Income Tax Officer, Ward -1(4)., Belagavi., Belagavi V. Shri Mahalingeshwar Credit Souhard Sahakari Niyamit., Belagavi

ITA 69/PAN/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93610 (ITAT-PANAJI)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 16-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S NATARAJ
• Assessee Lawyers: OMKAR S GODBOLE
• Keywords: Benefit of exemption
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 69 /PNJ/201 5 (ASST. YEAR : 20 11 - 1 2 ) ITO, WARD - 1(4) , BELAGAVI . VS. SHRI MAHALINGESHWAR CREDIT SOUHARD SAHAKARI NIYAMIT, AT POST : DIGGEWADI, TALUKA : RAIBAG, DIST. BELAGAVI. PAN NO. AAAAM 1904 G (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI OMKAR S. GODBOLE C A. DEPARTMENT BY : SHRI S. NATARAJ - D R DATE OF HEARING : 27 / 0 7 /2015 . DATE OF PRONOUNCEMENT : 27 / 0 7 /201 5 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), BELGAUM , DATED 0 1 / 1 2 /201 4 . 2. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE AS UNDER: - (1) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY WHICH FULFIL S ALL THE THREE CONDITIONS OF BEING HELD A PRIMARY CO - OPERAT IVE BANK AS GIVEN IN SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949. (2) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE DEFINITION OF A CO - OPERATIVE BANK WHICH AS PER EXPLANATION BELOW SECTION 80P(4) THE CO - OPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART - V OF THE BANKING REGULATION ACT, 1949. 2 ITA NO. 52/PNJ/2015 (3) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE ASSESSEE SOCIETY BEING A CREDIT CO - OPERATIVE SOCIETY ENGAGED IN BANKING BUSINE SS IS A PRIMARY CO - OPERATIVE BANK WITHIN THE DEFINITION OF SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949 AND AS SUCH, NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE I.T. ACT, 1961. (4) THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACTS OF THE CASE AND ALSO RELYING UPON THE DECISION OF HIGH COURT OF KARNATAKA IN CIT VS. SRI BILURU GURUBASAVA PATTIN SAHAKARI SANGH NIYAMIT, BAGALKOT, ITA NO.5006/2013, DATED 5.2.2014 AND OTHER DECISIONS IGNORING THE FACT THAT THE ITAT, PANAJI BENCH , HAS CATEGORICALLY DISTINGUISHED THE DECISION OF SRI BILURU GURUBASAVA PATTIN SAHAKARI SANGH NIYAMIT, IN VARIOUS CASES OF CO - OPERATIVE SOCIETY AND HELD THAT THE DECISION IS IN REGARD TO REVISIONARY ORDER U/S 263. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COOPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA COOPERATIVE SOCIETIES ACT, 1959 . THE ASSESSEE FILED RETURN OF INCOME ON 17/09/2011 DECLARING GROSS TOTAL INCOME AT RS. 15,50,319/ - AND AFTER CLAIMING DEDUCTION UNDER SEC.80P(2)(A)(I) UNDER CHAPTER VIA OF RS. 15,02,671/ - , THE TOTAL INCOME WAS DECLARED AT RS. 47,648/ - . IT WAS THEREFORE, CLAIMED THAT THE SOCIETY IS ENTITLED TO DEDUCTION UNDER SEC. 80P(2)(A)(I) UNDER CHAPTER VIA AS IT IS A COOPERATIVE SOCIETY, CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. HOWEVER , THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SEC. 80P(2)(A)(I) WAS REJECTED BY THE ASSESSING OFFICER VIDE HIS ORDER UNDER SEC. 143(3) OF THE I.T. ACT DATED 28/08/2013 . THE ASSESSING OFFICER DENIED THE DEDUCTION ON THE GROUND THAT THE ASSESSEE IS A COOPERATIVE BANK AND HENCE, NOT ENTITLED TO CLAIM DEDUCTION BY VIRTUE OF SEC. 80P(4). 