Income Tax Appellate Tribunal - Ahmedabad
Jafari Momin Vikas Co-Op. Credit ... vs Assessee on 4 September, 2012
1
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALANKAMONY, AM)
ITA No.1491/Ahd/2012
A. Y.: 2009-10
The Income Tax Officer,Ward-2, Vs M/s. Jafari Momin Vikas Co-op
Patan, 1st Floor, Santoka Hall, Credit Society Ltd.,
Rajmahal Road, Patan At & PO - Kakoshi, Tal-Sidhpur,
Dist. Patal - 384 290
P. A. No. AAAAJ 1053 F
(Appellant) (Respondent)
C.O. No.138/Ahd/2012
(In ITA No.1491/Ahd/2012:Y.: 2009-10)
M/s. Jafari Momin Vikas Co-op Credit Vs The Incomest Tax Officer,Ward-
Society Ltd., 2, Patan, 1 Floor, Santoka
At & PO - Kakoshi, Tal-Sidhpur, Dist. Hall,
Patal - 384 290 Rajmahal Road, Patan
P. A. No. AAAAJ 1053 F
(Cross Objector) (Respondent)
Department by Shri S. P. Talati, Sr. DR
Assessee by Shri A. C. Shah, AR
Date of hearing: 04-09-2012
Date of pronouncement: 31-10-2012
ORDER
PER A. MOHAN ALANKAMONY: These two appeals - (i) one by the Revenue; and (ii) cross objection by the assessee - are directed against the impugned order of the Ld. CIT (A), Ahmedabad in Appeal No. CIT (A)/GNR/63/2011-12 dated 17.4.2012 for the assessment year 2009-10.
2I. ITA NO.1491/A/2012 - by the Revenue:
2. The Revenue has raised three grounds in which Ground Nos.2 and 3 are general in nature and do not survive for adjudication.
Ground No.1 relates to a solitary issue, namely, "the CIT (A) has erred in allowing deduction u/s 80P (2)(a)(i) of the Act, amounting to Rs.71,88,101/-."
II. C.O NO.138/A/2012 - by the assessee:
3. The assessee's lone cross objection relates to an issue that "the CIT (A) has erred in disallowing deduction u/s 80P to the extent of Rs.6,40,639/- by treating the income from interest on bank deposit as taxable u/s 56 of the Act."
4. As the issues raised by the rival parties pertaining to the same assessment year, they were heard, considered together and disposed off, for the sake of convenience, in this consolidated order.
I. ITA NO.1491/A/2012 - by the Revenue:
5. Briefly stated, the assessee, a co-operative Credit Society, engaged in providing credit facilities to its members, had furnished its return of income, admitting NIL income by claiming deduction u/s 80P (2)(a) of the Act. The return was initially processed u/s 143(1) of the Act and, subsequently, taken up for scrutiny by the AO. During the course of assessment proceedings, the assessee was required to furnish its reply as to why the claim of deduction u/s 80P (2) of the 3 Act should not be disallowed in view of insertion of sub-section (4) of s. 80P of the Act.
6. After due consideration of the assessee's contentions and for the reasons recorded in the assessment order, the AO had disallowed the assessee's claim on the prime reasoning that -
"4.......................................................................................... ........ In view of the above, co op credit society which are not covered under the agricultural credit society as the bye laws does not permit to providing the finance facilities for the agricultural purposes only and in view of the above are not covered as agricultural credit society, so it does not eligible to claim deduction u/s 80P (2)(a) of I.T. Act. The assessee also failed to prove the advance granted for the agricultural purposes and the same was utilized for the agricultural purposes.
It is crystal clear that the assessee is not a primary agricultural co-op society and, hence, the deduction claimed by the assessee u/s 80P (2)(a) of I.T. Act is not allowable."
7. Aggrieved, the assessee took up the issue with the Ld. CIT (A) for relief. After considering the assessee's contentions and in consonance with his findings on an identical issue for the earlier assessment year in the assessee's own case as extracted in his order under consideration, the CIT (A) held that the assessee was entitled for the benefit of deduction u/s 80P(2)(i) of the Act.
8. Agitated, the Revenue has come up with the present appeal. During the course of hearing, the learned DR supported the stand of the AO. Extensively quoting the insertion of sub-section (4) of s.80P of the Act w. e. f. 1.4.2007 which has been duly analyzed by the AO, the learned D R pleaded that the stand of the CIT(A) requires to be reversed on this point.
