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2016 (2) TMI 465 - ITAT MUMBAI

2016 (2) TMI 465 - ITAT MUMBAI - TMI - Deduction u/s. 80P(2)(a)(i) - Held that:- Respectfully following the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co –op. Credit Society Ltd.(2014 (2) TMI 28 - GUJARAT HIGH COURT ), we uphold the finding of the ld.CIT(A) that the assessee is a credit co-operative society with no banking licence , accepting deposits and advancing loans only to its members, and is, therefore, entitled to deduction u/s. 80P(2)(a)(i) of t .....

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Asstt. Year 2010-11. 2.The facts of the case, briefly, are as under :- 2.1 The assessee a co-operative society, engaged in providing credit facilities to its members, filed its return of income for assessment year 2010-11 on 13/08/2010 declaring Nil income, after claiming deduction u/s.80P(a)(i) of the Act. Under section 80P(2)(a)(i) of the IT Act, 1961 (in short the Act) where the gross total income of a co-operative society includes income from carrying on the business of banking or providing .....

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nd "primary agricultural credit society" shall have the meanings respectively 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 provide for long-term credit for agricultural and rural development activities. 3. The Assessing Officer (AO) was of the view that after the amendment i .....

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ugh registered as a credit co -operative society, is that of a banking institution, notwithstanding the fact that the receipt of and lending of money is limited to its members. The Assessing Officer further noticed that clause (viia) in section 2(24) of the Act was inserted by the Finance Act, 2006 w.e.f. 1/4/2007, which provides that profits and gains of any business (including providing of credit facilities) carried on by a co-operative society with its members was also income . The Assessing .....

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y object should be banking or its principal business must be transaction in banking business, is sufficient to bring the assessee into the concept of banking institution. The Assessing Officer referred to the objectives of the assessee society in its byelaws, to observe that the activities of the assessee fall within the provisions if section 56(b), 56(cci), 56(ccv) and 56(ccvi) of Part V of the Banking Regulation Act, 1949 and held that broadly, they are in the nature of banking activity. In th .....

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d. Commissioner of Income tax(Appeals) vide order dated 31/3/2014 disposed off the assessee s appeal, allowing it partial relief .The ld. Commissioner of Income tax(Appeals) following the decision of the Gujarat High Court in Jafari Momin Vikas Co -op. Credit Society Ltd.(2004) (362 ITR 331) (Guj.) held that the assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act claimed by it in respect of the profits of its business of providing credit facilities to its members. However, with respec .....

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s business income and are to be taxed under the head income from other sources. 5. Both the revenue and the assessee are aggrieved by the order of the CIT(A)-33, Mumbai and have preferred appeals against this order before the Tribunal . Revenue s Appeal in ITA No.3462/Mum/2014: 6. In this appeal, Revenue has raised the following grounds :- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee is a Co-operative Society and not a Co-ope .....

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Assessing Officer be restored. The appellant craves leave to amend or after any grounds or add a new ground which may be necessary. 7. Grounds No.1 and 2: Deduction u/s. 80P(2)(a)(i) of the Act: 7.1 In these grounds, revenue assails the order of the ld. CIT(A) as being erroneous in holding that the assessee is a co-operative society and not a co -operative bank and thereby allowing the deduction u/s. 80P(2)(a)(i) of the Act. It was further contended that the assessee s principal business being b .....

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he impugned order of the ld. Commissioner of Income tax(Appeals), holding that the assessee being a co-operative society is entitled to deduction u/s.80P(2)(a)(i) of the Act in respect of the profits of its business of providing credit facilities to its members, is in order and is supported by judicial precedents laid down by the various High courts and Tribunals. In support of this proposition, the ld. AR placed reliance on the following judicial pronouncements:- (i) CIT vs. Jafari Momin Vikas .....

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he appeal for assessment year 2007-08 in the case on hand, which order has been followed by the ld. CIT(A)in the impugned order for the assessment year 2010-11, has observed that there is no dispute that the assessee accepts deposits only from its members and advances loans only to its members and does not have any banking licence. It was also observed that all the deposits on the liability side of its balance sheet only reflect deposits from members and that it accepts deposits only from its me .....

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the Hon ble Court was :- Whether the Hon ble Tribunal is correct in allowing the deduction u/s.80P(2)9a)(i) to the assessee s society eventhough the same is covered u/s.80P(4) read with section 2(24)(viia) being income from providing credit facilities carried on by a co-operative society with its member? The Hon ble Court held as under :- "(4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-o .....

