THE BELGAUM URBAN CREDIT SOUHARDA SAHAKARI LIMITED,BELGAVI vs. INCOME TAX OFFICER, WARD - 2(1), BELGAVI

At the outset, at the time of hearing both the parties conceded that the facts and issues involved in both these appeals are absolutely identical and similar and therefore, based on their submissions, both these cases are heard together and disposed of by this consolidated order.

The ld. Counsel submitted that ITA No. 12/PAN/2019 for A.Y. 2011-12 may be taken as a lead case wherein the grounds appearing are as follows: 1. The ld. CIT(A) Belgavi ought to have allowed the appeal of the assessee society even on merits based on the decision of the jurisdictional High Court of Karnataka in the case of CIT Vs. Shri Biluru Gurubasava Pattina Sahakari Sangha Niyamit, Bagalkot (in ITA No. 5006/2013 dated 05-02-2014). 2. The assessee society is a co-operative society lending to its members.

The relevant facts of this case are that the assessee is a Co-operative Credit Society involved in the activities of lending credit facilities to its Members. The source of income is the interest earned from such lending activities to its Members. The assessee filed return of income for A.Y. 2011-12 admitting total income of Rs. 30,83,320/- and claimed deduction of Rs. 30,83,320/- u/s 80P(2)(a)(i) and 80P(2)(d) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) vide return of income filed on 26-09-2011. The case of the assessee was selected for scrutiny by ld. I.T.O Ward 2(1), Belgavi and the assessment was completed u/s 143(3) of the Act on 27-08-2013 disallowing the claim of deduction u/s 80P(2)(a)(i) of the Act. The ld. A.O observed vide para 4 of his decision that if the income of a Co-operative Society includes profits and gains of banking including providing credit facilities carried on by such Co-operative Society it will not be exempt from tax by way of deduction u/s 80P if they are Co-operative Banks within the meaning of Part V of the Banking Regulation Act, 1949. The ld. A.O observed that the Explanation to section 80P(4) of the Act where the Co-operative Bank and Primary Agricultural Credit Societies shall have the meaning respectively assigned to them as per Part V of the Banking Regulation Act, 1949. The ld. A.O also discussed the relevant definitions as contained in the Banking Regulation Act, 1949. The ld. A.O issued a show cause notice to the assessee asking as to why the Co-operative

When the matter travelled upto the ld. CIT(A) a remand report was called for and in the said remand report, the assessee was treated as a Co-operative Society and not as a Co-operative Bank. So at the first appellate stage, it is clear that the assessee has been declared as a Co-operative Society and not a Co-operative Bank. Further, in the remand report, the ld. A.O submitted that the assessee society was providing credit facilities to two categories of Members, viz. (i) Regular Members; and (ii) Associate/nominal Members. The ld. A.O placed reliance on the decision of Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. Vs. ACIT in Civil Appeal No. 10245 of 2017 in SLP No. 20044 of 2015 where it has been held that if the credit society is earning income not only from Members but also from Nominal/Associate Members in such case deduction claimed u/s 80P(2)(a)(i) of the Act is not admissible. Thereafter, the ld. CIT(A) at para 7 of his order placing reliance on the findings of the remand report and the provisions of the Karnataka Co-operative Societies Act observed that as per the said Statutes the society is permitted to admit upto 15% Nominal/Associate Members. The CIT(A) also observed that the ld. A.O has given a categorical finding that the assessee has violated Karnataka Co-operative Societies Act. That further the assessee was not able to make out a case of proving that the decision of the ld. A.O was incorrect

Per contra, the ld. D.R submitted that whether at all the assessee is covered by the Karnataka Souharda Sahakari Act is a question of determination of facts after proper verification. Therefore, the ld. D.R submitted that the matter may be remanded back to the file of the ld. CIT(A) for fresh adjudication on this aspect.

I have perused the relevant materials on record, analyzed the facts and circumstances in this case and considered the submissions as made by the parties herein. I find that at the assessment stage, the ld. A.O has given detailed findings analyzing the business of the assessee and applying the provisions of Banking Regulation Act and thereafter holding the assessee to be a Co-operative Bank. That when the matter was before the ld. CIT(A) a remand report was called for and in the said remand report, the ld. A.O has given a finding that ultimately the assessee has to be treated as a Co-operative Society and not as a Co-operative Bank. However, when the question of deduction u/s 80P(2)(a)(i) arose the view of the ld. A.O was that the assessee was doing the business of giving credit facilities

Now, I shall adjudicate appeal in ITA No. 13/PAN/2019 for A.Y. 2012-13 and the grounds raised are as follows: “1. The ld. CIT(A) Belagavi ought to have allowed the appeal of the assessee society even on merits based on the decision of the jurisdictional High court of Karnataka in the case of CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamit, Bagalkot )in ITA No. 5006-2013 dated 05-02-2014). 2. The ld. CIT(A) Belgavi has erroneously applied the decision in the case of the Citizens Co-operative Society ltd. Vs. ACIT (Supreme court) while dismissing the appeal. This contention of the appellate authority is incorrect. In the said decision, the nominal members were in majority and practically the society was admitting public where as in the appellant’s case, the nominal members form a minisule part. 3. The assessee society has not done any business with non-members as reported by A.O and as mentioned in para 7 (seven) of Hon’ble CIT(A) Belgavi.”

The parties herein, at the very outset, have conceded that the facts and circumstances and the issues involved in ITA No. 13/PAN/2019 are absolutely similar and identical with those in ITA No. 12/PAN/2019. Therefore, my decision already taken in ITA No. 12/PAN/2019 shall apply mutatis mutandis to ITA No. 13/PAN/2019. Accordingly grounds of appeal in ITA No. 13/PAN/2019 are allowed for statistical purposes. In the result, appeal in ITA No. 13/PAN2019 is allowed for statistical purposes.

In the combined result, both the appeals of the assessee are allowed for statistical purposes. Order pronounced in the open court on 02nd day of December 2022.

The Appellant 2. The Respondent 3. The CIT (Appeals)- Belagavi 4. The Pr. CIT Belagavi 5. DR, ITAT, “SMC” Bench, Panaji 6. Guard File. //सत्यापित प्रपत// True Copy// BY ORDER,