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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N.PRASAD & SHRI RAMIT KOCHAR
आदेश / O R D E R PER C.N.PRASAD (JM) This appeal is filed by the Revenue and Cross Objection by the Assessee against the order of the Ld. CIT (Appeals)-32, Mumbai dated 07.06.2016 for the assessment year 2012-13.
The only issue in the appeal of the Revenue is regarding the allowability of deduction u/s 80P to the Assessee.
At the very outset, the Ld. Counsel for the Assessee submits that the issue as to whether a cooperative society registered under the Societies Registration Act and engaged in providing credit facilities to its members is entitled to deduction u/s 80P or not has been decided by the Hon’ble Bombay High Court in the case of Quepem Urban Cooperative Credit Society Ltd. 58 taxmann.com 113 (Bombay). The Ld. Counsel for the Assessee further submits that the Ld. CIT (Appeals) following the said decision of the jurisdictional High Court allowed the claim of the Assessee as the Assessee is not a cooperative bank conducting banking business but it is a cooperative society engaged in the business of providing credit facilities to its members only.
On the other hand, the Ld. DR placing reliance on the decision of the Supreme Court in the case of The Totgars’ Cooperative Sale Society Limited Vs. ITO in civil appeal 1622/2010 submits that the Assessee is not entitled for deduction u/s 80P of the Act.
CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit
We have heard the rival submissions, perused the orders of the authorities below and the decisions relied on. In the decision relied on by the Ld. DR in the case of The Totgars’ Cooperative Sale Society Limited, the issue was whether the interest on surplus funds is eligible for deduction u/s 80P(2)(a)(i) of the Act or not and it was not the question as to whether the Assessee a Cooperative Society engaged in the business of providing credit facilities to its members is entitled for deduction u/s 80P(2) or not. The facts in the case before Hon’ble Supreme Court was that the Assessee earned interest income on deposits from surplus funds which were part in the banks. The Assessee earned interest on the funds not required immediately for its business purposes but was invested in specified securities as investment. The Hon’ble Supreme Court held that the Assessing Officer is right in taxing the interest income u/s 56 of the Act to the extent the amounts which were retained by the Assessee from the members from out of sale proceeds which funds are to be returned to the member farmers. It was held that interest on such income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) or 80P(2)(a)(iii) of the Act. Therefore, this decision has no application to the facts of the Assessee’s case as the issue to be decided in the Assessee before us is whether the Assessee Cooperative Society engaged in the business of providing credit facilities to its members is eligible for deduction u/s 80P or not. The question to be addressed is whether the Assessee is engaged in banking business and therefore is a cooperative bank in order to reject the claim of the Assessee. This aspect of the matter has been considered by the Ld. CIT (Appeals) and by following the decision of the Hon’ble Jurisdictional High Court in the case of Quepem Urban Cooperative Credit Society Ltd. CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit (supra) held that since Assessee is providing only credit facilities to its members and nowhere the Assessee is carrying on any banking activity and even bye laws does not permit the Assessee to carry on any banking activity, it was held that the Assessee is entitled for deduction u/s 80P observing as under :
5. DECISION: The appellant has preferred 2 grounds of appeal before me. Ground I is the only effective ground and is directed against the denial of deduction u/s 80P(2)(a)(i) by the AO, the action of the AO in holding that the appellant is a cooperative bank and also in invoking the provisions of sec 80P(4). The ground is disposed off as under. 5.1 Ground 1: I find that the AO has held in para 8 as under:- "There is no dispute about the fact that the assessee is carrying on the business of accepting deposits and advancing loans albeit from and to its members. Accepting deposits and advancing loans are the primary activity of any bank whether cooperative or otherwise. The assessee society is doing business of accepting deposits and giving credit facilities to its members like all other cooperative banks and credit societies." This is the only finding of fact given by the AO in the assessment order. The AO proceeded to analyze the provisions of sec 80P, the Banking Regulation Act, more particularly sec 56(c)(ccv) and a number of case laws. The AO therefore held the appellant to be a cooperative bank and not a cooperative society. He has however not led any facts to show that the appellant is engaged in the business of banking. The AO has examined the provisions of the Banking Regulation Act 1949 and tried to demonstrate how the appellant is a bank. Whether the appellant satisfies the core ingredients of banking business or not has not been examined by the AO at all. Merely because deposits have been accepted and loans advanced, it cannot be held that the appellant is in the business of banking. It is not the case of the AO that public in general could also participate in the activities of the appellant in accepting deposits or granting loans. The bye laws of the appellant do not permit it to open the facilities of accepting deposits and granting loans to the general public. These activities are restricted to it's own members. In fact the AO has clearly acknowledged this fact as reproduced supra. The AO has also ignored the fact that the appellant is not authorized to CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit accept any deposits from public nor can it provide any loan/credit facilities to general public as per its bye laws and that all cooperative banks are mandatorily required by sec 22 of the Banking Regulation Act to obtain a banking license from the RBI. The bye laws of the appellant restrict it's activities as being confined to members. In fact, I specifically called for the registration certificate issued to the appellant by the Registrar of Cooperative Societies. The same reveals that the appellant is classified as a 'Resource Institution' and the sub classification is 'Loan giving Resource Institution'. 5.2 The case laws quoted by the appellant as well as the AO squarely reveal that (i) where the assessee is in the business of banking by providing various facilities related to banking to the general public at large, the assessee is held to be a cooperative bank and (ii) where the activities of the assessee were limited to the acceptance of deposits from its own members alone and providing loan facilities to its own members only, without providing other banking facilities such as cheque books, drafts etc, the assessee is to be held as cooperative society and not a bank. 5.3 From the facts of the instant case, it is quite clear that the appellant has limited himself to his own members. The appellant has not provided banking facilities either to the general public at large or even to the members of the society. Even the bye laws of the appellant does not provide for banking activities. Therefore facts of this case are not identical with any of the case laws relied upon by the AO. On the other hand, the facts of the instant case are almost similar to the decisions of the ITAT Nagpur & Panaji Benches in the cases of (i) ACIT vs Buldana Urban Coop Credit Soc Ltd 32 Taxman 69, ITAT Nagpur and (ii) DCJT vs Jayalaxmi Mahila Vividodeshagala Souharda Sahakari Ltd, Karwar by ITAT Panaji Bench 23 Taxman 313 where the activities of the assessee were limited to the members of a specific group and the area of operations was also limited to the acceptance of deposits of members and providing credit facilities to only members, which have been held as not falling under banking activities as defined in the Banking Regulation Act. I also find that the matter is now squarely covered by the decision of the jurisdictional Bombay High Court in its decision in the case of Quepem Urban Cooperative Credit Society [2015] 58 taxmann.com 113 (Bombay). Quoting from the same :-
CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit Section 80P, of the Income-tax Act, 1961 - Deductions - lncome from co- operative societies (Primary Co-operative bank) - Assessment years 2008-09, 2009-10, 2011-12 - Assessee, a co-operative society was registered under Co-operative Society Act - It was engaged in providing credit facilities to its members - It claimed deduction under section 80P(2)(a)(i), which was disallowed by Assessing Officer holding that assessee was a primary co-operative bank, therefore hit by provisions of section 80P(4), which excluded benefit of section 80P - It was found that assessee-society was providing credit mainly to its members and its transactions with non-members were insignificant - Moreover, it was undisputed that bye laws of society did not allow any co-operative society to become its member - Whether on facts, assessee was not a co-operative bank rather it was a co-operative society and, therefore, its claim for deduction was to be allowed - Held, yes (Paras 12, 13) (In favour of assessee) FACTS • The assessee was a co-operative society registered under the Goa Co- operative Societies Act, was engaged in providing credit facilities to its members. The income so earned from said activity, was claimed as deduction under section 80P(2)(a)(i). • The Assessing Officer disallowed the appellant's claim on the ground that the appellant was a primary co-operative bank and, therefore, hit by the provisions of Section 80P(4) which excluded the benefit of section 80P. • However, the Commissioner (Appeals) allowed assessee's claim holding that assessee was not a cooperative bank but a co-operative credit society. • The Tribunal restored Assessing Officer's order. • On appeal: HELD • 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 10 its members. Thus the deduction is available on either of the two activities i.e., banking CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit 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) of section 80P(4) for the purposes of this case. Sub-section (4) provides that section 80P will not apply in relation to a cooperative bank other than a primary agricultural 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 cooperative 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(ccv) 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 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) 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. • 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. [Para 9] CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit • 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 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 Commissioner (Appeals) in his order dated 15-7-2014. 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 than 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 were 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 by-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. 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 Co- operative Bank. [Para 10] So far as condition no. 3 of the definition/meaning pf primary Co-operative bank as 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 co-operative 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 with effect from 12-1-2001 as to permit a society to be CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit 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 co-operative 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 be admitted to the membership of the appellant and not a cooperative 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 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 co-operative 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 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 cooperative 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). [Para 12] • The contention of the revenue that the appellant is not entitled to the benefit of section 80P(2)(a) in view of the fact that it deals with non-members cannot be upheld This for the reason that section 80P(I) 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 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 only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. [Para 13] Therefore, appeal is held in favour of assessee and against revenue 5.4 Therefore respectfully following the aforesaid decisions of ITAT Nagpur & Panaji as well as the Hon'ble Bombay High Court, the CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit appellant cannot be held as a cooperative bank, hence deduction claimed u/s 80P(2)(a)(i) cannot be denied to it. I find that the AU in the present AY has nowhere led any facts to show that banking facilities such as cheque books, drafts have been provided. Neither is it the case of the AO that facilities have been provided to members of the general public without restricting only to its own members. On facts therefore the AO has not demonstrated as to how the appellant qualifies to be a bank. In the circumstances, l hold that the appellant is a cooperative society and not a cooperative bank and is therefore eligible for deduction u/s 80P(2)(a)(i).”
Therefore, as could be seen from the observations of the Ld. CIT (Appeals) that the Assessee is only providing credit facilities among its members and is not doing any banking activity and the bye laws of the Assessee also restricts its activities as being confined to members only and the Assessee also did not carry out any activities with anyone other than the members of the Society. The Assessee is only a Cooperative Society providing credit facilities to its members and not a Cooperative Bank to deny the deduction u/s 80P of the Act. The Revenue could not rebut the findings of the Ld. CIT (Appeals) and show us that how the Assessee falls under a Cooperative Bank and the Assessee is carrying on banking activities in general and with public. In the circumstances, we find that the issue is squarely addressed in favour of the Assessee by the Hon’ble Jurisdictional High Court which the Ld. CIT (Appeals) followed. Thus we sustain the order of the Ld. CIT (Appeals) and reject the ground of the Revenue.
The Cross Objection filed by the Assessee is only in support of the order of the Ld. CIT (Appeals) and therefore dismissed as infructuous.
CO No.47/Mum/2017 (A.Y.2012-13) M/s Kalas Utkarsha Sahakari Patpedhi Maryadit Order pronounced in the open court on the 8th day of May 2017.