Utimate Taxes: ASSISTANT COMMISSIONER OF INCOME TAX & ANR. vs.SHIRODA URBAN COOPERATIVE CREDTI SOCIETY LTD. & ANR.

ASSISTANT COMMISSIONER OF INCOME TAX & ANR. vs.SHIRODA URBAN COOPERATIVE CREDTI SOCIETY LTD. & ANR.

PANAJI TRIBUNAL

N. S. SAINI, AM & GEORGE MATHAN, JM.

ITA Nos. 448 & 449/PAN/2015, 450 to 452/PAN/2015

Mar 1, 2016

(2016) 46 cch 0221 PanajiTrib

Legislation Referred to

Section 80P(4), 5(cci)

Case pertains to

Asst. Year 2008-09 & 2012-13

Decision in favour of:

Assessee

Deduction u/s 80P(2)(a)(i)—Deduction in respect of income of co-operative societies—Deduction of income earned on providing credit facilities to members—Assessee was co-operative society and registered under the Co-operative Act—Assessee claimed deduction of income earned on providing credit facilities to its members as provided u/s 80P(2)(a)(i)—Case of assessee was that, it was not carrying on business of banking—Assessee filed its return of income at NIL after claiming deduction u/s 80P(2)(a)(i) for Rs. 3,26,15,907/-, Rs. 14,95,434/-, Rs. 18,25,206/-, Rs. 18,75,636/- & Rs. 18,75,636/- respectively—Assessee claimed that its society was entitled to deduction u/s 80P(2)(a)(i) as it was Cooperative Society carrying on business of banking or providing credit facilities to its members—AO rejected claim of assessee for deduction u/s 80P(2)(a)(i) on ground that assessee was cooperative bank, and not entitled to claim deduction by virtue of section 80P(4)—CIT(A) allowed claim of assessee for deduction u/s80P(2)(a)(i)—Held, according to impugned order, society and co-operative society were clearly words of different hand distinct significance and membership was only open to society and not to a co-operative society— As rightly pointed out on behalf of Assessee, word society as referred to byelaw 9(d) would include co-operative society— Besides qualifying condition 3 for being considered as Primary Cooperative Bank wad that bye laws must not permit admission of any other cooperative society— This was mandatory condition i.e. bye laws must specifically prohibit admission of any other cooperative society to its membership— Revenue had not been able to show any such prohibition in bye laws of Assessee—Thus even aforesaid qualifying condition (3) for being considered as primary cooperative bank was not satisfied— Thus, three conditions as provided u/s 5 (CVV) of the Banking regulation Act, 1949, were to be satisfied cumulatively and except condition (2) other two qualifying conditions were not satisfied—Assessee could not be considered as co-operative bank for purposes of Section 80P(4)—Thus, assessee was entitled to benefit of deduction available u/s 80P(2)(a)(i)— Revenue’s Appeal dismissed.

Held

According to the impugned order, a society and a co-operative society are clearly words of different hand distinct significance and the membership is only open to society and not to a co-operative society. As rightly pointed out on behalf of the appellant the word society as referred to bye law 9(d) would include the co-operative society. This is so as the definition of a society under the Co-operative Act is co-operative registered under the Co-operative Act. Besides the qualifying condition 3 for being considered as a Primary Cooperative Bank is that the bye laws must not permit admission of any other cooperative society This is a mandatory condition i.e. the bye laws must specifically prohibit admission of any other cooperative society to its membership. The Revenue has not been able to show any such prohibition in the bye laws of the appellant. Thus even the aforesaid qualifying condition (3) for being considered as a primary cooperative bank is not satisfied. Thus, the three conditions as provided under section 5 (CVV) of the Banking regulation Act, 1949, are to be satisfied cumulatively and except condition (2) the other two qualifying conditions are not satisfied. Ergo, appellant cannot be considered to be a co-operative bank for the purposes of Section 80P(4) of the Act. Thus, the appellant is entitled to the benefit of deduction available under Section 80P(2)(a)(i) of the Act.(Para4)

Conclusion

Word society as referred included co-operative society hence assessee could not be considered as co-operative bank for purposes of Section 80P(4) of the Act.

In favour of Assessee

Business Expenditure—Interest, commission, brokerage etc. to a resident—Addition u/s 40(a)(ia)—Deletion of addition— AO observed that assessee paid interest in excess of Rs. 10,000/- without making TDS therefore, he made disallowance of Rs. 53,522, Rs. 10,26,427/- & Rs. 94,598/- respectively by invoking provisions of sec. 40(a)(ia)—CIT(A) deleted addition made by AO—Held, CIT(A) deleted disallowance made U/S . 40(a)(ia) by observing that assessee-society was not held to be bank, therefore, TDS provisions were not applicable to assessee-society.