4 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE U NDER SEC. 80P(2)(A)(I) BY OBSERVING AS UNDER: - 6. I HAVE CAREFULLY PERUSED AND CONSIDERED THE AFORESAID SUBMISSION MADE BY THE APPELLANT AND THE CONTENTS OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. I HAVE ALSO PERUSED THE CASE 3 ITA NO. 52/PNJ/2015 LAWS RELIED UPON BY THE APPELLANT AND THE ASSESSING OFFICER. THE MAIN PLANK OF ARGUMENT OF THE ASSESSING OFFICER HAS BEEN THAT AFTER CAREFUL ANALYSIS OF SECTION 80P(4) READ WITH SECTION 2(24)(VIIA) OF THE INCOME - TAX ACT, 1961 AND PART V OF THE BANKING REGULATION ACT A ND THE FACTS OF THE CASE, THE APPELLANT ASSESSEE CO - OPERATIVE CREDIT SOCIETY IS HELD TO BE A 'PRIMARY CO - OPERATIVE BANK' HENCE IS NOT ELIGIBLE FOR DEDUCTION UNDER SEC.80P(2)(A)(I) IN VIEW OF THE NEWLY INSERTED PROVISIONS OF SECTION 80P(4). THE ASSESSING OF FICER HAS ARRIVED AT A CONCLUSION THAT IF A COOPERATIVE SOCIETY SATISFIES ALL THE THREE CONDITIONS AS LAID DOWN IN THE DEFINITION AS GIVEN U/S 5(CCV) IN PART V OF THE BANKING REGULATION ACT, 1949, THEN IT BECOMES A 'PRIMARY CO - OPERATIVE BANK', AND THEREFOR E DEDUCTION U/S 80P(2)(A)(I) CAN BE DENIED BY VIRTUE OF SEC.80P(4). 6.1 THE RELEVANT PART OF SECTION 80 P OF THE I.T ACT UNDER WHICH THE APPELLANT CO - OPERATIVE SOCIETY HAS CLAIMED DEDUCTION READS AS UNDER: 'DEDUCTION IN RESPECT OF INCOME OF CO - OPERATIVE SOCIETIES. 80 P. (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO - OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB - SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SE CTION, THE SUMS SPECIFIED IN SUB - SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB - SECTION (1) SHALL BE THE FOLLOWING, NAMELY: - (A) IN THE CASE OF CO - OPERATIVE SOCIETY ENGAGED IN (I) CARRYING ON THE BUSINESS O F BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR (II) ------------------------------ THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES: 6.1.1 THE CLAUSE (4) OF SEC.80P INSERTED BY THE FINANCE ACT,2006 W.E.F. 01 - 04 - 2007, WHICH HAS BEEN INVOKED BY THE ASSESSING OFFICER TO DENY DEDUCTION TO THE APPELLANT CO - OPERATIVE SOCIETY READS AS UNDER: (4) THE PROVISION S OF THIS SECTION SHALL NOT APPL Y IN RELATION TO ANY CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. EXPLANATION: FOR THE PURPOSES OF THIS SUB - SECTION: 4 ITA NO. 52/PNJ/2015 (A) CO - OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVEL Y 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 PROVI DE FOR LONG - TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. BY VIRTUE OF INTRODUCTION OF CLAUSE(4) IN SEC.80P, THE CO - OPERATIVE BANKS HAVE BEEN TAKEN OUT OF THE PURVIEW OF EXEMPTION GRANTED UNDER SEC.80P WHEREAS OTHER ENTITIES/COOPERATIVE SOCIETIES SPECIFIED IN OTHER CLAUSES OF SEC.80P CONTINUE TO ENJOY SUCH EXEMPTIONS. THE EXPLANATION TO SEC.80P PROVIDES THAT CO - OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF TH E BANKING REGULATION ACT, 1949 (10 OF 1949). 