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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:
The Pr. Commissioner of Income Tax
C.R.Building, Attavara,
Mangaluru-575001.
The Income Tax Officer,
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.
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…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:
The Pr. Commissioner of Income Tax, C.R.Building, Attavara, Mangaluru-575001.
The Income Tax Officer,
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)
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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:
The Pr. Commissioner of Income Tax,
C.R.Building, Attavara,
Mangaluru-575001.
The Income Tax Officer,
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
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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:
The Pr. Commissioner of Income Tax
C.R.Building, Attavara, Mangaluru-575001.
The Income Tax Officer,
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
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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:
The Pr. Commissioner of Income Tax
C.R.Building, Attavara,
Mangaluru-575001.
The Income Tax Officer,
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
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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:
The Pr. Commissioner of Income Tax
C.R.Building, Attavara,
Mangaluru-575001.
The Income Tax Officer,
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.
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I.T.A. No.805 OF 2017
Between:
The Pr. Commissioner of Income Tax
C.R.Building, Attavara,
Mangaluru-575001.
The Income Tax Officer,
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:-
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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).
The substantial questions of law framed in the memorandum of appeal arising out of the common order passed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji, relating to the different assesses- respondents herein for the assessment year 2013-14 are identical, as such these appeals are disposed of by the common judgment. The substantial questions of law suggested by the revenue and considered by us are extracted here under:
“1. Whether on the facts and in the circumstances of the case learned ITAT is justified in law in holding that the assessee –
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society is entitled to deduction under section 80P(2) of the Act?
Whether on the facts and in the circumstances of the case learned ITAT is justified in law in allowing deduction under Section 80P(2) to an assessee – society even though the same is covered under Section 80P(4) read with Section. 2(24)(viia) being income from providing credit facilities carried on by a co-operative society with its members?”
The issue involved herein is no longer res integra in view of the coordinate Bench judgments of this Court in the cases of (i) Commissioner of Income-tax vs Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot reported in [(2015) 56 Taxmann.com 280 (Kar)]; (ii) Shri Chandraprabhu Urban Co-operative Credit Society Limited vs The Income Tax Officer (ITA Nos. 100043 & 100045/2014 dated 21.9.2015) and (iii) Belgaum Merchants Co-op Credit Society Limited vs
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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.
In the case of Commissioner of Income-tax vs Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot (supra), a Division Bench of this Court has held 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 license. 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 its order has categorically stated that the assessee is a Co-operative
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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);
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(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
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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.
The learned Tribunal, a fact finding Authority, after hearing both the parties has returned a finding as under:- “4. Parties have also contended before the bench that on the issues there are
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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.
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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:
We have given our thoughtful consideration to the rival contentions and with the assistance of the learned counsel, we have also gone through the said judgment and the relevant provisions of the said Act. On going through the said judgment dated
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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
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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.
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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.”
Taking note of the above observations, it is clearly held therein that unless and until the said three conditions are cumulatively satisfied, the question of holding that such society is a Co-operative Bank would not arise at all. In the present cases, it is not disputed that the third condition that the bye laws should not permit admission of any other Co-Operative Society as its member is not at all satisfied. In any event, the facts finding authorities after examining the material on record have concurrently” come to the conclusion that the respondent’s Societies are not Banks but Co-operative societies and as such they are entitled for exemption in terms of section 80P(2)(a)(i) of the said Act. The findings of fact arrived at by
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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).
Taking note of the observations in the said judgment in the case of M/s. The Quepem Urban Co-operative Credit Society Ltd., (Supra) to the effect that merely giving credit facilities to the members would not be co-operative
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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.
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There being no change in the facts and circumstances respectfully following the precedent as considered in the aforesaid decisions and orders the impugned order in the respective appeals are upheld and the departmental grounds are dismissed. Specific reference may be made to the order dated 15/06/2017 in ITA No.31/panji/2017 in case of Shri. Baseveshwar Pattin Souhard Sahakari Niyamit Vs. ITO and order dated 16/06/2017 in ITA No.41/Panji/2017 in case of ITO Vs. M/s. St. Milagres Credit Souhaarda Co-Operative Society Ltd., and others.”
It is not in dispute that the assesses/respondents herein are engaged in providing credit facilities to its members and have not obtained any banking licence to deny the benefit under Section 80P(2) of the Act as falling under Section 80P(4) of the Act, as a co-operative bank. The position of these assesses as co-operative societies being clear they cannot be construed as co-operative banks, and the judgments referred to above squarely applies. We have no reasons to differ from the aforesaid
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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
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