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Income Tax Appellate Tribunal, BANGALORE BENCH-SMC “ B ”
Before: SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the revenue is directed against the order dt.06.10.2016 of Commissioner of Income Tax (Appeals), Belagavi for the Assessment Year 2013-14.
The revenue has raised the following grounds :
3. I have heard the learned Departmental Representative as well as learned Authorised Representative and considered the material on record. The Assessing Officer denied the exemption under Section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short 'the Act') on the ground that the assessee- society is a co-operative bank and not entitled exemption as per the definition enumerated in Part V of the Banking Regulation Act, 1949 and therefore the Section 80P(4) of the Act are applicable in the case of the assessee. On appeal, the CIT (Appeals) has allowed the assessee's appeal by following the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Biluru Gurubasava Pattina Sahakari Sangha Niyamitha 369 ITR 86. Thus it is clear that the issue raised by the revenue is now covered by the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (supra) wherein the Hon'ble High Court held in Para 8 & 9 as under :
8. In the assessment order, the assessing authority has clearly stated that the assessee is a co-operative society and has not obtained any banking licence. The business of the assessee is to provide credit facilities to its members. Since the assessee cannot carry on any banking business, the interest on investment is taxable as income from other source. Therefore, the aforesaid facts, which is not in dispute clearly establishes that it is not a co-operative bank. In fact, the revisional authority also in his order has categorically stated that the assessee is a co-operative society, which provides credit facilities. Section 80P of the Act deals with the deduction of income of a society. In the case of any assessee being a co-operative society, the whole of the amounts of profits and gains of business attributable to any of other activities referred to sub-section (2) of section 80P shall be deducted in computing the total income of the assessee. In other words, the said income is not taxable. It is a benefit given to the co- operative society. Section 80P(4) was introduced by the Finance Act, 2006, with effect from April 1, 2007, excluding the said benefit to a co-operative bank. The said provision reads as under :
(4) The provisions of this section 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.... (a) 'co-operative bank' and 'primary agricultural credit society' shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949) ; (b) 'primary co-operative agricultural and rural development bank' means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities."
Therefore, the intention of the Legislature is clear. If a co-operative bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary co-operative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking business, i.e., the purport of this amendment. Therefore, as the assessee is not a co-operative bank carrying on exclusively banking business and as it does not possess a licence from the Reserve Bank of India to carry on business, it is not a co-operative bank. It is a co-operative society which also carries on the business of lending money to its members which is covered under section 80P(2)(a)(i), i.e., carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under section 80P(1) to such society. Therefore, there was no error committed by the assessing authority. The said order was not prejudicial to the interests of the Revenue. The condition precedent for the Commissioner to invoke the power under section 263 is that the twin conditions should be satisfied. The order should be erroneous and it should be prejudicial to the interests of the Revenue.
This court had an occasion to consider section 263 of the Act in the case of CIT v. Digital Global Soft Ltd. [2013] 354 ITR 489/[2011] 203 Taxman 98/15 taxmann.com 78 (Kar.) where paragraph 18, it has held as under (page 500) : "As is clear from the wording in section 263, the Commissioner gets the jurisdiction to revise any proceedings under this Act if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interests of the Revenue. 'Prejudicial to the Revenue' means, lawful revenue due to the State has not been realized or cannot be realised. In other words, by the order of the assessing authority if the lawful revenue to the State has not been realised or cannot be realised, as the said order is prejudicial to the interests of the Revenue and also erroneous, he gets jurisdiction to interfere with the said order under section 263. Therefore, for attracting section 263, the condition precedent is (a) the order of the Assessing Officer sought to be revised is erroneous, and (b) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act. The satisfaction of both the conditions stipulated in the section is the sine qua non for the Commissioner to exercise his jurisdiction under section 263." In the instant case, when the status of the assessee is a co-operative society and is not a co- operative bank, the order passed by the assessing authority extending the benefit of exemption from payment of tax under section 80P(2)(a)(i) of the Act is correct. There is no error. When there is no error, the question of order being prejudicial would not arise. The Tribunal has rightly entertained the appeal and set aside the order. Therefore, the said order is in accordance with law and cannot be found fault with. The substantial question of law is answered in favour of the assessee and against the Revenue.” Thus it is clear that the issue is covered by the decision of the Hon'ble jurisdictional High Court (supra) wherein the Hon'ble High Court has understood the decision of Hon'ble Supreme Court in the case of Totagars Co- operative Sales Society Ltd. Vs. ITO (supra) that the interest income on the amount which a liability towards the members is not eligible for deduction under Section 80P but if the surplus of the society not immediately required for business activity is deposited with bank then this interest on such deposit of society’s surplus is eligible for deduction under Section 80P of the Act.
Accordingly, when the issue is covered by the binding precedent of Hon'ble jurisdictional High Court (supra), I do not find any error or illegality in the order of the CIT (Appeals).