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Income Tax Appellate Tribunal, BANGALORE BENCH “ A ”
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Appellant By : Shri P. Dhivahar, JCIT (D.R) Respondent By : Shri Narendra Sharma, Advocate. Date of Hearing : 25.2.2015. Date of Pronouncement : 5.3.2015. O R D E R
Per Jason P Boaz, Accountant Member :
1. This appeal by the revenue is directed against the order dated 29.5.2014 of the CIT(Appeals)-I, Bangalore, relating to assessment year 2010-11.
2. The assessee is a co-operative society, engaged in providing credit facilities to its members. The assessee had claimed deduction u/s. 80P(2)(a)(i) of the Act. 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 upto Assessment Year 2007-08. By the Finance Act, 2006 w.e.f. 1-4-2007, Sub-section (4) was inserted in Sec.80-P which provides as follows:
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.”
The AO was of the view that after the amendment by the Finance Act, 2006 w.e.f. 1.4.2007 by which sub-section (4) was inserted in section 80P of the Act, the Assessee which was a co- operative society carrying on banking business was not entitled to deduction u/s.80P(2)(i) of the Act. According to the AO, the assessee was a co-operative bank and therefore the deduction u/s. 80P(2)(a)(i) cannot be allowed. In coming to the above conclusion, the AO noticed that the nature of the activity of the assessee, though registered as a credit co-operative society, is that of a banking institution notwithstanding the fact that receipt of and lending money is limited to its members. The AO further noticed that clause (viia) in section 2(24) of the Act was inserted by the Finance Act 2006 effective from 1/4/2007, which provides that profits and gains of any business (including providing credit facilities) carried on by a co-operative society with its members the assessee’s activity was also “Income”. The Assessing Officer observed that the deduction from gross total income of certain receipts is available only to primary agricultural credit societies or primary co-operative agricultural and rural development banks; and that the benefit of such deduction is not available to institutions like the assessee society. The AO also referred to Part V, section 5(b) (cci), (ccv) and (ccvi) of the Banking Regulation Act to hold that, if one of the two conditions of the appellant i.e. its primary object should be banking or its principal business must be transaction in banking business, is sufficient to bring the appellant into the concept of a banking institution. The AO referred to the objects of the assessee society in its bye laws that the activities of the assessee fall within the provisions of sections 5(b), 5(cci), 5(ccv) and 5(ccvi) of Part V of the Banking Regulations Act, 1949 and held that, broadly, they are in the nature of banking activity.
In the light of the above-mentioned observations, the AO held that the appellant was not entitled to exemption u/s 80P(2)(a)(i) of the Act and brought the same to tax.
4. The CIT(A), Mysore by order dt.30.1.2013 confirmed the order of the AO. Hence this appeal by the Assessee before the Tribunal.
5. At the time of hearing, it was brought to our notice by the parties that the issue raised by the Assessee 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 Cooperative society Nature under Banking Regulation Act, registered under Karnataka 1949 Cooperative Society Act, 1959. Registra- Under the Banking Regulation Act, Cooperative Societies Act, tion 1949 and Cooperative Societies 1959. Act, 1959. Nature of 1. As defined in section 6 of 1. As per the bye laws of business Banking Regulation Act. the cooperative society.
2. Can open savings bank account, 2. Society cannot open current account, overdraft savings bank account, account, cash credit account, current account, issue issue letter of credit, discounting letter of credit, discounting bills of exchange, issue cheques, bills of exchange, issue demand drafts (DD), Pay Orders, cheques, demand drafts, pay Gift cheques, lockers, bank orders, gift cheques, guarantees etc. lockers, bank guarantees 3. Cooperative Banks can act as etc. clearing agent for cheques, DDs, 3. Society cannot act as pay orders and other forms. clearing agent, for cheques, 4. Banks are bound to follow the DDs, pay orders and other rules, regulations and directions forms. issued by Reserve Bank of India 4. Society are bound by (RBI). rules and regulations as specified by 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 inspect accounts and overall of the bank. functioning of the bank. Part V Part V of the Banking Regulation Part V of the Banking Act is applicable to cooperative Regulation Act is not banks. applicable to cooperative banks. Use of The word ‘bank’, banker’, ‘banking’ The word ‘bank’, banker’, words can be used by a cooperative ‘banking’ cannot be used by bank. 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.”
6. The learned Authorised Representative has also placed reliance on the following judicial pronouncements in support of the proposition that the income earned by the assessees by providing credit facilities to its members is eligible for exemption under Section 80P(2)(a)(i) of the Act :-
(i) CIT V Jafari Momin Vikas Co-op. Credit Society Ltd. of the Hon'ble Gujarat High Court in TA Nos.442, 443 & 863 of 2013 dt.15.1.2014.
(ii) CIT V Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot in dt.5.2.2014 of the Hon'ble Karnataka High Court, and (iii) the decision of the co-ordinate bench of the ITAT, Bangalore in the case of Mangalore Teachers Co-op. Credit Society Ltd. in ITA No.1682/Bang/2013 dt.18.9.2014.
The learned Authorised Representative prays that in view of the aforesaid decisions of the Hon'ble High Courts and the co-ordinate benches of the Bangalore Tribunal, the issue stands covered squarely in favour of the assessee and therefore Revenue’s appeal is liable to be dismissed.
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 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 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.”
In view of the aforesaid decisions, we are of the view that there is no merit in this appeal by the Revenue. Consequently, the same is dismissed. 10. In the result, the Revenue’s appeal is dismissed. Order pronounced in the open court on 5th March, 2015.