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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI G.S. PANNU & SHRI PAWAN SINGH
O R D E R PER G.S. PANNU, AM :
The captioned are five appeals preferred by the assessee for different assessment years which, inter-alia, involve a common issue relating to assessee’s claim for exemption u/s 80P(2)(a)(i) of the Income Tax Act, 1961 (in short ‘the Act’). At the time of hearing, the learned representative for the assessee pointed out that the dispute came up for the first time in the assessment proceedings for Assessment Year 2009-10 and it is only thereafter that the assessments for the preceding Assessment Years 2007-08 to 2008-09 were reopened, which are also in appeal before the Tribunal. So far as the appeals for the other two assessment years, namely, Assessment Years 2010-11 and 2011-12 are concerned, the dispute is on similar lines arising in the scrutiny proceedings in terms of Sec. 143(3) of the Act.
In this background, it was a common point between the parties that the appeal of the assessee in Assessment Year 2009-10 be taken as the lead case. This appeal is directed against the order of CIT(A)-24, Mumbai dated 29.11.2012, pertaining to the Assessment Year 2009-10, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 29.09.2011 under section 143(3) of the Act.
In brief, the relevant facts are that the appellant is a co-operative credit society registered under the Maharashtra State Co-operative Act, 1960. For the assessment year under consideration, it filed a return of income declaring the total income at NIL, inter-alia, after claiming exemption u/s 80P(2)(a)(i) of the Act. Pertinently, the plea of the assessee was that it was accepting deposits and allowing credit facilities to its members and thus was entitled for exemption u/s 80P(2)(a)(i) of the Act with respect to the income earned. The Assessing Officer as well as the CIT(A) have negated the plea of the assessee on the ground that the case of the assessee falls within the restriction contained in Sec. 80P(4) of the Act inasmuch as the assessee-society was “doing co- operative banking business”. In this background, assessee is in appeal before the Tribunal.
At the time of hearing, the learned representative for the assessee pointed out that the assessee-society was providing financial accommodation to its members and accepting deposits only from its members, who are Labour members and, therefore, its activities are falling under the exemption claimed u/s 80P(2)(a)(i) of the Act. In this connection, we have perused the assessment order as well as the order of the CIT(A). No doubt, the assessee-society does not have a licence from the Reserve Bank of India and, therefore, it cannot be construed as a co-operative bank. Insofar as the restriction contained in Sec. 80P(4) of the Act, it seeks to prohibit the exemption u/s 80P of the Act with respect to any co-operative bank except a primary agricultural credit society or a primary co-operative agricultural and rural development bank. In the absence of any licence from the Reserve Bank of India, it can be straightaway deduced that the assessee does not fall within the restrictions contained in Sec. 80P(4) of the Act, as also noted by the Hon'ble Supreme Court in the case of The Citizen Co- operative Society Ltd. through its Managing Director, Hyderabad, Civil Appeal No. 10245 of 2017 dated 08.08.2017. So however, we may refer to the discussion contained in the assessment order, which requires a slightly detailed deliberation. Firstly, the Assessing Officer notes that in the return of income filed, assessee has claimed deduction under Sections 36(1)(viia)(b) as well as 36(i)(viii) of the Act, which are primarily in relation to banking entities. Secondly, the Assessing Officer notes that the Tax Auditor itself has commented that assessee-society is doing co-operative banking. Thirdly, in para 8, the Assessing Officer records that assessee has taken huge loans besides availing cash-credit facility with the Mumbai District Central Co-operative Bank.
Insofar as the reference by the Assessing Officer to assessee’s claim of deductions under Section 36(1)(viia)(b) as well as 36(i)(viii) of the Act and the remark by the Tax Auditor are concerned, the same can at best be taken as wrong claims and cannot be determinative of the legal position. It is judicially well-settled that the position taken by the parties on an issue is not conclusive, and rather it is the legal position on the issue, which is relevant to decide the controversy. In the present case, even if the assessee has made certain claims considering it to be a banking company, same are untenable inasmuch as there is no denying the fact that the assessee does not have a licence from the Reserve Bank of India to carry on banking business and, therefore, cannot be construed as a co-operative bank, an aspect which is now well-settled by the judgment of the Hon'ble Supreme Court in the case of The Citizen Co-operative Society Ltd. (supra).
Apart from above, the discussion in the orders of the lower authorities do not establish whether the activities of the assessee are confined to its members or not. At this stage, we may refer to the following discussion in the judgment of the Hon'ble Supreme Court in the case of The Citizen Co-operative Society Ltd. (supra) which clearly suggests that more is required to conclude whether or not assessee is entitled to exemption u/s 80P of the Act :-
“25) So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P of the Act is not sub-section (4) thereof. What has been noticed by the Assessing Officer, after discussing in detail the activities of the appellant, is that the activities of the appellant are in violations of the provisions of the MACSA under which it is formed. It is pointed out by the Assessing Officer that the assessee is catering to two distinct categories of people. The first category is that of resident members or ordinary members. There may not be any difficulty as far as this category is concerned. However, the assessee had carved out another category of ‘nominal members’. These are those members who are making deposits with the assessee for the purpose of obtaining loans, etc. and, in fact, they are not members in real sense. Most of the business of the appellant was with this second category of persons who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a co- operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act.
26) It is in this background, a specific finding is also rendered that the principle of mutuality is missing in the instant case. Though there is a detailed discussion in this behalf in the order of the Assessing
Officer, our purpose would be served by taking note of the following portion of the discussion:
“As various courts have observed that the following three conditions must exist before an activity could be brought under the concept of mutuality; that no person can earn from him; that there a profit motivation; and that there is no sharing of profit.
It is noticed that the fund invested with bank which are not member of association welfare fund, and the interest has been earned on such investment for example, ING Mutual Fund [as said by the MD vide his statement dated 20.12.2010]. [Though the bank formed the third party vis-a-vis the assessee entitled between contributor and recipient is lost in such case. The other ingredients of mutuality are also found to be missing as discussed in further paragraphs].
In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent of whatsoever for participators as their identity is not established. Hence, the assessee fails to satisfy the test of mutuality at the time of making the payments the number in referred as members may not be the member of the society as such the AOP body by the society is not covered by concept of mutuality at all.”
27) These are the findings of fact which have remained unshaken till the stage of the High Court. Once we keep the aforesaid aspects in mind, the conclusion is obvious, namely, the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such a society cannot claim the benefit of Section 80P of the Act”
In the context of the instant case, what is required to be examined is whether or not the activities of the assessee are confined to its members so as to fall within the provisions of Sec. 80P(2)(a)(i) of the Act. Pertinently, Sec. 80P(2)(a)(i) of the Act, so far as is relevant for the present case, deals with exemption with regard to the income earned by co-operative society from providing credit facilities to its members. The aforesaid was put to the learned representative for the assessee who submitted that the assessee had no objection if the matter is restored back to the file of the Assessing Officer for proper verification on this aspect.
We, therefore, in view of the aforesaid discussion, set-aside the order of the CIT(A) and direct the Assessing Officer to examine and consider as to whether or not the assessee’s activities are in compliance with the Maharashtra State Co-operative Act, 1960 as also the Maharashtra State Co-operative Regulations, 1961. If it is so found, then, in the absence of any licence from the Reserve Bank of India, the assessee cannot be treated as an entity falling within the restrictions imposed in Sec. 80P(4) of the Act. So however, if the findings of the Assessing Officer are to the contrary, he shall be free to take appropriate action as per law. Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and only thereafter shall pass an order afresh in accordance with law keeping in mind our aforesaid directions.
In the result, appeal of the assessee for Assessment Year 2009-10 is allowed for statistical purposes, as above.
It was a common point between the parties that the facts and circumstances in and 327, 328 & 329/Mum/2016 for Assessment Years 2010-11, 2011-12, 2007-08 and 2008-09 respectively are pari materia to those considered by us in Assessment Year 2009-10, therefore, our decision therein shall apply mutatis mutandis in the said appeals also.
In the result, all the appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open court on 29th November, 2017.