TMI Blog2017 (8) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... ory. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a co-operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act. The appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such a society cannot claim the benefit of Section 80P of the Act. - Decided against assessee. - Civil Appeal No. 10245 of 2017 ( Arising Out of SLP (C) No. 20044 of 2015) - - - Dated:- 8-8-2017 - A. K. Sikri And Ashok Bhushan, JJ. For the Petitioner : Mr. K. Shivraj Choudhuri, AOR For the Respondent : Ms. Anil Katiyar, AOR JUDG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) Where, in the case of an assesee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in - (i) carrying on the business of banking or providing credit facilities to its members, or xx xx xx the whole of the amount of profits and gains of business attributable to any one or more of such activities: xx xx xx 4) Section 80P was amended by the Finance Act, 2006 with effect from April 01, 2007 and sub-section (4) was inserted thereto. This sub-section (4) reads as under: (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation. For the purposes of this sub-section, - (a) co-operative bank and primary agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2F had filed return of income before Assistant Commissioner of Income Tax, Circle-9(I), Hyderabad for the Assessment Year 2009-10, for the year ending March 31, 2009 on September 30, 2009 declaring NIL income. In the return filed for the Assessment Year 2009-10, year ending with March 31, 2009, the assessee claimed a sum of ₹ 4,26,37,081/- as deduction under Section 80P of the Act. Return filed by the assessee was taken up for scrutiny under CASS (Computer Assisted Selection of Cases for Scrutiny) and notice under Section 143(2) of the Act was issued. In response thereto, books of account were produced by the assessee society and information called for was submitted. The Assessing Officer had arrived at ₹ 19,57,32,920/- as the net amount of tax payable by the assessee in terms of his order dated December 19, 2011 by working out as hereunder: Income Returned by the assesee (After claiming deduction u/s 80P) : Rs. Nil Add: Disallowance u/s 68 as discussed in para no.2, 2.1 and 2.2 above : Rs.38,53,72,794/- Add: Disallowance of deduction claimed u/s 80P : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society is governed by the Banking Regulations Act. Therefore, the Society being a co-op bank providing banking facilities to members is not eligible to claim the deduction u/s. 80P(2)(i)(a) after the introduction of sub-section (4) to Section 80P. 24. In view of the above, we are of the opinion that the society is not eligible to claim deduction u/s. 80P(2)(a)(i). Therefore, we are of the opinion that the assessee is not entitled for deduction u/s. 80P(2)(a)(i) for Assessment Year 2006-07, 2007-08 and 2008-09 and allowed the ground raised by the Revenue and dismiss the ground taken by the assessee on this issue. 5.2 The facts in the present appeal being identical, respectfully following the decision of the ITAT in the assessee s own case for the preceding years, the appeal of the assessee is dismissed on the issue of deduction u/s. 80P. 8) Further appeal to the ITAT met the same fate as ITAT also referred to its aforesaid order and dismissed the appeal of the appellant. Undeterred, the appellant approached the High Court in the form of appeal under Section 260A of the Act. This appeal has been dismissed by the High Court with the observations that there is no ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness without possessing a licence from the Reserve Bank of India. He, thus, sought to draw the distinction between a co-operative bank and a co-operative society in the following manner: CO-OPERATIVE BANK CO-OPERATIVE SOCIETY Nature of business 1. As defined in Section 6 of Banking Regulation Act. 2. Banks are bound to follow the rules, regulations and directions 1. As per bye laws of the cooperative society. 2. Society is bound by rules issued by Reserve Bank of India and regulations as specified by (RBI), if any applicable. Inspection RBI has the power to inspect accounts and overall functioning of the bank. Registrar has the power to inspect accounts and overall functioning of the bank. Part V Part V of the Banking Regulation Act is applicable to cooperative banks. Part V of the Banking Regulation Act is not applicable to cooperative societies. Use of words The word bank , banker , bankin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision would have been deleted from the Statute. According to the learned senior counsel, the new proviso to Section 80P(4) which was brought onto Statute Book is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature in bringing the cooperative banks into the taxation structure was mainly to bring them on par with commercial banks. 13) Taking aid of the principle of mutuality, it was submitted that the assessee is a mutual concern. Income derived by it from its operations is distributed among members. The members are entitled to participate in the surplus, thereby creating an identity. Facilities are provided only to members of the society, who provide funds to it and their identity with the funds and their participation in the surplus arising from the said fund is unmistakably found and thus principles of mutuality will apply. In order to apply principle of mutuality, there must be complete identity between contributors and participators and requirement of law bring that contributors of the common fund and participators in the surplus must be an identical body. What is essential is that members of the assessee as a class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese deposits are mostly kept in FDs. (vi) With banks to earn maximum returns, a portion of these deposits are utilized to advance gold loans etc. to members of the first category. (vii) It is noticed that the assessee has fixed deposits of ₹ 541699504.39 of Rs. As on 31.3.2007. Therefore, the fixed deposits in banks are mostly out of funds received as deposits from the second category of persons referred above. (viii) As a class, the depositors and borrowers are quite distinct and the activity is finance business and cannot be termed as cooperative activity. (ix) The assessee is also engaged in the activity of granting loans to general public etc. which has nothing to do with cooperation amongst members. It is plain business and any willing buyer can utilize the services of the assessee. (x) As understood, the assesse has not obtained any approval from the Registrar of Societies either to accept deposits from nominal members (who are actually non-members as the provisions of law referred above) as well as for conducting the business of sale of stamps etc. (xi) Therefore, both in form and substance, the activity is in violation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive societies, namely: (i) those carrying on the business of banking and; (ii) those providing credit facilities to its members. 20) In the case of Kerala State Cooperative Marketing Federation Limited Ors. v. Commissioner of Income Tax (1998) 5 SCC 48, this Court, while dealing with classes of societies covered by Section 80P of the Act, held as follows: 6. The classes of societies covered by Section 80-P of the Act are as follows: (a) Engaged in business of banking and providing credit facilities to its members; xx xx xx 7. We may notice that the provision is introduced with a view to encouraging and promoting growth of cooperative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a cooperative society is exempt from tax what has to be seen is whether income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a co-operative bank. However, if it is a primary agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act. 24) Undoubtedly, if one has to go by the aforesaid definition of co-operative bank , the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P. 25) So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the interest has been earned on such investment for example, ING Mutual Fund [as said by the MD vide his statement dated 20.12.2010]. [Though the bank formed the third party vis-a-vis the assessee entitled between contributor and recipient is lost in such case. The other ingredients of mutuality are also found to be missing as discussed in further paragraphs]. In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent of whatsoever for participators as their identity is not established. Hence, the assessee fails to satisfy the test of mutuality at the time of making the payments the number in referred as members may not be the member of the society as such the AOP body by the society is not covered by concept of mutuality at all. 27) These are the findings of fact which have remained unshaken till the stage of the High Court. Once we keep the aforesaid aspects in mind, the conclusion is obvious, namely, the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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