Sri Venugopalkrishna Credit Co-operative Society Ltd , Bangalore V. Income Tax Officer Ward-5(2)(4), Bangalore

ITA 932/BANG/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9914 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 26-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.V VASUDEVAN, VICE PRE SIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.932 & 933/BANG/2018 ASSESSMENT YEARS : 2013-14 & 2014-15 SRI VENUGOPALKRISHNA CREDIT CO- OPERATIVE SOCIETY LTD., NO.123/3, 9 TH CROSS, 2 ND MAIN, CHAMRAJPET, BENGALURU. PAN AABAS 6974 R.. VS. THE INCOME-TAX OFFICER, WARD-5(2)(4), BENGALURU. APPLICANT RESPONDENT APPELLANT BY : SMT. SRI NANDINI DAS, ADDL. CIT ASSESSEE BY : SHRI RAVISHANKAR, ADVOCATE DATE OF HEARING : 26.11.2018 DATE OF PRONOUNCEMENT : 07.12.2018 O R D E R PER SHRI N.V VASUDEVAN, VICE PRESIDENT : ITA NO.932/ BANG/2018 IS AN APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 27.12.2017 IN RELATION TO AY 2013- 14 AND ITA NO.933/ BANG/2018 IS AN APPEAL BY THE ASSESSEE AGAINST AN O RDER DATED ITA NOS.932 & 933/B/18 2 28.12.2017 IN RELATION TO AY 2014-15. BOTH THE APP EALS ARE FILED AGAINST THE ORDER OF THE CIT(A)-5, BENGALURU. 2. THE ASSESSEE IS A CREDIT CO-OPERATIVE SOCIETY. IT FILED RETURN OF INCOME FOR THE A.Y. 2013-14 & 2014-15 DECLARING INC OME OF RS.NIL AFTER CLAIMING DEDUCTION OF RS.48,40,748 AND RS.56, 48,107/- FOR AY 13-13 & 14-15 RESPECTIVELY, U/S. 80P(2)(A)(I) OF T HE INCOME TAX ACT, 1961 (ACT). 3. UNDER SEC.80P(2)(I) OF THE ACT, WHERE THE GROSS TOTAL INCOME OF A CO-OPERATIVE SOCIETY INCLUDES INCOME FROM CARRYIN G ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS ME MBERS, THE SAME IS ALLOWED DEDUCTION. BY THE FINANCE ACT, 2006 W.E.F. 1-4-2006, SUB- SECTION (4) WAS INSERTED IN SEC.80-P WHICH PROVIDES AS FOLLOWS: (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 CREDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVEL Y ASSIGNED TO THEM IN PART V OF THE BANKING REGULATIO N 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 ITA NOS.932 & 933/B/18 3 OF WHICH IS TO PROVIDE FOR LONG-TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 4. 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 COMING TO THE ABOVE CONCLUSION, THE AO NOTICED THAT THE NATURE OF THE ACTIVITY OF THE ASSESSEE, THOUGH REGISTERED AS A CR EDIT CO-OPERATIVE SOCIETY, IS THAT OF A BANKING INSTITUTION NOTWITHST ANDING THE FACT THAT RECEIPT OF AND LENDING MONEY IS LIMITED TO ITS MEMB ERS. 