Income Tax Officer, Nipani., Nipani V. Shri Chandraprabhu Urban Co-op. Credit Society Ltd.,

ITA 120/PAN/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1531 (ITAT-PANAJI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMRITI BHARDWAJ
• Keywords: Benefit of exemption
• Section: 143(3); 6; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO S . 113 , 114 , 115 /PNJ/201 5 (ASST. YEAR : 2011 - 12 ) ITO, WARD - 1, GOKAK. VS. 1 SHRI DURGAMATA CREDIT SOUHARDA SAHAKARI NIYAMIT, AZAD ROAD, SANKESHWAR, TAL. HUKKERI, DIST. BELGAUM. PAN NO. AAAJS 2265 B 2. THE KALLOLI URBAN COOPERATIVE CREDIT SOCIETY LTD., KALLOLI, TAL. GOKAK, DIST. BELGAUM. PAN NO. AAAAT 4834 C 3. M/S. KPTCL EMPLOYEES CO - OP CREDIT SOCIETY L IMITED, GHATAPRABHA, TAL : GOKAK, DIST. BELAGAVI. PAN NO. AAATK 6706 D (APPELLANT) (RESPONDENT) ITA NO S . 11 6 , 117 , 118 , 120 /PNJ/201 5 (ASST. YEAR S : 2011 - 12 & 2008 - 09 ) ITO, WARD - 1, NIPANI. VS. 1 SHRI MAHATMA BASAVESHWAR COOPERATIVE CREDIT SOCIETY LTD., NIPANI, TAQ : CHIKODI, DIST. BELAGAVI. PAN NO. AAAAS 2281 C 2 CHIKODI TALUKA SHRI SARASWATI SOUHARDA COOPERATIVE CREDIT LTD., AT POST : BEDKIHAL, TAL : CHIKODI, DIST. BELGAUM. PAN NO. AAAAC 1967 H 2 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 3 SHRI BRAHMANATH CREDIT SOUHARD SAHAKARI LIMITED, 185/C, NIPANI, TAQ : CHIKODI, DIST. BELAGAVI. PAN NO. AAAAS 1063 Q 4. SHRI CHANDRAPRABHU URBAN CO - OP CREDIT SOCIETY LTD., NIPANI, TAQ : CHIKODI, DIST. BELA GAVI . PAN NO. AAGFS 7687 F (APPELLANT) (RESPONDENT) ITA NO. 1 2 1 / PNJ/201 5 (ASST. YEAR : 20 1 0 - 1 1 ) ITO, WARD - 1( 4 ), BEL A GA VI . VS. KRISHNA COOPERATIVE CREDIT SOCIETY LIMITED, JAIN PETH, AT POST & TALUK : ATHANI, DIST. BELAGAVI. PAN NO. AAAA K 02 61 G (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI OMKAR S. GODABOLE - CA SHRI U.G. AMMANGI - CA SHRI CHETAN CHOUGULE C A. DEPARTMENT BY : SMT. SMRITI BHARDWAJ - D R DATE OF HEARING : 0 3 / 0 8 /2015 . DATE OF PRONOUNCEMENT : 0 3 / 0 8 /201 5 . O R D E R PER BENCH TH ESE ARE THE APPEAL S FILED BY THE REVENUE AGAINST THE SEPARATE ORDER S OF COMMISSIONER OF INCOME TAX (APPEALS), BELGAUM /BELAGAVI, DATED , 1 5 /01/2015 , 16 /01/2015 , 1 9 /01/2015 , 2 0 /01/2015 , 23/01/2015 & 13/02/2015 . 3 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 2. THE SOLE ISSUE INVOLVED IN THESE APPEALS IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING DEDUCTION TO THE ASSESSEE UNDER SEC. 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961. 3 . THE FACTS OF THE CASE ARE THAT THE ASSESSEES FILED RETURN OF INCOME AFTER CLAIMING DEDUCTION UNDER SEC. 80P(2)(A)(I) OF THE ACT. IT WAS CLAIMED THAT THE SOCIETY IS ENTITLED TO DEDUCTION UNDER SEC. 80P(2)(A)(I) AS IT WAS A COOPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. HOW EVER, THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SEC. 80P(2)(A)(I) WAS REJECTED BY THE ASSESSING OFFICER IN THE ORDER PASSED UNDER SEC. 143(3) OF THE ACT ON THE GROUND THAT THE ASSESSEE WAS A COOPERATIVE BANK, AND HENCE, NOT ENTITLED TO CLAIM DEDUCTION BY VIRTUE OF SEC. 80P(4). 4. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEES BY OBSERVING AS UNDER: - 6. I HAVE CAREFULLY PERUSED AND CONSIDERED THE AFORESAID SUBMISSION MADE BY THE APPELLANT AND THE CONTENTS OF THE ASSE SSMENT ORDER PASSED BY THE ASSESSING OFFICER. I HAVE ALSO PERUSED THE CASE LAWS RELIED UPON BY THE APPELLANT AND THE ASSESSING OFFICER. THE MAIN PLANK OF ARGUMENT OF THE ASSESSING OFFICER HAS BEEN THAT AFTER CAREFUL ANALYSIS OF SECTION 80P(4) READ WITH SEC TION 2(24)(VIIA) OF THE INCOME - TAX ACT, 1961 AND PART V OF THE BANKING REGULATION ACT AND THE FACTS OF THE CASE, THE APPELLANT ASSESSEE CO - OPERATIVE CREDIT SOCIETY IS HELD TO BE A 'PRIMARY CO - OPERATIVE BANK' HENCE IS NOT ELIGIBLE FOR DEDUCTION UNDER SEC.80 P(2)(A)(I) IN VIEW OF THE NEWLY INSERTED PROVISIONS OF SECTION 80P(4). THE ASSESSING OFFICER HAS ARRIVED AT A CONCLUSION THAT IF A COOPERATIVE SOCIETY SATISFIES ALL THE THREE CONDITIONS AS LAID DOWN IN THE DEFINITION AS GIVEN U/S 5(CCV) IN PART V OF THE BA NKING REGULATION ACT, 1949, THEN IT BECOMES A 'PRIMARY CO - OPERATIVE BANK', AND THEREFORE DEDUCTION U/S 80P(2)(A)(I) CAN BE DENIED BY VIRTUE OF SEC.80P(4). 6.1 THE RELEVANT PART OF SECTION 80P OF THE I.T ACT UNDER WHICH THE APPELLANT CO - OPERATIVE SOCIETY HAS CLAIMED DEDUCTION READS AS UNDER: 'DEDUCTION IN RESPECT OF INCOME OF CO - OPERATIVE SOCIETIES. 4 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 80P. (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO - OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB - SECTION (2), THE RE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB - SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB - SECTION (1) SHALL BE THE FOLLOWING, NAMELY: - (A) IN THE CASE OF CO - OPERATIVE SOCIETY ENGAGED IN (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR (II) ------------------------------ THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ON E OR MORE OF SUCH ACTIVITIES: 6.1.1 THE CLAUSE (4) OF SEC.80P INSERTED BY THE FINANCE ACT,2006 W.E.F. 01 - 04 - 2007, WHICH HAS BEEN INVOKED BY THE ASSESSING OFFICER TO DENY DEDUCTION TO THE APPELLANT CO - OPERATIVE SOCIETY READS AS UNDER: (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. BY VIRTUE OF INTRODUCTION OF CLAUSE(4) IN SEC.80P, THE CO - OPERATIVE BANKS HAVE BEEN TAKEN OUT O F THE PURVIEW OF EXEMPTION GRANTED UNDER SEC.80P WHEREAS OTHER ENTITIES/COOPERATIVE SOCIETIES SPECIFIED IN OTHER CLAUSES OF SEC.80P CONTINUE TO ENJOY SUCH EXEMPTIONS. THE EXPLANATION TO SEC.80P PROVIDES THAT CO - OPERATIVE BANK AND PRIMARY AGRICULTURAL CR EDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949). 6.1.2 FOLLOWING THE PROVISIONS OF AFORESAID EXPLANATION TO SEC.80P, THE ASSESSING OFFICER, WITH A VIEW TO FIND OUT THE DEFINITI ON OF CO - OPERATIVE BANK HAS TAKEN RECOURSE TO THE RELEVANT PROVISIONS OF THE BANKING REGULATION ACT, 1949. 5 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 SL. NO. CATEGORY CLAUSE/SECTION OF THE BANKING REGULATION ACT, 1949 DEFINITION 1 2 3 4 1 CO - OPERATIVE BANK CLAUSE (CCI) OF SECTION 5 CO - OPERATIVE BANK MEANS A STATE CO - OPERATIVE BANK, A CENTRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK 2 PRIMARY CO - OPERATIVE BANK CLAUSE (CCV) OF SECTION 5 PRIMARY CO - OPERATIVE BANK MEANS A CO - OPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURAL C REDIT SOCIETY (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (2) THE PAID UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN ONE LAKHS OF RUPEES; AND (3) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION O F ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. 