Mahilanidhi Souharda Sahakari Ltd., Mangalore V. ITO, Mangalore

ITA 1397/BANG/2013

• Counselvise Citation: 139721114 RSA 2013
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 08-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Gift; Question of law
• Section: 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1397/BANG/2013 ASSESSMENT YEAR : 2008-09 M/S. MAHILANIDHI SOUHARDA SAHAKARI LTD., D.NO.3/74A, MAITHRI, POST DERALAKATTE, MANGALORE 574 160. PAN : AAAAM 4812D VS. THE INCOME TAX OFFICER, WARD 1(3), MANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMANIAN, C.A. RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) DATE OF HEARING : 21.02.2014 DATE OF PRONOUNCEMENT : 28.02.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL IS AGAINST THE ORDER DATED 28.03.2013 U /S. 263 OF THE ACT OF THE CIT, MANGALORE RELATING TO ASSESSMENT YEAR 2 008-09. 2. THE ASSESSEE IS A CO-OPERATIVE SOCIETY PRIMARILY SET UP TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS BY GRANTING LOANS FOR VARIOUS PURPOSES SUCH ITA NO.1397/BANG/2013 PAGE 2 OF 9 AS RURAL DEVELOPMENT PROGRAMMES, COTTAGE INDUSTRY, HOUSING LOAN ETC. FOR THE A.Y. 2008-09, THE ASSESSMENT WAS COMPLETED BY T HE AO ACCEPTING NIL RETURN OF INCOME FILED BY THE ASSESSEE. THE ASSESS EE HAD CLAIMED DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT AND THAT WAS ALLOWED. 3. THE CIT IN EXERCISE OF HIS POWERS U/S. 263 OF TH E ACT ORIGINALLY ISSUED A SHOW CAUSE NOTICE DATED 10.01.2013 IN WHIC H HE WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80P(2 )(A)(I) OF THE ACT IN RESPECT OF INTEREST ON DEPOSITS OF SURPLUS FUNDS MA DE BY THE ASSESSEE WITH THE BANKS AND THE ASSESSING OFFICERS ACTION IN ALL OWING DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT WAS CONTRARY TO THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO, 322 ITR 283 (SC) . 4. THE ASSESSEE IN REPLY TO THE SHOW CAUSE NOTICE S UBMITTED THAT THE INTEREST EARNED ON FDS IS ALSO RELATABLE TO THE BUS INESS OF PROVIDING CREDIT FACILITIES TO THE MEMBERS AND THE DEDUCTION WAS RIG HTLY ALLOWED BY THE AO WHILE COMPLETING THE ASSESSMENT. THE CIT, HOWEVER, TOOK A VIEW IN THE IMPUGNED ORDER ON A TOTALLY DIFFERENT ISSUE VIZ., T HE ACTION OF THE ASSESSING OFFICER IN ALLOWING DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT ON A SUM OF RS.14,67,108 WHICH WAS THE INCOME OF THE ASSESSEE O F PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE CIT PROCEEDED ON TH E BASIS THAT THE ASSESSEE WAS A COOPERATIVE BANK AND THAT WITH THE I NSERTION OF SECTION 80P(4) BY THE FINANCE ACT, 2006 W.E.F. 1.4.2007 WHI CH EXCLUDES ITA NO.1397/BANG/2013 PAGE 3 OF 9 APPLICABILITY OF PROVISIONS OF SECTION U/S. 80P(2)( A)(I) OF THE ACT TO A CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K. ACCORDING TO THE CIT, THE ASSESSEE WAS A COOPERATIVE BANK AND THEREF ORE THE PROVISIONS OF SECTION 80P(2)(A)(I) OF THE ACT WILL NOT APPLY TO T HE ASSESSEE AND THEREFORE NO DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT OUGHT TO HAVE BEEN ALLOWED TO THE ASSESSEE. THE CIT ACCORDINGLY PASSED THE IMPUGNED ORDER DENYING THE BENEFIT OF DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT T O THE ASSESSEE. 5. THE ASSESSEE HAS FILED THE PRESENT APPEAL CHALLE NGING THE AFORESAID ORDER OF THE CIT. 6. AT THE TIME OF HEARING, IT WAS NOTICED THAT THE ISSUE RAISED BY THE REVENUE HAS ALREADY BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN THE CASE OF ACIT, CIRCLE 3(1), BANGALORE V. M/S. BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LT D. 