6.1.2 FOLLOWING THE PROVISIONS OF AFORESAID EXPLANATION TO SEC.80P , THE ASSESSING OFFICER, WITH A VIEW TO FIND OUT THE DEFINITION OF CO - OPERATIVE BANK HAS TAKEN RECOURSE TO THE RELEVANT PROVISIONS OF THE BANK ING REGULATION ACT, 1949. SL. NO. CATEGORY CLAUSE/SECTION OF THE BANKING REGULATION ACT, 1949 DEFINITION 1 2 3 4 1 CO - OPERATIVE BANK CLAUSE (CCI) OF SECTION 5 CO - OPERATIVE BANK MEANS A STATE CO - OPERATIVE BANK, A CENTRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK 2 PRIMARY CO - OPERATIVE BANK CLAUSE (CCV) OF SECTION 5 PRIMARY CO - OPERATIVE BANK MEANS A CO - OPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF B ANKING BUSINESS; (2) THE PAID UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN ONE LAKHS OF RUPEES; AND (3) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. 3 PRIMARY CREDIT SOCIETY CLAUSE (CCVI) OF SECTION 5 PRIMARY CO - OPERATIVE SOCIETY MEANS A CO - OPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (2) THE PAID UP SHARE CAPITAL AND RESERVES O F WHICH ARE NOT LESS THAN ONE LAKHS OF RUPEES; AND (3) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. 5 ITA NO. 52/PNJ/2015 THE ASSESSING OFFICER HAS THUS MENTIONED THAT THE CO - OPERATIVE BANK INCLUDES PRIMARY CO - OPERATIVE BANK AND PRIMARY CO - OPERATIVE BANK MEANS CO - OPERATIVE SOCIETY (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (2) THE PAID UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN ONE LAKHS OF RUPEES; AND (3) TH E BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. 6.1.3 THE ASSESSING OFFICER HAS CONCLUDED THAT THE APPELLANT CO - OPERATIVE SOCIETY SATISFIES ALL THE ABOVE MENTIONED THREE CONDITIONS AND THEREFORE IT IS HELD TO BE A PRIMARY COOPERATIVE BANK AND HENCE ITS CLAIM OF DEDUCTION U/S 80P(2)(A)(I) HAS BEEN DENIED U/S 80P(4). BEFORE ARRIVING AT THIS CONCLUSION THE ASSESSING OFFICER HAS ALSO REFERRED TO THE NEWLY INSERTED PROVISIONS OF SEC.2(24)(VIIA), INSERTED BY THE FINAN CE ACT,2006 W.E.F. 01 - 04 - 2007 WHICH READS AS UNDER: (24) INCOME INCLUDES - (VII A) THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS; THE ASSESSING OFFICER HA S CONTENDED THAT THE PURPOSE OF INTRODUCTION OF THESE PROVISIONS WAS TO TAX THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS. THE ASSESSING OFFICER HAS ALSO REFER RED TO THE DEFINITION OF BANKING AS PROVIDED IN SEC.5(B) OF THE BANKING REGULATION ACT,1949 WHICH READS AS UNDER: (B)BANKING MEANS THE ACCEPTING FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSIT OF MONEY FROM PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWAL BY CHEQUE, DRAFT, ORDER OR OTHERWISE. THE A.O HAS COME TO THE CONCLUSION THAT THE APPELLANT CO - OPERATIVE SOCIETY IS DOING BANKING BUSINESS AS PROVIDING CREDIT FACILITIES TO MEMBERS IS AKIN TO BANKING BUSINESS AND SINCE T HE MEM BERSHIP IS OPEN TO PUBLIC , IT IS ACCEPTING DEPOSITS FROM PUBLIC WHICH CAN BE WITHDRAWN BY ANY ONE OF THE SPECIFIED MEANS WITHIN THE MEANING OF ABOVE MENTIONED DEFINITION OF BANKING. 6.1.4. SIMILAR ISSUE IS ALSO INVOLVED IN A NUMBER OF CASES PERTAINING TO CREDIT CO - OPERATIVE SOCIETIES WHICH ARE ALSO IN APPEAL 6 ITA NO. 52/PNJ/2015 AND THEY HAVE ALL CONTESTED THE ACTION OF THE AO IS INVOKING THE PROVISIONS OF SEC. 80P(4) IN THEIR RESPECTIVE CASES ON THE BASIS OF VARIOUS CONTENTIONS DISCUSSED HEREIN BELOW . 