ASST CIT CIR 3, KALYAN vs. KANCHANGAURI MAHILA SAHAKARI PATHPEDHI MARYADI, DOMBIVALI

Order under section 254(1) of Income Tax Act PER PAWAN SINGH JUDICIAL MEMBER: 1. This appeal under section 253 of income tax act(Act) is directed by revenue against the order of Commissioner( Appeals) -1, Mumbai dated 21st of October 2015 for AY 2012 – 13. Though the revenue has raised as many as three grounds of appeal but as per our considered opinion the effective grounds of appeal raised by the revenue is “whether ld Commissioner (Appeals) erred in deleting the disallowance of Rs. 4 838514/”.

2. The brief facts of the case are that assessee a Cooperative Credit Society filed its returns of income for relevant assessment year on 28 September 2012 declaring total income at Rs. Nill. In the return of income assessee claimed deduction under section 80P (2)(a)(i) being a Cooperative Society. The case was selected for scrutiny and while framing assessment order the AO disallowed the claim of assessee in its order dated 18 Feb 2015. On appeal by the assessee before Commissioner (Appeals) the deduction claimed by assessee was allowed. Thus further aggrieved by the order of Commissioner (Appeals) the revenue has filed present appeal before us.

3. We have heard ld AR of the parties and perused the material available on record. The ld and DR for the revenue relied upon the order of AO and argued M/s. Kanchangauri Mahila Sahakari Pathpedhi Maryadit that though the assessee is a Cooperative Credit Society but its activities are akin to the primary activity of any Bank like Co-operative Banks and the Assessing Officer rightly disallowed the deduction claimed by assessee. On the other hand the learned AR of the assessee argued that Commissioner (Appeals) allowed the appeal on the basis of decision of jurisdictional High Court in Quepem Urban Co-operative Credit Society Ltd (2015) 58 taxman.com( Bombay). It was further argued that this case is also squarely covered by a number of decision of different High Courts. The learned AR of the assessee further relied upon the decision of Madras High Court in CIT versus Kalpadi Co-operative Township Ltd [2016] 74 taxman.com 226 (Madras).

4. We have considered the rival contention of the parties and further gone through the orders of authorities below. The Commissioner(Appeals) relied on the decision of Quepem Urban Co-operative Credit Society Ltd(supra) and passed the following order; “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 terms of Section 80P of the Act the meaning of the words Cooperative Bank is the meaning assigned to it in Chapter V of the Banking Regulation Act, 1949. A cooperative bank is defined in Section 5(cci) of Banking Regulation Act to mean a State Cooperative Bank, a Central Cooperative Bank and a primary cooperative bank. Admittedly, the appellant is not a State Cooperative Bank, a Central Cooperative Bank. Thus what has to be examined is whether the appellant is a primary Cooperative Bank as defined in Para V of the Banking Regulation Act. Section 5(ccv) of the Banking Regulation Act defines a primary cooperative bank to mean a cooperative society which cumulatively satisfies the following three conditions: (1) Its principal business or primary object should be banking business of Banking; M/s. Kanchangauri Mahila Sahakari Pathpedhi Maryadit (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. 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.

10. 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 CIT(A) in his order dated 15 July, 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 then 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 are 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 bye-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 3 M/s. Kanchangauri Mahila Sahakari Pathpedhi Maryadit benefit of Section 80P of the Act. The impugned order sets out the object clause of the appellant, which has 24 objects but thereafter draws no sequiter to conclude that the primary object is Banking. 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 Cooperative Bank.