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:- ITA NO.1397/BANG/2013 PAGE 4 OF 9 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 CREDIT 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 TERM 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 AVAILABLE TO AN Y COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR RURAL DEVELOPMENT BANK. FOR THE PURPOSE OF THE SAID SUB SECTION, COO PERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART V OF THE BA NKING REGULATION ACT, 1949. IN PART V OF THE BANKING REGULATION ACT , COOPERATIVE BANK MEANS A STATE COOPERATIVE BANK, A CENTRAL COO PERATIVE 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 COOPERATIVE BANKS. SECTION 80P(4) DOES NOT DEFINE THE WORD COOPERATIVE SOCIET Y. THE EXISTING SUB-SECTION 80P(2)(A)(I) SHALL BE APPLICABLE TO A C OOPERATIVE SOCIETY CARRYING ON CREDIT FACILITY TO ITS MEMBERS. THIS VIEW IS CLARIFIED BY CENTRAL BOARD OF DIRECT TAX VIDE ITS CLARIFICATION NO.133/06/2007-TPL DATED 9 TH MAY, 2007. THE DIFFERENCE BETWEEN A COOPERATIVE B ANK AND A COOPERATIVE SOCIETY ARE AS FOLLOWS:- ITA NO.1397/BANG/2013 PAGE 5 OF 9 NATURE COOPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT, 1949 COOPERATIVE SOCIETY REGISTERED UNDER KARNATAKA COOPERATIVE SOCIETY ACT, 1959. REGISTRA -TION UNDER THE BANKING REGULATION ACT, 1949 AND COOPERATIVE SOCIETIES ACT, 1959. COOPERATIVE SOCIETIES ACT, 1959. NATURE OF BUSINESS 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 AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI). 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 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 MEMB ERS, THEN THIS SECTION WOULD HAVE BEEN DELETED. THE NEW PROVISO TO SECTIO N 80P(4) WHICH IS BROUGHT INTO STATUTE IS APPLICABLE ONLY TO COOPERAT IVE BANKS AND NOT TO CREDIT COOPERATIVE SOCIETIES. THE INTENTION OF THE LEGISLATURE OF ITA NO.1397/BANG/2013 PAGE 6 OF 9 BRINGING IN COOPERATIVE BANKS INTO THE TAXATION STR UCTURE WAS MAINLY TO BRING IN PAR WITH COMMERCIAL BANKS. SINCE THE ASSE SSEE IS A COOPERATIVE SOCIETY AND NOT A COOPERATIVE BANK, THE PROVISIONS OF SECTION 80P(4) WILL NOT HAVE APPLICATION IN THE ASS ESSEES CASE AND THEREFORE, IT IS ENTITLED TO DEDUCTION U/S 80P(2)(A )(I) OF THE ACT. HENCE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED F OR. 7. 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) (VIIA) BE ING 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 OTHER TH AN 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 PREMISE TH AT THE RESPONDENT ASSESSEE NOT BEING A BANK, EXCLUSION PROVIDED IN SU B-SECTION(4) OF SECTION 80P WOULD NOT APPLY. THIS, IRRESPECTIVE OF THE FACT THAT THE RESPONDENT WOULD NOT FALL WITHIN THE EXPRESSION PR IMARY AGRICULTURAL CREDIT SOCIETY. ITA NO.1397/BANG/2013 PAGE 7 OF 9 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 AS SESSEE, BY VIRTUE OF SUBSECTION(4) ONLY CO-OPERATIVE BANKS OTHER THAN THOSE MENTIONED THEREIN WERE MEANT TO BE EXCLUDED FOR THE PURPOSE O F DEDUCTION UNDER SECTION 80P, A QUESTION WOULD ARISE WHY THEN LEGISL ATURE SPECIFIED PRIMARY AGRICULTURAL CREDIT SOCIETIES ALONG WITH PR IMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS FOR EXCLUS ION FROM SUCH EXCLUSION AND IN OTHER WORDS, CONTINUED TO HOLD SUC H ENTITY AS ELIGIBLE FOR DEDUCTION. HOWEVER, THE ISSUE HAS BEEN CONSIDER ABLY 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-S ECTION, CO-OPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED T O 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,CENTRA L BOARD OF DIRECT TAXES. ITA NO.1397/BANG/2013 PAGE 8 OF 9 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 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. 8. IN THE LIGHT OF THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT THE ORDER U/S. 263 OF THE ACT CANNOT BE SUSTAINED BECAU SE THE ASSESSEE COULD NOT FALL WITHIN THE AMBIT OF SECTION 80P(4) OF THE ACT. CONSEQUENTLY, THE IMPUGNED ORDER OF THE CIT IS HEREBY QUASHED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY, 2014. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 28 TH FEBRUARY, 2014 . /D S/ ITA NO.1397/BANG/2013 PAGE 9 OF 9 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.