6.2 THE APPELLANTS ON T HE OTHER HAND HAS CHALLENGED THE INTERPRETATION OF SECTIONS 80P(2), 80P(4) AND RELEVANT PROVISION OF THE BANKING REGULATION ACT, 1949 AS ADOPTED BY THE A.O IN HIS ASSESSMENT ORDER. THE APPELLANTS HAVE ALSO CONTENDED THAT THE INTENTION OF THE LEGISLATURE AS REVEALED BY THE SPEECH OF THE FINANCE MINISTER WAS NOT TO DENY DEDUCTION TO ALL THE COOPERATIVE SOCIETIES BY INTRODUCTION OF SEC. 80P(4). 6.2.1 IT HAS ALSO BEEN A CONTENTION OF THE APPELLANTS THAT TO FULFIL THE FIRST CONDITION FOR BECOMING A PRIMARY CO - OPERATIVE BANK, THE SOCIETY SHOUL D CARRY ON THE BUSINESS OF BANKING AS PER THE DEFINITION OF BANKING IN BANKING REGULATION ACT, 1949. THE APPELLANTS HAVE ALSO CONTENDED THAT THE RESPECTIVE APPELLANT ASSESSEE SOCIETY REGISTERED UNDER THE KARNATAKA CO O PER ATIVE SOCIETIES ACT, 1959 IS CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITY TO ITS MEMBERS AND IS NOT ALLOWED TO ISSUE CHEQUES, DRAFTS, PAY ORDERS, ETC. AS PER THE BANKING REGULATION ACT, PERMISSION OF RESERVE BANK OF INDIA IS REQUIRED TO ISSUE CHEQ UES, DRAFTS AND PAY ORDERS, ETC. AND THE RESPECTIVE APPELLANT HAS NOT OBTAINED ANY SUCH LICENSE/PERMISSION FROM THE RESERVE BANK OF INDIA TO CARRY ON THE BUSINESS OF BANKING. 6.2.2 THE APPELLANT COOPERATIVE SOCIETIES HAVE CONTENDED THAT THE EXPLANATORY NOTE TO MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 200 6 WHEREIN THE HON'BLE FINANCE MINISTER EXPLAINS THE REASONS FOR WITHDRAWAL OF TAX BENEFITS AVAILABLE TO CERTAIN CO - OPERATIVE BANKS, THE RELEVANT PORTION OF THE SAID NOTES IS REPRODUCED HE REINBELOW: 'SECTION 80P, INTER ALIA, PROVIDES FOR A DEDUCTION FROM THE TOTAL INCOME OF THE CO OPERATIVE SOCIETIES ENGAGED IN THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR BUSINESS OF COTTAGE INDUSTRY, OR OF MARKETING OF AGRICULT URAL PRODUCE OF ITS MEMBERS, OR PROCESSING, WITHOUT THE AID OF POWER, OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS, ETC. THE CO - OPERATIVE BANKS ARE FUNCTIONING AT PAR WITH OTHER COMMERCIAL BANKS, WHICH DO NOT ENJOY ANY TAX BENEFITS. IT IS, THEREFORE, PROPOSE D TO AMEND SECTION SOP BY INSERTING A NEW SUB - SECTION (4) SO AS TO PROVIDE THAT THE PROVISIONS OF THE SAID SECTION SHALL NOT APPLY IN RELATION TO ANY CO - OPERATIVE BANK OTHER THAN PRIMARY CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVEL OPMENT BANK. IT IS ALSO PROPOSED TO DEFINE THE EXPRESSIONS 'CO - OPERATIVE BANK', 'PRIMARY 7 ITA NO. 52/PNJ/2015 AGRICULTURAL CREDIT SOCIETY' AND 'PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. IT IS ALSO PROPOSED TO INSERT A NEW SUB - CLAUSE (VIIA) IN CLAUSE (24) O F THE SECTION 2 SO AS TO PROVIDE THAT THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION OF 'INCOME'. THIS AMENDMENT WILL TAKE E FFECT FROM 1ST APRIL, 2007 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2007 - 08 AND SUBSEQUENT YEARS.' THE APPELLANTS HAVE THUS CONTENDED THAT IT WAS CLEAR THAT THE INTENTION OF THE FINANCE MINISTER WAS TO TAX 'CO - OPERATIVE BANKS' ONLY. 6.2.3 THE APPELLANTS HAVE RELIED ON THE DECISION IN THE CASES OF (I) KARNATAKA HIGH COURT (DHARWAD BENCH )0RDER IN THE CASE OF CIT VS SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT ITA 5006/2013 DT 5TH FEB 2014 WHEREIN APART FROM THE DECIDING ON SECTION 26 3 IT HAS ALSO HELD, ON SECTION 