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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI ABRAHAM P. GEORGE
Per Asha Vijayaraghavan, Judicial Member
This appeal by the Revenue is directed against the order dated 29.05.2015 of the CIT(Appeals), Hubli for the assessment year 2010-11.
2. The only issue involved in this appeal is with regard to allowability of deduction u/s. 80P(2)(a)(i) of the Act to the assessee. The assessee is a co-operative society registered under the Co-operative Societies Act, 1997. The main object of the society is to accept deposits and to provide financial assistance to the needy members of the society. The assessee claimed a deduction of Rs.18,04,347 u/s. 80P(2)(a)(i) of the Act, which was disallowed by the AO holding the assessee to be a primary co-operative bank within the meaning of section 5(ccv) of the Banking Regulations Act, 1949 to which section 80P(4) of the Act was applicable. The AO also made an addition of Rs.3,42,401 on account of interest earned on fixed deposits.
3. Aggrieved, the assessee preferred appeal before the CIT(Appeals).
It was submitted that the assessee is a registered co-operative society and is involved in providing credit facilities to its members. It was further contended that section 80P(4) invoked by the AO was applicable only to co-operative banks, and not to co-operative society as in the case of the assessee. Placing reliance on the decision of the Hon’ble jurisdictional High Court in CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot , 369 ITR 86 (Karn) and the decision of the Tribunal in the case of The Jamakhandi Urban Minority Co-op. Credit Society Ltd., the assessee contended that it was entitled to deduction u/s. 80P(2)(a)(i) of the Act.
4. As regards addition made by the AO on account of interest earned on fixed deposits, the assessee submitted before the CIT(A) that the issue was covered by the decision of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO, of 2014 dated 28.01.2014 in favour of the assessee. It was also submitted that the interest income of Rs.3,42,401 was already included in the amount of Rs.18,04,347 disallowed u/s. 80P(2)(a)(i), which was shown as income in the Profit & Loss account and addition of the same as income from other sources amounts to double addition.
5. The CIT(Appeals) observed that the assessee society does not have banking as its objects nor its activities could be termed as banking business. The CIT(A) held that the assessee was not a co-operative bank and the provisions of section 80P(4) shall not apply to its case. Therefore, the CIT(A) held that the assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act with a direction to the AO to allow deduction u/s. 80P(2)(a)(i) keeping in view clause (d) of section 80P(2), relying on the decisions of the Bangalore Bench of the Tribunal in the case of M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. and Yeshwanthpur Credit
6. On the issue of interest of Rs.3,42,401 earned from fixed deposits, the CIT(Appeals) following the decision of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO, of 2014 dated 28.01.2014 deleted the addition made by the AO.
7. Aggrieved, the Revenue is in appeal before us.
We have heard both the parties and perused the material on record. We find that identical issue has already been considered and decided by this Tribunal in the case of ACIT, Circle 3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in dt. 8.4.2011, wherein this Tribunal held that section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application in the assessee’s case and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act. The following were the relevant observations of the Tribunal:-
“9. We have heard the rival submissions and perused the material on record. The assessee was denied the deduction u/s 80-P(2)(a)(i) of the Act for the reason of introduction of sub section 4 to section 80P. Section 80P(4) reads as follows:- “(4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. Explanation: For the purposes of this sub-section, (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); (b) “primary cooperative 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”.
9.1 The above sub-section 4 of section 80P provides that deduction under the said section shall not be available to any cooperative bank other than a primary agricultural credit society or rural development bank. For the purpose of the said sub section, cooperative bank shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949. In Part V of the Banking Regulation Act, “cooperative bank” means a State Cooperative Bank, a Central Cooperative Bank and a Primate Cooperative Bank.