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 SOC IETY WITH ITS MEMBERS THE ASSESSEES ACTIVITY WAS ALSO INCOME. THAT TH E DEDUCTION FROM GROSS TOTAL INCOME OF CERTAIN RECEIPTS IS AVAILABLE ONLY TO PRIMARY AGRICULTURAL CREDIT SOCIETIES OR PRIMARY CO-OPERATI VE AGRICULTURAL AND RURAL DEVELOPMENT BANKS; AND THAT THE BENEFIT OF SU CH DEDUCTION IS NOT AVAILABLE TO INSTITUTIONS LIKE THE ASSESSEE SOCIETY . THE AO ALSO REFERRED TO SECTION 5(B) OF THE BANKING REGULATION ACT TO HO LD THAT, IF ONE OF THE TWO CONDITIONS OF THE APPELLANT I.E. ITS PRIMAR Y OBJECT SHOULD BE BANKING OR ITS PRINCIPAL BUSINESS MUST BE TRANSACTI ON IN BANKING BUSINESS, IS SUFFICIENT TO BRING THE APPELLANT INTO THE CONCEPT OF A BANKING INSTITUTION. THE AO REFERRED TO THE OBJECTS OF THE ASSESSEE SOCIETY AND HELD THAT ACCEPTING DEPOSITS AND LENDIN G TO ITS MEMBERS ARE IN THE NATURE OF TRANSACTION OF BANKING ACTIVIT Y. ACCORDING TO THE ITA NOS.932 & 933/B/18 4 AO, THE FOLLOWING FEATURES MAKE THE ASSESSEE INELIG IBLE TO EXEMPTION CONTEMPLATED IN SECTION 80P OF THE ACT: I) SINCE MEMBERSHIP IS OPEN TO ANYONE PAYING A SUM OF RS.10/- TO RS.100/- FOR MEMBERSHIP AND NO OTHER CONDITION IS IMPOSED. IN OTHER WORDS, MEMBERSHIP AS IS AVAILABLE IN ANY BANKING INSTITUTI ON IS AVAILABLE IN THE CASE OF THE APPELLANT SOCIETY. II) THE PURPOSE OF ACCEPTING DEPOSITS FROM THE PUBLIC IS FOR MAKING INVESTMENTS AND FOR LENDING TO MEMBERS. CONFINING THE LENDING ONLY TO MEMBERS MAKES NO DIFFERENCE. III) DEPOSITS COLLECTED FROM THE DEPOSITORS ARE REPAYABLE ON DEMAND AND DO NOT GO INTO THE CORPUS O F THE APPELLANT. IV) THE ASSESSEE SOCIETY CAME WITHIN THE EXPLAN ATION TO SUB-SECTION (4) OF SECTION 80P OF THE ACT AS A BANKING INSTITUTION. 5. IN THE LIGHT OF THE ABOVE-MENTIONED OBSERVATIONS , THE AO HELD THAT THE APPELLANT WAS NOT ENTITLED TO EXEMPTION IN RESPECT OF THE AMOUNT U/S 80P(2)(A)(I) OF THE ACT AND BROUGHT THE SAME TO TAX. 6. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE ORDERS OF THE AO BY FOLLOWING THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF IN THE CASE OF CITIZENS CO-OPERATIVE SOCIET Y LTD. VS. ACIT 397 ITR 1 (SC), WHEREIN IT WAS HELD THAT FOR DOING BUSINESS OF BANKING ONE HAS TO OBTAIN LICENSE FROM RESERVE BANK OF INDIA(RBI) AND SINCE THE ASSESSEE IN THAT CASE WHICH WAS A CO- OPERATIVE SOCIETY ITA NOS.932 & 933/B/18 5 DID NOT HAVE SUCH LICENSE AND FURTHER THAT ASSESSEE ALSO PRODUCED A CERTIFICATE FROM RBI THAT IT WAS NOT CARRYING ON TH E BUSINESS OF BANKING, THE HONBLE SUPREME COURT HELD THAT IT CAN NOT BE SAID TO BE A CO-OPERATIVE BANK. THE HONBLE SUPREME COURT HOWEVE R HELD THAT ANY MEMBER OF THE PUBLIC CAN BECOME MEMBERS (NOMINA L) AND INCOME EARNED FROM PROVIDING CREDIT FACILITIES TO SUCH MEM BER OF THE PUBLIC DOES NOT SATISFY THE TEST OF MUTUALITY WHICH IS THE SPIRIT BEHIND PROVIDING DEDUCTION TO CO-OPERATIVE SOCIETIES. THE GRIEVANCE OF THE ASSESSEE IS THAT IN ITS CASE TEST OF MUTUALITY IS S ATISFIED AND THE CIT(A) HAS NOT SPELT OUT AS TO HOW THE SAID TEST FAILS IN THE CASE OF THE ASSESSEE. WE ARE OF THE VIEW THAT SUCH GRIEVANCE O F THE ASSESSEE WOULD BE ADDRESSED BY SETTING ASIDE THE ISSUE OF DE DUCTION 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 BUSIN ESS 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-OPER ATIVE SOCIETY FROM THE BUSINESS OF BANKING. EVEN THE CLAIM OF THE ASS ESSEE FOR DEDUCTION REQUIRES TO BE EXAMINED UNDER THE FIRST PART OF SEC .80P(2)(A)(I) OF THE ACT. FURTHER THE HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO- OPERATIVE SOCIETY LTD. (SUPRA) HAS ALSO HELD IT IS ALSO IMPORTANT TO ASCERTAIN 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 INCOME. AN EXAMINATION OF (I)THE M EMORANDUM OF ITA NOS.932 & 933/B/18 6 ASSOCIATION, THE ARTICLES OF ASSOCIATION, (II) THE BYELAWS AND OTHER DOCUMENTS EXPLAINING THE RULES AND REGULATIONS OF T HE SOCIETY IS NECESSARY, SO AS TO CLEARLY UNDERSTAND THE PURPOSE AND THE NATURE OF BUSINESS DONE BY IT. AN EXAMINATION OF THE DIFFEREN T CATEGORIES OF MEMBERS OF A SOCIETY AND WHAT ARE THE CONDITIONS AT TACHED TO THEIR BEING ADMITTED AS MEMBERS AND THEIR RIGHTS AS CONTR IBUTORS OF FUNDS TO THE SOCIETY AND PARTICIPANTS IN SURPLUS AND THE BYE LAWS OF THE SOCIETY IS NECESSARY. DEDUCTION U/S.80P2(A)(I) IS ALLOWED O NLY IN RESPECT OF INCOME ARISING OUT OF THE TRANSACTIONS WITH THE MEM BERS. THE RELEVANT LAW GOVERNING CO-OPERATIVE SOCIETIES OF THE CONCERN ED STATE PROVIDING STATUS OF DIFFERENT CATEGORIES OF MEMBERS IN SO FAR AS THE AFFAIRS OF THE CO-OPERATIVE SOCIETY ARE CONCERNED, IS ALSO REQUIRE D TO BE EXAMINED. IT IS ONLY INCOME WHICH ARISES FROM DEALING WITH ME MBERS AND WHICH IS EITHER IN THE NATURE OF BANKING OR PROVIDING CRE DIT FACILITIES TO MEMBERS THAT WOULD BE ALLOWED AS DEDUCTION. ALL THE SE ASPECTS ALSO REQUIRE EXAMINATION. THE AO WILL ALLOW OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND FILING APPROPRIATE EVIDENCE, IF DE SIRED, BY THE ASSESSEE TO SUBSTANTIATE ITS CASE, BEFORE DECIDING THE ISSUE. THE ASSESSEE WILL ALSO BE AT LIBERTY TO SHOW THAT INCOM E EARNED IS INCOME FROM BUSINESS OF BANKING AND SOME PART OF THE INCOM E WAS EARNED BY MAKING INVESTMENT IN STATUTORY RESERVES IN FULFILME NT OF LAW REGARDING MAINTENANCE OF STATUTORY RESERVES. WE HOLD AND DIR ECT ACCORDINGLY. 7. IN THE RESULT, BOTH THE APPEALS ARE TREATED AS A LLOWED FOR STATISTICAL PURPOSE. ITA NOS.932 & 933/B/18 7 ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH DECEMBER, 2018 . SD/- SD/- (JASON P BOAZ) (N.V VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 07/12/2018 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