THE PR COMMISSIONER vs. M/S GURU NITHYANANDA

1/22 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 9TH DAY OF JULY 2018

PRESENT

THE HON'BLE Dr.JUSTICE VINEET KOTHARI

AND

THE HON’BLE Mrs.JUSTICE S.SUJATHA

I.T.A.No.804/2017 C/W ITA Nos. 782/2017, 783/2017, 784/2017, 796/2017, 803/2017 & 805/2017

I.T.A. No.804 OF 2017

Between:

C.R.Building, Attavara,

Mangaluru-575001.

Ward-1, Aayakar Bhavan,

Malpe Road, Aadiudupi,

Ambalapadi PO, Udupi-576103.

…Appellants (By Mr. K.V.Aravind, Advocate)

And:

M/s. Guru Nithyananda Credit Co-operative Society Ltd., Balloor Towers, PPC Road, Udupi-576101. PAN-AAAJG 1051D.

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

2/22

…Respondent (By Mr. Mahesh R. Uppin, Advocate)

This I.T.A. is filed under section 260A of Income Tax Act 1961, arising our of order dated 16.06.2017 passed in ITA No.17/Panji/2017, for the Assessment year 2013- 2014, praying to (1) Formulate the substantial questions of law. (2) Allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bengaluru in ITA No.17/Panji/2017 dated 16.06.2017 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-1, Udupi and etc.

I.T.A. No.782 OF 2017

Between:

Ward-1, Santeri Krupa Building,

Habbuwada,

Karwar-581306.

…Appellants (By Mr. K.V.Aravind, Advocate)

And:

M/s. Akshaya Co-operative Credit Society Ltd., Dr. Kamalakar Road, Karwar-581301. PAN-AAAAA 3196N.

…Respondent (By Mr. N.Shankaranarayana Bhat, Advocate)

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

3/22

This I.T.A. is filed under section 260A of Income Tax Act 1961, arising our of order dated 16.06.2017 passed in ITA No.42/Panji/2017, for the Assessment year 2013- 2014, praying to (1) Formulate the substantial questions of law. (2) Allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bengaluru in ITA No.42/Panji/2017 dated 16.06.2017 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-1, Karwar and etc.

I.T.A. No.783 OF 2017

Between:

C.R.Building, Attavara,

Mangaluru-575001.

Ward-1(2), 2nd Floor, C.R.Building,

N.G.Road, Attavara,

Mangaluru-575001.

…Appellants (By Mr. K.V.Aravind, Advocate)

And:

M/s. South Kanara Goldsmits Industrial Co-operative Society Ltd., Vishwas Soudha, Kottara Chowki, Mangaluru-575006. PAN-AABAS 4056N.

…Respondent (By Mr. Tata Krishna, Advocate for Mr. K.K.Chythanya, Advocate)

This I.T.A. is filed under section 260A of Income Tax Act 1961, arising our of order dated 16.06.2017 passed in

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

4/22

ITA No.28/Panji/2017, for the Assessment year 2013- 2014, praying to (1) Formulate the substantial questions of law. (2) Allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bengaluru in ITA No.28/Panji/2017 dated 16.06.2017 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-1(2), Mangaluru and etc.

I.T.A. No.784 OF 2017

Between:

C.R.Building, Attavara, Mangaluru-575001.

Ward-2(3), C.R.Building,

N.G.Road, Attavara,

Mangaluru-575001.

…Appellants (By Mr. K.V.Aravind, Advocate)

And:

M/s. Samaja Seva Sahakari Bank Ltd., B.P.No.9, Vittal, Bantawal Tq. D.K. Bantawal PAN-AABAS 3315A.

…Respondent (By Mr. Tata Krishna, Advocate for Mr. K.K.Chythanya, Advocate)

This I.T.A. is filed under section 260A of Income Tax Act 1961, arising out of order dated 16.06.2017 passed in ITA No.33/Panji/2017, for the Assessment year 2013- 2014, praying to (1) Formulate the substantial questions of law. (2) Allow the appeal and set aside the orders passed

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

5/22

by the Income Tax Appellate Tribunal, Bengaluru in ITA No.33/Panji/2017 dated 16.06.2017 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-2(3), Mangaluru and etc.

I.T.A. No.796 OF 2017

Between:

C.R.Building, Attavara,

Mangaluru-575001.

Ward-3, Aayakar Bhavan,

Malpe Road, Aadiudupi,

Ambalapadi PO,

Udupi-576103.

…Appellants (By Mr. K.V.Aravind, Advocate)

And:

M/s. Rajapura Saraswatha Credit Co-operative Society Ltd., Saraswatha Soudha, Udupi-576113. PAN-AAAAR 2039P.

…Respondent (By Mr. A.Shankar and Mr. Lava, Advocates)

This I.T.A. is filed under section 260A of Income Tax Act 1961, arising our of order dated 10.07.2017 passed in ITA No.97/Panji/2017, for the Assessment year 2013- 2014, praying to (1) Formulate the substantial questions of law. (2) Allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bengaluru in ITA

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

6/22

No.97/Panji/2017 dated 10.07.2017 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, ward-3, Udupi and etc.

I.T.A. No.803 OF 2017

Between:

C.R.Building, Attavara,

Mangaluru-575001.

Ward-1, Aayakar Bhavan,

Malpe Road, Aadiudupi,

Ambalapadi PO,

Udupi-576103.

…Appellants (By Mr. K.V.Aravind, Advocate)

And:

M/s. Udupi Taluk Industrial Co-operative Society Ltd., Plant India, Main Road, Kinnimulki, Udupi-576101.

…Respondent (By Mr. Mahesh R. Uppin, Advocate)

This I.T.A. is filed under section 260A of Income Tax Act 1961, arising our of order dated 16.06.2017 passed in ITA No.10/Panji/2017, for the Assessment year 2013- 2014, praying to (1) Formulate the substantial questions of law. (2) Allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bengaluru in ITA No.10/Panji/2017 dated 16.06.2017 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, ward-1, Udupi and etc.

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

7/22

I.T.A. No.805 OF 2017

Between:

C.R.Building, Attavara,

Mangaluru-575001.

Ward-1, Aayakar Bhavan,

Malpe Road, Aadiudupi,

Ambalapadi PO,

Udupi-576103.

…Appellants (By Mr. K.V.Aravind, Advocate)

And:

M/s. Badagabettu Credit Co-Operative Society Ltd., Chethana Building, Mission Compound, Udupi-576101. PAN-AAAAB 3065F

…Respondent (By Mr. Mahesh R. Uppin, Advocate)

This I.T.A. is filed under section 260A of Income Tax Act 1961, arising our of order dated 16.06.2017 passed in ITA No.39/Panji/2017, for the Assessment year 2013- 2014, praying to (1) Formulate the substantial questions of law. (2) Allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bengaluru in ITA No.39/Panji/2017 dated 16.06.2017 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-1, Udupi and etc.

These I.T.As. coming on for admission, this day S.SUJATHA J. delivered the following:-

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

8/22

JUDGMENT

Mr. K.V.Aravind, Adv. for Appellants/Revenue Mr. Mahesh R. Uppin; Mr. N.Shankaranarayana Bhat, Advs., Mr. Tata Krishna, Adv. for Mr. Chythanya, Adv., and Mr. A.Shankar &

Mr. Lava, Advs. for Respondents/Assessees

The Revenue has preferred these Appeals under Section 260A of the Income Tax Act, 1961 (‘Act’ for short).

“1. Whether on the facts and in the circumstances of the case learned ITAT is justified in law in holding that the assessee –

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

9/22

society is entitled to deduction under section 80P(2) of the Act?

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

10/22

Commissioner of Income-tax (Appeals), Belgaum reported in [(2016) 236 Taxman 351], where one of us was a member of the coordinate Bench (ii & iii) (SSJ) in as much as the substantial questions of law are answered in favour of the assessee and against the revenue.

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

11/22

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 Finance Act, 2006 with effect from 01.04.2007 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);

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

12/22

(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 Reserve Bank of India to

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

13/22

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 interest of the Revenue. The condition precedent for the commissioner to invoke the power under Section 263 is that the twin condition should be satisfied. The order should be erroneous and it should be prejudicial to the interest of the revenue.”

This view has been concurred in the subsequent judgments of this Court (ii) and (iii) referred to supra.

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

14/22

consistent orders of the ITAT. Specific attention has been invited to ITA No.439/Panaji/2015 and others wherein identical Departmental appeals were dismissed by the ITAT, Panaji Bench in ACIT Vs. Sesa Goa Employees Co-operative Credit Society Ltd., dated 18/02/2016 and order dated 05/08/2015 in ITA 170/Pnj/2015 and others in case of ITO Vs. Shri Basaweshwar Urban Co- operative Credit Society Ltd. ITA 47/Pan/2016 in the case of ACIT Vs. Shree Kalika Urban Co- operative Credit Society Ltd. dated 21/07/2016 wherein also identical issues were raised by the revenue in the respective appeal which all have been consistently dismissed by the Coordinate Bench at Panjim. No contrary decision was brought to our notice. We further noted that the issue has been considered in ITA No.31/Panji/2017 in case of Shri Basveshwar Pattin Souhard Sahakari Niyamit Vs. ITO in order dated 15/06/2017 wherein it has been noted that the Hon’ble Karnataka High Court has considered the decision of the Apex Court relied upon by the AO in the decision rendered in the case of M/s Totgar’s Cooperatives Sales Society Ltd. Vs. ITO.

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

15/22

Accordingly in the facts as the stand in the case of these respective cooperative societies which have been noticed to be admittedly engaged in the activity of accepting deposits and providing credit facility to its members, interest received from the banks on the surplus money kept in fixed deposits has been held to be attributable to the business of providing credit facilities to its members. We further note that the Hon’ble Bombay High Court was called upon to decide the identical issue and has discussed the issue at length in the case of Pr.CIT Vs. Goa PWD Staff Co-operative Credit Society Ltd. and others wherein the view taken by their lordships in the case of M/s The Quepem Urban Co-Operative Credit Ltd. has been followed. For ready reference the same is reproduced hereunder:

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

16/22

17.04.2015 in the case of M/s. The Quepem Urban Co-Operative Credit Society Ltd., (Supra), this Court has observed at Para 9 thus:

“9. 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) of the Act. 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) of the Act would not exclude the appellant from claiming the benefit of deduction under Section 80P(2)(a)(i) of the Act. However in term of Section 8OP of the Act 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(ccl) of

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

17/22

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 primary Co-operative Bank to mean a Co- operative Society which cumulatively satisfies the following 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 that rupees one lakh.

3) Its bye-laws do not permit admission of any other cooperative society as its member.

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

18/22

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 condition No.(1) and (3) provided above are not satisfied.”

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

19/22

the authorities below cannot be interfered by this Court in the present appeals unless there is perversity in such findings. The learned counsel appearing for the appellant has not pointed out any material which has not considered or that there is any misreading of the evidence whilst coming to such conclusions. The contention of Ms. A. Desai, learned counsel appearing for the appellant that in view of the definition of the word “income” ‘as provided in Section 2(24) (vila), the respondents’ Societies are to be treated as a Bank cannot be accepted. This aspect has also been taken note by the Division Bench while disposing of the said appeals in the case of M/s. The Quepem Urban Co-Operative Credit Society Ltd.,(Supra).

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

20/22

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 M/s. The Quepem Urban Co-operative Credit Society Ltd., (supra) would be squarely 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 considerations. For the reasons stated in the said judgment, in the case of M/s. The Quepem Urban Co-operative Credit Societies 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.

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

21/22

Date of Judgment 09-07-2018 I.T.A.Nos.804 /2017 & connected matters The Pr. Commissioner of Income Tax & Others Vs. M/s Guru Nithyananda Credit Co-operative Society Ltd.& Others

22/22

co-ordinate Bench Judgments of this Court and accordingly we answer the substantial questions of law in favour of the assessees and against the revenue. The Appeals stand dismissed. No order as to costs.

Sd/- JUDGE

Sd/- JUDGE

ckl