M/s The Jamakhandi Urban Minority Co-operative Credit Society Limited, Bagalkot V. ITO, Bijapur

ITA 1328/BANG/2013

• Counselvise Citation: 132821114 RSA 2013
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-09-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 17-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SHANKAR PRASAD K JT
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Question of law
• Section: 43B; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.1328/BANG/2013 ASSESSMENT YEAR : 2010-11 THE JAMAKHANDI URBAN MINORITY CO-OPERATIVE CREDIT SOCIETY LTD., GAVALI GALLI, JAMAKHANDI 587 301. BAGALKOT DISTRICT. PAN : AAALT 0276H VS. THE INCOME TAX OFFICER, WARD 2, BIJAPUR. APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMANIAN, C.A. RESPONDENT BY : DR. SHANKAR PRASAD K., JT. CIT(DR) DATE OF HEARING : 11.09.2014 DATE OF PRONOUNCEMENT : 19.09.2014 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS APPEAL IS BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS), BELGAUM AND PERTAINS TO ASSESSMENT YE AR 2010-11. ITA NO.1328/BANG/2013 PAGE 2 OF 8 2. IN THIS APPEAL FILED BY THE ASSESSEE, ITS GRIEV ANCE IS THAT DEDUCTION U/S. 80P(2)(A)(I) OF THE INCOME-TAX ACT, 1961 [THE ACT] WAS NOT GRANTED TO IT. 3. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUN D IN WHICH IT ASSAILS THE DISALLOWANCE OF RS.1,92,000 MADE BY THE ASSESSING OFFICER U/S. 43B OF THE ACT. 4. THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERE D UNDER THE KARNATAKA STATE COOPERATIVE SOCIETIES ACT. IT HAD CLAIMED DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT OF RS.10,90,133. THE AO DE NIED SUCH DEDUCTION TAKING A VIEW THAT THE ASSESSEE FALLS WITHIN THE DE FINITION OF COOPERATIVE BANK UNDER THE BANKING REGULATION ACT, 1949. AS PE R THE AO, COOPERATIVE BANK AS PER THE BANKING REGULATION ACT, 1949, INCLU DED A PRIMARY COOPERATIVE BANK. SINCE THE BYE LAWS OF THE SOCIET Y HAD NO CLAUSE, WHICH PERMITTED ADMISSION OF ANY OTHER COOPERATIVE SOCIET Y AS A MEMBER, THE AO DEEMED THE ASSESSEE TO BE A COOPERATIVE BANK. AS P ER THE AO, THE ASSESSEE SATISFIED THE OTHER TWO CONDITIONS VIZ., P RINCIPAL BUSINESS BEING THAT OF BANKING AND PAID-UP SHARE CAPITAL BEING NOT LESS THAN RS.ONE LAKH, AS PRESCRIBED U/S. 5(CCV) OF THE BANKING REGULATION ACT, 1949. THUS, AS PER THE AO, SECTION 80P(4) STOOD ATTRACTED. 5. WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSE E, THE AO ALSO MADE A DISALLOWANCE OF RS.1,92,000 WHICH WAS SHOWN AS A PROVISION FOR ITA NO.1328/BANG/2013 PAGE 3 OF 8 AUDIT FEE. THE AUDIT FEE WAS PAYABLE TO THE GOVERN MENT AND THEREFORE AS PER THE AO, SECTION 43B STOOD ATTRACTED. 6. AGGRIEVED, THE ASSESSEE MOVED APPEAL BEFORE THE CIT(APPEALS). THE ARGUMENT OF THE ASSESSEE WAS THAT IT WAS NOT A COOPERATIVE BANK AND THEREFORE DEDUCTION CLAIMED U/S. 80P(2)(A)(I) COULD NOT BE DENIED TO IT. RELIANCE WAS PLACED BY THE ASSESSEE ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD., [2012] 23 TAXMAN.COM 313 (PANAJI) AND BANGALORE COMMERCIAL TRANSPORT CREDIT CO- OPERATIVE SOCIETY LTD., ITA.NO.1069/BANG/2010 DAT ED 8/4/2011 . HOWEVER, THE CIT(APPEALS) WAS NOT IMPRESSED. AC CORDING TO HIM, THE ASSESSEE WAS A PRIMARY COOPERATIVE BANK AS PER THE BANKING REGULATION ACT, 1949 AND THEREFORE SECTION 80P(4) S TOOD ATTRACTED. 7. AS REGARDS DISALLOWANCE OF RS.1,92,000, THERE WA S NO ADJUDICATION BY THE LD. CIT(A) SINCE THE ASSESSEE HAD NOT RAISED ANY GROUND. 8. NOW BEFORE US, THE LD. AR SUBMITTED THAT THE IS SUE RELATING TO DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT STOOD DECIDE D BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT IN ITA NO.5006/2013 DATED 5.2.2014. ACCORDING TO HIM, THE BYE LAWS OF THE ASSESSEE SOCIETY DID NOT PROHIBIT ANY OTHER COOPERA TIVE SOCIETY FROM ITA NO.1328/BANG/2013 PAGE 4 OF 8 BECOMING A MEMBER. INSOFAR AS DISALLOWANCE U/S. 43 B WAS CONCERNED, THE LD. AR SUBMITTED THAT THE DECISION OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT V. SHREE WARNA SAHAKARI SAKHAR KARKHANA LTD.,25 3 ITR 226 , WAS DIRECTLY ON THE ISSUE. 9. PER CONTRA, THE LD. DR SUBMITTED THAT THE ASSESS EE WAS A COOPERATIVE BANK FALLING WITHIN THE DEFINITION OF B ANKING REGULATION ACT, 1949 AND THEREFORE THE PROHIBITION PRESCRIBED IN SE CTION 80P(4) CLEARLY APPLIED TO IT. INSOFAR AS DISALLOWANCE OF RS.1,92 ,000 WAS CONCERNED, THE LD. DR SUBMITTED THAT SUCH A GROUND WAS NEVER TAKEN BY THE ASSESSEE BEFORE THE CIT(APPEALS). 10. WE HAVE PERUSED THE ORDERS AND ALSO HEARD THE R IVAL CONTENTIONS. THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80P(2) (A)(I) WAS DISALLOWED BY THE AO FOR THE REASON THAT THE ASSESSEE FELL WITHIN THE REALM OF BANKING REGULATION ACT, 1949. NO DOUBT, THE ASSESSEE HAD S ATISFIED TWO OF THE THREE PRIMARY CONDITIONS MENTIONED IN SECTION 5(CCV ) OF THE BANKING REGULATION ACT, 1949 VIZ., IT HAD THE PRIMARY OBJEC T OF BANKING AND IT HAD SHARE CAPITAL WHICH WAS IN EXCESS OF RS. ONE LAKH. BUT, WE FIND FROM THE MEMBERSHIP QUALIFICATION AS SET OUT IN THE BYE LAW, WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER AT PAGE 37 OF H IS ORDER THAT THERE WAS NOTHING WHICH FORBID A COOPERATIVE SOCIETY FROM BEC OMING A MEMBER. IT IS CLEARLY STATED THAT EVERY PERSON COMPETENT TO CONTR ACT UNDER SECTION 11 OF THE INDIAN CONTRACT ACT, 1872 COULD BECOME A MEMBER , PROVIDED OTHER ITA NO.1328/BANG/2013 PAGE 5 OF 8 CONDITIONS ARE SATISFIED. A PERSON WILL DEFINITELY INCLUDE A COOPERATIVE SOCIETY. IN ANY CASE, WE FIND THAT THE HONBLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT (SUPRA) IN RELATION TO A SIMILAR ISSUE, HAS HELD AT PARAGRAPHS 5 TO 8 OF ITS JUDGMENT AS FOLLOWS:- 5. THE TRIBUNAL HELD THAT AS THE ASSESSEE IS NOT A COOPERATIVE BANK, SECTION 80P(4) HAS NO APPLICATION. MOREOVER, THE POWER UNDER SECTION 263 OF THE ACT COULD BE INVOKED BY TH E REVISIONAL AUTHORITY ONLY, IF THE ORDER IS ERRONEOUS AND THERE BY IS PREJUDICIAL TO THE INTEREST OF REVENUE, IN THE INSTANT CASE AS THE ASSESSEE IS NOT A CO-OPERATIVE BANK I.E. THERE IS NO ERROR COMMITTE D BY THE ASSESSING AUTHORITY MUCH LESS, THE SAID ORDER WAS P REJUDICIAL TO THE INTEREST OF REVENUE AND THEREFORE, THE ORDER PA SSED BY THE REVISIONAL AUTHORITY WAS SET-ASIDE. 6. AGGRIEVED BY THE SAID ORDER, THE REVENUE HAS PR EFERRED THIS APPEAL. 7. THE ONLY SUBSTANTIAL QUESTION OF LAW WHICH ARIS ES FOR OUR CONSIDERATION IN THIS APPEAL IS:- IN THE FACTS AND CIRCUMSTANCES OF THIS CASE, WHET HER THE REVISIONAL AUTHORITY WAS JUSTIFIED IN INVOKING HIS POWER UNDER SECTION 263 OF THE ACT WITHOUT THE FOUNDATIONAL FAC T OF ASSESSEE BEING CO-OPERATIVE BANK WAS NOT THERE? 8. IN THE ASSESSMENT ORDER, THE ASSESSING AUTHORI TY HAS CLEARLY STATED THAT THE ASSESSEE IS A COOPERATIVE S OCIETY AND HAS NOT OBTAINED ANY BANKING LICENSE. THE BUSINESS OF T HE ASSESSEE IS TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS. SINCE THE ASSESSEE CANNOT CARRY ON ANY BANKING BUSINESS, THE INTEREST ON INVESTMENT IS TAXABLE AS INCOME FROM OTHER SOURCE. THEREFORE T HE AFORESAID FACTS, WHICH IS NOT IN DISPUTE CLEARLY ESTABLISHES THAT IT IS NOT A CO-OPERATIVE BANK. INFACT, THE REVISIONAL AUTHORIT Y ALSO IN ITS ORDER HAS CATEGORICALLY STATED THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY, WHICH PROVIDES CREDIT FACILITIES. SECTION 80P OF THE ACT DEALS WITH THE DEDUCTION OF INCOME OF A SOCIETY. IN THE CASE OF ANY ASSESSEE BEING A CO-OPERATIVE SOCIETY, THE WHOL E OF THE AMOUNTS OF PROFITS AND GAINS OF BUSINESS ATTRIBUTAB LE TO ANY OF ITA NO.1328/BANG/2013 PAGE 6 OF 8 OTHER ACTIVITIES REFERRED TO SUB-SECTION (2) OF SEC TION 80P SHALL BE DEDUCTED IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE. IN OTHER WORDS, THE SAID INCOME IS NOT TAXABLE. IT IS A BENE FIT GIVEN TO THE CO-OPERATIVE SOCIETY. SECTION 80P(4) WAS INTRODUCED BY FINANCE ACT, 2006 WITH EFFECT FROM 01.04.2007 EXCLUDING THE SAID BENEFIT TO A CO-OPERATIVE BANK. THE SAID PROVISION READS AS UNDER:- (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPL Y IN RELATION TO ANY CA-OPERATIVE BANK OTHER THAN A PRIM ARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE AGRICULTURAL AND RURAL DEVELOPMENT BANK. (A) COOPERATIVE 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 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. THEREFORE, THE INTENTION OF THE LEGISLATURE IS CLEA R. IF A CO- OPERATIVE BANK IS EXCLUSIVELY CARRYING ON BANKING B USINESS, THEN THE INCOME DERIVED FROM THE SAID BUSINESS CANNOT BE DEDUCTED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE SAI D INCOME IS LIABLE FOR TAX. A CO-OPERATIVE BANK AS DEFINED UNDE R THE BANKING REGULATION ACT INCLUDES THE PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVEL OPMENT BANK. THE LEGISLATURE DID NOT WANT TO DENY THE SAID BENEF ITS TO A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO -OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THEY DID N OT WANT TO EXTEND THE SAID BENEFIT TO A CO-OPERATIVE BANK WHIC H IS EXCLUSIVELY CARRYING ON BANKING BUSINESS I.E. THE P URPORT OF THIS AMENDMENT. THEREFORE, AS THE ASSESSEE IS NOT A COOP ERATIVE BANK CARRYING ON EXCLUSIVELY BANKING BUSINESS AND AS IT DOES NOT POSSESS A LICENCE FROM RESERVE BANK OF INDIA TO CAR RY ON BUSINESS, IT IS NOT A CO-OPERATIVE BANK. IT IS A CO -OPERATIVE SOCIETY WHICH ALSO CARRIES ON THE BUSINESS OF LENDI NG MONEY TO ITS MEMBERS WHICH IS COVERED UNDER SECTION 80P(2)(A)(I) I.E. CARRYING ON THE BUSINESS OF BANKING FOR PROVIDING C REDIT FACILITIES TO ITS MEMBERS. THE OBJECT OF THE AFORESAID AMENDME NT IS NOT TO ITA NO.1328/BANG/2013 PAGE 7 OF 8 EXCLUDE THE BENEFIT EXTENDED UNDER SECTION 80P(1) T O SUCH SOCIETY. THEREFORE, THERE WAS NO ERROR COMMITTED BY THE ASSESSING AUTHORITY. THE SAID ORDER WAS NOT PREJUDI CIAL TO THE INTEREST OF THE REVENUE. THE CONDITION PRECEDENT FO R THE COMMISSIONER TO INVOKE THE POWER UNDER SECTION 263 IS THAT THE TWIN CONDITION SHOULD BE SATISFIED. THE ORDER SHOUL D BE ERRONEOUS AND IT SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. 11. INSOFAR AS THE CLAIM OF THE ASSESSEE THAT AUDIT FEE PAYABLE WAS ALLOWABLE, WE FIND THAT THE ISSUE IS COVERED IN THE CASE OF SHREE WARNA SAHAKARI SAKHAR KARKHANA LTD. (SUPRA) . IT WAS CLEARLY HELD THEREIN THAT GOVERNMENT AUDIT FEES PAYABLE BY A SOCIETY WAS NOT COVERED BY SECTION 43B OF THE ACT. NO DOUBT, THIS GROUND HAS NOT BEEN RAISED BY THE ASSESSEE BEFORE THE CIT(APPEALS). HOWEVER, WE DO N OT FIND ANY REASON TO SET ASIDE THE ISSUE SINCE IT IS CLEARLY COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT ( SUPRA) . 12. THUS, BOTH THE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF SEPTEMBER , 2014 . SD/- SD/- ( N.V. VASUDEVAN ) ( ABRAHAM P. GEORGE ) JUDICIAL MEMBER ACCOUNTANT ME MBER BANGALORE, DATED, THE 19 TH SEPTEMBER , 2014 . /D S/ ITA NO.1328/BANG/2013 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.