Income Tax Appellate Tribunal - Panji
The Assistant Commissioner Of Income ... vs The Sankhali Urban Co-Op. Credit ... on 28 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
PANAJI BENCH, PANAJI
BEFORE SHRI P.K.BANSAL, HON'BLE ACCOUNTANT MEMBER
SHRI GEORGE MATHAN, HON'BLE JUDICIAL MEMBER
ITA No. 342/PAN/2016
(Asst. Year : 2012 - 13)
Asst Commissioner of v. M/s Sankhali Urban Co-
Income Tax, Circle - 2(1), Operative Credit Society Ltd.,
Aayakar Bhavan , "Shreya", Main Road,
EDC Complex, Patto, Panaji Gokulwadi, Snakhali
Goa
PAN No. AAATT 6235 A
(Appellant) (Respondent)
Assessee by : None
Department By : Shri Shivendra Gupta - DR
Date of hearing : 28/03/2017.
Date of pronouncement : 28/03/2017.
ORDER
PER GEORGE MATHAN, JUDICIAL MEMBER
1. This is an appeal filed by the revenue against the order of the learned CIT(A), Panaji-1 in appeal no. ITA.No.79/CIT(A)/PNJ-1/15-16 dated 25/10/2016 for the Assessment Year 2012 -13.
2. Shri Shivendra Gupta represented on behalf of the revenue and none represented on behalf of the assessee. However written submissions have been filed by the assessee.
3. The first common ground of the appeal is that, the CIT(A) erred in deleting the addition on account of disallowance of deduction in respect of Co-operative Society u/s 80P(2)(a)(i) on the ground that the assessee is a co-operative society accepting deposits from its members and lends 2 ITA No.342/PAN/2016 The Sankhali Urban Co-op Credit Society Ltd., money only to its members and cannot issue cheque books, when assessee accepts deposits and grants loans to its members on which it makes profit and gains by carrying interest, thus providing credit facility akin to banking business as per section 2(24)(viia) and Part-V of the Banking Regulation Act, 1949 hence the assessee is not eligible for deduction u/s 80P.
4. The facts of the case in the above appeal are that the assessee is a Co-operative Society registered under Maharashtra Co-operative Societies Act, 1960. The assessee's main object is to accept deposit and provide financial accommodation to its members and therefore it was claimed that it was entitled to deduction u/s 80P(2)(a)(i) under chapter (VIA) as it is a Co-operative Society carrying on the business of banking of providing credit facilities to its members. The Assessing Officer disallowed the claim of the assessee for deduction u/s 80P(2)(a)(i) on the ground that as per the provisions of Section 80P(4) read with section 2(24)(viia) w.e.f. 01.04.2007 definition of "income" has been enlarged to include profits and gains of any business of banking (including providing credit facilities) carried on by a Co-operative Society with its members.
5. On appeal the CIT(A) allowed the claim of the assessee by following the decision of the Hon'ble High Court of Bombay at Goa in Tax Appeals No. 22,23 & 24 of 2015, order dated 17.04.2015 wherein it was held as under :-
"There is no dispute between the parties that the appellant is a co-operative 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) of the Act. It is appellant's case that, it is not carrying on the business of the banking. Consequently, not being a co-operative bank the 3 ITA No.342/PAN/2016 The Sankhali Urban Co-op Credit Society Ltd., provisions of Section 80P(4) of the Act would not exclude the appellant from claiming the benefit of deduction under Section 80P(2)(a)(i) of the Act. However in terms of Section 80P of the Act the meaning of the words Cooperative Bank is the meaning assigned to it in Chapter V of the Banking Regulation Act, 1949. A cooperative bank is defined in Section 5(cci) of Banking Regulation Act to mean a State Cooperative bank. Admittedly, the appellant is not a State Cooperative Bank, a Central Cooperative Bank. Thus what has to be examined is whether the appellant is a Primary Cooperative Bank as defined in Para V of the Banking Regulation Act. Section 5(ccv) of the Banking Regulation Act defines a primary cooperative bank to mean a cooperative society which cumulatively satisfies the following three conditions :
1) Its principal business or primary object should be banking business of banking;
2) Its paid up share capital and reserves should not be less than rupees one lakh.
3) Its bye-laws do not permit admission of any other cooperative society as its member.
It is accepted position that condition No.(2) is satisfied as the share capital in an excess of rupees one lakh. It has been the appellant's contention that the conditions No. (1) and (3) provided above are not satisfied.
Therefore the issue that arises for consideration is whether the appellant satisfies condition No. (1) 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 4 ITA No.342/PAN/2016 The Sankhali Urban Co-op Credit Society Ltd., 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 seeking 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 CIT(A) in his order dated 15 July, 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 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 are 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 relied upon bye-law 43 of the society which enables the society to receive deposits to conclude that it can receive deposits form 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 findings 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 primary object of the appellant is concerned the impugned order gives no finding on that basis to deprive the appellant 5 ITA No.342/PAN/2016 The Sankhali Urban Co-op Credit Society Ltd., the benefit of Section 80P of the Act. The impugned order sets out the object clause of the appellant, which has 24 objects but thereafter draws no sequester to conclude that the primary object is banking. Consequently there is no occasion to deal with the same as that is not the basis on which the impugned order holds that it is a Primary Cooperative bank.
In the above view, the alternative contention of the appellant that it is not in the business of Banking as the sine quo non to carry on banking business is a license to be issued by the Reserve Bank of India, which it admittedly does not have, is not being considered.
So far as condition No.3 of the definition / meaning of Primary Cooperative Bank as provided in section 5(ccv) of the Banking Regulation Act is concerned, the same requires the bye laws of society contain a prohibition from admitting any other cooperative society as its member. In fact the bye- laws of the appellant society originally in bye-law 9(b) clearly provided that no co-operative society shall be admitted to the membership of the society. Thus there was a bar but the same was amended w.e.f. 12 January, 2001 as to permit a society to be admitted to the membership to the society. Therefore for the subject assessment years there is no prohibition to admitting a society to its membership and one of three cumulative conditions precedent to be a primary cooperative bank is not satisfied. However the impugned order construed the amended clause 9(d) of the appellant's bye laws to mean that it only permits a society to be admitted to the membership of the appellant and not a co-operative society. According to the impugned order, a society and a co- operative society are clearly words of different and distinct 6 ITA No.342/PAN/2016 The Sankhali Urban Co-op Credit Society Ltd., significance and the membership is only open to society and not to a 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 a co- operative registered under the Co-operative Act. Besides the qualifying condition 4 for being considered as a Primary Co- operative 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 cooperative 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 cooperative 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 an except condition (2) the other two qualifying conditions are not satisfied. Egro, appellant cannot be considered to be co-operative bank for the purposes of Section 80P(4) of the Act. Thus, the appellant is entitled to the benefit of deduction available under Section 80P(2)(a)(i) of the Act.
The contention of Ms. Dessai, learned Counsel for the revenue that the appellant is not entitled to the benefit of Section 80P(2)(a)(i) of the Act in view of the fact that it deals with non-members cannot be upheld. This for the reason that section 80P(1) of the Act restricts the benefits of deduction of income of co-operative 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 Se ction 80P of 7 ITA No.342/PAN/2016 The Sankhali Urban Co-op Credit Society Ltd., the Act 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 of the Act only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. Accordingly, the substantial question of law as framed is answered in the negative i.e. in favour of the appellant and against the respondent-revenue.
In view of the decision of the Hon'ble High Court, the AO is directed to allow the deduction u/s. 80P to the appellant. The appeal is allowed."
6. The Ld. DR could not point out any specific mistake in the order of the CIT(A). He could not point out any distinguishing feature in the present appeals before us.
7. We find that the CIT(A) has allowed deduction u/s 80P to the assessee by following the decision of the jurisdictional High Court. Therefore we find no merit in this ground of appeal of the revenue and hence they are dismissed.
8. In Ground No.2, of the appeal the grievance of the revenue is that the CIT(A) erred in holding that assessee Co-operative Society cannot be equated with banking with bank as such provisions of section 40(a)(ia) are not attracted in the assessee's case, when the assessee being a Co-operative society engaged in carrying on the business of banking is liable to make TDS u/s 194A. Hence expenditure claimed by the assessee towards interest payment exceeding Rs.10,000/- on term deposits on which TDS has not been made is disallowable u/s 40(a)(ia) of the Act.
8 ITA No.342/PAN/2016The Sankhali Urban Co-op Credit Society Ltd.,
9. The facts of the case are that the Assessing officer disallowed deduction for interest expenditure claimed by the assessee by invoking the provisions of section 40(a)(ia) for non-deduction of TDS thereon. On appeal the CIT(A) allowed the deduction observing as he has decided that the assessee Co-operative Society is not a bank and therefore TDS provisions are not applicable of the assessee.
10. Since we have confirmed the findings of the CIT(A) that the assessee is a Co-operative Society and not a bank and therefore TDS provisions are not applicable to the assessee. Hence, we confirm the order of the CIT(A) and dismiss this ground of appeal of revenue also.
11. In the result, the appeal of the revenue is dismissed.
Order pronounced in the court at the close of the hearing on Tuesday the 28th day of March, 2017 at Goa.
Sd/- Sd/-
(P.K.BANSAL) (GEORGE MATHAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated :28 t h March, 2017.
vssgb /-
Copy to:
1. The Assessee.
2. The Revenue.
3. The CIT
4. The CIT(A),
5. The D.R.
6. Guard file.
By order
Assistant Registrar
I.T.A.T., Panaji