Income Tax Officer Ward-2(2), Hubli V. M/s Karnataka University Employees Co-operative Credit Society Limited , Dharwad

ITA 1262/BANG/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9918 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 18-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Assessee Lawyers: S M NATTIKALLI
• Keywords: Opportunity of being heard
• Section: 80P; 6

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.1262/BANG/2018 ASSESSMENT YEAR : 2014-15 THE INCOME-TAX OFFICER, WARD-2(2), HUBLI. VS. M/S KARNATAKA UNIVERSITY EMPLOYEES CO-OPERATIVE CREDIT SOC. LTD., DHARWAD. PAN AAAAK 1751 H . APPLICANT RESPONDENT APPELLANT BY : SMT. SRI NANDINI DAS, ADDL. CIT RESPONDENT BY : SHRI S.M NATTIKALLI, C.A DATE OF HEARING : 26.11.2018 DATE OF PRONOUNCEMENT : .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 16.2.2018 OF CIT(A), HUBBALLI, RELATING TO AY 2014-15. ITA NO.1262/B/18 2 2. THE ASSESSEE IS A CREDIT CO-OPERATIVE SOCIETY. IT FILED RETURN OF INCOME FOR THE A.Y. 2014-15 DECLARING INCOME OF RS. NIL AFTER CLAIMING DEDUCTION OF RS.71,91,877/- U/S. 80P(2)(A)(I) OF TH E INCOME TAX ACT, 1961 (ACT). 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 PRIM ARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE 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 REGULATIO N ACT, 1949 (10 OF 1949); (B) 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA O F OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJ ECT OF WHICH IS TO PROVIDE FOR LONG-TERM CREDIT FOR AGRICU LTURAL 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 COMING ITA NO.1262/B/18 3 TO THE ABOVE CONCLUSION, THE AO NOTICED THAT THE NA TURE OF THE ACTIVITY OF THE ASSESSEE, THOUGH REGISTERED AS A CREDIT CO-O PERATIVE SOCIETY, IS THAT OF A BANKING INSTITUTION NOTWITHSTANDING THE F ACT THAT RECEIPT OF AND LENDING MONEY IS LIMITED TO ITS MEMBERS. THE AO FU RTHER NOTICED THAT CLAUSE (VIIA) IN SECTION 2(24) OF THE ACT WAS INSER TED BY THE FINANCE ACT 2006 EFFECTIVE FROM 1/4/2007, WHICH PROVIDES TH AT PROFITS AND GAINS OF ANY BUSINESS (INCLUDING PROVIDING CREDIT F ACILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBERS THE ASSE SSEES ACTIVITY WAS ALSO INCOME. 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 DEVELOP MENT BANKS; AND THAT THE BENEFIT OF SUCH DEDUCTION IS NOT AVAILABLE TO INSTITUTIONS LIKE THE ASSESSEE SOCIETY. 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 BILURU GURUBASA VA PATTINA SAHAKARI SANGH NIYAMIT (ITA NO.5006/2013) REITERATE D IN GUDDIGEDARA CREDIT CO-OPERATIVE SOCIETY LTD. VS. CIT ITA NO.29/2015 DATED 9.6.2015 WHEREIN IT WAS HELD THAT A CREDIT CO-OPERATIVE SOC IETY GIVING CREDIT TO ITS MEMBERS IS NOT HIT BY THE PROV ISIONS OF SEC.80P(4) OF THE ACT AS IT DOES NOT POSSESS A LICENCE FROM RB I TO CARRY ON BUSINESS AND IS NOT A CO-OPERATIVE BANK. THE OBJEC T OF INTRODUCING ITA NO.1262/B/18 4 SEC.80P(4) OF THE ACT WAS NOT TO EXCLUDE THE BENEFI T EXTENDED U/S.80P(1) TO CO-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. FOL LOWING THE SAID DECISION, THE CIT(A) HELD THAT THE ASSESSEE WAS ENT ITLED TO DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE FOLLOW ING ARE THE GROUNDS OF APPEAL OF THE REVENUE: I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HUBBALLI WAS JUSTIFI ED IN LAW IN HOLDING THAT THE ASSESSEE-SOCIETY IS ENTI TLED TO DEDUCTION UNDER SECTION 8013(2)(A)(I) OF THE INCOME - TAX ACT, WHEN THE ASSESSEE-SOCIETY DOES NOT SATISFY EVEN THE BASIC REQUIREMENT OF BEING A' PRIMARY AGRICULTU RAL CREDIT SOCIETY(PACS)' WITHIN THE MEANING OF SECTION 80P(4) INTRODUCED W.E.F 1.4.2007, WHICH PUTS AN EMBARGO ON THE CATEGORY OF CO-OPERATIVE SOCIETIES ELIGIBLE TO CLAIM DEDUCTION U/S.80P OF THE ACT. II) WHETHER THE LD.CIT (A) IS RIGHT IN NOT ADJUDICA TING ON THE POINTS FOR DETERMINATION ARISING OUT OF THE ASSESSMENT ORDER ESPECIALLY WHEN THE ASSESSING OFFI CER HAS TAKEN A TOTALLY DIFFERENT VIEW, IN VIEW OF THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE 'BILURU GURUBASAVA PATTINA SAHAKARI SANGH NIYAMIT (ITA NO.5006/2013)', AGAINST WHICH THE DEPARTMENT HAS FILED SLP BEFORE THE HON'BLE SUPREME COURT. THE ASSESSING OFFICER DID NOT TREAT THE SOCI ETY AS 'CO-OPERATIVE BANK' TO DISALLOW THE DEDUCTION U/ S 80P BUT PUT TO TEST WHETHER THE SOCIETY SATISFIES T HE BASIC REQUIREMENT OF BEING PRIMARY AGRICULTURAL CREDIT SOCIETY (PACS) AS MENTIONED IN SECTION 80P(4 ). ITA NO.1262/B/18 5 SINCE THE ASSESSEE SOCIETY IS NOT A PACS, IT IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I). III) WHETHER THE LD.CIT(A) IS RIGHT IN IGNORING AN IMPORTANT ISSUE MENTIONED IN THE ASSESSMENT ORDER I .E. WHY TWO ENTITIES I.E., PRIMARY AGRICULTURAL CREDIT SOCIETY (PACS) OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCA & RDB) ARE FINDING A PLACE IN SECTION 80P(4) IF THE INTENTION OF THE LEGISLATURE WAS TO DENY THE BENEFI T OF SECTION 80P(2)(A)(I) ONLY TO CO-OPERATIVE BANKS *.E .F. 01-04-2017? IV) WHETHER THE LD.CIT(A) IS RIGHT IN IGNORING THE INTENTION OF THE LEGISLATURE WHICH CAN BE CLEARLY UNDERSTOOD FROM THE FOLLOWING WORDINGS CONTAINED IN THE SPEECH OF THE HON'BLE FINANCE MINISTER CO- OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDING INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS. PRIMARY AGRICULTURE CREDIT SOCIETIES (PACS) AND PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS(PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT FROM TAX R4E R SECTION 80P OF THE INCOME-TAX ACT. HOWEVER, I PROPO SE TO EXCLUDE ALL OTHER CO-OPERATIVE BANKS FROM THE SC OPE OF THAT SECTION'. (REFER PART-B XIV. TAX PROPOSAL FINANCE BILL 2006). V) FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING IT IS URGED THAT THE 'DER OF THE CIT(A) IN AS MUCH AS IT IS PREJUDICIAL TO THE INTER EST OF REVENUE MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE AO DENI ED THE BENEFIT OF DEDUCTION CLAIMED BY THE ASSESSEE BECAUSE OF THE PROVISIONS OF ITA NO.1262/B/18 6 SEC.80P(4) OF THE ACT WHICH LAYS DOWN THAT DEDUCTIO N 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 CO-OPERATIVE SOCIETY LTD. VS. ACIT 397 ITR 1 (SC), HAS HELD THAT FOR DOING BUSINE SS OF BANKING ONE HAS TO OBTAIN LICENSE FROM RESERVE BANK OF INDIA(RB I) AND SINCE THE ASSESSEE IN THAT CASE WHICH WAS A CO-OPERATIVE SOCI ETY DID NOT HAVE SUCH LICENSE AND FURTHER THAT ASSESSEE ALSO PRODUCE D A CERTIFICATE FROM RBI THAT IT WAS NOT CARRYING ON THE BUSINESS OF BAN KING, THE HONBLE SUPREME COURT HELD THAT IT CANNOT BE SAID TO BE A C O-OPERATIVE BANK. THE OTHER GRIEVANCE OF THE REVENUE THAT THE INCOME EARNED IS NOT FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS AS MEMBE RSHIP IS OPEN TO ANY MEMBER OF THE PUBLIC. SUCH GRIEVANCE WOULD BE ADDR ESSED BY SETTING ASIDE THE ISSUE OF DEDUCTION U/S.80P(2)(A)(I) OF TH E ACT TO THE AO FOR CONSIDERATION AFRESH, WITH A DIRECTION TO THE ASSES SEE TO PRODUCE A CERTIFICATE FROM RBI THAT IT DOES NOT POSSESS LICEN SE FROM IT FOR DOING BANKING BUSINESS AND FURTHER THAT THE BUSINESS CARR IED 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-OPERATIVE SOCIETY FROM THE BUSINESS OF BANKING. EVEN THE CLAIM OF THE ASSESSEE FOR DEDUCTION REQUIRES TO BE EXAMINED UNDER THE FIRST PART OF SEC.80P(2)(A)(I) OF THE ACT. FUR THER THE HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO-OPERATIVE SOCIETY LTD. (SUPRA) HAS ALSO HELD IT IS ALSO IMPORTANT TO ASCER TAIN 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 O F SUCH INCOME. AN ITA NO.1262/B/18 7 EXAMINATION OF (I)THE MEMORANDUM OF ASSOCIATION, TH E ARTICLES OF ASSOCIATION, (II) THE BYELAWS AND OTHER DOCUMENTS E XPLAINING THE RULES AND REGULATIONS OF THE SOCIETY IS NECESSARY, SO AS TO CLEARLY UNDERSTAND THE PURPOSE AND THE NATURE OF BUSINESS DONE BY IT. AN EXAMINATION OF THE DIFFERENT CATEGORIES OF MEMBERS OF A SOCIETY AN D WHAT ARE THE CONDITIONS ATTACHED TO THEIR BEING ADMITTED AS MEMB ERS AND THEIR RIGHTS AS CONTRIBUTORS OF FUNDS TO THE SOCIETY AND PARTICI PANTS IN SURPLUS AND THE BYELAWS OF THE SOCIETY IS NECESSARY. DEDUCTION U/S.80P2(A)(I) IS ALLOWED ONLY IN RESPECT OF INCOME ARISING OUT OF TH E TRANSACTIONS WITH THE MEMBERS. THE RELEVANT LAW GOVERNING CO-OPERATIV E SOCIETIES OF THE CONCERNED STATE PROVIDING STATUS OF DIFFERENT CATEG ORIES OF MEMBERS IN SO FAR AS THE AFFAIRS OF THE CO-OPERATIVE SOCIETY A RE CONCERNED, IS ALSO REQUIRED TO BE EXAMINED. IT IS ONLY INCOME WHICH ARISES FROM DEALING WITH MEMBERS AND WHICH IS EITHER IN THE NATURE OF B ANKING OR PROVIDING CREDIT FACILITIES TO MEMBERS THAT WOULD BE ALLOWED AS DEDUCTION. ALL THESE ASPECTS ALSO REQUIRE EXAMINATION. THE AO WIL L ALLOW OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND FILING APPROPRIA TE EVIDENCE, IF DESIRED, BY THE ASSESSEE TO SUBSTANTIATE ITS CASE, BEFORE DECIDING THE ISSUE. THE ASSESSEE WILL ALSO BE AT LIBERTY TO SHO W THAT INCOME EARNED IS INCOME FROM BUSINESS OF BANKING AND SOME PART OF THE INCOME WAS EARNED BY MAKING INVESTMENT IN STATUTORY RESERVES I N FULFILMENT OF LAW REGARDING MAINTENANCE OF STATUTORY RESERVES. WE HO LD AND DIRECT ACCORDINGLY. 9. IN THE RESULT, APPEAL BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO.1262/B/18 8 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 : /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.1262/B/18 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. ..