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rm credit for agricultural and rural development activities." 4. As per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. As per the Explanation, the terms "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1 .....

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ultural credit society". 6. Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of sub-section (4) only co- operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then the Legislature specified primary agricultural credit societies along with primary cooper .....

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ted March 28, 2007, addressed to the Chairman, Central Board of Direct Taxes, on the above given subject. 2. In this regard, I have been directed to state that sub-section(4) of section 80P provides that deduction under the said section shall not be allowable to any co-operative bank other than a primary agri cultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub-section, co-oper ative bank shall have the meaning assigned to it .....

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the Chairman, Central Board of Direct Taxes." 7. From the above clarification, it can be gathered that sub-section (4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by the Central Board of Direct Taxes, the Delhi Co-op. Urban Thrift and Credit Society Ltd. was under consideration. The circular clarified that the said entity not being a co-operative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we .....

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inding has been followed by a Bench of the ITAT, Bangalore in Shree Laxmananda Multipurpose Co-op. Society Ltd. (2014) 34 ITR (Tribunal) 472(Bang.Trib.). Similar view has also been held by the Hon ble Karnataka High Court in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot , [2014] 369 ITR 86 (Kar). Respectfully following the decision of the Hon ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co -op. Credit Society Ltd.(2004) (362 ITR 331) (Guj.), we .....

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peal for assessment year 2010-11 is dismissed. Assessee s appeal in ITA No.3477/Mum/2014 10. In this appeal for assessment year 2010-11, the assessee has raised the following grounds :- 1. On the facts and in the circumstances of the case, and also ill law, the learned CIT(A) erred in treating interest of ₹ 1,49,500/ - received by the appellant on Govt. Securities income from other sources, and, therefore, also erred in not allowing deduction u/s.8OP(2)(a)(i for the same. Your appellant, t .....

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he learned CIT(A) erred in treating interest of ₹ 5,63,180/- received on Secured Redeemable Non-convertible Debentures issued by Maharashtra Cooperative Development Corporation Ltd. as income from other sources, and, therefore, erred in not allowing deduction u/s.8OP(2)(a)(i) for the same. Your appellant, therefore, prays that the said interest be assessed as business income, and deduction u/s. 8OP(2)(a)(i) be allowed for the same. 4. Without prejudice, the appellant further submits that i .....

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that the Ld. CIT(A) erred in holding that the interest of ₹ 1,49,500/- received by it from Government Security Bonds and ₹ 5,63,180/- received on secured redeemable non-convertible debentures of Maharashtra Co-op Development Corporation Ltd. is not entitled to deduction under section 80P(2)(a)(i) of the Act, as it is not generated from the assessee s business and is therefore, to be assessed under the head income from other sources . In coming to this finding, the Ld. CIT(A) had pla .....

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rchants Souharda Credit Co-op. Ltd., (2015) (230 Taxman 309), submitting that the Hon ble Karnataka High Court has discussed and considered the decision of the Hon ble Apex Court (supra) at para-9 of their order and held that the finding therein has been rendered in the facts of that case and that therefore, the Hon ble Apex Court was not laying lying down any law. It is submitted that the Hon ble Karnataka High Court observed that the provisions of Section 80P(2)(a)(i) of the Act provides for d .....

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placed reliance on the decision of the Co-ordinate bench of the ITAT, Mumbai in the case of Jaoli Taluka Sahakari Patpedhi Maryadit v. ITO in ITA No.6627/Mum/2014 dated 10/08/2015 which followed the aforesaid decision of the Hon ble Karnataka High Court (supra) on this issue. 11.2 Per contra, the Ld. Departmental Representative vehemently supported the order of the Ld. CIT(A) on this issue. 11.3.1 We have heard the rival contentions and perused and carefully considered the material on record; i .....

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s to earn interest as being attributable to its business of providing credit facilities to its Members. In the case on hand also, the surplus funds of the assessee s business of providing credit facilities to its members, which were not due to the Members was invested in Central Govt. Bonds specified under section 70 of the MSC Act and in 11% Secured Redeemable Non-convertible Bonds issued by Maharashtra Co-op Development Corpn. Ltd. as per Circular dated 22/11/2002 issued by the Co-operative Co .....

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ibutable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credi .....

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for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Cou .....

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- Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining .....

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