ITO, Shimoga V. M/s Malenadu Credit Co-Op Society Ltd., Shimoga

ITA 786/BANG/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8496 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Co-operative Credit Society
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 80(P); 80P; 113; 2(19)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS. 786 TO 788/BANG/2016 ASSESSMENT YEARS : 2010-11 TO 2012-13 THE INCOME TAX OFFICER, WARD-3, SHIVAMOGGA. VS. M/S. MALNADU CREDIT CO-OPERATIVE SOCIETY LTD., 2 ND CROSS, PAMPANAGAR, SAGAR ROAD, SHIVAMOGGA 577 204. PAN: AABAM 1629H APPELLANT RESPONDENT APPELLANT BY : SHRI M.K. BIJU, JCIT(DR)(ITAT-3), BENGALURU RESPONDENT BY : SHRI SANDEEP C., CA DATE OF HEARING : 15.12.2016 DATE OF PRONOUNCEMENT : 03.03.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINS T THE ORDER OF CIT(APPEALS) ON COMMON GROUNDS AND FOR THE SAKE OF REFERENCE, WE EXTRACT THE GROUNDS IN ITA NO.736/BANG/2016 HEREUND ER:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), DAVANGERE, IS OPPOSED TO THE LAW AND NOT ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. ITA NOS.786 TO 788/BANG/2016 PAGE 2 OF 8 2. THE COMMISSIONER OF INCOME TAX (APPEALS), DAVANG ERE, ERRED IN DELETING THE ADDITIONS MADE U/S. 80P(2)(A) (I) BY DECIDING THE CO-OPERATIVE SOCIETIES ARE DISTINCT FROM CO-OPE RATIVE BANKS AND DEDUCTION U/S 80P(2)(A)(I) IS APPLICABLE TO CO- OPERATIVE SOCIETIES AS WELL AS DEDUCTION U/S 80P(2)(D). ON S IMILAR ISSUES, SLP FILED IN SUPREME COURT IN THE CASE OF SRI BILUR U GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT AND ALS O IN THE CASE OF M/S. HONNALI URBAN CO-OPERATIVE SOCIETY, HONNALI . 3. FOR THESE REASONS, THE ORDER OF THE CIT(A) MAY B E REVERSED AND THAT OF THE AO MAY BE RESTORED. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UP ON, THE ORDER OF THE CIT(A) MAY BE REVERSED AND THAT ASSESS MENT ORDER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEA L. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACT THAT THE IMPUGNED ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALK OT, 369 ITR 86 (KAR) AND TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. V ITO (ITA NO.307 OF 2014 DATED 28.10.2014). THIS ISSUE IS ALSO COVERED BY THE FOLLOWING ORDERS OF THE TRIBUNAL OF BANGALORE BENCH :- 1. MENASI GROUP GRAMAGALA SEVA SAHAKARI SANGHA NYT V. CIT (ITA NOS. 609 & 610/BANG/2014 2. THE JAMKHANDI MINORITY CREDIT CO-OP. SOCIETY LTD. V . ITO (ITA NO.958/BANG/2014) 3. THE ADIL AMANAT CO-OP. SOCIETY LTD. V. ITO (ITA NO.288/BANG/2014) ITA NOS.786 TO 788/BANG/2016 PAGE 3 OF 8 3. THE LD. DR, ON THE OTHER HAND, HAS SUBMITTED THA T THE REVENUE HAS ALSO PREFERRED SLP AGAINST THE JUDGMENT OF JURISDIC TIONAL HIGH COURT AND THE SLP IS ADMITTED BEFORE THE HONBLE SUPREME COUR T. THEREFORE, THE ISSUE CAN BE RE-EXAMINED. 4. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY DONG BUSINESS OF EXTENDING CREDIT FACILITIES TO ITS MEMBERS. IT CLAIMED GROSS INCOME AS DEDUCTION U/S. 80P UNDER CHAPTER VIA AND DECLARED NIL INCOME THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A SSESSEE WAS NOT ENTITLED FOR DEDUCTION U/S. 80P IN VIEW OF AMENDMEN TS TO BANKING REGULATION ACT, ACCORDING TO WHICH, CO-OPERATIVE SO CIETIES ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS WILL COM E UNDER THE PURVIEW OF RBI AND THEREFORE ARE AKIN TO CO-OPERATIVE BANKS, HENCE ALL THE PROVISIONS OF SECTION 80P(4) OF THE ACT APPLY TO THEM ALSO. THE AO FURTHER HELD THAT PROVISIONS OF SECTION 80P(4) R.W.S. 2(24)(VIIIA) OF THE ACT DOES NOT ALLOW THE CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BAN KING (CO-OP. BANKS) TO CLAIM DEDUCTION U/S. 80P FROM THE AY 2007-08, EXCEP T IN THE CASE OF PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO -OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THE AO ACCORDINGLY HELD TH AT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT AND THE ENTIRE INCOME WAS ADDED AS INCOME FROM OTHER SOURCES. ITA NOS.786 TO 788/BANG/2016 PAGE 4 OF 8 5. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APP EALS) AND RELIED UPON THE VARIOUS JUDGMENTS OF DIFFERENT HIGH COURTS AND THE TRIBUNAL. THE CIT(APPEALS) RE-EXAMINED THE ISSUE IN THE LIGHT OF JUDGMENTS REFERRED TO BEFORE HIM AND FOLLOWING HIS EARLIER ORDER, HAS ALL OWED THE DEDUCTION AND DELETED THE ADDITION. THE RELEVANT OBSERVATIONS OF THE CIT(APPEALS) IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 5. I HAVE GONE THROUGH THE ASSESSMENT ORDERS, GRO UNDS OF APPEAL FOR ALL THE THREE ASSESSMENT YEARS AND THE W RITTEN SUBMISSIONS MADE AND DISCUSSION WITH THE ASSESSEE'S REPRESENTATIVE IS HELD. 6. FOR ALL THE THREE ASSESSMENT YEARS, THE AO HAS IN DETAIL, TOUCHED UPON THE ISSUE AS TO HOW THE CO-OPERATIVE S OCIETY IS A CO- OPERATIVE BANK BY TAKING RECOURSE TO SEC. 2(24)(VII A) OF IT ACT 1961, PART V OF BANKING REGULATION ACT 1949 AND DEF INITIONS GIVEN IN THIS ACT ABOUT CO-OPERATIVE BANK AND BASED ON THESE THEY HAVE DISALLOWED THE CLAIM OF THE ASSESSEE THAT ENTIRE INCOME IS EXEMPT U/ S. 80P(2) (A) (I) OF THE ACT, KEEPING IN VIEW THE PROVISIONS OF SEC. 80(P)(4) OF THE ACT. I HAVE GONE THROUGH ALL THE ARGUMENTS OF THE AO. MY PREDECESSOR IN HIS ORDER IT A NO.CIT(A)NO. 276/HBL/2010-11 DATED. 25/01/2011 IN T HE CASE OF BHAVASARA KSHATRIYA CO-OPERATIVE CREDIT SOCIETY LTD., HAS CLEARLY HELD THAT SEC. 80P( 4) WILL NOT BE APPLICAB LE TO CO- OPERATIVE SOCIETIES AND THEY ENJOY COMPLETE EXEMPTI ON OF INCOME U/ S. 80P(2)(A)(I). HE HAS ALSO MADE CLEAR DISTINCT ION BETWEEN A CO-OPERATIVE SOCIETY AND A CO-OPERATIVE BANK. RESPE CTFULLY FOLLOWING THIS ORDER, I HOLD THAT THE INCOME EARNED BY CO- OPERATIVE SOCIETIES ARE COVERED BY EXEMPTION U/S. 8 0P(2)(A)(I) OF THE ACT. 7. IN THIS CASE, THE ASSESSEE, A CO-OPERATIVE SOCI ETY, IS PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS N OT CARRYING ON ANY OTHER BUSINESS. THE INTEREST INCOME EARNED BY THE A SSESSEE BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS DEPOS ITED IN THE BANKS FOR A SHORT DURATION WHICH HAS EARNED INTEREST. THE REFORE WHETHER THIS INTEREST IS ATTRIBUTABLE TO THE BUSINESS OF PR OVIDING CREDIT FACILITIES TO ITS MEMBERS IS THE QUESTION THAT REQU IRES TO BE DECIDED ITA NOS.786 TO 788/BANG/2016 PAGE 5 OF 8 OR WHETHER THE INTEREST EARNED ON DEPOSITS KEPT WIT H OTHER BANKS IS DEDUCTIBLE U/S. 80P(2)(D). 8. FOR THIS PURPOSE IT IS NECESSARY TO GO THROUGH THE PROVISIONS OF SEC. 80P WHICH ARE SHORT LISTED AS BE LOW. 8OP (2) (D) . .... IN THE CASE OF CO-OPERATIVE SOCIETY ENGAGED IN, I. CARRYING ON BUSINESS OF BANKING OR PROVIDING CR EDIT FACILITIES TO ITS MEMBERS OR. II. -------------------------- OR III. ---------------------------- OR IV. ---------------------------- OR V. ---------------------------- OR VI. ----------------------------OR VII. ---------------------------- OR THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS ATTR IBUTABLE TO ANYONE OR MORE OF SUCH ACTIVITIES .............' THE WORD 'ATTRIBUTABLE TO' USED IN THE SAID SECT ION IS OF GREAT IMPORTANCE. 9. FROM THE ABOVE DISCUSSION, THE WHOLE GAMUT OF PROVISIONS OF SEC. 80P2(A)(I), 80P(2)(D) AND THE VARIOUS PRONO UNCEMENTS MENTIONED ABOVE, IT CAN BE ANALYSED THAT, 1. THE OBJECT OF KEEPING OR INVESTING THE SURPLUS FUND S OF CO- OPERATIVE SOCIETY IS INTENDED TO MEET ANY UNFORESEE N LOSSES. 2. THE AMOUNT THAT IS ELIGIBLE FOR DEDUCTION UNDER THI S SECTION IS THE AMOUNT OF PROFIT ATTRIBUTABLE TO THE ACTIVIT Y MENTIONED IN SEC. 80P(2)(D) AND THE ACTIVITY OF THE ASSESSEE FALLS UNDER SUB-CLAUSE (I) VIZ, PROVIDING CREDIT FACILITIES TO MEMBERS. 3. IT IS THE ACTIVITY THAT IS THE CONDITION PRECEDENT FOR CLAIMING DEDUCTION U/ S. 80(P) OF THE ACT AND ONCE IT IS PRO VED BEYOND DOUBT THAT A PARTICULAR INCOME IS 'ATTRIBUTA BLE' TO ONLY THE ACTIVITIES MENTIONED U/ S. 80P(2) (A) OF T HE ACT, THE ITA NOS.786 TO 788/BANG/2016 PAGE 6 OF 8 WHOLE OR SUCH INCOME IS ELIGIBLE FOR DEDUCTION U/ S . 80P OF THE ACT. 4. THE INTEREST INCOME STEMS FROM THE DEPOSITS MADE BY A MANDATORY REQUIREMENT FOR CARRYING ON THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO THE MEMBERS. 5. IF SUCH DEPOSITS ARE NOT MADE AS REQUIRED AS PER TH E STATUTE THEN IT WOULD BE AN OFFENCE UNDER THE LAW AND IT WO ULD NOT BE IN A POSITION TO CARRY ON ITS BUSINESS. 6. THE INTEREST INCOME EARNED FROM DEPOSITS ARE THUS I NCIDENTAL TO AND INEXTRICABLE TO AND INEXTRICABLY LINKED WITH THE ACTIVITY OF PROVIDING CREDIT TO ITS MEMBERS AND CON SEQUENTLY THE INTEREST THEREON CAN'T BE CONSIDERED AS A SOURC E OF INCOME HAVING DISTINCT IDENTITY FOR ITSELF. 7. THE WORD 'ATTRIBUTABLE TO' IS MUCH WIDER THAN THE WORD 'DERIVED FROM' AND AS SUCH THE LEGISLATURE USED THI S WORD TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL C ONDUCT OF THE BUSINESS, AS HELD BY THE SUPREME COURT IN THE C ASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD., VS. CIT GUJRAT -II REPORTED IN 113 ITR (1978) 842 PAGE 93. WITHOUT PREJUDICE TO THE ABOVE FINDINGS THAT THE IN TEREST INCOME FROM DEPOSITS ARE ELIGIBLE FOR DEDUCTION U/ S. 80P(Z) (A) (I), IT IS TO BE NOTICED THAT THE INTEREST EARNED ON DEPOSI TS WITH CO-OPERATIVE BANKS WOULD BE ELIGIBLE FOR DEDUCTION U/ S. 80P(2)( D) OF THE ACT. SEC. 80P(2) (D) SAYS: 'INTEREST OR DIVIDEND IN RESPECT OF ANY INCOME BY W AY OF \ DEPOSIT WITH ANY COOPERATIVE SOCIETY FROM ITS INV ESTMENTS WITH ANY OTHER CO-OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOM E IS ELIGIBLE FOR DEDUCTION. 10. AS PER SEC. 2(19) OF THE ACT, A CO-OPERATIVE SOCIETY MEANS A CO-OPERATIVE SOCIETY REGISTERED UNDER THE CO-OPERAT IVE SOCIETIES ACT 1912 OR UNDER ANY LAW FOR THE TIME BEING IN FOR CE IN ANY STATE FOR THE REGISTRATION OF CO-OPERATIVE SOCIETIES. THE PROVISIONS OF THE IT ACT 1961 EITHER IN SEC. 2(19) OR U/ S. 80P DO NO T MAKE ANY DISCRIMINATION BETWEEN THE CO-OPERATIVE SOCIETIES C ARRYING ON BANKING BUSINESS AND OTHER CO-OPERATIVE SOCIETIES. CO-OPERATIVE ITA NOS.786 TO 788/BANG/2016 PAGE 7 OF 8 BANKS ARE PRIMARILY CO-OPERATIVE SOCIETIES BY CONST ITUTION AND 'BANKS' BY THE NATURE OF BUSINESS. IN THE CASE OF M ENASI SEEMEYA GROUP GRAMAGALA SEVA SAHAKARI SANGHA NIYAMITA IN IT A NO. 609 & 601(BNG)/2014 DT. 06-02-2015 IT WAS HELD THAT THE RESTRICTIVE INTERPRETATION GIVEN TO CO-OPERATIVE SO CIETY U/ S. 80P(2) (D) WAS NOT WARRANTED. THE ITAT B'LORE BENCH IN TH IS CASE THROUGH A DETAILED REASONING CAME TO CONCLUSION THA T THE INTEREST AND DIVIDEND EARNED BY THE APPELLANT FROM CO-OPERAT IVE BANK WAS ELIGIBLE FOR DEDUCTION U/ S. 80P(2) (D) OF THE ACT. 11. IN CONCLUSION IT IS HELD THAT THE INTEREST INC OME EARNED ON DEPOSITS MADE WITH OTHER CO-OPERATIVE BANKS/SOCIETY ARE FULLY DEDUCTIBLE U/S. 80P(2)(A)(I) FROM THE INCOME LIABLE TO TAX THOUGH THE ASSESSEE HAS CLAIMED THE SAME AS EXEMPT U/ S. 8 0P(2) (D) AND THE SAME IS ALSO EXEMPT U/ S. 80P(2)(D) AS STATED A BOVE. 12. IN THE RESULT THE APPEALS FOR THE THREE ASSESSM ENT YEARS VIZ, 2010-11, 2012-13 & 2012-13 ARE ALLOWED IN FAVOUR OF THE ASSESSEE AND ADDITIONS AND DISALLOWANCES MADE IN TH E ASSESSMENT ORDERS ARE HEREBY DELETED. 6. IT IS ALSO BROUGHT TO OUR NOTICE THAT THE ISSUE IS ALSO SQUARELY COVERED BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALK OT, 369 ITR 86 (KAR) AS WELL AS IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO- OPERATIVE LTD. V ITO (ITA NO.307 OF 2014 DATED 28.1 0.2014) AND OTHER ORDERS OF THE TRIBUNAL REFERRED TO IN THE FOREGOING PARAGRAPHS. IN THE LIGHT OF THESE JUDICIAL PRONOUNCEMENTS, WE ARE OF THE CON SIDERED VIEW THAT THE CIT(APPEALS) HAS RIGHTLY ADJUDICATED THE ISSUE AND WE FIND NO INFIRMITY THEREIN BECAUSE FILING OF SLP DOES NOT AMOUNT TO ST AY OF OPERATION OF THE ORDER OF THE HONBLE HIGH COURT. THEREFORE, WE ARE SUPPOSED TO FOLLOW THE JUDGMENTS OF JURISDICTIONAL HIGH COURT SO LONG AS I T HOLDS THE FIELD. ACCORDINGLY, THE APPEALS OF THE REVENUE STAND DISMI SSED. ITA NOS.786 TO 788/BANG/2016 PAGE 8 OF 8 7. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF MARCH, 2017. SD/- SD/- ( A.K. GARODIA ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 3 RD MARCH, 2017. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.