9.2 From the above section, it is clear that the provisions of section 80P(4) has got its application only to cooperative banks. Section 80P(4) does not define the word “cooperative society”. The existing sub-section 80P(2)(a)(i) shall be applicable to a cooperative society carrying on credit facility to its members. This view is clarified by Central Board of Direct Tax vide its clarification No.133/06/2007-TPL dated 9th May, 2007. The difference between a cooperative bank and a cooperative society are as follows:-
Cooperative society registered under Cooperative society registered Nature Banking Regulation Act, 1949 under Karnataka Cooperative Society Act, 1959. Registra Under the Banking Regulation Act, Cooperative Societies Act, -tion 1949 and Cooperative Societies Act, 1959. 1959. Nature 1. As defined in section 6 of Banking 1. As per the bye laws of the of Regulation Act. cooperative society. business 2. Can open savings bank account, 2. Society cannot open savings current account, overdraft account, bank account, current account, cash credit account, issue letter of issue letter of credit, credit, discounting bills of exchange, discounting bills of exchange, issue cheques, demand drafts (DD), issue cheques, demand drafts, Pay Orders, Gift cheques, lockers, pay orders, gift cheques, bank guarantees etc. lockers, bank guarantees etc.
Cooperative Banks can act as 3. Society cannot act as clearing agent for cheques, DDs, pay clearing agent, for cheques, orders and other forms. DDs, pay orders and other 4. Banks are bound to follow the forms. rules, regulations and directions 4. Society are bound by rules issued by Reserve Bank of India and regulations as specified by (RBI). in the cooperative societies act. Filing of Cooperative banks have to submit Society has to submit the returns annual return to RBI every year. annual return to Registrar of Societies.
Inspec- RBI has the power to inspect Registrar has the power to tion accounts and overall functioning of inspect accounts and overall the bank. functioning of the bank. Part V Part V of the Banking Regulation Act Part V of the Banking is applicable to cooperative banks. Regulation Act is not applicable to cooperative banks.
Use of The word ‘bank’, banker’, ‘banking’ can The word ‘bank’, banker’, words be used by a cooperative bank. ‘banking’ cannot be used by a cooperative society.
9.3 If the intention of the legislature was not to grant deduction u/s 80P(2)(a)(i) to cooperative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted. The new proviso to section 80P(4) which is brought into statute is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application in the assessee’s case and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act. Hence, we are of the view that the order of the CIT(A) is correct and in accordance with law and no interference is called for.”
9. The Hon’ble Gujarat High Court in the case of Tax appeal No.442 of 2013 with Tax appeal No.443 of 2013 with Tax appeal No.863 of 2013 in the case of CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd. by judgment dated 15.1.2014 on had to deal with the following question of law:
“ Whether the Hon’ble Tribunal is correct in allowing deduction under section 80P(2)(a)(i) to assessee’s society even though same is covered under section 80P(4) rws 2(24) (viia) being income from providing credit facilities carried on by a co-operative society with its member?”
The Hon’ble Court held as follows:
4. As per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. As per the explanation, the terms “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.
Assessing Officer held that by virtue of section 80P(4), the respondent assessee would not be entitled to benefits of deduction under section 80P. CIT(Appeals) as well as the Tribunal reversed the decision of the Assessing Officer on the premise that the respondent assessee not being a bank, exclusion provided in sub- section(4) of section 80P would not apply. This, irrespective of the fact that the respondent would not fall within the expression “primary agricultural credit society”.
Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of subsection(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 Legislature specified primary agricultural credit societies along with primary cooperative 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 CBDT circular No.133 of 2007 dated 9.5.2007. Circular provides as under:- “Subject: Clarification regarding admissibly of deduction under section 80P of the Income-Tax Act, 1961.
Please refer to your letter no.DCUS/30688/2007, dated 28.03.2007 addressed to Chairman, Central Board of Direct Taxes, on the above given subject.
In this regard, I have been directed to state that sub- section(4) of section 80P provides that deduction under the said section shall not be allowable to any co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub- section, co-operative bank shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949.
3. In part V of the Banking Regulation Act,“Co-operative Bank” means a State Co-operative bank, a Central Co- operative Bank and a primary Co-operative bank.
Thus, if the Delhi Co op Urban T & C Society Ltd. does not fall within the meaning of “Co-operative Bank” as defined in part V of the Banking Regulation Act, 1949, subsection(4) of section 80P will not apply in this case.
5. The issues with the approval of Chairman,Central Board of Direct Taxes.”
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 Coop Urban Thrift & Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a cooperative 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 therein but also credit societies, which are not cooperative 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.”
10. The Hon’ble High Court of Karnataka in the case of CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot , 369 ITR 86 (Karn) considered the following substantial question of law:-
“ In the facts and circumstances of this case, whether the Revisional Authority was justified in invoking his power under Section 263 of the Act without the foundational fact of assessee being Co-operative bank was not there?”
On the above substantial question of law, the Hon’ble jurisdictional High Court held at para 9 of its as under:-
“9. This Court had an occasion to consider Section 263 of the Act in the case of - COMMISSIONER OF INCOME-TAX AND ANOTHER V. DIGITAL GLOBAL SOFT LTD. [2013] 354 ITR 489 (Karn) where paragraph-18, it has held as under: “As is clear from the wording in section 263, the Commissioner gets the jurisdiction to revise any proceedings under this Act if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interest of the Revenue. “Prejudicial to the Revenue” means, lawful revenue due to the State has not been realized or cannot be realized. In other words, by the order of the assessing authority if the lawful revenue to the State has not been realized or cannot be realized, as the said order is prejudicial to the interests of the Revenue and also erroneous, he gets jurisdiction to interfere with the said order under section 263. Therefore, for attracting section 263, the condition precedent is (a) the order of the Assessing Officer sought to be revised is erroneous, and (b) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act. The satisfaction of both the conditions stipulated in the section is the sine qua non for the Commissioner to exercise his jurisdiction under Section 263.”
In the instant case, when the status of the assessee is a Co- operative society and is not a Co-operative bank, the order passed by the Assessing Authority extending the benefit of exemption from payment of tax under Section 80P(2)(a)(i) of the Act is correct. There is no error. When there is no error, the question of order being prejudicial would not arise . The Tribunal has rightly entertained the appeal and set-aside the order. Therefore, the said order is in accordance with law and cannot be found fault with. The substantial question of law is answered in favour of the assessee and against the revenue.”
In view of the above decisions of the High Courts and following the decision of the coordinate Bench of the Tribunal in the case of Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. (supra), we find no infirmity in the impugned order of the CIT(Appeals) in holding that the assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act. Accordingly, we dismiss the grounds No.2 & 3 raised by the Revenue.
As far as interest earned on fixed deposits amounting to Rs.3,42,401 is concerned, the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO, of 2014 dated 28.01.2014, held as under:-
“8. Therefore, the word “attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act.
In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.
10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME-TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., reported in (2011) 200 TAXMAN 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order:
We find that identical issue came up for consideration before this Tribunal in & 817/Bang/2015 in the case of Ashwathpura Pathina Souharda Sahakarai Niyamitha. The Tribunal by its order dated 10.11.2015, following the judgment of Hon’ble jurisdictional High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. (supra) allowed the claim of assessee for deduction u/s. 80P in respect of interest on fixed deposits holding as follows:-
9. Having considered the rival submissions and the material on record, we note that the CIT(A) has denied the claim of deduction u/s. 80P(2)(a)(i) in respect of interest earned on fixed deposits by placing reliance on the judgment of the Hon’ble Supreme Court in the case of The Totgars Co-operative Sale Society (supra). It is pertinent to note that there is no dispute as regards the fact that the assessee is a co-operative society and the interest earned by the assessee is from the fixed deposits which is the dispute in the present appeals. The Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra) had an occasion to consider an identical issue on the allowability of deduction u/s. 80P in respect of interest on deposits. The Hon’ble High Court has decided the issue in paras 8 to 10 ……..
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It is clear that the Hon’ble jurisdictional High Court has decided this issue after considering the judgment of the Hon’ble Supreme Court in the case of The Totgars Co-operative Sale Society (supra). Respectfully following the judgment of Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra), we decide this issue in favour of the assessee and consequently the claim of deduction u/s. 80P is allowed in respect of interest on fixed deposits.
Respectfully following the decision of the Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra) and decision of the coordinate Bench of this Tribunal in the case of Ashwathpura Pathina Souharda Sahakarai Niyamitha (supra), we dismiss ground No.4 raised by the Revenue.
In the result, the appeal by the Revenue is dismissed. 16.
Pronounced in the open court on this 28th day of December, 2015.