Income Tax Officer Ward-7(2)(2), Bangalore V. M/s KSRTC Employee Co-operative Society Ltd , Bangalore

ITA 1168/BANG/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9908 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 25-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Assessee Lawyers: S N SHYANBHOG
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.V VASUDEVAN, VICE PRE SIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.1168/BANG/2017 ASSESSMENT YEAR : 2013-14 THE INCOME-TAX OFFICER, WARD-7(2)(2), BENGALURU. PAN AAAAK 1735 F. VS. M/S KSRTC EMPLOYEE CO-OPERATIVE SOCIETY LTD., NO.27, KSRTC COMPLEX, K.H ROAD, SHANTHINAGAR, BANGALORE. PAN AAAAK 1735 F. APPLICANT RESPONDENT APPLICANT BY : SMT. SRINANDINI DAS, ADDL. CIT RESPONDENT BY : SHRI S.N SHYANBHOG, ADVOCATE DATE OF HEARING : 26.11.2018 DATE OF PRONOUNCEMENT : 07.12.2018 O R D E R PER SHRI N.V VASUDEVAN, VICE PRESIDENT : THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 21.2.2017 OF CIT(A)-7, BENGALURU, RELATING TO AY 20 13-14. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL BY THE REVENUE IS AS TO WHETHER THE REVENUE AUTHORITIES WE RE JUSTIFIED IN ITA NO.1168/B/17 2 ALLOWING THE BENEFIT OF DEDUCTION U/S/80P(2)((A)(I) OF THE INCOME TAX ACT, 1961 (ACT) TO THE ASSESSEE ON INCOME OF RS.96, 20,666 WHICH INCOME WAS RECEIVED BY THE ASSESSEE FROM BUSINESS O F PROVIDING CREDIT FACILITIES TO ITS MEMBERS. 3. UNDER SEC.80P(2)(I) OF THE ACT, WHERE THE GROSS TOTAL INCOME OF A CO-OPERATIVE SOCIETY INCLUDES INCOME FROM CARRYIN G ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS ME MBERS, 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 RESPECTIVEL Y 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. 4. ACCORDING TO THE AO, THE ASSESSEE WAS A CO-OPERA TIVE BANK AND THEREFORE THE DEDUCTION U/S. 80P(2)(A)(I) CANNOT BE ALLOWED. IN ITA NO.1168/B/17 3 COMING TO THE ABOVE CONCLUSION, THE AO NOTICED THAT THE NATURE OF THE ACTIVITY OF THE ASSESSEE, THOUGH REGISTERED AS A CR EDIT CO-OPERATIVE SOCIETY, IS THAT OF A BANKING INSTITUTION NOTWITHST ANDING THE FACT THAT RECEIPT OF AND LENDING MONEY IS LIMITED TO ITS MEMB ERS. 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 (IN CLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOC IETY WITH ITS MEMBERS THE ASSESSEES ACTIVITY WAS ALSO INCOME. THAT TH E DEDUCTION FROM GROSS TOTAL INCOME OF CERTAIN RECEIPTS IS AVAILABLE ONLY TO PRIMARY AGRICULTURAL CREDIT SOCIETIES OR PRIMARY CO-OPERATI VE AGRICULTURAL AND RURAL DEVELOPMENT BANKS; AND THAT THE BENEFIT OF SU CH DEDUCTION IS NOT AVAILABLE TO INSTITUTIONS LIKE THE ASSESSEE SOCIETY . THE AO ALSO REFERRED TO SECTION 5(B) OF THE BANKING REGULATION ACT TO HO LD THAT, IF ONE OF THE TWO CONDITIONS OF THE APPELLANT I.E. ITS PRIMAR Y OBJECT SHOULD BE BANKING OR ITS PRINCIPAL BUSINESS MUST BE TRANSACTI ON 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 AND HELD THAT ACCEPTING DEPOSITS AND LENDIN G TO ITS MEMBERS ARE IN THE NATURE OF TRANSACTION OF BANKING ACTIVIT Y. ACCORDING TO THE AO, THE FOLLOWING FEATURES MAKE THE ASSESSEE INELIG IBLE TO EXEMPTION CONTEMPLATED IN SECTION 80P OF THE ACT: I) SINCE MEMBERSHIP IS OPEN TO ANYONE PAYING A SUM OF RS.10/- TO RS.100/- FOR MEMBERSHIP AND NO OTHER CONDITION IS IMPOSED. IN OTHER WORDS, MEMBERSHIP AS IS AVAILABLE IN ANY BANKING ITA NO.1168/B/17 4 INSTITUTION IS AVAILABLE IN THE CASE OF THE APPELLANT SOCIETY. II) THE PURPOSE OF ACCEPTING DEPOSITS FROM THE PUBLIC IS FOR MAKING INVESTMENTS AND FOR LENDING TO MEMBERS. CONFINING THE LENDING ONLY TO MEMBERS MAKES NO DIFFERENCE. III) DEPOSITS COLLECTED FROM THE DEPOSITORS ARE REPAYABLE ON DEMAND AND DO NOT GO INTO THE CORPUS OF THE APPELLANT. IV) THE ASSESSEE SOCIETY CAME WITHIN THE EXPLA NATION TO SUB-SECTION (4) OF SECTION 80P OF THE ACT AS A BANKING INSTITUTION. 5. IN THE LIGHT OF THE ABOVE-MENTIONED OBSERVATIONS , THE AO HELD THAT THE APPELLANT WAS NOT ENTITLED TO EXEMPTION IN RESPECT OF THE AMOUNT U/S 80P(2)(A)(I) OF THE ACT AND BROUGHT THE SAME TO TAX. 6. ON APPEAL BY THE ASSESSEE, THE CIT(A) NOTICED TH AT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT, ITA NO .5006/2013 HAS HELD THAT A CREDIT CO-OPERATIVE SOCIETY GIVING CRED IT 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 C O-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CR EDIT FACILITIES TO ITS MEMBERS. FOLLOWING THE SAID DECISION, THE CIT(A) H ELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S.80P(2)(A)(I) OF THE ACT ON THE SUM OF RS.96,26,666/-. ITA NO.1168/B/17 5 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE FOLLOWING ARE THE GROUNDS OF APPEAL OF THE REVENUE: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO L AW AND FACTS OF THE CASE. 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN ALLOWING THE BENEFIT OF DEDUCTION O F RS.96,26,6661- U/S.80P(2)(A)(I) OF THE ACT, BEING T HE INCOME EARNED BY THE ASSESSEE FROM ITS ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS'? 3. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN ALLOWING THE BENEFIT OF DEDUCTION T O THE CO-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BA KING, THOUGH SECTION 80P(4) ALLOWS SUCH DEDUCTION ONLY TO PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK '? 4. 'WHETHER THE CIT(A) IS CORRECT IN LAW IN FOLLOWI NG THE JUDGMENTS OF JURISDICTIONAL HIGH COURT, IN THE CASE OF SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHO NIYARNITHA, BAGALKOT IN ITA NO. 369 ITR 86, WHICH H AS NOT BECOME FINAL SINCE THE SOME HAS NOT BEEN ACCEPT ED BY THE DEPARTMENT AND FURTHER APPEAL IS PENDING CONSIDERATION'? 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FOR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. ITA NO.1168/B/17 6 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE AO DENI ED THE BENEFIT OF DEDUCTION CLAIMED BY THE ASSESSEE BECAUS E OF THE PROVISIONS OF SEC.80P(4) OF THE ACT WHICH LAYS DOWN THAT DEDUCTION U/S.80P(2) OF THE ACT WILL NOT BE AVAILABLE TO A CO -OPERATIVE BANK. THE HONBLE SUPREME COURT IN THE CASE OF CITIZENS C O-OPERATIVE SOCIETY LTD. VS. ACIT 397 ITR 1 (SC), HAS HELD THAT FOR DOING BUSINESS OF BANKING ONE HAS TO OBTAIN LICENSE FROM RESERVE BANK OF INDIA(RBI) AND SINCE THE ASSESSEE IN THAT CASE WHIC H WAS A CO- OPERATIVE SOCIETY DID NOT HAVE SUCH LICENSE AND FUR THER THAT ASSESSEE ALSO PRODUCED A CERTIFICATE FROM RBI THAT IT WAS NO T CARRYING ON THE BUSINESS OF BANKING, THE HONBLE SUPREME COURT HELD THAT IT CANNOT BE SAID TO BE A CO-OPERATIVE BANK. THE OTHER GRIEVANCE OF THE REVENUE THAT THE INCOME EARNED IS NOT FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS AS MEMBERSHIP IS OPEN TO ANY MEMBER OF THE PUBLIC. SUCH GRIEVANCE WOULD BE ADDRESSED BY SETTING ASIDE THE I SSUE OF DEDUCTION U/S.80P(2)(A)(I) OF THE ACT TO THE AO FOR CONSIDERA TION AFRESH, WITH A DIRECTION TO THE ASSESSEE TO PRODUCE A CERTIFICATE FROM RBI THAT IT DOES NOT POSSESS LICENSE FROM IT FOR DOING BANKING BUSIN ESS AND FURTHER THAT THE BUSINESS CARRIED ON BY THE ASSESSEE IS NOT AKIN TO BUSINESS OF A CO- OPERATIVE BANK. FURTHER THE FIRST PART OF SEC.80P(2 )(A)(I) ALLOWS DEDUCTION IN RESPECT OF INCOME DERIVED BY A CO-OPER ATIVE SOCIETY FROM THE BUSINESS OF BANKING. EVEN THE CLAIM OF THE ASS ESSEE FOR DEDUCTION REQUIRES TO BE EXAMINED UNDER THE FIRST PART OF SEC .80P(2)(A)(I) OF THE ACT. FURTHER THE HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO- OPERATIVE SOCIETY LTD. (SUPRA) HAS ALSO HELD IT IS ALSO IMPORTANT TO ITA NO.1168/B/17 7 ASCERTAIN AS TO WHAT IS THE NATURE OF INCOME WHICH IS CLAIMED AS EXEMPT AND AS TO HOW THE PRINCIPLE OF MUTUALITY IS NOT VIOLATED IN RESPECT OF SUCH INCOME. AN EXAMINATION OF (I)THE M EMORANDUM OF ASSOCIATION, THE ARTICLES OF ASSOCIATION, (II) THE BYELAWS AND OTHER DOCUMENTS EXPLAINING THE RULES AND REGULATIONS OF T HE SOCIETY IS NECESSARY, SO AS TO CLEARLY UNDERSTAND THE PURPOSE AND THE NATURE OF BUSINESS DONE BY IT. AN EXAMINATION OF THE DIFFEREN T CATEGORIES OF MEMBERS OF A SOCIETY AND WHAT ARE THE CONDITIONS AT TACHED TO THEIR BEING ADMITTED AS MEMBERS AND THEIR RIGHTS AS CONTR IBUTORS OF FUNDS TO THE SOCIETY AND PARTICIPANTS IN SURPLUS AND THE BYE LAWS OF THE SOCIETY IS NECESSARY. DEDUCTION U/S.80P2(A)(I) IS ALLOWED O NLY IN RESPECT OF INCOME ARISING OUT OF THE TRANSACTIONS WITH THE MEM BERS. THE RELEVANT LAW GOVERNING CO-OPERATIVE SOCIETIES OF THE CONCERN ED STATE PROVIDING STATUS OF DIFFERENT CATEGORIES OF MEMBERS IN SO FAR AS THE AFFAIRS OF THE CO-OPERATIVE SOCIETY ARE CONCERNED, IS ALSO REQUIRE D TO BE EXAMINED. IT IS ONLY INCOME WHICH ARISES FROM DEALING WITH ME MBERS AND WHICH IS EITHER IN THE NATURE OF BANKING OR PROVIDING CRE DIT FACILITIES TO MEMBERS THAT WOULD BE ALLOWED AS DEDUCTION. ALL THE SE ASPECTS ALSO REQUIRE EXAMINATION. THE AO WILL ALLOW OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND FILING APPROPRIATE EVIDENCE, IF DE SIRED, BY THE ASSESSEE TO SUBSTANTIATE ITS CASE, BEFORE DECIDING THE ISSUE. THE ASSESSEE WILL ALSO BE AT LIBERTY TO SHOW THAT INCOM E EARNED IS INCOME FROM BUSINESS OF BANKING AND SOME PART OF THE INCOM E WAS EARNED BY MAKING INVESTMENT IN STATUTORY RESERVES IN FULFILME NT OF LAW REGARDING MAINTENANCE OF STATUTORY RESERVES. WE HOLD AND DIR ECT ACCORDINGLY. ITA NO.1168/B/17 8 9. IN THE RESULT, APPEAL BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH DECEMBER, 2018 . SD/- SD/- (JASON P BOAZ) (N.V VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 7/12/2018 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGI STRAR, ITAT, BANGALORE ITA NO.1168/B/17 9 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P. S ... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT.. 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..