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TMI Blog2018 (8) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in allowing deduction U/s 80P to the assessee even though assessee carries on the banking business and other business in the name of a co-operative credit society? 2. " On the facts and in the circumstances of the case in law, the Ld. CIT(A) has erred in allowing deduction U/s 80P(2)(a)(i) without considering inserted section 80P(4) and sub-clause (viia) to section 2(24) vide Finance Act, 2006 w. e. f. 01. 04. 2007? 3. "On the facts and in the circumstances of the case in law, the Ld. CIT(A) has erred in not considering the decision of the Supreme Court in the case of M/s Totgar Co-op Sales Society Ltd. (322 ITR 285) wherein interest received by a co-operative society from investment of surplus funds is assessable as "Income from Other Sources" and thus not eligible for deduction U/s 80P of the IT Act, 1961. "" 3. The assessee filed its return of income on 07-09-2012 declaring total income at 'Rs. Nil' after claiming deduction u/s. 80P of the 1961 Act to the tune of Rs. 82, 46, 705/- on the grounds that the assessee is a cooperative credit society and only business of the society is to grant medium term, short term and long term loans to its members. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee filed first appeal before learned CIT(A) . The assessee submitted that the assessee is not a Co-operative Bank rather the assessee is an employee Co-operative credit society engaged in providing credit facilities to its members of Tata Memorial Central . It was submitted that primary object of the assessee society is to receive deposits and to provide credit facilities to its members as per its byelaws . It was submitted that all the transactions are with members only . It was submitted that no deposits are accepted from public and nature of the business of the assessee is that of Co-operative credit society providing credit facilities to its members. It was submitted that it is a co-operative credit society registered under the Maharashtra Co-operative Society Act 1961 , providing credit facilities to its members. It was submitted that Banking Regulation Act, 1949 is not applicable to the assessee as it is registered under Maharashtra Co-operative Society Act, 1961. It was submitted that the society is not acting as clearing agent for cheques, DDs, pay orders etc. . It was submitted that the society is receiving deposits from members/share holders and loans are distributed to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ye laws and that all cooperative banks are mandatorily required by sec 22 of the Banking Regulation Act to obtain a banking license from the RBI. The bye laws of the appellant restrict it's activities as being confined to members. In fact, I specifically called for the registration certificate issued to the appellant by the Registrar of Cooperative Societies. The same reveals that the appellant is classified as a 'Resource Institution' and the sub classification is 'Loan giving Resource Institution'. 5. 3 The case laws quoted by the appellant as well as the AO squarely reveal that (i) where the assessee is in the business of banking by providing various facilities related to banking to the general public at large, the assessee is held to be a cooperative bank and (ii) where the activities of the assessee were limited to the acceptance of deposits from its own members alone and providing loan facilities to its own members only, without providing other banking facilities such as cheque books, drafts etc, the assessee is to be held as cooperative society and not a bank. 5. 4 From the facts of the instant case, it is quite clear that the appellant has li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from said activity, was claimed as deduction under section 80P(2) (a) (i). The Assessing Officer disallowed the appellant's claim on the ground that the appellant was a primary co-operative bank and, therefore, hit by the provisions of Section S80P(4) which excluded the benefit of section 80P. However, the Commissioner (Appeals) allowed assessee's claim holding that assessee was not a cooperative bank but a co-operative credit society. The Tribunal restored Assessing Officer's order. On appeal: HELD Section 80P provides deduction in support of income of co-operative societies. Sub-section (1) allows deduction to Co-operative Society to the extent its gross income includes any income referred to in sub-section (2) in computing its total income. Sub-section (2) refers to various incomes to which the deduction under sub-section (I) is available. In this case, the court is concerned with clause (a)(i) of sub-section (2), which refers to a co-operative society engaged in carrying on banking business or providing credit facilities to its members. Thus the deduction is available on either of the two activities i. e. , banking business or providing credit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not satisfied. [Para 9] Therefore the issue that arises for consideration is whether the appellant satisfies condition no. (I) 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 appellant 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 Commissioner (Appeals) in his order dated 15-7-2014. 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 deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of different and distinct significance and the membership is only open to society and not to 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 society 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 co-operative 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 co-operative 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessment year. The Ld. AR on the other hand drew our attention to the appellate order passed by learned CIT(A) for the impugned assessment year , more specifically para 5. 4 and 5. 5 of the order was brought to our attention and it was stated by learned counsel for the assessee that only employees of Tata Memorial Centre are eligible to become members and membership of the assessee society is not open to general public. Our attention was also drawn to the assessment order dated 21. 08. 2012 passed by AO for AY 2010-11 and it was submitted that the AO in assessee own case for AY 201-11 has allowed deduction to the assessee u/s 80P of the 1961 Act. The said assessment order dated 21. 08. 2012 for AY 2010-11 is placed in paper book at page no. 64 and 65 . It was submitted that Section 80P of the 1961 Act was amended and only co-operative banks were taken out of purview for denial of deduction u/s. 80P(2) as they are hit by provision of Section 80P(4) of the 1961 Act. Reliance is placed by learned counsel for the assessee on large number of cases to support its contentions , which are listed as under:- 1 Quepem Urban Co-operative Credit Society Ltd v. ACIT 377 ITR 272 (Bom-HC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions and perused the material on record including case laws relied upon . We have observed that the assessee has claimed itself to be a employees credit co-operative society which is receiving deposits and lending money to its members exclusively . A claim has been made by the assessee society that only past and present employees of Tata Memorial Central can become members of the society and the dealings of the assessee is restricted to these members only . Thus, the assessee society has categorically made statements that it deals exclusively with its members who are employees( both past and present) of Tata Memorial Centre and the assessee does not deal with public at large. The assessee claimed deduction from profits and gains from its above activities within provisions of 80P(2)(a)(i) of the 1961 Act. The assessee society is registered under Maharashtra Co-operative Society Act, 1961. The assessee undisputedly is not acting as clearing agent for cheques , DDs, pay orders etc . The assessee did not hold banking license issued by Reserve Bank of India. While on the other hand the learned AO is of the view that keeping in view provisions of Section 80P(4) r. w. s. 2(24)(viia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of identity between contributors and participant. We have also gone through the audited financial statements placed on record which does not evidence any evidentiary incriminating material/information which could prove the findings of the AO so far that the assessee is hit by provisions of Section 80P(4) of the 1961 Act. The assessee no doubt is accepting deposits of various kinds from its members and also extending the 'loans and advances' of various kinds to its members but it is not sufficient to hold that the assessee is engaged in banking business . Undisputedly the assessee is a credit co-operative society but this finding is not sufficient to categorise said society as banking institutions to deny benefit of deduction u/s 80P keeping in view provisions of Section 80P(4) of the 1961 Act unless sufficient incriminating evidences were brought on record by the AO to demolish the claims of the assessee. The AO himself in the preceding assessment year 2010-11 vide assessment order dated 21. 08. 2012 passed u/s 143(3) of the 1961 Act has allowed deduction u/s 80P of the 1961 Act. The learned CIT(A) has passed well reasoned detailed order reversing the decision of the AO, with wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . to the members of the first category. It is found, as a matter of fact, that the 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. 26) It is in this background, a specific finding is also rendered that the principle of mutuality is missing in the instant case. Though there is a detailed discussion in this behalf in the order of the Assessing Officer, our purpose would be served by taking note of the following portion of the discussion: "As various courts have observed that the following three conditions must exist before an activity could be brought under the concept of mutuality; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom assessee society based on material on record which is before the tribunal. This aspect whether there is any breach of principles of mutuality on account of loss of complete identity between contributors and participants of surplus requires to be verified from records of the assessee society in context of recent decision of Hon'ble Supreme Court in the case of The Citizen Co-operative Socierty Limited (supra) so far as these 'Nominal Members' are concerned and to determine whether the assessee society gets disentitled to deduction u/s 80P based on breach of principles of mutuality as identity between contributor and participant was lost which the AO shall determine in set aside proceedings. The Constitution of India vide Article 265 provides that taxes not to be imposed save by authority of law . No tax shall be levied or collected except by authority of law. The mandate being to levy and collect correct taxes on correct income computed under authority of law. The tribunal has wide powers to pass such orders as it deems fit which is the mandate of Section 254(1) of the 1961 Act . Thus in our considered view under these circumstances, in the interest of justice and fairness to bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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