Held

On appeal, Commissioner of Income Tax (Appeals) deleted the disallowance made under sec. 40(a)(ia) of the Act by observing that the assessee-society is not held to be a bank, therefore, TDS provisions are not applicable to the assessee-society. Hence, he deleted the addition made under sec. 40(a)(ia) of the Act.(Para 10)

Conclusion

Assessee-society was not held to be a bank, therefore, TDS provisions were not applicable to assessee-society hence, addition made u/s 40(a)(ia) was rightly deleted

In favour of

Assessee

Cases Referred to

The Quepem Urban Cooperative Credit Society Ltd. vs. ACIT in Tax Appeals No. 22-24/2015 dated 17/04/2015

Counsel appeared:

Chinmay S. Kamat - CA Jayant P. Volvoikar - CA for the Assessee.: Anand S. Marathe - DR for the Department

GEORGE MATHAN, JM.

1. These are the appeals filed by the Revenue against the separate orders of the Commissioner of Income Tax (Appeals), Panaji-1 passed in ITA Nos.437 & 438/PNJ/14-15, dated 24/08/2015 and ITA Nos.367, 383/CIT(A) PNJ-1/14-15 & ITA No. 10/PNJ/14-15, dated 28/08/2015.

2. The main issue involved in all these appeals is that the Commissioner of Income Tax (Appeals) erred in allowing deduction to the assessee under sec. 80P(2)(a)(i) of the Income Tax Act, 1961.

3. The facts of the case, in brief, are that the assessee filed its return of income at NIL after claiming deduction under sec. 80P(2)(a)(i) of the Act for Rs. 3,26,15,907/-, Rs. 14,95,434/-, Rs. 18,25,206/-, Rs. 18,75,636/- & Rs. 18,75,636/- respectively. It was claimed that the society is entitled to deduction under sec. 80P(2)(a)(i) as it was 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 in the order passed under sec. 143(3) of the Act on the ground that the assessee was 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 by observing as under:-

“6. I have gone through the assessment order and the submission of the appellant. The AO has equated the appellant Co-operative society with Primary Cooperative bank and has denied deduction u/s.80P(2). On this issue, The Hon’ble High Court has decided as under:

“There is no dispute between the parties that the appellant is a co-operative society as the same is registered under the Co-operative Act. The appellant is claiming deduction of income earned on providing credit facilities to its members as provided under section 80P(2)(a)(i) of the Act. It is appellant’s case that, it is not carrying on the business of the banking. Consequently, not being a co-operative bank the provisions of Section 80P(4) of the Act would not exclude the appellant from claiming the benefit of deduction under Section 80P(2)(a)(i) of the Act. However in terms of Section 80P of the Act the meaning of the words Cooperative Bank is the meaning assigned to it in Chapter V of the Banking Regulation Act, 1949. A cooperative bank is defined in Section 5(cci) of Banking Regulation Act to mean a State Cooperative Bank-, a Central Cooperative Bank and a Primary Cooperative Bank. Admittedly, the appellant is not a State Cooperative Bank, a Central Cooperative Bank Thus what has to be examined is whether the appellant is a Primary Cooperative Bank as defined in Para V of the Banking Regulation Act. Section 5(ccv) of the Banking Regulation Act defines a primary cooperative bank to mean a cooperative society which cumulatively satisfies the following three conditions:

1) Its principal business or primary object should be banking business of Banking,

2) Its paid up share capital and reserves should not be less that rupees one lakh.

3) Its bye-laws do not permit admission of any other cooperative society as its member.

It is accepted position that condition No. (2) is satisfied as the share capital in an excess of rupees one lakh It has been the appellant’s contention that the conditions No (1) and (3) provided above are not satisfied.

Therefore the issue that arises for consideration is whether the appellant satisfies condition No (1) and (3) above The impugned order after referring to the definition of „Banking Business’ as defined in Section 5b of the Banking Regulation Act, held that the principal business of the Appellant is Banking Section 5b of the Banking Regulation Act defines banking to mean accepting of deposits for the purpose of lending or investment, of deposit of money from the public repayable on demand or otherwise. The impugned order juxtaposes the above definition with the finding of fact that the apel1ant did deal with non members in a few cases by seeing deposits. This read with Bye law 43 leads to the conclusion that it is carrying on banking business. This fact of accepting deposits from people who are not members has been so recorded by the CIT(A) in his order dated 15 July, 2014. Before the Tribunal also the appellant did not dispute the fact that in a few cases they have dealt with non members. However so far as accepting deposits from non members is concerned it is submitted that the Bye-law 43 only permits the society to accept deposits from its members. It is submitted that Bye .laws 43 does „not permit receipt of deposits from persons other then members, the word “any person” is a gloss added in the impugned order as it is not found in Bye law 43. It is undisputed that the transactions with non members are insignificant/miniscule. On the above basis it cannot be concluded that the appellant’s, principal business is of accepting deposits from public and therefore it is in banking business. In fact, the impugned order erroneously relies upon bye-law 43 of the society which enables the society to receive deposits to conclude that it can receive deposits from public. However, the impugned order relies upon bye-law 43 to conclude that it enables the appellant to receive deposits from any person is not correct. Thus in the present facts the findings that the appellant’s principal business is of Banking is perverse, as it is not supported by the evidence on record. So far as the issue of primary object of the appellant is concerned the impugned order gives no finding on that basis to deprive the appellant the benefit of Section 80P of the Act The impugned order sets out the object clause of the appellant, which has 24 objects but thereafter draws no sequiter to conclude that the primary object is banking. Consequently there is no occasion to deal with the same as that is not the basis on which the impugned order holds that it is a Primary Cooperative bank.