3 PRIMARY CREDIT SOCIETY CLAUSE (CCVI) OF SECTION 5 PRIMARY CO - OPERATIVE SOCIETY MEANS A CO - OPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (2) THE PAID UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN ONE LAKHS OF RUPEES; AND (3) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. THE ASSESSING OF FICER HAS THUS MENTIONED THAT THE CO - OPERATIVE BANK INCLUDES PRIMARY CO - OPERATIVE BANK AND PRIMARY CO - OPERATIVE BANK MEANS CO - OPERATIVE SOCIETY (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (2) THE PAI D UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN ONE LAKHS OF RUPEES; AND (3) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. 6.1.3 THE ASSESSING OFFICER HAS CONCLUDED THAT THE APPELLANT CO - OPERATIVE SOCIETY SATISFIES ALL THE ABOVE MENTIONED THREE CONDITIONS AND THEREFORE IT IS HELD TO BE A PRIMARY COOPERATIVE BANK AND HENCE ITS CLAIM OF DEDUCTION U/S 80P(2)(A)(I) HAS BEEN DENIED U/S 80P(4). BEFORE ARRIVING AT THIS CONCLUSION THE ASSESSING OFFICER HA S ALSO REFERRED TO THE NEWLY INSERTED PROVISIONS OF SEC.2(24)(VIIA), INSERTED BY THE FINANCE ACT,2006 W.E.F. 01 - 04 - 2007 WHICH READS AS UNDER: (24) INCOME INCLUDES - (VIIA) THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FAC ILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS; 6 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 THE ASSESSING OFFICER HAS CONTENDED THAT THE PURPOSE OF INTRODUCTION OF THESE PROVISIONS WAS TO TAX THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CA RRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS. THE ASSESSING OFFICER HAS ALSO REFERRED TO THE DEFINITION OF BANKING AS PROVIDED IN SEC.5(B) OF THE BANKING REGULATION ACT,1949 WHICH READS AS UNDER: (B)BANKING MEANS THE ACCEPTING FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSIT OF MONEY FROM PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWAL BY CHEQUE, DRAFT, ORDER OR OTHERWISE. THE A.O HAS COME TO THE CONCLUSION THAT THE APPELLANT CO - OPERATIVE SOCIETY IS DOING BANKING BUSINESS AS PRO VIDING CREDIT FACILITIES TO MEMBERS IS AKIN TO BANKING BUSINESS AND SINCE THE MEMBERSHIP IS OPEN TO PUBLIC, IT IS ACCEPTING DEPOSITS FROM PUBLIC WHICH CAN BE WITHDRAWN BY ANY ONE OF THE SPECIFIED MEANS WITHIN THE MEANING OF ABOVE MENTIONED DEFINITION OF B ANKING. 6.1.4. SIMILAR ISSUE IS ALSO INVOLVED IN A NUMBER OF CASES PERTAINING TO CREDIT CO - OPERATIVE SOCIETIES WHICH ARE ALSO IN APPEAL AND THEY HAVE ALL CONTESTED THE ACTION OF THE AO IS INVOKING THE PROVISIONS OF SEC. 80P(4) IN THEIR RESPECTIVE CASES ON THE BASIS OF VARIOUS CONTENTIONS DISCUSSED HEREIN BELOW. 6.2 THE APPELLANTS ON THE OTHER HAND HAS CHALLENGED THE INTERPRETATION OF SECTIONS 80P(2), 80P(4) AND RELEVANT PROVISION OF THE BANKING REGULATION ACT, 1949 AS ADOPTED BY THE A.O IN HIS ASSESSMENT ORDER. THE APPELLANTS HAVE ALSO CONTENDED THAT THE INTENTION OF THE LEGISLATURE AS REVEALED BY THE SPEECH OF THE FINANCE MINISTER WAS NOT TO DENY DEDUCTION TO ALL THE COOPERATIVE SOCIETIES BY INTRODUCTION OF SEC. 80P(4). 6.2.1 IT HAS ALSO BEEN A CONTENTIO N OF THE APPELLANTS THAT TO FULFIL THE FIRST CONDITION FOR BECOMING A PRIMARY CO - OPERATIVE BANK, THE SOCIETY SHOULD CARRY ON THE BUSINESS OF BANKING AS PER THE DEFINITION OF BANKING IN BANKING REGULATION ACT, 1949. THE APPELLANTS HAVE ALSO CONTENDED TH AT THE RESPECTIVE APPELLANT ASSESSEE SOCIETY REGISTERED UNDER THE KARNATAKA COOPERATIVE SOCIETIES ACT, 1959 IS CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITY TO ITS MEMBERS AND IS NOT ALLOWED TO ISSUE CHEQUES, DRAFTS, PAY ORDERS, ETC. AS PER THE BAN KING REGULATION ACT, PERMISSION OF RESERVE BANK OF INDIA IS REQUIRED TO ISSUE CHEQUES, DRAFTS AND PAY ORDERS, ETC. AND THE RESPECTIVE APPELLANT HAS NOT OBTAINED ANY SUCH LICENSE/PERMISSION FROM THE RESERVE BANK OF INDIA TO CARRY ON THE BUSINESS OF BANKING. 7 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 6.2.2 THE APPELLANT COOPERATIVE SOCIETIES HAVE CONTENDED THAT THE EXPLANATORY NOTE TO MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2006 WHEREIN THE HON'BLE FINANCE MINISTER EXPLAINS THE REASONS FOR WITHDRAWAL OF TAX BENEFITS AVAILABLE TO C ERTAIN CO - OPERATIVE BANKS, THE RELEVANT PORTION OF THE SAID NOTES IS REPRODUCED HEREINBELOW: 'SECTION 80P, INTER ALIA, PROVIDES FOR A DEDUCTION FROM THE TOTAL INCOME OF THE CO OPERATIVE SOCIETIES ENGAGED IN THE BUSINESS OF BANKING OR PROVIDING CREDIT FACIL ITIES TO ITS MEMBERS, OR BUSINESS OF COTTAGE INDUSTRY, OR OF MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS, OR PROCESSING, WITHOUT THE AID OF POWER, OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS, ETC. THE CO - OPERATIVE BANKS ARE FUNCTIONING AT PAR WITH OTHE R COMMERCIAL BANKS, WHICH DO NOT ENJOY ANY TAX BENEFITS. IT IS, THEREFORE, PROPOSED TO AMEND SECTION SOP BY INSERTING A NEW SUB - SECTION (4) SO AS TO PROVIDE THAT THE PROVISIONS OF THE SAID SECTION SHALL NOT APPLY IN RELATION TO ANY CO - OPERATIVE BANK OTHER THAN PRIMARY CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. IT IS ALSO PROPOSED TO DEFINE THE EXPRESSIONS 'CO - OPERATIVE BANK', 'PRIMARY AGRICULTURAL CREDIT SOCIETY' AND 'PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK'. IT IS ALSO PROPOSED TO INSERT A NEW SUB - CLAUSE (VIIA) IN CLAUSE (24) OF THE SECTION 2 SO AS TO PROVIDE THAT THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS M EMBERS SHALL BE INCLUDED IN THE DEFINITION OF 'INCOME'. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 2007 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2007 - 08 AND SUBSEQUENT YEARS.' THE APPELLANTS HAVE THUS CONTENDED THAT IT WAS CLEAR THAT THE INTENTION OF THE FINANCE MINISTER WAS TO TAX 'CO - OPERATIVE BANKS' ONLY. 6.2.3 THE APPELLANTS HAVE RELIED ON THE DECISION IN THE CASES OF (I) KARNATAKA HIGH COURT (DHARWAD BENCH )0RDER IN THE CASE OF CIT VS SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT ITA 5006/2013 DT 5TH FEB 2014 WHEREIN APART FROM THE DECIDING ON SECTION 263 IT HAS ALSO HELD, ON SECTION 80P THAT ' AS THE ASSESSEE IS NOT A COOPERATIVE BANK CARRYING ON EXCLUSIVELY BANKING BUSINESS AND AS IT DOES NOT POSSESS A L ICENCE FROM RESERVE BANK OF INDIA TO CARRY ON BUSINESS , IT IS NOT A COOPERATIVE BANK. (II) THE KARNATAKA HIGH COURT DECISION IN THE CASE OF THE COMMISSIONER OF INCOME TAX (A), MYSORE & OTHERS VS 8 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 GENERAL INSURANCE EMPLOYEES COOPERATIVE CREDIT SOCIETY LTD I TA NO 273/2013 DT 27.6.2014. (III) KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014. (IV) CIT VS JAFARI MOM IN VIKAS COOP CREDIT SOCIETY LTD ITA 442,443 & 863 OF 2013 OF GU JARAT