80P THAT ' AS THE ASSESSEE IS NOT A COOPERATIVE BANK CARRYING ON EXCLUSIVELY BANKING BUSINESS AND AS IT DOES NOT POSSESS A LICENCE FROM RESERVE BANK OF INDIA TO CARRY ON BUSINESS , IT IS NOT A COOPERATIV E BANK. (II) THE KARNATAKA HIGH COURT DECISION IN THE CASE OF THE COMMISSIONER OF INCOME TAX (A), MYSORE & OTHERS VS GENERAL INSURANCE EMPLOYEES COOPERATIVE CREDIT SOCIETY LTD ITA NO 273/2013 DT 27.6.2014. (III ) KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014. (IV) CIT VS JAFARI MOM IN VIKAS COOP CREDIT SOCIETY LTD ITA 442,443 & 863 OF 2013 OF GUJARAT HIGH COURT. (V) TARAMANI MANILA COOP CREDIT SOCIETY VS ITO WARD 1(2), B ELGAUM ITA 229 & 230/PNJ/2013DT 28.2.2014 (VI) ITAT BANGALORE B BENCH DECISION VIDE ITA NO 1069/BANG/2010 FOR THE ASST YEAR 2007 - 08 OF M/S BANGALORE COMMERCIAL TRANSPORT COOP SOCIETY LTD, BANGALORE. 8 ITA NO. 52/PNJ/2015 (VII) ITO VS YESHWANTPUR CREDIT COOP SOCIETY LTD ITA NO 717/BANG/2011 DT 11. 4.2012 RENDERED BY ITAT A BENCH , BANGALORE. (VIII) M /S JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARADA SAHAKARI LTD & ANOTHER IN ITA NO 01 TO 03/PNJ/2012 AND ITA 04 TO 06/PNJ/2012. THE APPELLANTS HAVE CLAIMED THAT IN ALL THESE CAS ES IT WAS HELD THAT INCOME EARNED BY CO OPERATIVE SOCIETY FROM ITS ACT OF LENDING MONEY TO MEMBERS SHALL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. 7. THE IMPORTANT ASPECTS RELATING TO THE ISSUES IN THIS CASE HAVE BEEN CONSIDERED AND DECIDED BY VARIOUS ITATS ACROSS THE COUNTRY. THE JURISDICTIONAL ITAT OF BANGALORE BENCH IN A NUMBER OF CASES WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEES HAS HELD THAT T HE COOPERATIVE SOCIETIES ARE NOT DOING BANKING BUSINESS AND THEREFORE, THE PROVI SIONS OF SECTION 80P(4) ARE NOT APPLICABLE TO THEM. THE JURISDICTIONAL ITAT PANJIM BENCH HAS ALSO IN A NUMBER OF CASES WHERE THE ASSESSEE COOPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND NOT ACCEPTING DEPOSIT FROM PUBLIC AS EVI DENCED FROM THEIR BYE LAWS OR THE COOPERATIVE SOCIETIES ACCEPTING OTHER COOPERATIVE SOCIETIES AS MEMBERS HAVE HELD THAT THOSE COOPERATIVE SOCIETIES ARE ENTITLES TO THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) OF THE I.T. ACT. 8. NOW, AFTER THE GUJARAT HIGH COURT IN THE CASE OF CIT VS JAFARI MOM IN VIKAS COOP CREDIT SOCIETY LTD ITA 442, 443 & 863 OF 2013 DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE KARNATAKA HIGH COURT IN THE CASES OF CIT VS SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BA GALKOT ITA 5006/2013 DT 5 TH FEB 2014, COMMISSIONER OF INCOME TAX (A), MYSORE & OTHERS VS GENERAL INSURANCE EMPLOYEES COOPERATIVE CREDIT SOCIETY LTD ITA NO 273/2013 DT 27.6.2014 AND KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA S AHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014 HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 8.1 NOW A QUESTION WHICH MAY BE ASKED IN THE CASE OF THE APPELLANT BEING A SOUHARDA IS; WHETHER, SOUHARDA IS A CO OPERATIVE SOCIETY WITHIN TH E MEANING OF SECTION 80P/2(19) OF THE L.T. ACT.? SINCE THE DEDUCTION U/S8OP OF THE INCOME TAX ACT, 1961 IS AVAILABLE TO THE CO - OPERATIVE 9 ITA NO. 52/PNJ/2015 SOCIETIES, IT IS IMPERATIVE TO GO INTO THE DEFINITION OF CO - OPERATIVE SOCIETY WHICH HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(19) OF THE ACT. SECTION 2(19) READS AS FOLLOWS; CO - OPERATIVE SOCIETY MEANS A CO - OPERATIVE SOCIETY REGISTERED UNDER THE COOPERATIVE SOCIETIES ACT, 1912 (2 OF 1912), OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE IN ANY STATE FOR THE REGISTRA TION OF CO - OPERATIVE SOCIETIES; THIS DEFINITION HAS TWO PARTS: CO - OPERATIVE SOCIETY MEANS (1) A CO - OPERATIVE SOCIETY (2) REGISTERED (A) UNDER THE CO - OPERATIVE SOCIETIES ACT, 1912 (2 OF 1912), OR (B) UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE IN ANY STATE FOR THE REGISTRATION OF COOPERATIVE SOCIETIES; 8.1.1 AS FAR AS FIRST PART OF THE DEFINITION GIVEN IN SECTION 2(19) IS CONCERNED, A SOUHARDA IS A SOCIETY WHICH IS COOPERATIVE IN NATURE AND THUS IT IS A CO - OPERATIVE SOCIETY. THE DICTION ARY MEANING OF SOCIETY AS PER OXFORD ENGLISH DICTIONARY IS: AN ASSOCIATION OR BODY OF PEOPLE UNITED BY A COMMON AIM, INTEREST, BELIEF, PROFESSION ETC. THE WEBESTER DICTIONARY GIVES THE MEANING OF SOCIETY AS; A VOLUNTARY ASSOCIATION OF INDIVIDUALS FO R COMMON ENDS; ESPECIALLY: AN ORGANIZED GROUP WORKING TOGETHER OR PERIODICALLY MEETING BECAUSE OF COMMON INTERESTS, BELIEFS, OR PROFESSION GOING BY THE BYE LAWS OF THE SOUHARDAS AND THE PROVISIONS OF THE KARNATAKA SOUHARDA SAHAKARI ACT, 1997, IT IS CLEAR THAT THE SOUHARDAS ARE SOCIETIES WHICH ARE COOPERATIVE IN NATURE. THEY ARE REGISTERED UNDER AN ACT WHICH PROVIDES FOR RECOGNITION, ENCOURAGEMENT AND VOLUNTARY FORMATION OF CO - OPERATIVES BASED ON SELF HELP, MUTUAL AID, WHOLLY OWNED, MANAGED AND CONTROLLED B Y MEMBERS AS ACCOUNTABLE, COMPETITIVE, SELF RELIANT AND ECONOMIC ENTERPRISES GUIDED BY CO - OPERATIVE PRINCIPLES AND MATTERS CONNECTED THEREWITH. IT IS ALSO WORTH NOTING THAT THE WORD CO - OPERATIVE HAS BEEN USED ON INNUMERABLE OCCASIONS IN THE KARNATAKA SOUHA RDA SAHAKARI ACT, 19 97. A FEW EXAMPLES OF WHICH ARE: 10 ITA NO. 52/PNJ/2015 A. SECTION 4(1) - CO - OPERATIVES WHICH MAY BE REGISTERED: - NO CO - OPERATIVE SHALL BE REGISTERED UNDER THIS ACT, UNLESS B. SECTION 6(1) - CERTIFICATE OF REGISTRATION: - WHERE A CO - OPERATIVE IS REGISTERED OR DEEMED TO BE REGISTERED, THE CERTIFICATE OF REGISTRATION DULY SIGNED AND SEALED BY THE REGISTRAR SHALL BE CONCLUSIVE EVIDENCE THAT THE CO - OPERATIVE MENTIONED THEREIN, IS A COOPERATIVE REGISTERED OR DEEMED TO BE REGISTERED UNDER THIS ACT. C. SECTION 10(1 ) - BYE LAWS - SUBJECT TO THE PROVISIONS OF THIS ACT OR RULES, EVERY COOPERATIVE SHALL FUNCTION IN ACCORDANCE WITH ITS BYE - LAWS WHICH AS FAR AS POSSIBLE SHALL ADHERE TO THE CO - OPERATIVE PRINCIPLES. D. SECTION 32(1) - MAINTENANCE OF RECORDS, ACCOUNTS, ETC : - EVERY CO - OPERATIVE SHALL MAINTAIN AT ITS REGISTERED OFFICE THE FOLLOWING, NAMELY: - E. SECTION 33(1) - AUDIT : - EVERY COOPERATIVE SHALL GET ITS ACCOUNTS AUDITED ATLEAST ONCE A YEAR F. SECTION 35(1) - INQUIRY: - THE REGISTRAR MAY CONDUCT AN INQUIRY OR CAU SE AN INQUIRY TO BE CONDUCTED EXPEDITIOUSLY INTO ANY SPECIFIC MATTER TOUCHING THE CONSTITUTION, MANAGEMENT, WORKING OR FINANCI AL CONDITIONS OF A COOPERATIVE. G. SECTION 47(1) - WINDING UP OF A CO - OPERATIVE : - ON AN APPLICATION MADE BY NOT LESS THAN ONE - FI FTH OF THE MEMBERS OF A CO - OPERATIVE TO