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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ A ’
Before: SHRI VIJAYPAL RAO & SHRI INTURI RAMA RAO
O R D E R Per Shri Vijaypal Rao, J.M. These two appeals by the revenue are directed against two separate orders of Commissioner of Income Tax (Appeals) both dt.15.6.2015 for the Assessment Years 2010-11 and 2012-13 respectively.
The revenue has raised common grounds in these appeals as under :- “ (1)The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee is a co-operative society which fulfills all the three conditions of being held a Primary Co- operative Bank as given in section 5 (ccv) of the Banking Regulation Act, 1949.
(2)The learned CIT(Appeals) erred in law and on facts in not appreciating the definition of a co-operative bank which as per (3)The learned CIT(Appeals) erred in law and on facts in not appreciating the fact that the assessee society being a credit co- operative society engaged in banking business is a Primary Co-operative Bank within the definition of section 5(ccv) of the Banking Regulation Act, 1949 and as such, not eligible for deduction under section 80P(2)(a)(i)of the I.T. Act, 1961.
(4) The learned CIT(Appeals) erred in not appreciating the facts of the case and also relying upon the decision of High Court of Karnataka in CIT vs. Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, Bagalkot, dated 5.2.2014 and other decisions ignoring the fact that the ITAT, Panaji Bench, has categorically distinguished the decision of Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, in various cases of co-operative society and held that the decision is in regard to revisionary order u/s. 263.”
The assessee is a co-operative society registered under Karnataka Societies Act, 1959. The assessee filed its return of income and claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short 'the Act'). The claim of the assessee for deduction under Section 80P(2)(a)(i) of the Act was rejected by the Assessing Officer while passing the respective assessment orders under Section 143(3) of the Act on the ground that the assessee is not entitled to claim deduction by virtue of section 80P(4) of the Act.
The assessee challenged the action of the Assessing Officer before the CIT (Appeals). The CIT (Appeals) allowed the claim of the assessee by following various judgments of the jurisdictional High Court as well as this Tribunal. The relevant part of the CIT (Appeals) in allowing the claim of the assessee in para 8.2 as under :-
3 & 1194/Bang/2015 “ 8.2 The fact that the appellant is a co-operative society registered under the Karnataka Co- operative Societies Act, 1959 engaged in providing credit facilities to its members has been clearly mentioned by the Assessing Officer in para 3 of his aforesaid assessment order. It is also not the case of the Assessing Officer that the assessee is registered with the RBI as a bank. In its aforesaid submissions dated 22.9.2014 the appellant has clearly stated with the help of necessary evidence and an affidavit dated 17.12.2014 to this effect that the appellant is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959 engaged in providing credit facilities only to its members and it does not possess any banking licence from the RBI. It is therefore, clear that the appellant’s case is squarely covered by the aforesaid decisions of the jurisdictional High Court of Karnataka in the cases of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, supra which was followed in the case of General Insurance Employees Co-operative Credit Society Ltd. and Karnataka High Court decision in the case of Vasavi Multipurpose Souharda Sahakari Niyamita, ITA No.505/2013 dated 27.6.2014 supra. Therefore, in view of the foregoing discussion and respectfully following the aforesaid decisions of the jurisdictional High Court of Karnataka, it is held that the appellant’s case is not covered by section 80P(4) as it is not a ‘co-operative bank’ and therefore, it is entitled to the exemption under Section 80P(2)(a)(i) of the I.T. Act.”
We have heard the learned Departmental Representative as well as learned Authorised Representative and considered the relevant material on record. At the outset we note that this issue is covered by the judgment of Hon'ble jurisdictional High Court in the case of CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangh Niyamit (369 ITR 86) wherein the Hon'ble jurisdictional High Court 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 licence. 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 his order has categorically stated that the assessee is a co-operative 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 the Finance Act, 2006, with effect from April 1, 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....
4 & 1194/Bang/2015 (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 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 the Reserve Bank of India to 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 interests of the Revenue. The condition precedent for the Commissioner to invoke the power under section 263 is that the twin conditions should be satisfied. The order should be erroneous and it should be prejudicial to the interests of the Revenue.
This court had an occasion to consider section 263 of the Act in the case of CIT v. Digital Global Soft Ltd. [2013] 354 ITR 489/[2011] 203 Taxman 98/15 taxmann.com 78 (Kar.) where paragraph 18, it has held as under (page 500) : "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 interests of the Revenue. 'Prejudicial to the Revenue' means, lawful revenue due to the State has not been realized or cannot be realised. In other words, by the order of the assessing authority if the lawful revenue to the State has not been realised or cannot be realised, 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 5 & 1194/Bang/2015 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 judgemnet of Hon'ble jurisdictional High Court, we do not find any error or illegality in the order of the CIT (Appeals) on this issue. The same is upheld.
In the result, the appeals of the revenue are dismissed. Order pronounced in the open court on 04.12.2015.