ITO 15(1)(1), MUMBAI vs. THE CENTRAL TELEGRAPH OFFICE CO OP CREDIT SOCIETY LTD, MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee as well as the Revenue is in cross appeal against the impugned order dated 24/02/2014 of the ld. First Appellate Authority, Mumbai.

2.2. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion of this order dated 31/03/2016 for ready reference and analysis:-

“There are two appeals under consideration for the AY 2010-2011 and they are cross appeals. These two appeals are field against the order of the CIT (A)-26, Mumbai dated 18.2.2014. Since, the issues raised in these appeals are inter- connected, therefore, for the sake of convenience, they are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order.

ITA No.293S/M/2014 (By Revenue)

2. This appeal filed by the Revenue on 29.4.2014. In this appeal, Revenue raised objections on the applicability of the provisions of section 80P(4) of the Act. The Revenue is of the opinion that the references provided in the & 3414/Mum/2014 4 M/s The Central Telegraph Office Co-op. Credit Society Limited

sub-section 4 of section 80P of the Act extends to all societies engaged in the activities of giving & taking deposits. Consequently, the assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act. But, CIT (A) explained this issue and granted relief to the assessee vide his discussion in para 3 and its sub-paras of his order. CIT (A) explained in the light of various decisions. On perusal of the same and after hearing both the parties, we find that the order of the CIT (A) on this issue is fair and reasonable. All such societies are not banks. Reference is made to the discussion at paras 4 and 5 of this order. Therefore, in our opinion, there is no need to interfere with the decision of the CIT (A). Accordingly, grounds raised by the Revenue are dismissed.

ITA No.341S/M/2014 (By assessee)

4. This appeal filed by the assessee on 13.5.2014 against the said order of the CIT (A)-26, Mumbai. The issue raised in this appeal relates to the allowability of deduction of interest and dividend u/s 80P(2)(d) of the Act. As per the assessee, the cooperative banks are cooperative societies and they are not "bank" as defined in the in the Banking Regulation Act, 1969. On this issue, assessee relied on various decisions as well as the coordinate Bench decision in the case of ITO vs. M/s. RCF Employees Cooperative Credit Society Ltd in and 7465/M/2013 (AY 2010-2011), dated 29.01.2016. Paras 6 and 7 of the said Tribunal's decision (supra) are relevant in this regard.

" 6. Further, we have also perused the judgment of the jurisdictional High Court in the case of Quepem Urban Cooperative Credit Society Ltd vs. ACIT [2015} 377 ITR 272 (Bom which was relied upon by the Ld Counsel for the assessee for the proposition that such lending activities do not constitute banking activities as the same & 3414/Mum/2014 5 M/s The Central Telegraph Office Co-op. Credit Society Limited are transacted between the cooperative society and the members of the society. Since, no public is involved the definition of 'banking' does not cover such activities. As such, there is no Reserve Bank of India's approval for conducting such banking activities in this case. He also relied on the definition of ''banking'' and read out from the contents of section S of the Banking Regulation Act 1949 and the same reads as under:- Sec. 5(b) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, or otherwise; 7. From the above, Ld Counsel for the assessee demonstrated that the members of the Credit Cooperative Society do not constitute "public" and there is no depositing, withdrawal by cheque or draft etc. After considering the said judgment of the Hon'ble jurisdictional High Court in the case of Quepem Urban Cooprative Credit Society (supra), we are of the opinion that decision of the CIT (AJ is fair and reasonable and it does not call for any interference. Accordingly, issue raised in the Revenue's appeal is dismissed. "

6. Considering the above settled nature of the issue as well as respectfully following the decision of the Coordinate Bench in the case of RCF Employees Coop. Credit Society Ltd (supra), whereiri one of us (AM) is a party to the said order, and also to maintain the principle of consistency, we are of the opinion that the assessee is entitled to relief. Accordingly, Grounds raised

by the assessee are allowed.

7. In the result, appeal of the assessee is allowed.

8. Conclusively, Revenue's appeal is dismissed and the appeal of the assessee is allowed.”

We find that in the aforesaid order, the Tribunal has placed reliance upon the decision of the coordinate Bench in the case of ITO vs M/s R.C.F. Employees Cooperative Credit Society Ltd. (ITA Nos.6903 & 7465/Mum/2013) order dated 29/01/2016. In that case, the decision from Hon’ble jurisdictional High Court in the case of Quepem Urban Cooperative Credit Society Ltd. vs ACIT (2015) 377 ITR 272 (Bom.) was discussed. Considering the aforesaid decision and the contention raised from both sides, the & 3414/Mum/2014 6 M/s The Central Telegraph Office Co-op. Credit Society Limited facts being similar, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), therefore, the appeal of the Revenue is having no merit, consequently, dismissed.

3. Now, we shall take up the appeal of the assessee (ITA No.3414/Mum/2014), wherein, the only ground agitated by the assessee is with respect to not allowing deduction of interest and dividend received from co- operative bank amounting to Rs.13,38,674/- u/s 80P(2)(d) of the Act. The crux of argument on behalf of the assessee is that the assessee is a cooperative society and in view of the Maharashtra State Cooperative Society Act, the assessee compulsorily has to deposit 25%. So far as, the investment in the bank is concerned, it was explained by the ld. counsel that these are not the investment but are current accounts. It was contended that the impugned issue is covered by the decision ITO vs Govt. Central Printing Press (ITA No.5030/Mum/2013) order dated 29/07/2015. This factual matrix was consented to be correct by the ld. DR. & 3414/Mum/2014 7 M/s The Central Telegraph Office Co-op. Credit Society Limited 3.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 29/07/2015 for ready reference and analysis:-

“This appeal filed by the Revenue on 03.07.2013 is against the order of the CIT (A)-26, Mumbai dated 30.04.2013 for the assessment year 2010-2011. In this appeal, Revenue raised the following grounds which read as under:

“1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in directing to allow deduction u/s 80P to the assessee even though assessee carries on the banking business and other business in the name of a credit cooperative society.

2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in allowing deduction u/s 80P(2)(a)(i) without considering insertion of section 80P(4) and sub clause (viia) to section 2(24) vide Finance Act, 2006 w.e.f. 1.4.2007.

3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in holding that the facts of the assessee‟s case are not identical with any of the case laws relied upon by the AO especially decision of ITAT Jaipur in the case of Kekri Sahakari Bhumi Vikas Bank Ltd and Cochin ITAT in the case of Kerala State Coop. Agricultural Rural Development Bank Ltd.

4. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not following his own order in the case of vishal Janseva Sahakari Patsantha Ltd for AY 2008-2009 on the same issue vide order No. CIT (A)- 26/IT-30/15(3)(3)/10-11, dated 4 th July, 2012.”

143(2) were issued and the assessment was completed u/s 143(3) of the Act determining the assessed income at Rs. 40,13,470/- wherein the AO disallowed Rs. 40,13,467/- against the said claim of deduction u/s 80P of the Act. Aggrieved, assessee carried the matter in appeal before the first appellate authority.

3. During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) allowed the appeal. Aggrieved with the said decision of the CIT (A), Revenue is in appeal before the Tribunal by raising the above mentioned grounds.

4. During the proceedings before us, at the outset, Ld Counsel for the assessee brought our attention to ground no.1, which is the only effective ground to be adjudicated, and submitted that the assessee is a credit cooperative society and claimed deduction u/s 80P(2)(a)(i) of the Act. However, Assessing Officer treated the same as “cooperative bank”. On appeal, CIT (A) granted relief as per the discussion given in para 3.2 and 3.2.1 of the impugned order. Aggrieved with the same Revenue is in appeal before the Tribunal. In this regard, Ld Counsel for the assessee filed various orders of the ITAT, Mumbai as well as the other Benches and the judgment of the Hon‟ble Bombay High Court in the case of Quepem Urban Cooperative Credit Society Ltd [2015] 58 taxmann.com 113 (Bombay).

5. After hearing the both the parties in this regard, we find the said judgment of the Hon‟ble Bombay High Court in the case of Quepem Urband Cooperative Credit Society Ltd (supra) is relevant for the following proposition:

Where assessee-cooperative society could not be regarded as „Co- operative Bank‟ on, mere fact that an insignificant proposition of revenue was coming from non-members, and thus, was entitled for deduction under section 80P(2)(a)(i) of the Act.

6. Therefore, considering the above, we are of the opinion that the decision taken by the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, ground no.1 raised by the Revenue is dismissed. Rest of the grounds ie Ground no.2, 3 and 4 are argumentative in nature and therefore, they need no & 3414/Mum/2014 9 M/s The Central Telegraph Office Co-op. Credit Society Limited

special adjudication. Accordingly, the same are dismissed as academic. 7. In the result, appeal of the Revenue is dismissed.” 3.2. During hearing before us, the ld. Counsel for the assessee also contended that for Assessment Year 2012-13, identically, the ld. Commissioner of Income Tax (Appeals) vide order dated 25/04/2016, allowed the claim of the assessee. A copy of the order was also placed on record.

We find that for Assessment Year 2012-13, the ld. Commissioner of Income Tax (Appeals) A) placed reliance upon the decision from Hon’ble Gujarat High Court in the (supra) along with another decision from Hon’ble High Court in Quepem Urban Cooperative Society (supra) and also the decision from Karnataka High Court in Shri Vardhman Urban Cooperative Credit Society Ltd. (ITA No.100038 of 2014. There is a finding by the ld. Commissioner of Income Tax (Appeals) for Assessment Year 2012-13 (para 5.3) that the assessee has limited himself to own members and has not provided banking facility either & 3414/Mum/2014 10 M/s The Central Telegraph Office Co-op. Credit Society Limited Thus, considering the decision from Hon’ble jurisdictional (2015) 58 taxman.com 113 (Bom.), we find merit in the contention of the assessee. In another case in ITO vs M/s Hooseini Co-op. Credit Society Ltd. (ITA No2965/M/2014 and 3556/Mum/2014) order dated 09/02/2016, it was held as under:-

“2. The assessee is a Co-operative Society and Registered under the Co- operative Societies Act, 1960. The object of the Society is to enable its members to sale their earning and to obtain loan from the Society.

3. The issue contested by the revenue relates to the claim for deduction u/s 80P of the Act. The assessee claimed deduction u/s 80P((2)(a)(i) of the Act. The AO took the view that the assessee falls under the category of "Co-operative Bank" and accordingly by following the provisions of section 80P(4) rejected the claim for deduction u/s 80P of the Act. The ld. CIT(A), however, allowed the claim of the assessee and hence the revenue has filed this appeal before us.

insignificant. Despite this fact, the Hon'ble Bombay High Court has held that the assessee therein could not be treated as Co- operative Bank and accordingly allowed the deduction u/s 80P of the Act to the said assessee. The ld. AR further submitted that the assessee before us was providing a credit only to its members and hence, the case of the assessee stands in stronger footing. The ld. AR further placed reliance on the decision rendered by the SMC Bench of Mumbai Tribunal, in M/s Jaoli Taluka Sahakari Patpedhi Maryadit V/s ITO in (AY- 2010-

11) dated 10.8.2015, wherein the Tribunal, by following the decision of Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda 2965/M/2014 and 3556/Mum/2014 Credit Co-operative Ltd. (2015) (230 Taxman 309) and also the decision rendered by the Hon'ble Supreme Court in the case of Totgars Co- operative Sale Society Ltd (2010) (229 CTR (SC) 209) held that the deduction u/s 80P cannot be rejected to a co-operative society.

5. On the contrary, the ld. DR placed strong reliance on the order o f AO.

case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra), wherein the Hon'ble High Court has held that the interest income earned from deposits kept with bank shall form part of "Business Income". Accordingly, the deduction u/s 80P of the Act is allowable to the interest income as per the decision passed by the Hon'ble Karnataka High Court. Accordingly, we set aside the order of the ld.CIT(A) on this issue and direct the AO to assess the interest income under the head "Income from business" and accordingly allow the deduction u/s 80P of the Act.

3.3. In view of the explanation/claim of the ld. Counsel for the assessee that the disputed amounts from the alleged banks are not investment but is a current account and the finding of the ld. Commissioner of Income Tax (Appeals) for Assessment Year 2012-13 and also in the absence of any contrary decision more specifically from the Revenue side, the assessee being a cooperative society, therefore, providing credit facilities to its members is an allowable deduction u/s 80P(2) of the Act. However, in terms of section 80P, the meaning of the words “cooperative Bank” has to be the meaning assign to it in chapter –V of the Banking Regulation Act, 1949. A cooperative bank is defined in section 5(cci) of the Banking Regulation Act to & 3414/Mum/2014 13 M/s The Central Telegraph Office Co-op. Credit Society Limited mean a state cooperative bank, a central cooperative band and a primary cooperative bank. Admittedly, the assessee is neither a state cooperative bank nor central cooperative

We may clarify here that so far as the contention of the Revenue that the assessee deals with non-members is concerned, we are of the view that section 80P(1) restrict the benefit of deduction of income of cooperative society to the extent it is earned by providing credit facilities to its members, therefore, to the extent of income earned is attributable to the dealings with non-members are concerned, the benefit of section 80P will not be available, thus, while giving effect to the order, the authorities would restrict the benefit of deduction u/s 80P only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. With this rider, the appeal of the assessee is allowed.

Finally, the appeal of the Revenue is dismissed and that of the assessee is allowed. & 3414/Mum/2014 14 M/s The Central Telegraph Office Co-op. Credit Society Limited

This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 23/05/2016.