 of the judgment reproduced (supra) that the assessee in that case was doing the business of not only giving credit facilities to its members but was also marketing the agriculture produce by its members and for that reasons, the assessee in the case before the Hon'ble Supreme Court was not doing only the business of providing credit facilities to its members but other activity also, hence, was not found eligible for exemption u/s. 80P(2)(a)(i) of the Act. In the case before us, it is admitted fact that the assessee was engaged only in the business for banking or A.Y. 2018-19 & A.Y. 2020-21 The Central Railway Employees Co-operative Credit Society Ltd. providing credit facility to its members only and was not engaged in any other business activity, therefore distinguishing it from the assessee of M/s. Totgars Cooperative Sale Society Ltd. case. For the above reasons, the assertions of the revenue that the M/s. Totgars Cooperative Sale Society Ltd. case is applicable to the present case is highly misplaced and the ground is liable to be rejected.

For these reasons, we therefore uphold and confirm the order of the Ld. CIT(A). The appeal of the revenue is accordingly dismissed.

The finding recorded by us in A.Y. 2017- 18 shall mutatis mutandis apply to the subsequent A.Y. 2018-19 (ITA No. 2963/Mum/2024) and A.Y. 2020-21 (ITA No. 2783/Mum/2024). Accordingly, the appeals of the revenue pertaining to A.Y. 2018-19 (ITA No. 2963/Mum/2024) and A.Y. 2020-21 (ITA No. 2783/Mum/2024) are also dismissed.