WIND UP THE AFFAIRS OF THE SAID COOPERATIVE, THE BOARD SHALL CONVENE A GENERAL - MEETING BY ISSUING A NOTICE TO EACH MEMBER 8.1.2 SOUHARDAS SATISFY THE SECOND PART OF THE DEFINITION ALSO AS THEY ARE REGISTERED UNDER T HE KARNATAKA SOUHARDA SAHAKARI ACT,1997, AN ACT IN FORCE IN THE STATE OF KARNATAKA FOR THE REGISTRATION OF CO - OPERATIVE SOCIETIES IN ADDITION TO THE CO - OPERATIVE SOCIETIES ACT. 8.1.3 FURTHER, IN A NUMBER OF DECISIONS BY THE PANJIM AND BANGALORE BENCHES OF THE ITAT AND BY THE KARNATAKA HIGH COURT, NO DISTINCTION HAS BEEN DRAWN BETWEEN THE SOUHARDAS AND THE CO - OPERATIVE SOCIETIES AS FAR AS THE APPLICABILITY OF THE PROVISIONS OF SECTION 80P OF THE ACT ARE CONCERNED. SOME OF SUCH DECISIONS ARE: (I) KARNATAKA HI GH COURT (DHARWAD BENCH )ORDER IN THE CASE OF CIT VS SRI BILURU GURUBASAVA PATTINA SAHAKARI 11 ITA NO. 52/PNJ/2015 SANGHA NIYAMITHA . BAGALKOT ITA 5006/2013 DT 5TH FEB 2014. (II) KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014. (III) M/S JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARADA SAHAKARI LTD & ANOTHER IN ITA NO 01 TO 03/PNJ/2012 AND ITA 04 TO 06/PNJ/2012. (IV) DCIT VS. M/S DWARKA SOUHARDA CREDIT SAHAKARI LTD. ITA NO.04 - 06/PNJ/2012 8.1.4 THUS, IT IS AMPLY CLEAR THAT SOUHARDAS ARE CO - OPERATIVE SOCIETIES WITHIN THE MEANING OF SECTION 80P OF THE INCOME TAX ACT,1961. MOREOVER, IT IS NOT THE CASE OF THE A.O THAT THE APPELLANT SOUHARDA IS NOT A CO - OPERATIVE SOCIETY WITHIN THE MEANING OF SECTION 80P OF T HE L.T. ACT. 8. 2 THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, SUPRA WHICH WAS FOLLOWED IN THE CASES OF GENERAL INSURANCE EMPLOYEES COOPERATIVE CREDIT SOCIETY LTD, AND KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014. SUPRA, HAS CLEARLY HELD THAT A CO - OPERATIVE SOCIETY REGISTERED AS COOPERATIVE SOCIETY, PROVIDING CREDIT FACILITIES TO MEMBERS AND NOT REGISTERED WITH THE RBI CANNOT BE DENIED THE EXEMPTION UNDER SECTION 80P(2)(A)(I) OF THE I.T. ACT. THE OPERATIVE PART OF THE JUDGMENT READS AS FOLLOWS: 'THEREFORE, THE INTENTION OF THE LEGISLATURE IS CLEAR. IF A CO - OPERATIVE BANK IS EXCLUSIVELY CARRYING ON BANKING BUSINE SS, THEN THE INCOME DERIVED FROM THE SAID BUSINESS CANNOT BE DEDUCTED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE SAID INCOME IS LIABLE FOR TAX. A CO - OPERATIVE BANK AS DEFINED UNDER THE BANKING REGULATION ACT INCLUDES THE PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THE LEGISLATURE DID NOT WANT TO DENY THE SAID BENEFITS TO A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A. PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THEY DID NOT WAN T TO EXTEND THE SAID BENEFIT TO A CO - OPERATIVE BANK WHICH IS EXCLUSIVELY CARRYING ON BANKING BUSINESS I.E. THE PURPORT OF THIS AMENDMENT. THEREFORE, AS THE ASSESSEE IS NOT A COOPERATIVE BANK CARRYING ON EXCLUSIVELY BANKING 12 ITA NO. 52/PNJ/2015 BUSINESS AND AS IT DOES NOT POSSE SS A LICENCE FROM RESERVE BANK OF INDIA TO CARRY ON BUSINESS, IT IS NOT A CO - OPERATIVE BANK. IT IS A CO OPERATIVE SOCIETY WHICH ALSO CARRIES ON THE BUSINESS OF LENDING MONEY TO ITS MEMBERS WHICH IS COVERED UNDER SECTION 80P{2)(A}(I) I.E. CARRYING ON THE BU SINESS OF BANKING FOR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE OBJECT OF THE AFORESAID AMENDMENT IS NOT TO EXCLUDE THE BENEFIT EXTENDED UNDER SECTION 80P(1) TO SUCH SOCIETY .........................................IN THE I NSTANT CASE, WHEN THE STATUS OF THE ASSESSEE IS A CO - OPERATIVE SOCIETY AND IS NOT A CO - OPERATIVE BANK, THE ORDER PASSED BY THE ASSESSING AUTHORITY EXTENDING THE BENEFIT OF EXEMPTION FROM PAYMENT OF TAX UNDER SECTION 80P(2)(A)(I) OF THE ACT IS CORRECT. ' 8. 3 THE FACT THAT THE APPELLANT IS A COOPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA CO OPERATIVE SOCIETIES ACT,1959 ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS HAS BEEN CLEARLY MENTIONED BY THE A.O IN PARA 3 OF HIS AFORESAID ASSESSMENT ORDER. I T IS ALSO NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE IS REGISTERED WITH THE RBI AS A BANK. IN ITS AFORESAID SUBMISSIONS DATED 27/10/2014 THE APPELLANT HAS CLEARLY STATED WITH THE HELP OF NECESSARY EVIDENCE AND AN AFFIDAVIT DATED 20/10/2014 TO THIS EFFECT THAT THE APPELLANT IS A COOPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA CO OPERATIVE SOCIETIES ACT, 1959 ENGAGED IN PROVIDING CREDIT FACILITIES ONLY TO ITS MEMBERS AND IT DOES NOT POSSESS ANY BANKING LICENCE FROM THE RBI. IT IS THEREFORE, CL EAR THAT THE APPELLANT'S CASE IS SQUARELY COVERED BY THE AFORESAID DECISIONS OF THE JURISDICTIONAL HIGH COURT OF KARNATAKA IN THE CASES OF SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA N IYAMITHA. SUPRA WHICH WAS FOLLOWED IN THE CASE OF GENERAL INSURANCE EM PLOYEES COOPERATIVE CREDIT SOCIETY LTD, AND KARNATAKA HIGH COURT DECISION IN THE CASE OF VASAVI MULTIPURPOSE SOUHARDA SAHAKARI NIYAMITA, ITA NO. 505/2013 DATED 27/06/2014 SUPRA. THEREFORE, IN VIEW OF THE FOREGOING DISCUSSION AND RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF THE JURISDICTIONAL HIGH COURT OF KARNATAKA, IT IS HELD THAT THE APPELLANT'S CASE IS NOT COVERED BY SECTION 80P(4) AS IT IS NOT A 'CO - OPERATIVE BANK' AND THEREFORE, IT IS ENTITLED TO THE EXEMPTION U/S 80P(2)(A)(I) OF THE IT. ACT. 13 ITA NO. 52/PNJ/2015 5. WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALLOWED THE CLAIM FOR DEDUCTION UNDER SEC. 80P(2)(A)(I) OF THE ACT BY FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT IN I .T.A.NO. 5006/2013 DATED 05/02/2014 . NO CONTRARY DECISION COULD BE CITED BY THE DEPARTMENTAL REPRESENTATIVE, T HEREFORE , WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS HEREBY CONFIRMED AND THE GROUND S OF APPEAL OF THE REVENUE ARE DISMISSED . 6 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON MONDAY , THE 27 TH DAY OF JULY , 201 5 AT GOA . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27 TH JU LY , 201 5 . VR/ - COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER 14 ITA NO. 52/PNJ/2015 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 27 .0 7 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 2 8 .07 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 2 8 /07 /2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 2 8 /0 7 /2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 2 8 /07 /2015 SR.PS 6. DATE OF PRONOUNCEMENT 27 /0 7 /2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 28 /07 /2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER