HINDUSTAN CO-OPERATIVE CREDIT SOCIETY LTD., Mumbai V. ITO, W-26(1)(5), MUMBAI, Mumbai

ITA 5902/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 5321 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 12-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AIRIJU JAIKIRAN
• Keywords: Business income; Opportunity of being heard; Co-operative Credit Society
• Section: 69; 143(1); 80P

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “SMC” Bench, Mumbai Shri Shamim Yahya (AM) I.T.A. No. 5902/Mum/2019 (A.Y. 2013-14) I.T.A. No. 5903/Mum/2019 (A.Y. 2016-17) Hindustan Co-operative Credit Society Limited 6, Hirabai Compound Dr. Ambedkar Nagar, Kurla West, Mumbai-400 072. PAN : AABAH6336A Vs. ITO, Ward-26(1)(5) Room No. 329 3 rd Floor, Kautilya Bhavan, C-41 to C-43 G Block, Bandra Kurla Complex Mumbai-400 051. (Appellant) (Respondent) Assessee by None Department by Shri Airiju Jaikiran Date of Hearing 28.03.2022 Date of Pronouncement 04.04.2022 O R D E R These appeals by the assessee are directed against respective orders of learned CIT(A). Since the issues are common and connected and appeals were heard together, these are being disposed of by this common order. 2. Since the grounds are common and connected we are referring to A.Y. 2013-14. 1. The learned CIT(A) has erred in affirming with the learned AO in considering income earned by the society in normal course of business as income from other sources and denying deduction u/s. 80P(2)(a)(i). 2. The learned CIT(A) has erred affirming with the learned AO in denying deduction u/s. 80P(2)(c) amounting Rs. 50,000/- available to a cooperative society. 3. The appellant further reserves the right to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives. 3. Brief facts of the case are the return of income for the AY 2013-14 was e-filed on 03.10.2013 declaring total income at Rs.NIL/-. The return of income Hindustan Co-operative Credit Society Limited 2 was processed u/s. 143(1) of the IT Act. The case was selected for scrutiny under CASS. The assessee has shown Gross Total Income of Rs.7,65,358/- and claimed deduction u/s.80P(2) of the IT Act of Rs.7,65,358/- thereby declaring total income at Rs. Nil. During the course of assessment proceedings, various details/explanation were, called for and placed on record. After careful consideration, The AO held that the assessee's case falls within the mischief of sub-section (4) of section 80P and the assessee has not following the principal of mutuality concept and therefore, the deduction claimed u/s. 80P(2) was disallowed. Also the assessee earned interest income from FD/Deposit from ICICI Bank Ltd. and Central Bank of India amounting Rs.1,56,227/- and Rs.32,101/- respectively but not offered for tax. Therefore, interest income amounting to Rs.1,88,328/- was added to the total income of the assessee under the head income of other sources. 4. Upon assessee’s appeal learned CIT(A) held as under :- “7.1.6 Considering the aforesaid judicial pronouncements, I am of the view that the appellant co-operative society is eligible for deduction u/s 80P(2)(d)/80P(2)(a)(i) on interest derived from its investment with co- operative banks. The AO is directed to allow deduction of Rs,7,65,358/- as claimed by the appellant u/s 80P(2)(d)/80P(2)(a)(i). The ground is allowed. 7.2 The second ground of appeal is that the AO has erred in considering the income earned by the society by way of commission as income from other sources instead as business income earned in clue course of business and hence eligible for deduction u/s 80P(2)(a)(i). 7.2.1 It is observed that the appellant has received commission of Rs.31.040/- and Rs.61,559/- from Future General India Insurance Co. Ltd and 1CICI Bank Ltd respectively who are not members-of the appellant society. Therefore on this receipt the principle of mutuality will not apply. In view of the above, the addition made in this assessment by the AO is upheld. This of appeal is dismissed. 7.3 The third ground of appeal is that the AO has erred in not considering the interest income from nationalized banks as business income and hence e u/s 80P(2)(a)(i). 7.3.1 On due perusal of the pertinent fact situation in this appeal, I find that I do not concur with the contentions and arguments taken by the Id. AR for the simple reason that the impugned addition, is in respect of interest earned from a Nationalised Bank. Therefore, it is abundantly clear that the Hindustan Co-operative Credit Society Limited 3 deduction u/s. 80P(2)(a)(i) cannot be allowed to the appellant, since, receipt of interest income from any institution, bank other than a co-operative bank cannot be said to be adherence with the ‘Principle of Mutuality’. I find that such is not the case here. It would have been another story had the impugned amount of interest been received from a cooperative bank, in which scenario, the appellant would have successfully staked the claim for the impugned deduction. However, in this case the interest is not from cooperative bank but rather from A nationalized bank. 7.3.2 In view of the above, the disallowance of the deduction u/s.80P(2)(a)(i) is confirmed and in consequence, the appeal on this issue is Dismissed. 7.5 The fifth ground of appeal is that the Assessing Officer has erred in denying deduction under section 80P(2)(c) of Rs. 50,000/- avialable to a cooperative society. 7.5.1 On due perusal of the assessment order it is observed that the Assessing Officer has not disallowed any deduction u/s 80P(2)(c) of Rs.50,000/-. Hence, such mention by the appellant in his ground cannot be taken up for adjudication as it is not arising from the assessment order against which the appeal is filed. It is also not forthcoming from the submission of the appellant whether such a claim for deduction u/s.80P(2)(c) was made in the return of income filed for the impugned assessment year. In the given facts & circumstances this ground of appeal is dismissed.’’ 5. Against the above order assessee is in appeal before the ITAT. 6. Learned Counsel of the assessee in written submission has submitted as under :- GROUNDS OF APPEAL NO.1 The Ld. CIT(A) has erred in affirming with the Ld. AO in considering income earned by the society in normal course of business as income from other sources and denying deduction u/s 80P(2)(a)(i). SUBMISSION: During the year the society has earned income from following sources: a) Commission from Future General Insurance Rs. 31040/- b) Commission from ICICI Bank Rs. 61,559/- c) Interest from ICICI Bank Rs. 32,101/- d) Interest from Central Bank of India Rs. 1,56,227/- Total Rs.2,80,927/- a) Commission from Future General Insurance and ICICI Bank. Hindustan Co-operative Credit Society Limited 4 The Society has given loans to its members against hypothecation of property, gold, goods, vehicles, etc The society to safe guard the interest of the society, has taken life insurance and Mediclaim insurance policies for the members and staff, their family members and also General Insurance policies for the hypothecated/pledged properties, debtors and goods of the borrowers of the society. The insurance premium paid by the society is charged and recovered from the respective members and staff. These services are part and parcel of the business of the society For rendering the above services insurance companies pay the society insurance commission instead of paying to the agents of the insurance company. Thus, the said insurance commission is part of business income and hence eligible for deduction u/s 80P(2)(a)(i). Alternatively, proportionate expenses should be allowed. b) Interest income earned by the society from ICICI bank and Central Bank. During the year, the society has earned interest income from ICICI bank and Central bank amounting to Rs. 1,56,227/- and Rs. 32,101/- respectively. Statutory Requirement As per section 66 to section 69 of Maharashtra co-op credit societies act the society has to transfer a certain % of profit to Reserve fund. The said reserves are required to be invested in the modes provided u/s. 70 of MCS Act. Modes provided under Section 70 of the Maharashtra Co-operative Societies Act, 1960 are: A society shall invest or deposit its funds in one or more of the following:- (a) in a Central Bank or the State Co-operative Banks or societies. (b) in any of the securities specified in section 20 of the Indian Trusts Act, 1882; In view of the above statutory provision the society has invested its funds in co-operative banks. The interest earned by co-operative credit society from co-operative bank is a business income, the same has been accepted by The Hon'ble Supreme Court in the case of CIT v/s. Nawanshahar Central Co-operative Bank Ltd. [2007] 289 ITR 6 (SC) wherein their Lordships have observed as under. "This court has consistently held that investments made by a banking concern are part of the business of banking. The income arising from such investments would, therefore, be attributable to the business of bank falling under the head "Profits and gains of business" and thus deductible under section 80P(2)(a)(i) of the Income-tax Act 1961." Relying on the decision of the Hon Supreme Court in the case of CIT v/s. Nawanshahar Central Co-operative Bank Ltd [2007] 289 ITR 6 (SC) CBDT has issued Circular no. 18/2015 from which it is clear that "Investments made by a co-operative societies / banks are part of the business of banking Hindustan Co-operative Credit Society Limited 5 and therefore, the income arising from such investments is attributable to the business of the banking falling under the head 'Profits and Gains of Business and Profession and eligible to claim deduction u/sec.80P (2)(a)(i)of the Act". (Copy of the CBDT Circular-18/2015 is enclosed) The Hon. ITAT Mumbai bench, in the case of ITO-17(3)(4), Mumbai Vs. State Bank of India Employees M.S Patel Co-op. Credit Society Ltd., held that "the assessee is a cooperative credit society, which is engaged in the activity of providing credit facilities to its members after accepting deposits from its members. In the course of assessment proceedings, the Assessing Officer noted that assessee had inter-alia, earned interest on fixed deposit with State Bank of India of Rs.83,86,322/- which was not eligible for exemption u/s 80- P(2)(a)(i) of the Act since the said income did not relate to the activity of providing credit facilities to the members. Therefore, the exemption in relation to the aforesaid interest income was denied. Before the CIT(A), assessee pointed out that it was not a co-operative bank so as to be covered by the exclusion provided u/s 8Q-P(4) of the Act, and in this context placed reliance on the judgment of the Hon'ble Bombay High Court at Goa in the case of M/s The Quepem Urban Co-operative Credit Society Ltd., Tax Appeals No. 22, 23 & 24 of 2015 dated 17.4.2015. The assessee also placed reliance on the decision of Mumbai Bench of the Tribunal in the case of M/s. Jaoli Taluka Sahakari Patpedhi Maryadit, ITA No. 6627/Mum/2014 dated 10.8.2015, wherein under similar circumstances, the exemption u/s 80-P of the Act was allowed. Apart therefrom reliance was also placed on the decision of the Kolkata Bench of the Tribunal in the case of S.E.S.E.C & E Co. Railway Employees, (2014) 41 CCH 0218, wherein a similar claim has been upheld. The CIT(A) noticed that the decision of the Mumbai Bench of Tribunal in the case of M/s. Jaoli Taluka Sahakari Patpedhi Maryadit (supra) fully covered the controversy in favour of the assessee. In this context, the following discussion in the order of the CIT(A) is relevant :- "5.1 I find that the case of the appellant is that interest income earned from SBI is directly attributable to its activities On the other hand, the case of the AO is that only that interest earned from investments in other co-operative societies is eligible for deduction u/s 80(2)(d). The AO held that the intent of the legislature was to deny deduction on any other interest. At this stage it is relevant to examine the wordings of sec 80P. sec 80P(1) provides for deduction of those sums from the total income as mentioned in 80P(2) Sec 80P(2) states that the sums referred in sub section (1) are (a) (i) to (vii) and further states that "the whole of the amount of profits and gains of business attributable to anyone or more of such activities". The controversy is therefore whether the interest income earned from SBI (which admittedly is not a cooperative society), could be said to be "attributable" to the business activity of the appellant. In this connection the decision of the Hon'ble ITAT Mumbai Bench in the case of Jaoli Taluka Sahakari Patpedhi Maryadit for AY 2010-11 in ITA No 6627/Mum/2014 dated 10/08/2015 is revealing and covers the matter squarely in favor of the appellant, In that case, the issue was identical on facts. In that case, Hindustan Co-operative Credit Society Limited 6 the CIT(A) held that the interest income earned by the society from its investments in various cooperative banks as well as scheduled banks is to be held as income from other sources as that interest could not be said to be generated from business activities, in the said order, the ITAT has followed the decision of the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd (2015) 230 Taxman 309. The Hon'ble Karnataka High Court has considered the decision of the Hon'ble Supreme Court in Totgars case (cited by the AO in the present appeal), and held that the interest income arising from investments of the society in both cooperative as well as scheduled banks is "attributable" to the business activities of the assessee and is therefore eligible for a deduction u/s 80P(2)(a)(i). The ITAT Mumbai in its order has followed the decision of the Karnataka High Court and held that interest income earned from investments in both cooperative as well as scheduled banks is eligible for deduction u/s 80P(2)(a)(i). The facts and issue in the present appeal is identical to the case before the Hon'ble ITAT Mumbai. Respectfully following the decision of the ITAT, I hold that the interest earned by the appellant from its investments in SBI are also eligible for deduction u/s 80P(2)(a)(i). The AO is directed accordingly. The disallowance made by the AO is therefore deleted." (Copy of Case law is attached) In the following case, Karnataka High Court has even considered interest received by a co-operative credit society from public limited company as business income and allowed deduction u/s 80(P)(2)(a)(i): a. Shri Renukadevi Urban Credit Co-op Society Ltd. Vs. CIT, Belgaum. (ITA No. 5008/2009) (Copy of Case law is attached) Similar view has been followed in the following case by Pune ITAT: a. The Income Tax Officer, Ward - 6(3), Pune Vs. Maharashtra Bank Employees Coop Credit Society Ltd. (ITA Nos,239 & 240/PUN/2017) b. Baliraja Gramin Bigarsheti Sahakari Pat Sanstha IVIaryadit Vs. Officer, Ward 1(3), Pandharpur (ITA Nos.50 & 51/PUN/2017) c. Shri Vasantrao Chougule Nagan Sah Patsanstha Ltd, Vs. The Income Tax Officer Ward 2(2). Kolhapur (ITA No.516/PN/2014) Kolkata ITAT: a. ACIT, Circle-33, Kolkata Vs. M/S. Central Bank of India Employees Co- operative Society Ltd (ITA No.2203Kol/16) b. SESEC & E Co. Railway Employees, (2014) 41 CCH 0218 GROUNDS OF APPEAL NO.2 The Ld. CIT(A) has erred affirming with the Ld. AO in denying deduction u/s 80P(2)(c) amounting Rs. 50,000/- available to a co-operative society Hindustan Co-operative Credit Society Limited 7 SUBMISSION: The assessee is also eligible for deduction amounting to Rs. 50,000/- under section 80P(2)(c). As per section 80P(2)(c)(n) in case of a co-operative society other than consumer cooperative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities does not exceed Rs. 50,000/- is allowed as deduction. Hon. Bombay HC in the case of CIT vs. Ratanabad Co-operative Housing Soc Ltd. (1995) 215 ITR 549 Bom stated: "5. We are in agreement with the view taken by the Gauhati High Court in the case of Industrial Co-operative Bank Ltd. [1992] 196 ITR 174. In our view, the assessee-society was entitled to get deduction from the profits and gains attributable to its activity of letting out the shops to persons other than its members to the extent of Rs. 20.000 in each of the said assessment years. 6. Accordingly, we answer the question in the affirmative, that is, in favour of the assessee-society subject, however, to the limit as mentioned in clause (c) of subsection (2) of section 80P of the Act." (Copy of order is attached) In our case the same has not been granted by the Assessing Officer. We hereby appeal to allow the deduction for the same.” 7. I have heard learned Departmental Representative and perused the records. As regard ground for interest from banks the same is covered in favour of the assessee by the ITAT decision in the case of State Bank of India Employees M.S. Patel Co-operative Credit Society Ltd. (ITAT No. 1970/Mum/2016 vide order dated 31.7.2017) wherein it was held that : “3. In brief, the relevant facts are that the assessee is a co-operative credit society, which is engaged in the activity of providing credit facilities to its members after accepting deposits from its members. In the course of assessment proceedings, the Assessing Officer noted that assessee had, inter-alia, earned interest on fixed deposit with State Bank of India of Rs.83,86,322/-, which was not eligible for exemption u/s 80-P(2)(a)(i) of the Act since the said income did not relate to the activity of providing credit facilities to the members. Therefore, the exemption in relation to the aforesaid interest income was denied. Before the CIT(A), assessee pointed out that it was not a co-operative bank so as to be covered by the exclusion provided u/s 80-P(4) of the Act, and in this context placed reliance on the Hindustan Co-operative Credit Society Limited 8 judgment of the Hon'ble Bombay High Court at Goa in the case of M/s. The Quepem Urban Cooperative Credit Society Ltd., Tax Appeals No. 22, 23 & 24 of 2015 dated 17.4.2015. The assessee also placed reliance on the decision of Mumbai Bench of the Tribunal in the case of M/s. Jaoli Taluka Sahakari Patpedhi Maryadit, ITA No. 6627/Mum/2014 dated 10.8.2015, wherein under similar circumstances, the exemption u/s 80-P of the Act was allowed. Apart therefrom, reliance was also placed on the decision of the Kolkata Bench of the Tribunal in the case of S.E.S.E.C & E Co. Railway Employees, (2014) 41 CCH 0218, wherein a similar claim has been upheld. The CIT(A) noticed that the decision of the Mumbai Bench of Tribunal in the case of M/s. Jaoli Taluka Sahakari Patpedhi Maryadit (supra) fully covered the controversy in favour of the assessee. In this context, the following discussion in the order of the CIT(A) is relevant:- “5.1 I find that the case of the appellant is that interest income earned from SBI is directly attributable to its activities. On the other hand, the case of the AO is that only that interest earned from investments in other co-operative societies is eligible for deduction u/s 80(2)(d). The AO held that the intent of the legislature was to deny deduction on any other interest. At this stage it is relevant to examine the wordings of sec 80P. sec 80P(1) provides for deduction of those sums from the total income as mentioned in 80P(2). Sec 80P(2) states that the sums referred in sub section (1) are (a)(i) to (vii) and further states that "the whole of the amount of profits and gains of business attributable to anyone or more of such activities". The controversy is therefore whether the interest income earned from SBI (which admittedly is not a cooperative society), could be said to be "attributable" to the business activity of the appellant. In this connection the decision of the Hon'ble ITAT Mumbai Bench in the case of Jaoli Taluka Sahakari Patpedhi Maryadit for A.Y. 2010-11 in ITA No 6627/Mum/2014 dated 10/08/2015 is revealing and covers the matter squarely in favor of the appellant. In that case, the issue was identical on facts. In that case, the CIT(A) held that the interest income earned by the society from its investments in various cooperative banks as well as scheduled banks is to be held as income from other sources as that interest could not be said to be generated from business activities. In the said order, the ITAT has followed the decision of the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd (2015) 230 Taxman 309. The Hon'ble Karnataka High Court has considered the decision of the Hon'ble Supreme Court in Totgars case (cited by the AO in the present appeal), and held that the interest income, arising from investments of the society in both cooperative as well as scheduled banks, is "attributable" to the business activities of the assessee and is therefore eligible for a deduction u/s 80P(2)(a)(i). The ITAT Mumbai in its order has followed the decision of the Karnataka High Court and held that interest income earned from investments in both cooperative as well as scheduled banks is eligible for deduction u/s 80P(2)(a)(i). Hindustan Co-operative Credit Society Limited 9 5.2 The facts and issue in the present appeal is identical to the case before the Hon'ble ITAT Mumbai. Respectfully following the decision of the ITAT, I hold that the interest earned by the appellant from its investments in SBI are also eligible for deduction u/s 80P(2)(a)(i). The AO is directed accordingly. The disallowance made by the AO is therefore deleted.” Against the aforesaid decision, Revenue is in further appeal before us. 4. At the time of hearing, the ld. DR reiterated the stand of the Assessing Officer, but quite fairly pointed out that the CIT(A) has followed the decision of the Mumbai Bench of the Tribunal in the case of M/s. Jaoli Taluka Sahakari Patpedhi Maryadit (supra), which continues to hold the field. In view of the aforesaid fact-situation, we find no reasons to interfere with the decision of the CIT(A), which we hereby affirm. Thus, appeal of the Revenue is dismissed.’’ 8. Respectfully following the precedent, I allow the assessee’s appeal, qua interest earned. 9. As regards the issue of insurance commission receipt is concerned learned CIT(A) has observed that the same have been received from the parties who are not members of the society. Hence he has held that the principles and mutuality does not apply. However, the assessee submits before the ITAT that the society gives loans to its members against hypothecation of property, gold, goods, vehicles etc.. The society to safeguard the interest of the society has taken life insurance and mediclaim insurance policies for the members and staff, their family members and also general insurance policies for the hypothecated pledged properties, debtors and goods of the borrowers of the society. That the insurance premium paid by the society is charged and recovered from the respective members and staff. That these services are part and parcel of the business of the society. That rendering the above services insurance companies pay the society insurance commission instead of paying to the agents of the insurance company. Hence it has been pleaded that the insurance commission is part of business and hence eligible for deduction under section 80P(2)(a)(i) of the Act. Alternatively it has been pleaded that the proportionate expenses should be allowed. Hindustan Co-operative Credit Society Limited 10 10. In this regard I note that commission income has been disallowed by learned CIT(A) on the ground that for the said income there absence of mutuality. However, the assessee’ submissions are not with respect to the same. They are with regard to the same being in the nature of busienss. Hence, there is lack of appropriate appreciation, hence in the interest of justice I remit this issue to the file of learned CIT(A). Learned CIT(A) shall consider the issue in the light of the submissions made by the assessee. Needless to add the assessee should be given adequate opportunity of being heard. 9. As regard the ground of denial of deduction u/s. 80P(2)(c) of Rs. 50,000/- learned CIT(A) has mentioned that this was not arising out of the order of the Assessing Officer. That it is also not clear that this was claimed by the assessee in the beginning. In this regard learned CIT(A) noted that it is not forthcoming whether such a claim for deduction u/s.80P(2)(c) was made in the return of income filed. Hence, in the interest of justice I remit this issue to the file of the learned CIT(A). Learned CIT(A) shall consider the same as ground for adjudication after giving the assessee proper opportunity of being heard. 10. In the result, these appeals of the assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 04.4.2022. Sd/- (SHAMIM YAHYA) ACCOUNTANT MEMBER Mumbai; Dated : 04/04/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai Hindustan Co-operative Credit Society Limited 11 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai