Shri Mallikarjun Urban Co-operative Credit Society Ltd, Belgaum V. Income Tax Officer, Ward - 1(4), , Belagavi

ITA 437/PAN/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0999 (ITAT-PANAJI)
• Duration Of Justice: 3 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: WT(D)
• Assessment Year: 2015-2016
• Appeal Filed On: 12-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Co-operative Credit Society
• Section: 56; 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘PANAJI’ BENCH, PANAJI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.437/PAN/2018 Assessment Year: 2015-16 Shri Mallikarjun Urban Co-Operative Credit Society Ltd. A-p: Jugul, Tal: Athani, Dist: Belgaum-591252. PAN: AAAAS 5616 H Vs. ITO, WARD-1(4), BELAGAVI (Appellant) (Respondent) Present for: Appellant by : Shri Shivanand Halbhavi, CA Respondent by : Shri Mayur Kamble, Sr. DR Date of Hearing : 16.06.2022 Date of Pronouncement : 30.08.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal by the assessee is arising out of the order of Ld. CIT(A), Belgaum in ITA No.CIT(A)/BGM/10167/2017-18 dated 04.10.2018 against the order passed by ITO, Ward-1(4), Belagavi u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) dated 14.11.2017. 2. The grounds taken by the assessee in the present appeal are reproduced as under: “i. The order passed by the ld. AO and confirmed by the ld. CIT(A) is not as per law and facts of the case. ii. That the ld. AO and the ld. CIT(A) have erred in denying the exemption claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961 available to Co-operative Societies engaged in the business of banking or providing credit facilities to its members and accepting deposits from its members. ITA No.437/PAN/2018 Shri Mallikarjun Urban Co-operative Credit society Ltd. A.Y. 2015-16 2 iii. That the ld. CIT(A) has erred in deciding our case on the basis of judgement of Hon’ble Supreme Court in case of the Citizen Co-operative Society (TS-326-SC-2017) dated 16 th August, 2017 facts of which are totally different from our case. This difference was brought to the notice of Hon’ble CIT(A) vide submission dated 02.08.2018 which has not been considered by Hon’ble CIT(A). iv. The ld. AO and ld. CIT(A) have not followed/considered the decision of Hon’ble High Court of Karnataka in assessees own case for A.Y. 2009-10, ITA No. 100039 of 2014 where same issue has been decided in favour of assessee.” 3. Before us, Shri Shivanand Halbhavi, CA represented the assessee and Shri Mayur Kamble, Sr. DR represented the Department. 4. Brief facts as culled out from the records are that the assessee is a Co-operative Society registered under the Karnataka State Co-operative Societies Act, 1959. The assessee has derived income by providing credit facilities to the members which are of two categories namely regular and associate/nominal members. A copy of registration certificate and bye laws reflects the objectives of the society as that of providing credit facilities to its members. Assessee filed its return of income on 15.09.2015 reporting total income at Nil after claiming deduction under Chapter VIA amounting to Rs. 21,49,603/-. The only issue in the present appeal is in respect of claim of deduction u/s 80P(2)(a)(i) of the Act. In the course of assessment proceeding, ld. AO noted from the balance sheet that the assessee is providing credit facilities to two categories of members and thus by placing his reliance on the decision of Hon’ble Supreme Court in the case of Citizen Co- Operative Society Ltd. vs ACIT in Civil Appeal No. 10245 of 2017 dated 08.08.2017 held that deduction claimed by the assessee is not admissible since the assessee is earning income not only from the members but from associate/nominal i.e. non-members who are general public and the concept of mutuality is not satisfied. ITA No.437/PAN/2018 Shri Mallikarjun Urban Co-operative Credit society Ltd. A.Y. 2015-16 3 5. Aggrieved, the assessee went in appeal before the Ld. CIT(A) who confirmed the addition so made by the ld. AO. 6. Aggrieved, the assessee is in appeal before the Tribunal. 7. At the outset, the ld. counsel of the assessee strongly submitted that the present issue is squarely covered by the latest decision of Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs CIT [2021] 123 taxmann.com 161 (SC) wherein it is held that full bench judgement in the case of Citizen Co-op Society Ltd. (supra) is fully incorrect in its reading and loans given to nominal members would qualify for the purpose of deduction u/s 80P(2)(a)(i) of the Act. The relevant portion is extracted below: “45. To sum up, therefore, the ratio decidendi of Citizen Co-Operative Society Ltd. (supra), must be given effect to Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word ‘agriculture’ into Section 80P(2)(a)(i) when it is not there. Further, Section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgement is wholly incorrect in its reading of Citizen Co- operative Society Ltd. (supra). Clearly, therefore, once Section 80P(4) is out of harm’s way, all the assessees in the present case are entitled to the benefit of the deduction contained in Section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case, it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.” 8. Further, ld. counsel pointed out that Hon’ble Supreme Court also held in the same decision that amendment to section 80P(4) is not ITA No.437/PAN/2018 Shri Mallikarjun Urban Co-operative Credit society Ltd. A.Y. 2015-16 4 applicable to co-operative societies providing credit facilities to its members. Section 80P of the Act is a benevolent provision, which was acted by the Parliament in order to encourage and promote the growth of co-operative section generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee. The relevant portion extracted from the said decision is reproduced as under: “39. The above material would clearly indicate that the limited object of Section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from Section 3 read with Section 56 is that a primary co- operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by Section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under Section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society shall carry on banking business in India, unless it is a co-operative bank and holds a license issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes connected with agricultural activities.” 9. Ld. Counsel further placed reliance on the decision of Hon’ble Madras High Court in the case of CIT vs Ammapet Primary Agricultural Co-operative Bank Ltd. [2017] 395 ITR 55 wherein it was held that deduction u/s 80P could not be denied merely on the ground that some of its members were not entitled to receive any dividend or having any voting right as they were admitted as associate members for availing of loan only and were also being charged a higher rate of interest. 10. The ld. Sr. DR placed reliance on the order of Ld. CIT(A) and Ld. AO. ITA No.437/PAN/2018 Shri Mallikarjun Urban Co-operative Credit society Ltd. A.Y. 2015-16 5 11. We have heard rival contentions, perused the material and gone through the submission made before us. We note that the assessee is a Co-operative Credit Society registered under the Karnataka State Co- operative Societies Act, 1959 having two categories of members i.e. regular members and associate/nominal members. We also note that the objective of the society is that of providing credit facilities to its members. The assessee has claimed deduction of Rs. 21,49,603/- u/s 80P(2)(a)(i) of the Act which has been disallowed by the ld. AO and confirmed by the ld. CIT(A). 12. The basis adopted by the ld. AO for the purpose of making disallowance relates to credit facilities provided to the category of members which are associate/nominal members. We note that the issue in the present appeal before us has been concluded by the decision of Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd. (supra) wherein the Hon’ble Supreme Court has considered the decision of Co-ordinate Bench of Supreme Court in the case of Citizen Co-operative Bank Ltd. (supra) and Hon’ble Supreme Court has laid down certain principles which are culled out from the judgment as under:- i. That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; ii. That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction; iii. That this Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; ITA No.437/PAN/2018 Shri Mallikarjun Urban Co-operative Credit society Ltd. A.Y. 2015-16 6 iv. This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so – which is not the case with section 80P(2)(a)(i); v. That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a license from the RBI to do banking business. Given the fact that the assessee is not so licensed, the assessee would not fall within the mischief of section 80P(4). 12.1. Thus, respectfully following the said decision of Hon’ble Supreme Court in the given facts and circumstances of the case, we direct the ld. AO to delete the addition made and allow the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act. Accordingly, the grounds of appeal of the assessee are allowed. 13. In the result, the appeal of the assessee is allowed. Order pronounced under Rule 34(4) of the IT (AT) rules, 1963 on 30.08.2022. Sd/- Sd/- (CHANDRA MOHAN GARG) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30.08.2022. Biswajit, Sr. P.S. Copy to: 1. The Appellant: Shri Mallikarjun Urban Co-operative Credit Society Ltd. 2. The Respondent: ITO, Ward-1(4), Belagavi. 3. The CIT, Concerned, 4. The CIT (A) Concerned, 5. The DR Concerned Bench //True Copy// [ By Order Sr. Private Secretary ITAT, Panaji (on tour)