HIGH COURT. (V) TARAMANI MANILA COOP CREDIT SOCIETY VS ITO WARD 1(2), BELGAUM ITA 229 & 230/PNJ/2013DT 28.2.2014 (VI) ITAT BANGALORE B BENCH DECISION VIDE ITA NO 1069/BANG/2010 FOR THE ASST YEAR 2007 - 08 OF M/S BANGALORE COMMERCIAL TRANSPORT COOP SOCIETY LTD, BANGALORE. (VII) ITO VS YESHWANTPUR CREDIT COOP SOCIETY LTD ITA NO 717/BANG/2011 DT 11.4.2012 RENDERED BY ITAT A BENCH, BANGALORE. (VIII) M/S JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARADA SAHAKARI LTD & ANOTHER IN ITA NO 01 TO 03/PNJ/20 12 AND ITA 04 TO 06/PNJ/2012. THE APPELLANTS HAVE CLAIMED THAT IN ALL THESE CASES IT WAS HELD THAT INCOME EARNED BY CO OPERATIVE SOCIETY FROM ITS ACT OF LENDING MONEY TO MEMBERS SHALL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. 7. THE IMPORTANT ASPECTS RELATING TO THE ISSUES IN THIS CASE HAVE BEEN CONSIDERED AND DECIDED BY VARIOUS ITATS ACROSS THE COUNTRY. THE JURISDICTIONAL ITAT OF BANGALORE BENCH IN A NUMBER OF CASES WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEES HAS HELD THAT TH E COOPERATIVE SOCIETIES ARE NOT DOING BANKING BUSINESS AND THEREFORE, THE PROVISIONS OF SECTION 80P(4) ARE NOT APPLICABLE TO THEM. THE JURISDICTIONAL ITAT PANJIM BENCH HAS ALSO IN A NUMBER OF CASES WHERE THE ASSESSEE COOPERATIVE SOCIETY ENGAGED IN PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS AND NOT ACCEPTING DEPOSIT FROM PUBLIC AS EVIDENCED FROM THEIR BYE LAWS OR THE COOPERATIVE SOCIETIES ACCEPTING OTHER COOPERATIVE SOCIETIES AS MEMBERS HAVE HELD THAT THOSE COOPERATIVE SOCIETIES ARE ENTITLES TO THE BENEFIT O F DEDUCTION U/S 80P(2)(A)(I) OF THE I.T. ACT. 8. NOW, AFTER THE GUJARAT HIGH COURT IN THE CASE OF CIT VS JAFARI MOM IN VIKAS COOP CREDIT SOCIETY LTD ITA 442, 443 & 863 OF 2013 DECIDING THE ISSUE IN FAVOUR OF THE 9 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 ASSESSEE, THE KARNATAKA HIGH COURT IN THE CASES OF CIT VS SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT ITA 5006/2013 DT 5 TH FEB 2014, COMMISSIONER OF INCOME TAX (A), MYSORE & OTHERS VS GENERAL INSURANCE EMPLOYEES COOPERATIVE CREDIT SOCIETY LTD ITA NO 273/2013 DT 27.6.2014 AND KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014 HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 8.1 NOW A QUESTION WHICH MAY BE ASKED IN THE CASE OF THE APPELLANT BE ING A SOUHARDA IS; WHETHER, SOUHARDA IS A CO OPERATIVE SOCIETY WITHIN THE MEANING OF SECTION 80P/2(19) OF THE L.T. ACT.? SINCE THE DEDUCTION U/S80P OF THE INCOME TAX ACT, 1961 IS AVAILABLE TO THE CO - OPERATIVE SOCIETIES, IT IS IMPERATIVE TO GO INTO TH E DEFINITION OF CO - OPERATIVE SOCIETY WHICH HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(19) OF THE ACT. SECTION 2(19) READS AS FOLLOWS; CO - OPERATIVE SOCIETY MEANS A CO - OPERATIVE SOCIETY REGISTERED UNDER THE COOPERATIVE SOCIETIES ACT, 1912 (2 OF 1912), OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE IN ANY STATE FOR THE REGISTRATION OF CO - OPERATIVE SOCIETIES; THIS DEFINITION HAS TWO PARTS: CO - OPERATIVE SOCIETY MEANS (1) A CO - OPERATIVE SOCIETY (2) REGISTERED (A) UNDER THE CO - OPERATIVE SOCIETIES ACT, 1912 (2 OF 1912), OR (B) UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE IN ANY STATE FOR THE REGISTRATION OF COOPERATIVE SOCIETIES; 8.1.1 AS FAR AS FIRST PART OF THE DEFINITION GIVEN IN SECTION 2(19 ) IS CONCERNED, A SOUHARDA IS A SOCIETY WHICH IS COOPERATIVE IN NATURE AND THUS IT IS A CO - OPERATIVE SOCIETY. THE DICTIONARY MEANING OF SOCIETY AS PER OXFORD ENGLISH DICTIONARY IS: AN ASSOCIATION OR BODY OF PEOPLE UNITED BY A COMMON AIM, INTEREST, BELI EF, PROFESSION ETC. THE WEBESTER DICTIONARY GIVES THE MEANING OF SOCIETY AS; A VOLUNTARY ASSOCIATION OF INDIVIDUALS FOR COMMON ENDS; ESPECIALLY: AN ORGANIZED GROUP WORKING TOGETHER OR PERIODICALLY MEETING BECAUSE OF COMMON INTERESTS, BELIEFS, OR PROFES SION 10 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 GOING BY THE BYE LAWS OF THE SOUHARDAS AND THE PROVISIONS OF THE KARNATAKA SOUHARDA SAHAKARI ACT, 1997, IT IS CLEAR THAT THE SOUHARDAS ARE SOCIETIES WHICH ARE COOPERATIVE IN NATURE. THEY ARE REGISTERED UNDER AN ACT WHICH PROVIDES FOR RECOGNITION, ENC OURAGEMENT AND VOLUNTARY FORMATION OF CO - OPERATIVES BASED ON SELF HELP, MUTUAL AID, WHOLLY OWNED, MANAGED AND CONTROLLED BY MEMBERS AS ACCOUNTABLE, COMPETITIVE, SELF RELIANT AND ECONOMIC ENTERPRISES GUIDED BY CO - OPERATIVE PRINCIPLES AND MATTERS CONNECTED T HEREWITH. IT IS ALSO WORTH NOTING THAT THE WORD CO - OPERATIVE HAS BEEN USED ON INNUMERABLE OCCASIONS IN THE KARNATAKA SOUHARDA SAHAKARI ACT, 1997. A FEW EXAMPLES OF WHICH ARE: A. SECTION 4(1) - CO - OPERATIVES WHICH MAY BE REGISTERED: - NO CO - OPERATIVE SHALL BE REGISTERED UNDER THIS ACT, UNLESS B. SECTION 6(1) - CERTIFICATE OF REGISTRATION: - WHERE A CO - OPERATIVE IS REGISTERED OR DEEMED TO BE REGISTERED, THE CERTIFICATE OF REGISTRATION DULY SIGNED AND SEALED BY THE REGISTRAR SHALL BE CONCLUSIVE EVIDENCE THAT T HE CO - OPERATIVE MENTIONED THEREIN, IS A COOPERATIVE REGISTERED OR DEEMED TO BE REGISTERED UNDER THIS ACT. C. SECTION 10(1) - BYE LAWS - SUBJECT TO THE PROVISIONS OF THIS ACT OR RULES, EVERY COOPERATIVE SHALL FUNCTION IN ACCORDANCE WITH ITS BYE - L AWS WHICH AS FAR AS POSSIBLE SHALL ADHERE TO THE CO - OPERATIVE PRINCIPLES. D. SECTION 32(1) - MAINTENANCE OF RECORDS, ACCOUNTS, ETC : - EVERY CO - OPERATIVE SHALL MAINTAIN AT ITS REGISTERED OFFICE THE FOLLOWING, NAMELY: - E. SECTION 33(1) - AUDIT : - EVERY COO PERATIVE SHALL GET ITS ACCOUNTS AUDITED ATLEAST ONCE A YEAR F. SECTION 35(1) - INQUIRY: - THE REGISTRAR MAY CONDUCT AN INQUIRY OR CAUSE AN INQUIRY TO BE CONDUCTED EXPEDITIOUSLY INTO ANY SPECIFIC MATTER TOUCHING THE CONSTITUTION, MANAGEMENT, WORKING OR FINAN CIAL CONDITIONS OF A COOPERATIVE. G. SECTION 47(1) - WINDING UP OF A CO - OPERATIVE : - ON AN APPLICATION MADE BY NOT LESS THAN ONE - FIFTH OF THE MEMBERS OF A CO - OPERATIVE TO WIND UP THE AFFAIRS OF THE SAID COOPERATIVE, THE BOARD SHALL CONVENE A GENERAL - MEET ING BY ISSUING A NOTICE TO EACH MEMBER 8.1.2 SOUHARDAS SATISFY THE SECOND PART OF THE DEFINITION ALSO AS THEY ARE REGISTERED UNDER THE KARNATAKA SOUHARDA 11 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 SAHAKARI ACT,1997, AN ACT IN FORCE IN THE STATE OF KARNATAKA FOR THE REGISTRATION OF CO - OPERATIVE SOCI ETIES IN ADDITION TO THE CO - OPERATIVE SOCIETIES ACT. 8.1.3 FURTHER, IN A NUMBER OF DECISIONS BY THE PANJIM AND BANGALORE BENCHES OF THE ITAT AND BY THE KARNATAKA HIGH COURT, NO DISTINCTION HAS BEEN DRAWN BETWEEN THE SOUHARDAS AND THE CO - OPERATIVE SOCIETIES AS FAR AS THE APPLICABILITY OF THE PROVISIONS OF SECTION 80P OF THE ACT ARE CONCERNED. SOME OF SUCH DECISIONS ARE: (I) KARNATAKA HIGH COURT (DHARWAD BENCH )ORDER IN THE CASE OF CIT VS SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT ITA 5 006/2013 DT 5 TH FEB 2014. (II) KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014. (III) M/S JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARADA SAHAKARI LTD & ANOTHER IN ITA NO 01 TO 03/ PNJ/2012 AND ITA 04 TO 06/PNJ/2012. (IV) DCIT VS. M/S DWARKA SOUHARDA CREDIT SAHAKARI LTD. ITA NO.04 - 06/PNJ/2012 8.1.4 THUS, IT IS AMPLY CLEAR THAT SOUHARDAS ARE CO - OPERATIVE SOCIETIES WITHIN THE MEANING OF SECTION 80P OF THE INCOME TAX ACT,1961. MOREOVER, IT IS NOT THE CASE OF THE A.O THAT THE APPELLANT SOUHARDA IS NOT A CO - OPERATIVE SOCIETY WITHIN THE MEANING OF SECTION 80P OF THE L.T. ACT. 8.2 THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMI THA, SUPRA WHICH WAS FOLLOWED IN THE CASES OF GENERAL INSURANCE EMPLOYEES COOPERATIVE CREDIT SOCIETY LTD, AND KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014. SUPRA, HAS CLEARLY HELD THAT A CO - OPERATIVE SOCIETY REGISTERED AS COOPERATIVE SOCIETY, PROVIDING CREDIT FACILITIES TO MEMBERS AND NOT REGISTERED WITH THE RBI CANNOT BE DENIED THE EXEMPTION UNDER SECTION 80P(2)(A)(I) OF THE I.T. ACT. THE OPERATIVE PART OF THE JUDGMENT READS AS FOLLOWS: 'THEREFORE, THE INTENTION OF THE LEGISLATURE IS CLEAR. IF A CO - OPERATIVE BANK IS EXCLUSIVELY CARRYING ON BANKING BUSINESS, THEN THE INCOME DERIVED FROM THE SAID BUSINESS CANNOT BE DEDUCTED IN COMPUTING THE TOTAL 12 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 INCOME OF THE ASSESSEE. THE SAID INCOME IS LIABLE FOR TAX. A CO - OPERATIVE BANK AS DEFINED UNDER THE BANKING REGULATION ACT INCLUDES THE PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THE LEGISLATURE DID NOT WANT TO DENY THE SAID BEN EFITS TO A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A. PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THEY DID NOT WANT TO EXTEND THE SAID BENEFIT TO A CO - OPERATIVE BANK WHICH IS EXCLUSIVELY CARRYING ON BANKING BUSINESS I.E. THE PURPORT OF THI S AMENDMENT. THEREFORE, AS THE ASSESSEE IS NOT A COOPERATIVE BANK CARRYING ON EXCLUSIVELY BANKING BUSINESS AND AS IT DOES NOT POSSESS A LICENCE FROM RESERVE BANK OF INDIA TO CARRY ON BUSINESS, IT IS NOT A CO - OPERATIVE BANK. IT IS A CO OPERATIVE SOCIETY WHI CH ALSO CARRIES ON THE BUSINESS OF LENDING MONEY TO ITS MEMBERS WHICH IS COVERED UNDER SECTION 80P{2)(A}(I) I.E. CARRYING ON THE BUSINESS OF BANKING FOR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE OBJECT OF THE AFORESAID AMENDMENT IS NOT TO EXCLU DE THE BENEFIT EXTENDED UNDER SECTION 80P(1) TO SUCH SOCIETY ........................................IN THE INSTANT CASE, WHEN THE STATUS OF THE ASSESSEE IS A CO - OPERATIVE SOCIETY AND IS NOT A CO - OPERATIVE BANK, THE ORDER PASSED BY THE ASSESSING AUTHORITY EXTENDING THE BENEFIT OF EXEMPTION FROM PAYMENT OF TAX UNDER SECTION 80P(2)(A)(I) OF THE ACT IS CORRECT. ' 8.3 THE FACT THAT THE APPELLANT IS A COOPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA CO OPERATIVE SOCIETIES ACT,1959 ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS HAS BEEN CLEARLY MENTIONED BY THE A.O IN PARA 3 OF HIS AFORESAID ASSESSMENT ORDER. IT IS ALSO NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE IS REGISTERED WITH THE RBI AS A BANK. IN ITS AFORESAID SUBMISSIONS DATED 27/10/2014 THE APPELLANT HAS CLEARLY STATED WITH THE HELP OF NECESSARY EVIDENCE AND AN AFFIDAVIT DATED 20/10/2014 T O THIS EFFECT THAT THE APPELLANT IS A COOPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA CO OPERATIVE SOCIETIES ACT, 1959 ENGAGED IN PROVIDING CREDIT FACILITIES ONLY TO ITS MEMBERS AND IT DOES NOT POSSESS ANY BANKING LICENCE FROM THE RBI. IT IS THEREFORE, CLEAR THAT THE APPELLANT'S CASE IS SQUARELY COVERED BY THE AFORESAID DECISIONS OF THE JURISDICTIONAL HIGH COURT OF KARNATAKA IN THE CASES OF SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA. SUPRA WHICH WAS FOLLOWED IN THE CASE OF GENERAL INSURANCE EMPLOYEES COOPERATIVE CREDIT SOCIETY LTD, AND KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI 13 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO.505/2013 DATED 27/06/2014 SUPRA. THEREFORE, IN VIEW OF THE FOREGOING DISCUSSION AND RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF THE JURISDICTIONAL HIGH COURT OF KARNATAKA, IT IS HELD THAT THE APPELLANT'S CASE IS NOT COVERED BY SECTION 80P(4) AS IT IS NOT A 'CO - OPERATIVE BANK' AND THEREFORE, IT IS ENTITLED TO THE EXEMPTION U/S 80P(2)(A)(I) OF THE IT. ACT. 5 . THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE ASSESSING OFFICER. HE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ABOVE QUOTED ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALLOWED THE CLA IM OF DEDUCTION UNDER SEC. 80P(2)(A)(I) OF THE ACT BY FOLLOWING THE DECISIONS OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA (SUPRA) AND IN THE CASE OF GENERAL INSURANCE EMPLOYEES COOPERATIVE CRED IT SOCIETY LTD . (SUPRA). NO CONTRARY DECISION COULD BE CITED BY THE DEPARTMENTAL REPRESENTATIVE. WE, THEREFORE, DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), WHICH ARE HEREBY CONFIRME D AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, APPEAL S OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON MONDAY , THE 0 3 RD DAY OF AUGUST , 2015 AT GOA. S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 0 3 RD AUGUST, 2015. VR/ - 14 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 COPY TO: 1 . THE ASSESSEE. A . SHRI DURGAMATA CREDIT SOUHARDA SAHAKARI NIYAMIT B . THE KALLOLI URBAN COOPERATIVE CREDIT SOCIETY LTD., C . M/S. KPTCL EMPLOYEES CO - OP CREDIT SOCIETY LIMITED D . SHRI MAHATMA BASAVESHWAR COOPERATIVE CREDIT SOCIETY LTD E . CHIKODI TALUKA SHRI SARASWATI SOUHARDA CO - OP CREDIT LTD F . SHRI BRAHMANATH CREDIT SOUHARD SAHAKARI LIMITED G . SHRI CHANDRAPRABHU URBAN CO - OP CREDIT SOCIETY LTD. H . KRISHNA COOPERATIVE CREDIT SO CIETY LIMITED . 2 . THE REVENUE. A . ITO, WARD - 1, GOKAK B . ITO, WARD - 1, NIPANI C . ITO, WARD - 1(4), BELAGAVI . 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 15 ITA NO S . 113 - 118, 120 & 121 /PNJ/201 5 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED WITH I.T.A.NO. 25 - 27/PNJ/2015 1. DRAFT DICTATED ON 30 .0 7 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 30 .07 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 30 /07 /2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 30 /0 7 /2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 30 /07 /2015 SR.PS 6. DATE OF PRONOUNCEMENT 30 /0 7 /2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 30 /07 /2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER