The Hungund Taluka Teachers Co-Op Credit Society, V. ITO,

ITA 1133/BANG/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5357 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 16-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIJU M K
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Gift; Question of law
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1133/BANG/2013 ASSESSMENT YEAR : 2009-10 THE HUNGUND TALUKA TEACHERS CO- OPERATIVE CREDIT SOCIETY LTD., HUNGUND-587 118 PAN: AAAAT 0717G VS. THE INCOME TAX OFFICER, WARD 1, BAGALKOT. APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMANIAN. RESPONDENT BY : SHRI BIJU M.K. DATE OF HEARING : 26.02.2014 DATE OF PRONOUNCEMENT : 07.03.2014. O R D E R PER JASON P BOAZ, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20.5.2013 OF THE CIT(APPEALS), BELGAUM, RELATING TO ASSESSMENT YEAR 2009-10. 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 TH E ACT WHERE THE GROSS TOTAL ITA NO.1133/BANG/2013 2 INCOME OF A CO-OPERATIVE SOCIETY INCLUDES INCOME FR OM 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: (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULT URAL 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 C REDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO TH EM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); (B) 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DE VELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVI DE FOR LONG-TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIV ITIES. 3. THE AO WAS OF THE VIEW THAT AFTER AMENDED BY THE FINANCE ACT, 2006 W.E.F. 1.4.2007 BY WHICH SUB-SECTION (4) WAS I NSERTED, THE ASSESSEE WHICH WAS A CO-OPERATIVE SOCIETY CARRYING ON BANKIN G BUSINESS WAS NOT ENTITLED TO DEDUCTION U/S.80P(2)(I) OF THE ACT. AC CORDING 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 A BOVE CONCLUSION, THE AO NOTICED THAT THE NATURE OF THE ACTIVITY OF THE ASSE SSEE, THOUGH REGISTERED AS A CREDIT CO-OPERATIVE SOCIETY, IS THAT OF A BANKING INSTITUTION NOTWITHSTANDING THE FACT THAT RECEIPT OF AND LENDING MONEY IS LIMIT ED TO ITS MEMBERS. THE ITA NO.1133/BANG/2013 3 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, WH ICH PROVIDES THAT PROFITS AND GAINS OF ANY BUSINESS (INCLUDING PROVIDING CRED IT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBERS THE ASSESSE ES ACTIVITY WAS ALSO INCOME. THAT THE DEDUCTION FROM GROSS TOTAL INCO ME OF CERTAIN RECEIPTS IS AVAILABLE ONLY TO PRIMARY AGRICULTURAL CREDIT SOCIE TIES 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 SECTION 5(B) OF THE BANKING REGULA TION 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 TRANSACTI ON IN BANKING BUSINESS, IS SUFFICIENT TO BRING THE APPELLANT INTO THE CONCE PT OF A BANKING INSTITUTION. THE AO REFERRED TO THE OBJECTS OF THE ASSESSEE SOCI ETY IN ITS BYE LAWS THAT THE ACTIVITIES OF THE ASSESSEE FALL WITHIN THE PROV ISIONS 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 B ANKING ACTIVITY. IN THE LIGHT OF THE ABOVE-MENTIONED OBSERVA TIONS, 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), BELGAUM BY ORDER DT.25.3.2013 CONFIR MED THE ORDER OF THE AO. HENCE THIS APPEAL BY THE ASSESSEE BEFORE T HE TRIBUNAL. ITA NO.1133/BANG/2013 4 5. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR NO TICE BY THE PARTIES THAT THE ISSUE RAISED BY THE ASSESSEE HAS ALREADY BEEN C ONSIDERED 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 ITA NO.1069/BANG/2010 , WHEREIN THIS TRIBUNAL HELD THAT SECTION 80P(4) IS APPLICABLE ONLY TO COOPERATIVE BANKS AND NOT TO CRE DIT COOPERATIVE SOCIETIES. THE INTENTION OF THE LEGISLATURE OF BRI NGING 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 HAV E APPLICATION IN THE ASSESSEES CASE AND THEREFORE, IT IS ENTITLED TO DE DUCTION U/S 80P(2)(A)(I) OF THE ACT. THE FOLLOWING WERE THE RELEVANT OBSERVATI ONS OF THE TRIBUNAL:- 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE WAS DENIED THE DE DUCTION U/S 80-P(2)(A)(I) OF THE ACT FOR THE REASON OF INTRODUC TION OF SUB SECTION 4 TO SECTION 80P. SECTION 80P(4) READS AS FOLLOWS:- (4) THE PROVISIONS OF THIS SECTION SHALL NOT A PPLY IN RELATION TO ANY COOPERATIVE BANK OTHER THAN A PRIMA RY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIV E AGRICULTURAL AND RURAL DEVELOPMENT BANK. EXPLANATION: FOR THE PURPOSES OF THIS SUB-SECTION, (A) CO-OPERATIVE BANK AND PRIMARY AGRICULTURAL C REDIT 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 TE RM ITA NO.1133/BANG/2013 5 CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 9.1 THE ABOVE SUB-SECTION 4 OF SECTION 80P PROVID ES THAT DEDUCTION UNDER THE SAID SECTION SHALL NOT BE AVAIL ABLE 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 AS SIGNED 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 PR OVISIONS OF SECTION 80P(4) HAS GOT ITS APPLICATION ONLY TO COOP ERATIVE BANKS. SECTION 80P(4) DOES NOT DEFINE THE WORD COOPERATIV E SOCIETY. THE EXISTING SUB-SECTION 80P(2)(A)(I) SHALL BE APPL ICABLE TO A COOPERATIVE SOCIETY CARRYING ON CREDIT FACILITY TO ITS MEMBERS. THIS VIEW IS CLARIFIED BY CENTRAL BOARD OF DIRECT T AX VIDE ITS CLARIFICATION NO.133/06/2007-TPL DATED 9 TH MAY, 2007. THE DIFFERENCE BETWEEN A COOPERATIVE BANK AND A COOPERA TIVE SOCIETY ARE AS FOLLOWS:- NATURE COOPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT, 1949 COOPERATIVE SOCIETY REGISTERED UNDER KARNATAKA COOPERATIVE SOCIETY ACT, 1959. REGISTR A-TION UNDER THE BANKING REGULATION ACT, 1949 AND COOPERATIVE SOCIETIES ACT, 1959. COOPERATIVE SOCIETIES ACT, 1959. NATURE OF BUSINE SS 1. AS DEFINED IN SECTION 6 OF BANKING REGULATION ACT. 2. CAN OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, OVERDRAFT ACCOUNT, CASH CREDIT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS (DD), PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. COOPERATIVE BANKS CAN ACT AS CLEARING AGENT FOR CHEQUES, DDS, PAY ORDERS 1. AS PER THE BYE LAWS OF THE COOPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS, PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. SOCIETY CANNOT ACT AS CLEARING AGENT, FOR ITA NO.1133/BANG/2013 6 AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI). CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. SOCIETY ARE BOUND BY RULES AND REGULATIONS AS SPECIFIED BY IN THE COOPERATIVE SOCIETIES ACT. FILING OF RETURNS COOPERATIVE BANKS HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR. SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIETIES. INSPEC -TION RBI HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. REGISTRAR HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. PART V PART V OF THE BANKING REGULATION ACT IS APPLICABLE TO COOPERATIVE BANKS. PART V OF THE BANKING REGULATION ACT IS NOT APPLICABLE TO COOPERATIVE BANKS. USE OF WORDS THE WORD BANK, BANKER, BANKING CAN BE USED BY A COOPERATIVE BANK. THE WORD BANK, BANKER, 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 PROV ISO TO SECTION 80P(4) WHICH IS BROUGHT INTO STATUTE IS APP LICABLE ONLY TO COOPERATIVE BANKS AND NOT TO CREDIT COOPERATIVE SOC IETIES. THE INTENTION OF THE LEGISLATURE OF BRINGING IN COOPERA TIVE BANKS INTO THE TAXATION STRUCTURE WAS MAINLY TO BRING IN PAR W ITH 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 ASSESSEES CASE AND THEREFORE, I T IS ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. HENCE, WE A RE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCO RDANCE WITH LAW AND NO INTERFERENCE IS CALLED FOR. ITA NO.1133/BANG/2013 7 6. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF TA X 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 FOLLO WING QUESTION OF LAW: WHETHER THE HONBLE TRIBUNAL IS CORRECT IN ALLOWIN G DEDUCTION UNDER SECTION 80P(2)(A)(I) TO ASSESSEES SOCIETY EV EN THOUGH SAME IS COVERED UNDER SECTION 80P(4) RWS 2(24) (VII A) BEING INCOME FROM PROVIDING CREDIT FACILITIES CARRIED ON BY A CO- OPERATIVE SOCIETY WITH ITS MEMBER? THE HONBLE COURT HELD AS FOLLOWS: 4. AS PER SECTION 80P(4), THE PROVISIONS OF SECTI ON 80P WOULD NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHE R 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 SO CIETY 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 SECTIO N 80P(4), THE RESPONDENT ASSESSEE WOULD NOT BE ENTITLED TO BENEFI TS OF DEDUCTION UNDER SECTION 80P. CIT(APPEALS) AS WELL AS THE TRIB UNAL REVERSED THE DECISION OF THE ASSESSING OFFICER ON THE PREMIS E THAT THE RESPONDENT ASSESSEE NOT BEING A BANK, EXCLUSION PRO VIDED IN SUB- SECTION(4) OF SECTION 80P WOULD NOT APPLY. THIS, IR RESPECTIVE OF THE FACT THAT THE RESPONDENT WOULD NOT FALL WITHIN THE EXPRESSION PRIMARY AGRICULTURAL CREDIT SOCIETY. 6. HAD THIS BEEN THE PLAIN STATUTORY PROVISIONS UN DER CONSIDERATION IN ISOLATION, IN OUR OPINION, THE QUE STION OF LAW COULD BE STATED TO HAVE ARISEN. WHEN, AS CONTENDED BY THE ASSESSEE, BY VIRTUE OF SUBSECTION(4) ONLY CO-OPERATIVE BANKS OTH ER 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 S OCIETIES ALONG WITH PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPM ENT BANKS FOR EXCLUSION FROM SUCH EXCLUSION AND IN OTHER WORDS, C ONTINUED TO HOLD SUCH ENTITY AS ELIGIBLE FOR DEDUCTION. HOWEVER, THE ISSUE HAS BEEN ITA NO.1133/BANG/2013 8 CONSIDERABLY SIMPLIFIED BY VIRTUE OF CBDT CIRCULAR NO.133 OF 2007 DATED 9.5.2007. CIRCULAR PROVIDES AS UNDER:- SUBJECT: CLARIFICATION REGARDING ADMISSIBLY OF DED UCTION 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 BOA RD OF DIRECT TAXES, ON THE ABOVE GIVEN SUBJECT. 2. IN THIS REGARD, I HAVE BEEN DIRECTED TO STATE T HAT SUB-SECTION(4) OF SECTION 80P PROVIDES THAT DEDUCTI ON UNDER THE SAID SECTION SHALL NOT BE ALLOWABLE TO AN Y CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT 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-OPERATIV E BANK. 4. THUS, IF THE DELHI CO OP URBAN T & C SOCIETY LT D. DOES NOT FALL WITHIN THE MEANING OF CO-OPERATIVE B ANK AS DEFINED IN PART V OF THE BANKING REGULATION ACT, 19 49, SUBSECTION(4) OF SECTION 80P WILL NOT APPLY IN THIS CASE. 5. THE ISSUES WITH THE APPROVAL OF CHAIRMAN, CENTR AL BOARD OF DIRECT TAXES. 7. FROM THE ABOVE CLARIFICATION, IT CAN BE GATHER ED THAT SUB- SECTION(4) OF SECTION 80P WILL NOT APPLY TO AN ASSE SSEE WHICH IS NOT A CO-OPERATIVE BANK. IN THE CASE CLARIFIED BY C BDT, DELHI COOP URBAN THRIFT & CREDIT SOCIETY LTD. WAS UNDER CONSIDERATION. CIRCULAR CLARIFIED THAT THE SAID ENT ITY NOT BEING A COOPERATIVE BANK, SECTION 80P(4) OF THE ACT WOULD N OT APPLY TO IT. IN VIEW OF SUCH CLARIFICATION, WE CANNOT ENTERTAIN THE REVENUES CONTENTION THAT SECTION 80P(4) WOULD EXCLUDE NOT ON LY THE CO- OPERATIVE BANKS OTHER THAN THOSE FULFILLING THE DES CRIPTION CONTAINED THEREIN BUT ALSO CREDIT SOCIETIES, WHICH ARE NOT ITA NO.1133/BANG/2013 9 COOPERATIVE BANKS. IN THE PRESENT CASE, RESPONDENT ASSESSEE IS ADMITTEDLY NOT A CREDIT CO-OPERATIVE BANK BUT A CRE DIT CO- OPERATIVE SOCIETY. EXCLUSION CLAUSE OF SUB-SECTION( 4) OF SECTION 80P, THEREFORE, WOULD NOT APPLY. IN THE RESULT, TAX APPEALS ARE DISMISSED. 7. IN VIEW OF THE AFORESAID DECISIONS, WE ARE OF TH E VIEW THAT THERE IS MERIT IN THIS APPEAL BY THE ASSESSEE. CONSEQUENTLY , THE SAME IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 7TH MARCH, 20 14. SD/- SD/- (P.MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.