TMI Blog2018 (8) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... etween 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 (2018 (1) TMI 290 - SUPREME COURT OF INDIA) 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 both the parties, the matter need to be restored to the file of the AO for limited purposes of verifying as to the rights, roles , entitlements , dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative credit society and only business of the society is to grant medium term, short term and long term loans to its members. The assessee made a claim before the AO that it provides credit facilities to its members only and hence assessee was entitled for deduction u/s. 80P(2)(a)(i) of the 1961 Act to the extent of whole of the profits and gains from business of providing credit facilities to its members. The assessee submitted that it is credit co-operative society providing credit facility to its members duly registered with Maharashtra Co-operative Society Act, 1961 and Section 80P(4) has no applicability. The assessee submitted that it cannot act as clearing agent for Cheques, DDs, Pay orders etc. . It was submitted that it receives deposits from members/shareholders and distribute loans to Members/Shareholders. It was submitted that the assessee did not possess a license from RBI to carry on banking business. It was submitted that provisions of Section 80P(4) has applicability only to Co-operative Banks and not to Credit Co-operative Societies. The AO vide assessment order dated 26-03-2015 passed u/s 143(3) of the 1961 Act denied the deduction u/s 80P(2)(a)(i) of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent for cheques, DDs, pay orders etc. . It was submitted that the society is receiving deposits from members/share holders and loans are distributed to members/share holders. It was submitted that the assessee is Co-operative credit society registered under Maharashtra Co-operative Society Act, 1961 , providing credit facilities to its members and hence deductions u/s 80P(2)(a) and 80P(2)(d) of the 1961 Act was claimed. Thus it was submitted that it is not hit by the provision of Banking Regulation Act, 1949 and the provisions of Section 80P(4) of the 1961 Act. It was submitted that the assessee did not obtained any banking license from RBI. It was submitted that the assessee is entitled for deduction u/s. 80P(2)(a) and 80P(2)(d) of the 1961 Act . The learned CIT(A) considered the submissions of the assessee and allowed the appeal of the assessee by holding as under, vide appellate order dated 03-11-2016:- 5. DECISION: I have carefully considered the matter. All the grounds of appeal even though argumentative are directed against the action of the AO in disallowing the claim of the appellant for a deduction u/s 80P(2)(a)(i) and u/s 80P(2)(d). All the grounds are therefore di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 limited himself to his own members. The appellant has not provided banking facilities either to the general public at large or even to the members of the society. Even the bye laws of the appellant does not provide for banking activities. Therefore facts of this case are not identical with any of the case laws relied upon by the AO. On the other hand, the facts of the instant case are almost similar to the decisions of the ITAT Nagpur Panaji Benches in the cases of (i) ACIT vs Buldana Urban Coop Credit Soc Ltd 32 Taxman 69, ITAT Nagpur and (ii) DCIT vs Jayalaxmi Mahila Vividodeshagala Souharda Sahakari Ltd, Karwar by ITAT Panaji Bench 23 Taxman 313 where the activities of the assessee were limited to the members of a specific group and the area of operations was also limited to the acceptance of deposits of members and providing credit facilities to only members, which have been held as not falling under banking activities as defined in the Banking Regulation Act. I also find that the matter is now squarely covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 facilities to its members. The court is not concerned with the other sub-clauses of sub-section (2) or sub-section (3) of section 80P(4) for the purposes of this case. Sub-section (4) provides that section 80P will not apply in relation to a cooperative bank other than a primary agricultural credit society or primary agricultural and rural development bank. Before the instant court, the appellant is not claiming to be a primary agricultural credit society or primary agricultural and rural development bank but it claims to be engaged in providing credit facilities and not a banking society. Thus, not hit by sub section (4) of section 80P. [Para 8] There is no dispute between the parties that the appellant is a cooperative society as the same is registered under the Co-operative Societies Act. The appellant is claiming deduction of income earned on providing credit facilities to its members as provided under section 80P(2)(a)(i). It is appellant's case that, it is not carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 than 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 were 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 by-law43 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 finding 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 prim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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). Thus, the appellant is entitled to the benefit of deduction available under section 80P(2)(a)(i). [Para 12] The contention of the revenue that the appellant is not entitled to the benefit of section 80P(2)(a) in view of the fact that it deals with non-members cannot be upheld. This for the reason that section 80P(1) restricts the benefits of deduction of income of cooperative 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 S80P would not be available. In the above view of the matter, at the time when effect has been given to the order of this court, the authorities under Act would restrict the benefit of deduction under section 80P only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. [Para 13] Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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) 2 Pr. CIT v. Goa PWD Staff Co-op Credit Society Ltd 73 Taxmann. com 381 (Bom-High Court) 3 CIT v. Ekta Co-op Credit Society Ltd ' 91 Taxmann. com 42 (Guj-HC) 4 CIT v. Jafari Momin Vikas Co-op Credit Society Ltd 362 ITR 331 (Guj-HC) 5 CIT v. Surat Vankar Sahakari Sangh Ltd 43 Taxmann. com 431 (Guj-HC) 6 Belgaum Merchants Co-op Credit Society Ltd 64 Taxmann. com 274 (Kar-HC) 7 Meghraj Taluka Primary Teachers Co-op. Credit Society Ltd v. ITO ITA No. 410/ Ahd/ 2013 (Set of 16 appeals) 8 ITO v. Mumbai Teleworkers Co-op. Credit Society Ltd ITA No. 7106/ Mum/ 2012 (Mum-ITAT) 9 ITO v. Jankalyan Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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) of the 1961 Act and also provisions of Section 56(c)(ccv) of Part V of Banking Regulation Act, 1949, the assessee is a primary co-operative bank and is not eligible for deduction as are contained in provisions of Section 80P of the 1961 Act. The learned CIT(A) held in favour of the assessee holding that it is entitled for deduction u/s 80P of the 1961 Act as it is not engaged in the business of banking as there is no evidence/facts brought on record by the AO to prove that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers 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 which we concur. There are several judicial decisions cited by learned AR to support its contentions which are detailed above and not repeated . So far so good. We have at the same time observed that Hon ble Supreme Court in a recent landmark judgment in the case of The Citizen Co-operative Society Limited(supra) has discussed the issue threadbare and held that no deduction u/s 80P can be allowed where the tax-payer society are dealing with nominal members who are just givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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; that no person can earn from him; that there a profit motivation; and that there is no sharing of profit. It is noticed that the fund invested with bank which are not member of association welfare fund, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 both the parties, the matter need to be restored to the file of the AO for limited purposes of verifying as to the rights, roles , entitlements , duties and responsibilities of these Nominal Members in context of the decision of the Hon ble Supreme Court in the case of The Citizen Co-operative Society Limited(supra) as per our elaborate discussions above. Needless to say that the AO shall provide proper and adequate opportunity of being heard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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