49. On the other hand, the learned A R came up with a lengthy submission, the substance of which is summarized as under:
- that the assessee is a credit society engaged in the business of providing credit facilities to its members by accepting deposits from the members and lending to them; and that providing credit facilities to his members is the only activity carried on by the assessee;
- that from the objects of the assessee extracted hereunder clearly exhibits that the assessee is a credit society engaged in the business of providing credit facilities to its members:
(i) To encourage saving and thrift and mutual co-courage saving and thrift and mutual co-operation among to members ;
(ii) To accept deposits from members
(iii) To makes saving schemes for collection of deposits;
(iv) To give loans to members;
(v) To give loans to members by getting cash credit for central loan institution;
(vi) To work as insurance agent for insurance of life and assets of members; &
(vii) To purchase, to sale, to make lease, to construct movable and immovable assets for working of society.
- that the assessee had claimed deduction of the profit of Rs.7.28 lakhs as per s. 80P (2)(a)(i), but, the AO erred in disallowing the same on the ground that the assessee is not primary agricultural credit society or a primary co-operative agricultural and rural development bank in view of insertion of sub-section (4) of s.80P of the Act;
- that the CIT (A) in his order under dispute, held that the assessee is a credit society and, thus, eligible for deduction;
- that s. 80P(2)(a)(i) grants deduction of the whole of profits of business of Co-op Bank and Credit societies; and that the deduction granted to Co-op Bank is withdrawn by insertion of 5 sub-section (4) to s. 80P, however, it was argued, the insertion does not take away the deduction of profit in the case of credit society engaged in providing credit facilities to its members;
- To drive home his point, the learned A R had placed strong reliance on the following case laws:
(i) Totgars Co-Op. Sale Society Ltd v. ITO - 322 ITR 283 (SC);
(ii) DCIT v. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd - ITA Nos. 01 to 03/PNJ/2012 dt: 30.3.2012; &
(iii) ACIT v. M/s. Bangalore Commercial Transport Credit Co-
op Society Ltd. In ITA No. 1069/Bang/2010 dated 8.4.2011.
In conclusion, it was prayed that the findings of the CIT (A) requires to be sustained.
10. We have carefully considered the rival submissions, perused the relevant materials available on record and also the case laws on which the learned AR had reposed his confidence.
10.1 We shall now proceed to analyze the legal view on the issue as under:
(i) ACIT v. M/s. Bangalore Commercial Transport Credit co-op.
Society Ltd. ITA No.1069/Bang/2010 dt. 8.4.2011:
In this case, the assessee was a co-operative Society registered under the Co-operative Society Act. During the assessment year under consideration, the assessee's claim u/s 80 P(2) (a) (i) of the Act was denied by the AO on the premise that the assessee was doing banking business and, therefore, not entitled to the claim by 6 virtue of introduction of sub-sec. 4 to s.80P of the Act. After duly analyzing the provisions of sub-section 4 to s. 80P, the Hon'ble Bench has recorded its findings as under:
"9.3. If the intention of the legislature was not to grant deduction u/s 80P(2)((a)(i) to co-operative societies carrying on the business of providing credit facilities to its members, then, this section would have been deleted. The new proviso to section 80P (4) which is brought into Statute is applicable only to co-operative banks and not to credit co-operative societies. The intention of the legislature of bring in co-operative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a co-operative society and not a co-operative bank, the provisions of section 80P(4) will not have application in the assessee's case and, therefore, it is entitled to deduction u/s 80P (2)(a)(i) of the Act................."
(ii) DCIT v. Jayalakshmi Mahila Vividodeshagala Soudharda Saharkari Ltd in ITA No. 1 to 3/Pnj/2012 & ITA No.4 to 6/Pnj/2012 dated 30.3.2012:
Precisely the issue before the Hon'ble Panaji Bench of the Tribunal was -
"1. Whether on the facts and circumstances of the case, the CIT (A) was correct in holding that the provisions of sub-section (4) of s. 80P are applicable only to co-operative banks and not to credit co-operative societies which are engaged in business of banking, including providing credit facilities to their members; &
2. Whether on the facts and circumstance of the case that CIT (A) was correct in holding that the assessee is a co-operative society and not a co- operative bank in terms of sub-section (4) of s. 80P without considering the meaning of co-operative bank as envisaged under part V of Banking Regulation Act 1949 wherein it is defined that co-operative bank includes primary co-operative bank which is further defined as co-operative society with the primary object of transactions of banking business."
10.2 After comprehensively analyzing the issue as well as the provisions of s.80P(4) of the Act, objects of the society and taking into account the contentions of either party, the Hon'ble Bench had recorded its findings as under:
7"12. From the aforesaid objects, it is apparent that none of the aims and objects allows the assessee co-operative society to accept deposits of money from public for the purpose of lending or investment. In our opinion until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. Therefore, the assessee will not comply with the first condition as laid down in the definition as given u/s 5(ccv) of the Banking Regulation Act, 1959 for becoming 'primary co-operative bank'. The assessee, therefore, cannot be regarded to be a primary co-operative bank and in consequence thereof, it cannot be a co-operative bank as defined under part V of the Banking Regulation Act 1949. Accordingly, in our opinion the provisions of section 80P (4) read with Explanation there under will not be applicable in the case of the assessee. The assessee, therefore, in our opinion, will be entitled for the deduction u/s 80P (2)(a)(i).........."
10.3 Further, to make the issue explicitly clear we herein below quote Section 80P (1) and (2) (a) (i) of the Act:-
"Deduction in respect of income of co-operative societies
80. P.(1) Where, in the case of an assessee 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 following, namely:-
(a) in the case of a co-operative society engaged in -
(i) carrying on the business of banking providing credit facilities to its members, or"
10.4 Thus, the provisions of section 80 P(2) (a) (i) specifically provide deduction in respect of co-operative societies engaged in carrying on the business of banking providing credit facilities to its 8 members. Section 80 P(4) which stipulates that "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" only takes out co-operative banks from the ambit of deduction u/s 80 P of the Act but further grants exemption to co-operative bank which is primarily an agricultural credit society or co-operative agricultural and rural development bank. This view is also clarified by Central Board of Direct Taxes vide its clarification No. 133/06/2007-TPL dated 9th May 2007. Further, the distinction between co-operative society under Banking Regulations Act, 1949 and co-operative society registered under State Co-operative Societies Act, Viz. Karnataka State Co- operative Societies Act, 1959 is vividly brought out in the ITAT Order, Bangalore Bench in the case of ACIT Vs Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010 for AY 2007-08 dated 08-04-2011 as under:
Nature Co-operative Society Co-operative Society registered under Banking registered under Karnataka Regulation Act,1949 Co-operative Societies Act, 1959 Registration Under the Banking Co-operative Societies Act, Regulation Act, 1949 and 1959 Co-operative Societies Act, 1959 Nature of 1. As defined in 1. As per the bye laws Business section 6 of of the co-operative Banking Regulation society.
Act. 2. Society cannot open
2. Can open savings savings bank bank account, account, current 9 current account, account, issue letter overdraft account, of credit, discounting cash credit bills of exchange, account, issue issue cheques, letter of credit, demand drafts, pay discounting bills of orders, gift cheques, exchange, issue lockers, bank cheques, demand guarantees etc. draft(DD), Pay 3. Society cannot act as Order, Gift clearing agent for cheques, lockers, cheques, agent for bank guarantees cheques, DDs, pay etc. orders and other
3. Co-operative Banks forms.
can act as clearing 4. Society are bound by agent for cheques rules and regulations DDs, pay orders as specified by in the and other forms. co-operative societies
4. Banks are bound to act.
follow the rules,
regulations and
directions issued by
Reserve Bank of
India (RBI)
Filing of Co-operative banks have Society has to submit the
returns to submit annual return to annual return to Registrar
RBI every year. of Societies.
Inspection RBI has the power to Registrar has the power to
inspect accounts and inspect accounts and
overall functioning of the overall functioning of the
bank. bank.
Part V Part V of the banking Part V of the Banking
Regulation Act is Regulation Act is not
applicable to co- applicable to co-operative
operative banks. banks.
Use of The word 'bank', The word 'bank', 'banker',
words 'banker', 'banking' can be 'banking' cannot be used
used by co-operative by a co-operative society.
bank.
10
10.5 Thus, taking into account of all the facts and the issue
we are in conformity with the order of the learned CIT(A) and accordingly hold that the assessee is entitled to the benefit of deduction u/s 80P (2)(a)(i) of the Act.
II. C.O NO.138/A/2012 - by the assessee:
11. The grievance of the assessee in its cross objection is that the CIT (A) had erred in disallowing deduction u/s 80P of the Act to the extent of Rs.6.4 lakhs.
12. Briefly, the AO had disallowed the entire claim of Rs.78,28,742/- which included interest income of Rs.6,40,639/- u/s 80P (2)(a) of the Act.
13. Aggrieved, the assessee took up this issue before the CIT (A) for relief. The CIT (A), after elaborately quoting the ruling of the Hon'ble Supreme Court in the case of Totgars Co-Op. Sale Society Ltd. V. ITO cited supra, came to the conclusion that the interest income is taxable u/s 56 of the Act. The reasons recorded by the CIT (A) are as under:
"6............................................................................................ ......
(On Page 8) In the light of the above, the interest income, if any, earned from keeping the surplus fund in banks would be taxable u/s 56 and will not qualify for deduction u/s 80P. It is seen that the total interest earned from bank i.e., Dena Bank and Development Bank is Rs.19,13,743/-. The appellant has mixed funds wherein the members' interest free contribution and accumulated profits are mixed with interest bearing funds. The interest earned from members is Rs.1,84,56,163/- and interest paid is Rs.1,36,20,112/-. The appellant has taken net amount of interest i.e., 11 Rs.48,36,151/- to the P & L account. Besides, the appellant has interest from co-operative societies exempt u/s 80P(2)(d) of the Act, totaling Rs.1,03,943/-. Therefore, for earning total interest of Rs.2,04,73,899/-, the appellant has spent Rs.1,36,20,112/-. Taking on pro-rata basis, the interest expenses on earning the interest from bank taxable u/s 56 would be Rs.12,73,104/- [Rs.1913743 x 13620112 / Rs.20473899]. Therefore, the interest income which is taxable u/s 56 and is not exempt would be Rs.6,40,639/- [Rs.1913743 - 1273104]................."l
14. Agitated, the assessee has come up with the present appeal [cross objection] before us.
15. During the course of hearing, the submissions made by the learned A R are summarized as under:
- that the CIT (A) had held that interest of Rs.6.4 lakhs from short term deposit was taxable as income from 'other sources' u/s 56 of the Act by placing reliance of the Hon'ble Supreme Court in the case of Totgars Co.op Sale Society Limited (supra);
- that the CIT (A) had misconception in following the said decision; that, in fact, the Hon'ble Court had held that 'if there is surplus funds not required immediately for the purpose of business and, if invested in short term deposits than income there-from is taxable as income from 'other source' u/s 56...' However, the present assessee drew the AO's attention to the fact that the assessee was bound to keep money ready for repayment of deposit to its members on maturity and, therefore, the same was kept invested in bank. For such reasons it was argued that the assessee had no surplus funds and the ratio of the Hon'ble Supreme Court (supra) has no application to the assessee's case;
- that, without prejudice, the CIT (A) had treated the interest income of Rs.6.4 lakhs income from 'other sources' u/s 56 of the Act which amounted to enhancement of income; and that the assessee was not served with any show-cause notice for enhancement of the assessee's income; & 12
- that as per the assessment order, the assessee's income was determined at Rs.78,28,740/- u/s 28 of the Act by disallowing the claim of the assessee u/s 80P(2)(a)(i) of the Act. The same was challenged before the CIT (A). The CIT (A) held that the assessee is eligible for deduction u/s 80P (2)(a)(i), however, disallowed interest income of Rs.6,40,639/- on short term deposits is taxable u/s 56 of the Act. The CIT (A) had gone beyond the subject matter of appeal as he cannot tax the source which was not processed by the AO in the assessment order. The AO had treated the entire income u/s 28, but, gave no findings regarding the income from 'other sources' u/s 56. Therefore, it was argued, the addition of Rs. 6.4 lakhs u/s 56 of the Act was bad in law.
- relies on the case law - CIT v. Sardari Lal & Co. 251 ITR 864 (Del).
16. On the other hand, the learned D R had fully supported the stand of the CIT (A) and urged that the assessee has no cause to agitate and, therefore, pleaded that the findings of the CIT (A) require to be sustained.
17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation in it's applicably in the circumstances of the assessee's case.
18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest 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 the Act.
19. The issue dealt with by the Hon'ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under:
"What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment 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 section 56 of the Act, as rightly held by the assessing officer..."
19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon'ble Supreme Court -
"(On page 286) 7............Before the assessing officer, it was argued by the assessee(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 Tribunal and the High Court, hence, these civil appeals have been filed by the assessee(s)."
19.2 From the above, it emerges that -
(a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits;
(b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members;
(c) that assessee carried on two activities, namely, (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 dissimilarities emerge, namely:
(1) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds;
- in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members;
(2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such;
15- in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds;
19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source: Balance Sheet of the assessee available on record] 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s 56 of the Act. It is ordered accordingly.
19.7 Before parting with, we would, with due regards, like to record that the ruling of the Hon'ble jurisdictional High Court in the case of CIT v. Manekbang Co-op Housing Society Ltd reported in (2012) 22 Taxmann.com 220(Guj) has been kept in view while deciding the issue.
1620. In the result (i) the Revenue's appeal is dismissed; &
(ii) the assessee's Cross Objection is allowed.
Order pronounced in the open Court on 31-10-2012 Sd/- Sd/-
(D. K. TYAGI) (A. MOHAN ALANKAMONY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Lakshmikanta
Lakshmikant a Deka/
Deka/--
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: 26-10-12/30-10-12 - direct on computer.
2. Date on which the typed draft is placed before the Dictating Member: 30-10-12 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement:
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: