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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
O R D E R Per N.V. Vasudevan, Judicial Member
This appeal by the assessee is against the order dated 14.3.2014 passed by the Commissioner of Income-tax [CIT], Gulbarga u/s. 263 of the Income-tax Act, 1961 [ “the Act”].
The assessee is a credit co-operative society. It filed return of income for the A.Y. 2009-10 declaring income of Rs.7,15,860 and claimed the entire income as exempt u/s. 80P(2)(a)(i) of the Act.
3. The assessment was completed accepting the return of income filed by the assessee. The Assessing Officer in the order of assessment has observed that assessee has rightly claimed deduction u/s. 80P(2)(a)(i) of the Act. The CIT, in exercise of his powers u/s. 263 of the Act, was of the view that the aforesaid order of AO was erroneous and prejudicial to the interests of the Revenue for the reason that after the introduction of section 80P(4) of the Act, deduction was not available to co-operative banks. The assessee was akin to a co-operative bank and therefore deduction u/s. 80P(2)(a)(i) of the Act ought not to have been allowed to the assessee. The CIT also noticed that in Form 3CD, report of the auditors, it was mentioned that a sum of Rs.70,941 was shown as tax deductible by the assessee, but not deducted by the assessee. According to the CIT, the AO ought to have disallowed a sum of Rs.70,941 u/s. 40(a)(ia) of the Act. Since the AO failed to look into the aforesaid aspects, the CIT set aside the order of the AO and directed him to frame fresh assessment in accordance with law, after due opportunity to the assessee.
4. Aggrieved by the order of the CIT, the assessee has preferred the present appeal before the Tribunal.
We have heard the rival submissions. As far as deduction u/s. 80P(2)(a)(i) of the Act is concerned, we are of the view that the order of the CIT u/s. 263 of the Act cannot be sustained. Under Sec.80P(2)(i) of the Act, where the gross total income of a co-operative society includes income from carrying on the business of banking or providing credit facilities to its members, the same is allowed deduction. By the Finance Act, 2006 w.e.f. 1-4-2006, Sub-section (4) was inserted in Sec.80-P which provides as follows:
“(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. 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 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.”
6. At the time of hearing, it was agreed by the parties that the issue raised by the Revenue 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 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.”
7. 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.
5. 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. 1. 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. 2. 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.”
The Hon’ble Karnataka High Court in the case of CIT Vs. Sri Biluru 8.
Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot, has held that a credit co-operative society giving credit to its members is not hit by the provisions of Sec.80P(4) of the Act as it does not possess a licence from RBI to carry on business and is not a co- operative bank. The object of introducing Sec.80P(4) of the Act was not to exclude the benefit extended u/s.80P(1) to co-operative society carrying on the business of providing credit facilities to its members.
In view of the aforesaid decisions, we hold that the assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act and set aside the order of the ld. CIT to this extent. It is ordered accordingly.
As far as disallowance u/s. 40(a)(ia) of the Act is concerned, the CIT has only directed the AO to examine whether the provisions can be applied or not. Admittedly, there was no enquiry by the AO on this aspect while concluding the original assessment, thereby rendering the order of the AO erroneous and prejudicial to the interests of the Revenue to this extent. We are therefore of the view that the order of the CIT insofar he directed the AO to make a fresh assessment in accordance with the law is correct and calls for no interference.
In the result, the appeal by the assessee is partly allowed.
Pronounced in the open court on this 29th day of June, 2015.