In the above view, the alternative contention of the appellant that it is not in the business of Banking as the sine quo non to carry on banking business is a licence to be issued by the Reserve Bank of India, which it admittedly does not have, is not being considered.

So far as condition No.3 of the definition/meaning of Primary Cooperative Bank as provided in section 5(ccv) of the Banking Regulation Act is concerned, the same requires the Bye laws of society to contain a prohibition from admitting any other cooperative society as its member. In fact the bye-laws of the appellant society originally in bye- law 9(b) clearly provided that no co-operative society shall be admitted to „the membership of the society. Thus there was a bar but the same was amended w.e.f. 12th January, 2001 as to permit a society to be admitted to the membership of the society. Therefore for the subject assessment years there is no prohibition to admitting a society to its membership and one of three cumulative conditions precedent to be a primary cooperative bank is not satisfied. However the impugned order construed the amended clause 9(d) of the appellant’s bye laws to mean that it only permits a society to be admitted to the membership of the appellant and not a co-operative society.

The contention of Ms. Dessai, learned Counsel for the revenue that the appellant is not entitled to the benefit of Section 80P (2)(a)(i) of the Act in view of the fact that it deals with non-member cannot be upheld. This for the reason that section 80P(1) of the Act restricts the benefits of deduction of income of co-operative society to the extent it is earned by providing credit facilities to its members. Therefore, to the extent the income earned is attributable to dealings with the non-members are concerned the benefit of Section 80P of the Act would not be available. In the above view of the matter, at the time when effect has been given to order of this Court, the authorities under Act would restrict the benefit of deduction under section 80P of the Act only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. Accordingly, the substantial question of law as framed is answered in the negative i.e.in favour of the appellant and against the respondent-revenue.

In view of the decision of the Hon’ble High Court, the AO is directed to allow the deduction u/s.80P to the appellant. The appeal is allowed.”

5. The Departmental Representative relied on the orders of the Assessing Officer. He could not point out any specific error in the above quoted orders of the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) has allowed the claim of deduction under sec. 80P(2)(a)(i) of the Act after following the decision of the Hon’ble Bombay High Court at Panaji in the case of M/s. The Quepem Urban Cooperative Credit Society Ltd. Vs. ACIT in Tax Appeals No. 22-24/2015 dated 17/04/2015. No contrary decision could be cited by the Departmental Representative. We, therefore, do not find any good and justifiable reason to interfere with the orders of the Commissioner of Income Tax (Appeals), which are hereby confirmed and this ground of appeal of the Revenue is dismissed.

6. In ITA No. 452/PAN/2015, the another grievance of the Revenue is that the Commissioner of Income Tax (Appeals) erred in deleting the addition made under sec. 40(a)(ia) read with sec. 194A of the Act for the Assessment Year 2009-10, when it has been clearly established that the assessee satisfies all the conditions of a Cooperative Bank as per sec. 5(ccv) of Part-V of the Banking Regulation Act, 1949.

7. We find that this ground of appeal does not arise out of the order of the Commissioner of Income Tax (Appeals) during the year under consideration hence, the same is dismissed.

8. In ITA Nos. 448, 449 & 451/PAN/2015, the another issue of the appeals is directed against the order of the Commissioner of Income Tax (Appeals) deleting the addition made under sec. 40(a)(ia) of the Act.

9. We have heard rival submissions of both the parties and perused the orders of the lower authorities and the material available on record. The Assessing Officer observed that the assessee has paid interest in excess of Rs. 10,000/- without making TDS and, therefore, he made disallowance of Rs. 53,522, Rs. 10,26,427/- & Rs. 94,598/- respectively by invoking the provisions of sec. 40(a)(ia).

10. On appeal, Commissioner of Income Tax (Appeals) deleted the disallowance made under sec. 40(a)(ia) of the Act by observing that the assessee-society is not held to be a bank, therefore, TDS provisions are not applicable to the assessee-society. Hence, he deleted the addition made under sec. 40(a)(ia) of the Act.

11. The Departmental Representative during the course of hearing did not make any submissions on the above ground of appeal taken by the Revenue. Hence, we dismiss this ground of appeal of the Revenue.

12. In the result, all the appeals filed by the Revenue are dismissed. Order Pronounced in the Court at the close of the hearing on Tuesday, the 01st day of March, 2016 at Goa.

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