Income Tax Officer WArd-2(1), Davangere V. The Tungabhadra Credit Co-op Society Limited , Davangere

ITA 2541/BANG/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8926 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 07-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Opportunity of being heard
• Section: 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SHRI N.V VASUDEVAN, VICE PRE SIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.2541/BANG/2018 ASSESSMENT YEAR : 2013-14 THE INCOME-TAX OFFICER, WARD-2(1), DAVANGERE. VS. THE TUNGABHADRA CREDIT CO-OPERATIVE SOCIETY LTD., HARIHAR, DIST: DAVANGERE. PAN : AACFT 8751 D. APPLICANT RESPONDENT APPELLANT BY : DR. P.V PRADEEP KUMAR, ADDL. CIT RESPONDENT BY : SHRI S RAMASUBRAMANIAN, C.A DATE OF HEARING : 10.12.2018 DATE OF PRONOUNCEMENT : 21.12.2018 O R D E R PER SHRI N.V VASUDEVAN, VICE PRESIDENT : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 18.6.2018 PASSED BY THE COMMISSIONER OF INCOME-TAX [APPEALS], DAVANGERE RELATING TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE ARE A S UNDER:- ITA NO.2541/B/18 2 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), DAVANGERE, IS OPPOSED TO THE LAW AND NOT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX(APPEALS), DAVANGERE HAS ERRED IN NOT CONSIDERING THE FACT THE ISSUE IS PENDING BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF SRI BILURU GURUBASAVA SAHAKARI SANGHA NIYAMITHA, BAGALKOT (ITA NO.14457/2015). 3. THE COMMISSIONER OF INCOME TAX(APPEALS), DAVANGERE HAS ERRED IN NOT CONSIDERING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CITIZEN COOPEARATIVE SOCIETY LTD, HYDERABAD VS. ACIT (SLP NO.20044 OF 2015 DATED: 08.08.2017) WHICH IS APPLIC ABLE IN THE PRESENT CASE, AS THE ASSESSEE HAS RECEIVED S HARE APPLICATION MONEY FROM THE MEMBERS AS WELL AS NON- MEMBERS. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UPON, THE ORDER OF THE CIT(A) MAY BE REVERSED AND T HAT ASSESSMENT ORDER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF TH E APPEAL. 3. THE ASSESSEE IS A CO-OPERATIVE SOCIETY PROVIDIN G A CREDIT FACILITIES TO ITS MEMBER. IN THE RETURN OF INCOME IS FILED FO R THE ASST. YEAR 2013-14, THE ASSESSEE CLAIMED DEDUCTION OF SUM OF RS.68,78,3 36/- U/S 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961 (ACT). THE AO DENIED T HE BENEFIT OF DEDUCTION TO THE ASSESSEE. 4. UNDER SEC.80P(2)(A)(I) OF THE ACT, WHERE THE GRO SS TOTAL INCOME OF A CO-OPERATIVE SOCIETY INCLUDES INCOME FROM CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS, THE SAME IS ALLOWED DEDUCTION. BY THE FINANCE ACT, 2006 W.E.F. 1-4-200 6, SUB-SECTION (4) WAS INSERTED IN SEC.80-P WHICH PROVIDES AS FOLLOWS: ITA NO.2541/B/18 3 (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 C REDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIG NED 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 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. 5. 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 VIEW OF THE PROVISIONS OF SEC.80P(4) OF THE ACT. IN COMING TO T HE ABOVE CONCLUSION, THE AO NOTICED THAT THE NATURE OF THE ACTIVITY OF T HE ASSESSEE, THOUGH REGISTERED AS A CREDIT CO-OPERATIVE SOCIETY, IS THA T OF A BANKING INSTITUTION NOTWITHSTANDING THE FACT THAT RECEIPT OF AND LENDIN G MONEY IS LIMITED TO ITS MEMBERS. 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 SOCIETY WI TH ITS MEMBERS THE ASSESSEES ACTIVITY WAS ALSO INCOME. THAT THE DE DUCTION FROM GROSS TOTAL INCOME OF CERTAIN RECEIPTS IS AVAILABLE ONLY TO PRI MARY AGRICULTURAL CREDIT SOCIETIES OR PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS; AND THAT THE BENEFIT OF SUCH DEDUCTION IS NO T AVAILABLE TO INSTITUTIONS LIKE THE ASSESSEE SOCIETY. THE AO ALSO REFERRED TO SECTION 5(B) OF THE BANKING REGULATION ACT TO HOLD THAT, IF ONE OF THE TWO CONDITIONS OF THE APPELLANT I.E. ITS PRIMARY OBJECT SHOULD BE BANKING OR ITS PRINCIPAL BUSINESS ITA NO.2541/B/18 4 MUST BE TRANSACTION IN BANKING BUSINESS, IS SUFFICI ENT TO BRING THE APPELLANT INTO THE CONCEPT OF A BANKING INSTITUTION. THE AO R EFERRED TO THE OBJECTS OF THE ASSESSEE SOCIETY AND HELD THAT ACCEPTING DEPOSI TS AND LENDING TO ITS MEMBERS ARE IN THE NATURE OF TRANSACTION OF BANKING ACTIVITY. ACCORDING TO THE AO, THE FOLLOWING FEATURES MAKE THE ASSESSEE IN ELIGIBLE TO EXEMPTION CONTEMPLATED IN SECTION 80P OF THE ACT: I) THE PURPOSE OF ACCEPTING DEPOSITS FROM THE PUBL IC IS FOR MAKING INVESTMENTS AND FOR LENDING TO MEMBERS. CONFINING THE LENDING ONLY TO MEMBERS MAKES NO DIFF ERENCE. II) DEPOSITS COLLECTED FROM THE DEPOSITORS ARE REP AYABLE ON DEMAND AND DO NOT GO INTO THE CORPUS OF THE APPE LLANT. III) THE ASSESSEE SOCIETY CAME WITHIN THE EXPL ANATION TO SUB-SECTION (4) OF SECTION 80P OF THE ACT AS A BANK ING INSTITUTION. 6. IN THE LIGHT OF THE ABOVE-MENTIONED OBSERVATIONS , THE AO HELD THAT THE APPELLANT WAS NOT ENTITLED TO EXEMPTION IN RESP ECT OF THE AMOUNT U/S 80P(2)(A)(I) OF THE ACT AND BROUGHT THE SAME TO TAX . 7. 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.5006/20 13 HAS HELD THAT A CREDIT CO-OPERATIVE SOCIETY GIVING CREDIT TO ITS ME MBERS 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 EXCLUD E THE BENEFIT EXTENDED U/S.80P(1) TO CO-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. FOLLOW ING THE SAID DECISION, THE CIT(A) HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUC TION U/S.80P(2)(A)(I) OF THE ACT ON THE SUM OF RS.96,26,666/-. ITA NO.2541/B/18 5 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE AO DENIED THE BENEFIT OF DEDUCTION CLAIMED BY T HE ASSESSEE BECAUSE OF THE PROVISIONS OF SEC.80P(4) OF THE ACT WHICH LA YS 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 CO-OP ERATIVE SOCIETY LTD. VS. ACIT 397 ITR 1 (SC), HAS HELD THAT FOR DOING BU SINESS 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 PRODUCED A C ERTIFICATE FROM RBI THAT IT WAS NOT CARRYING ON THE BUSINESS OF BANKING, THE HONBLE SUPREME COURT HELD THAT IT CANNOT BE SAID TO BE A CO-OPERATIVE BA NK. THE OTHER GRIEVANCE OF THE REVENUE THAT THE INCOME EARNED IS NOT FROM P ROVIDING 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 BUSINESS 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-OPERATIVE SOCI ETY FROM THE BUSINESS OF BANKING. EVEN THE CLAIM OF THE ASSESSEE FOR DED UCTION REQUIRES TO BE EXAMINED UNDER THE FIRST PART OF SEC.80P(2)(A)(I) O F THE ACT. FURTHER THE HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO-OP ERATIVE 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 OF SUCH INC OME. AN EXAMINATION OF (I)THE MEMORANDUM OF ASSOCIATION, THE ARTICLES OF A SSOCIATION, (II) THE BYELAWS AND OTHER DOCUMENTS EXPLAINING THE RULES AN D REGULATIONS OF THE ITA NO.2541/B/18 6 SOCIETY IS NECESSARY, SO AS TO CLEARLY UNDERSTAND T HE PURPOSE AND THE NATURE OF BUSINESS DONE BY IT. AN EXAMINATION OF TH E DIFFERENT CATEGORIES OF MEMBERS OF A SOCIETY AND WHAT ARE THE CONDITIONS AT TACHED TO THEIR BEING ADMITTED AS MEMBERS AND THEIR RIGHTS AS CONTRIBUTOR S OF FUNDS TO THE SOCIETY AND PARTICIPANTS IN SURPLUS AND THE BYELAWS OF THE SOCIETY IS NECESSARY. ON THIS ASPECT OF DEDUCTION U/S.80P(2)(A )(I) OF THE ACT, THE LEARNED COUNSEL FOR THE ASSESSEES SUBMISSION WAS T HAT THE AO IN THE ORDER OF ASSESSMENT DID NOT MAKE OUT A CASE THAT IN COME FROM DEALING WITH NOMINAL MEMBERS WOULD NOT BE ELIGIBLE FOR DEDU CTION U/S.80P(2)(A)(I) OF THE ACT AND BY DIRECTING THE AO TO MAKE AN INVES TIGATION INTO MEMBERSHIP OF THE SOCIETY AND APPLYING THE PRINCIPL E OF MUTUALITY THE TRIBUNAL WOULD PERMIT THE DEPARTMENT TO MAKE OUT A NEW CASE FOR DENYING DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. WE ARE HOWE VER NOT PERSUADED BY THIS ARGUMENT FOR THE REASON THAT THE LAW DECLARED BY THE HONBLE SUPREME COURT IS DEEMED TO BE THE LAW AT ALL POINT OF TIME AND AN EXAMINATION OF THE CLAIM FOR DEDUCTION IN THE LIGHT OF THE LAW AS IT ALWAYS EXISTED CANNOT PUT THE ASSESSEE IN ANY DISADVANTAGE OUS POSITION. MOREOVER THE DEDUCTION U/S.80P2(A)(I) IS ALLOWED ON LY IN RESPECT OF INCOME ARISING OUT OF THE TRANSACTIONS WITH THE MEMBERS AN D THEREFORE TO EXAMINE WHO ARE MEMBERS WOULD BE NECESSARY BEFORE A CLAIM F OR DEDUCTION CAN BE ALLOWED. THE RELEVANT LAW GOVERNING CO-OPERATIVE SOCIETIES OF THE CONCERNED STATE PROVIDING STATUS OF DIFFERENT CATEG ORIES OF MEMBERS IN SO FAR AS THE AFFAIRS OF THE CO-OPERATIVE SOCIETY ARE 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 BANKIN G OR PROVIDING CREDIT FACILITIES TO MEMBERS THAT WOULD BE ALLOWED AS DEDU CTION. ALL THESE ASPECTS ALSO REQUIRE EXAMINATION. WE HOLD AND DIRE CT ACCORDINGLY. THE AO WILL ALLOW OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE AND FILING APPROPRIATE EVIDENCE, IF DESIRED, BY THE ASSESSEE T O SUBSTANTIATE ITS CASE, ITA NO.2541/B/18 7 BEFORE DECIDING THE ISSUE. THE ASSESSEE WILL ALSO BE AT LIBERTY TO SHOW THAT INCOME EARNED IS INCOME FROM BUSINESS OF BANKI NG AND SOME PART OF THE INCOME WAS EARNED BY MAKING INVESTMENT IN STATU TORY RESERVES IN FULFILLMENT OF LAW REGARDING MAINTENANCE OF STATUTO RY RESERVES. WE HOLD AND DIRECT ACCORDINGLY. 9. IN THE RESULT, APPEAL BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DECEMBER, 2018 . SD/- SD/- (JASON P BOAZ) (N.V VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 21/12/2018 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.2541/B/18 8 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 REGISTRAR 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. ..