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ITO, Patan Ward-3, Mehsana Versus Sardar Patel Co-op. Credit Society Ltd.

2016 (5) TMI 762 - ITAT AHMEDABAD

Entitlement to the benefit of deduction u/s 80P(2)(a)(i) - Held that:- Assessee being a credit coop. society does not fall within the provisions of section 80P(4) of the Act as the assessee society is not required to be registered with Reserve Bank of India because for carrying on banking business it is must. We are therefore of the view that assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act and no interference is called for in the order of ld. CIT(A) relating to this ground - Decid .....

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dra Yadav, JM, & Shri Manish Borad, AM. For The Appellant : Shri Dinesh Singh, Sr.DR For The Respondent : Shri H. V. Doshi, AR ORDER PER Manish Borad, Accountant Member. This appeal by Revenue and the Cross Objection by the assessee are directed against the order of ld. CIT(A), Gandhinagar, Ahmedabad, dated 11.5.2012 in appeal no.CIT(A)/GNR/158/2011-12. Assessment was framed u/s 143(3) of the IT Act, 1961 (in short the Act) for Asst. Year 2009-10 on 18/11/2011 by ITO, Patan Ward-3, Mehsana. .....

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Objection are as under :- 1. The learned CIT(A) has erred in law & facts in disallowing deduction u/s. 80-P to the extent of ₹ 63190/- by treating the income from interest on bank deposits as taxable u/s, 56 of I.T. Act. 2. The Appellant, therefore/prays that the learned Income tax officer may be directed to modify the assessment accordingly 3. Briefly stated facts as culled out from the records are that assessee is a co-operative credit society. It filed its return of income on 18/9/2 .....

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i) of the Act at ₹ 35,90,297/-. Ld. Assessing Officer was of the view that assessee being a co-operative bank and is therefore, not eligible for deduction u/s 80P(2)(a)(i) of the Act because of the insertion of section 80P(4) of the Act from Asst. Year 2007-08 and the reply of the assessee that it is not a co-operative bank but is a credit cooperative society and provisions of section 80P(4) are not applicable on the assessee, could not change the mind of the Assessing Officer and he was o .....

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edit society which confines its activities only to its members and does not perform banking function and allowed the ground of assessee for deduction u/s 80P(2)(a)(i) of the Act. However, on going through the financial statement of the co-op. credit society, ld. CIT(A) observed that assessee has earned bank interest and calculated the same at ₹ 63,190/- as interest income taxable u/s 56 of the Act and for doing so ld. CIT(A) followed the decision of Hon. Supreme Court in the case of Totgar .....

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o deduction u/s 80P(2)(a)(i) of the Act. 8. We have heard the rival contentions and perused the material on record. The only issue raised by Revenue is against the action of ld. CIT(A) deleting the disallowance of ₹ 35,90,300/- made u/s 80P(2)(a)(i) of the Act. From perusal of the record, we observe that assessee is a co-op. credit society which confines its business only to its members and objects of the assessee society depicts the picture of the working of the society wherein the object .....

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ts of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. The definition is basic law to be considered to decide whether a credit society is a co-operative bank or not. Only, those credit societies which are allowed to take deposits of money from the public and do other banking activities as defined in the sec 5(b) of Banking Regulation Act would quality to be a cooperative bank. In my considered view deposits from public cannot be equiva .....

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o strengthen this sector. The report was published on 14/01/2000 and in para. 7.1 & 7.2 of the report, the following has been narrated: "7.1 Cooperative credit structure in India is characterised by a plethora of institutional segments. Leaving aside the agricultural cooperative credit institutions, in the urban cooperative credit fold itself, there are 3 types of institutions recognised by the Banking Regulation Act 1949 (As Applicable to Cooperative Societies). As discussed else where .....

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their members alone and who do not ,v perform banking functions. In this chapter, the Committee deals with these cooperative credit societies. 7.2 Under the provisions of Section 5(ccii) of Banking Regulation Act, 1949 (AACSJ, a cooperative credit society is defined as a cooperative society, "the primary object of which is to provide financial accommodation to its members and includes a cooperative land mortgage bank." This type of institutions are thrift societies. The distinction bet .....

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s. But it can carry on banking business until it is granted a license or notified that a license cannot be granted to it." The above report clearly defines the circumstances in which a credit society can be allowed to carry on banking business. These include 'Primary Credit Society', when its paid up capital and reserve attain the level of ₹ 1 lac, which can carry on business of banking until it is granted a license or notified that a license cannot be granted to it. These cre .....

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n Sanmitra Sahakari Pathped Ltd. 12 taxmann.com 246 ; where both the CIT (Appeals) and the HAT have held that the corporative credit society in that case was not a cooperative bank. Therefore, it is held that the appellant is entitled to the benefit of deduction u/s 80P(2)(a)(i) of the IT Act. 9. We are, therefore, of the view that assessee being a credit coop. society does not fall within the provisions of section 80P(4) of the Act as the assessee society is not required to be registered with R .....

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dition of ₹ 63,190/- has been made by ld. CIT(A) by way of disallowing deduction u/s 80P(2)(a)(i) of the Act on the interest earned from bank deposits by treating it as taxable income u/s 56 of the Act by applying the decision of Hon. Supreme Court in the case of Totgars co-op. Sale Society Ltd. vs. ITO(supra). 12. At the outset ld. AR submitted that the issue raised in this cross objection is squarely covered by the decision of co-ordinate bench in the case of ITO vs. M/s Jafari Momin Vik .....

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pra). 13. Ld. DR supported the order of ld. CIT(A). 14. We have heard the rival contentions and perused the material on record. Solitary grievance raised by the assessee in its Cross Objection is arising out of the decision of ld. CIT(A) who has held that interest income on bank deposits at ₹ 63,190/- is taxable as income from other sources u/s 56 of the Act and is not eligible for deduction u/s 80P(2)(a)(i) of the Act as it has not earned the same through the regular activities relate to .....

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rt in the case of Totgars co-op. Sale Society Ltd. vs. ITO(supra) and has come to a conclusion that looking to the nature of business of the assessee credit co-op. society wherein it accepts deposits from and lends the same to its members and in order to meet any eventuality liquidity funds needs to be maintained and for this purpose short term deposits are kept with the banks which fetch bank interest and similarly interest is also earned on the bank balances and certainly such interest earned .....

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rest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that 13 of the present one was dealt with by the Hon ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of .....

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t of such amount. Since the fund created by such by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is-whether interest on such deposits/securities, which strictly speaking accrues to the members account, could be taxed as business income under section 28 of the Act? in our view, such interest income would come in the category of income from other sources , hence, such interest income would be taxable under sect .....

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e(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the 14 assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tr .....

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ely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilari .....

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