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Facts
The appellant, a cooperative society providing credit facilities to its members, claimed deduction under Section 80P of the Income Tax Act. The Assessing Officer rejected this claim, and the CIT(A) upheld the order, primarily citing that the assessee was not a cooperative bank as defined under the Banking Regulation Act. This appeal followed.
Held
The Tribunal held that the assessee is a cooperative society and not a cooperative bank as defined under the Banking Regulation Act. Citing various High Court and Tribunal decisions, it was determined that Section 80P(4) does not apply to credit societies that are not cooperative banks. Therefore, the assessee is entitled to the deduction claimed.
Key Issues
Whether the assessee, a cooperative credit society, is entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act, despite Section 80P(4) which excludes cooperative banks.
Sections Cited
80P(2)(a)(i), 80P(4), 250, 143(1), 143(3), 148, 234B, 234C, 271(1)(c)
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RATNESH NANDAN SAHAY
O R D E R
Per :Ratnesh Nandan Sahay, Accountant Member:
This appeal has been filed by the appellant against the Order of the Ld. CIT (Appeals) passed u/s. 250 of the Income Tax Act [the ‘Act’ in short] vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1057540749(1) Dated 31/10/2023 for the Assessment Year 2012-13.
2 M/s. CIDCO Employees Co. Op. Credit Society 2. Following grounds of appeal have been raised by the appellant: - [A] “1(a). On the facts and in circumstances of the cases and in law, the Id. CIT(A)- NFAC erred in passing the order u/s. 250 of the Income Tax Act, 1961 and upholding the order of the ld. assessing officer. 1(b). The Ld. CIT(A)-NFAC had erred in upholding the view of the Id. assessing officer and hence disallowing deduction of Rs.10,90,706/- which had been claimed under section 80P(2)(d) and Rs.11,79,656/- under section 80P(2)(a)(i) of the Act and the reasons assigned are wrong and contrary to the facts and circumstances of the case. 1(c). In the facts and circumstances of the case and in law, the learned CIT[A] NFAC erred in confirming all the additions and dismissed all the grounds of the appellant.
2. The Ld.AO erred in charging interest u/s.234B and 234C of the Act.
3. The Ld.AO erred in initiating penalty proceedings under section 271(1)(c) of the Act. [B] General:- The appellant reserve rights to add alter or delete any portion of this appeal before its conclusion. This appeal is filed late and delay may be condoned A detailed paper book will be filed at the time of hearing.”
3. The facts of the case, in brief, are that the assessee has filed its return of income on 28/09/2012 declaring total income at ‘Nil’. The return was processed u/s. 143(1) of the Act and, thereafter, the case was selected for 3 ITA No.600/M/2024 M/s. CIDCO Employees Co. Op. Credit Society scrutiny under CASS system and assessment was completed u/s. 143(3) of the Act on 05/02/2015 accepting the income of the assessee declared at ‘Nil’. Subsequently, the case was reopened after recording the reasons and notice u/s. 148 of the Income Tax Act dated 31/03/2017 was issued on the ground that the assessee had claimed deduction u/s.80P of the Act amounting to Rs.22,70,362/- but had not filed any submission to substantiate that claim of deduction.
4. The assessee is a Cooperative Society registered under Maharashtra Cooperative Act, 1960 and is engaged in providing credit facilities to the CIDCO employees who are members of the credit society. During the course of assessee proceedings, the Ld. AO provided, the opportunity of being heard to the assessee to substantiate the deduction claimed u/s 80P of the Act and not satisfied with the explanations offered by the assessee, passed a detailed assessment order and rejected the claim of deduction u/s.80P of the Income Tax Act.
5. Aggrieved by the order of the Ld. AO, the assessee filed the appeal before the Ld. CIT (A) who upheld the order of the Ld. AO that in the computation of income filed by the appellant it was noticed that the appellant had claimed deduction u/s section 80P of the Act only. No subsection was mentioned in the said document. The appellant, tough, has submitted a brief note on nature of activities carried out by the appellant, 4 M/s. CIDCO Employees Co. Op. Credit Society but did not furnish any documents that such activities are actually carried out or not. The Ld. CIT (A) therefore, held as under:- “I find that inference drawn by the Ld. AO is as per law and he has rightly rejected the claim of the appellant in the absence of any proof of carrying out activities according to section 80P of the Act. The grounds of the appellant are rejected.”
6. Aggrieved by the order of the Ld. CIT (A), this appeal has been filed before us. During the appellate proceedings, the appellant has submitted as under:- “3. The Department has allowed the claim of the Appellant u/s.80P over the years and has continued to allow the same even after the insertion of Section 80P (4) and Section 2(24)(viia) with effect from 1st April 2007 on the statute book by Finance Act 2006. However, the AO has disturbed the said position in the current assessment year and negatived the claim of the Appellant by relying on stray decisions which have lost importance in view of the decisions of High Courts including Bombay High Court. The Appellant draws your kind attention to the decisions of Bombay High Court and other High Courts which have ruled in favour of all such credit co- operative societies like the present appellant who have faced similar situation in past. The Appellant discusses the observations of various 5 ITA No.600/M/2024 M/s. CIDCO Employees Co. Op. Credit Society courts and Tribunals in the ensuing paras to contend that the AO has grossly erred in not allowing its claim of deduction of Rs.22.70.362/- u/s 80P by wrongly invoking provisions of Section 80P (4).
4. Bombay High Court in Quepem Urban Co-operative Credit Society Ltd v. ACIT - 377 ITR 272 made following observations which are very much in favour of the Appellant: *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) or 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 6 M/s. CIDCO Employees Co. Op. Credit Society 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(cel) 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 7 ITA No.600/M/2024 M/s. CIDCO Employees Co. Op. Credit Society 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 satisfies its three conditions:
1. 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. 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. 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 8 M/s. CIDCO Employees Co. Op. Credit Society 80P(4). Thus, the appellant is entitled to the benefit of deduction available under sec ion 80P (2)(a)(i). [Para 12]" In the present case of the Appellant Co-op Credit Society too except for condition no. 2, the other two qualifying conditions are not satisfied and hence in absence of cumulative satisfaction of all the three conditions stipulated in Section 5(ccv) of the Banking Regulation Act the 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) 5. Bombay High Court once again in Principal CIT v. Goa PWD Staff Co-op Credit Society Ltd v. ITO - 242 Taxman 422 made following observations which are very much in favour of the Appellant: "Taking note of the observations in the said judgment in the case of Quepem Urban Co-operative Credit Society Ltd. (supra) to the effect that merely giving credit facilities to the members it would not be a Co-operative Bank but continued to be a Co-operative Society and as there is no material on record that the respondents were giving any such credit facilities to the non members, we find that the observations in the said judgment in the case of The Quepem Urban Co-operative Credit Society Ltd. (supra) would be squarely 9 ITA No.600/M/2024 M/s. CIDCO Employees Co. Op. Credit Society applicable to the facts of the present case. As such, as no other contentions have been raised by the learned counsel appearing for the appellant, we find that the proposed substantial questions of law to that effect would not survive and does not require any further consideration. For the reasons stated in the said judgment in the case of Quepem Urban Co-operative Credit Society Ltd. (supra), we find that there is no substantial question of law which arises in the present appeals for consideration. The appeals stand accordingly rejected."
Gujarat High Court in Jafari Momin Vikas Co-op Credit Society Ltd v. ITO - Tax Appeal Nos. 442, 443 & 863 of 2013 decided on January 15, 2014 made following observations: When, as contended by the assessee, by virtue of sub-section (4) only co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then the Legislature specified primary agricultural credit societies along with primary co-operative agricultural and rural development banks for exclusion from such exclusion and, in other words, continued to hold such entity as eligible for deduction. However, the Issue has been considerably simplified by virtue of the Central Board of Direct Taxes Circular No. 133 of 2007, dated 9-5- 2007.
10 M/s. CIDCO Employees Co. Op. Credit Society From the clarification given in aforesaid circular, it can be gathered that sub-section (4) of section 80P will not apply to an assessee which is not a co-operative bank. In view of such clarification, one cannot entertain the revenue's contention that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained therein but also credit societies, which are not co-operative banks. In the present case, the assessee is admittedly not a credit co-operative bank but a credit co-operative society. The exclusion clause of sub-section (4) of section 80P, therefore, would not apply. In the result, the revenue's appeal is dismissed. [Para 7]"
7. Karnataka High Court in Shri Chandraprabhu Urban Co-op Credit Society Ltd v. ITO - ITA Nos. 100043 & 100045 of 2014 [64 Taxmann.com 336] decided on September 21, 2015 has made following observations: "In so far as the first question of law is concerned, there are a series of decisions of this court wherein it has been repeatedly answered in favour of the assessee. Two of the said decisions are as follows: 1. CIT v. Sri Biluru GurubasavaPattina Sahakari Sangha Niyamitha in [2014] 369 ITR 86/[2015] 230 Taxman 557/56 taxmann.com 280 (Kar.)
11 M/s. CIDCO Employees Co. Op. Credit Society 2. CIT v. Bangalore Commercial Transporter Credit Society in [I.T. Appeal Nos. 351 of 2011 & 599 of 2013] In Interpreting Section 80 P (4) in Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (supra) of I. T. Act, it was held as follows: "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 Cooperative 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 license from 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 12 ITA No.600/M/2024 M/s. CIDCO Employees Co. Op. Credit Society exclude the benefit extended under Section 80P (1) to such society. Therefore, there was no error committed by the Assessing Authority." In Bangalore Commercial Transporter Credit Society (supra), this court has cited with approval the following differences between a co-operative society and a co-operative bank - as depicted by the Tribunal......... And this court had dismissed the appeal of the revenue following the decision in Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (supra). The same view has been taken in the following decisions: CIT v. Bangalore Credit Co-operative Society Ltd. [IT Appeat No. 598 of 2013] CIT v. Yeshwanthpur Credit Co-operative Society Ltd. [IT Appeal No. 237 of 2012] CIT v. Mysore University Employees Co-operative Credit Society Ltd. [IT Appeal No. 298 of 2013] CIT v. Vasavi Credit Co-operative Society Ltd. [IT Appeal No.118 of 2012] CIT v. Sri Vasavi MultiPurpose Souharda Sahakari Sangha Niyamitha [IT Appeal No. 505 of 2013] CIT v. General Insurance Employees Co-operative Society Ltd [IT Appeal No. 273 of 2013] 13 M/s. CIDCO Employees Co. Op. Credit Society We are in respectful agreement with the general view taken as to the interpretation of the relevant provisions of law, by the co-ordinate bench of this court, in the above and several other judgments adopting the same view. However, it is to be noticed that there is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescribing that in the event of a dispute as to the primary object or principal business of any co- operative society referred to in clauses (cciv), (ccv) and (ccvi) of Section 56 of the BR Act, a determination thereof by the Reserve Bank shall be final, would require the dispute to be resolved by the Reserve Bank of India, before the authorities could term the assessee as a co- operative bank, for purposes of Section 80P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed by this court, however, as to the assessee being a co-operative society and nota co-operative bank in terms of Section 80P(4) of the IT Act, shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India."
8. Mumbai ITAT in ITO v. The Maharastırre Mantralaya v. Sanlagna Shasklya Karmachari Co-op Credit Society Ltd ITA No.5061/Mum/2013 decided on 20.10.2014 made following observations:
14 M/s. CIDCO Employees Co. Op. Credit Society "We have carefully perused the orders of the authorities below and the decisions brought to our notice. The Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-Op. Credit Society Ltd. In ITA Nos. 442 of 2013 with 443 of 2013 and 863 of 2013 held as under: From the above clarification, it can be gathered that sub-section (4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Co-Op. Urban Thrift & Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a co-operative bank, section 80P (4) of the Act would not apply to it. in view of such clarification, we cannot entertain the Revenue's contention that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained in O/TAXAP/442/2013 ORDER therein but also credit societies, which are not co- operative banks. In the present case, respondent assessee is admittedly not a credit co- operative bank but a credit co-operative society. Exclusion clause of sub-section (4) of section 80P, therefore, would not apply. In the result, Tax Appeals are dismissed. Similar view is taken by the Tribunal's Mumbai Bench in the case of M/s. Mumbai Teleworkers Co-Op. Credit Society Ltd. in ITA No. 7106/Mum/2012 and in the case of M/s. Kulswami Co-Op. Credit Society Ltd. in ITA No. 15 ITA No.600/M/2024 M/s. CIDCO Employees Co. Op. Credit Society 3223/Mum/2011 and 505/Mum/2012. As the facts and the issues are identical to the facts and issues involved in the judicial decisions referred to hereinabove, we do not find any reason to interfere with the findings of the Id. CIT (A).” The departmental representative relied on the orders of the Ld. CIT (A).
We have considered the facts of the case, the submissions made by the appellant stated as above and the legal positions held by various courts and the coordinate benches of Hon’ble ITAT wherein the deduction claimed u/s 80P of the Act has been allowed in the case of cooperative societies as cited by the appellant in the above submissions. Thus, respectfully following the decisions of the Coordinate Benches of the Tribunal, we also hold that the appellant is entitled to claim deduction u/s 80P of the Act.
Inthe result, appeal filed by the assessee is allowed. Order pronounced in the open court on 27.06.2024.