Income Tax Appellate Tribunal - Ahmedabad
Sardar Patel Co.Op.Credit So.Ltd.,, ... vs Assessee on 7 April, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' A " BENCH - AHMEDABAD
Before Shri Shailendra Yadav, JM, & Shri Manish Borad, AM.
ITA No.1723 /Ahd2012
Along with C.O. No.161/Ahd/2012
Asst. Year:2009-10
ITO, Patan Ward-3, Mehsana Vs. Sardar Patel Co-op.
Credit Society Ltd., Plot
No.19, Juna Ganj Bazar,
Vijapur
Appellant Respondent
PAN AAAAT 4741 N
Appellant by Shri Dinesh Singh, Sr.DR
Respondent by Shri H. V. Doshi, AR
Date of hearing: 6/4/2016
Date of pronouncement: 07/04/2016
ORDER
PER Manish Borad, Accountant Member.
This appeal by Revenue and the Cross Objection by the assessee are directed against the order of ld. CIT(A), Gandhinagar, Ahmedabad, dated 11.5.2012 in appeal no.CIT(A)/GNR/158/2011-12. Assessment was framed u/s 143(3) of the IT Act, 1961 (in short the Act) for Asst. Year 2009-10 on 18/11/2011 by ITO, Patan Ward-3, Mehsana. Revenue has raised following grounds of appeal :-
ITA No. 1723 & CO.161/Ahd/2012 2Asst. Year 2009-10
1. The learned CIT (Appeals) has erred in law and on facts in deleting the disallowance of Rs.35(90,300 made by the AO u/s.80P(2)(a)(i) of the Act.
2. On the facts and circumstances of the case the Ld.CIT(A) ought to have upheld the order of the Assessing Officer.
It is therefore prayed that the order of the learned ClT(Appeals) may be set aside and that of the A.O. be restored to the above extent.
2. Grounds raised by assessee in its Cross Objection are as under :-
1. The learned CIT(A) has erred in law & facts in disallowing deduction u/s. 80-P to the extent of Rs.63190/- by treating the income from interest on bank deposits as taxable u/s, 56 of I.T. Act.
2. The Appellant, therefore/prays that the learned Income tax officer may be directed to modify the assessment accordingly
3. Briefly stated facts as culled out from the records are that assessee is a co-operative credit society. It filed its return of income on 18/9/2009 declaring NIL income. Case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 18.8.2010 followed by notice u/s 142(1) of the Act on 9.11.2011 along with detailed questionnaire. Necessary reply was submitted along with furnishing of details and evidences called for by the Assessing Officer. During the course of assessment proceedings ld. Assessing Officer observed that assessee has shown total gross receipts of Rs.71,75,856/- and has claimed deduction u/s 80P(2)(a)(i) of the Act at Rs.35,90,297/-. Ld. Assessing Officer was of the view that assessee being a co-operative bank and is therefore, not eligible for deduction u/s 80P(2)(a)(i) of the Act because of the insertion of ITA No. 1723 & CO.161/Ahd/2012 3 Asst. Year 2009-10 section 80P(4) of the Act from Asst. Year 2007-08 and the reply of the assessee that it is not a co-operative bank but is a credit co-
operative society and provisions of section 80P(4) are not applicable on the assessee, could not change the mind of the Assessing Officer and he was of the view that deduction claimed under sec. 80p(2)(a)(i) of the Act is not allowable on the reason that the co-op. society is engaged in banking business and denied deduction of Rs.35,90,297/- claimed by assessee u/s 80P(2)(a)(i) of the Act and assessed the income at Rs.35,90,297/-.
4. Aggrieved, assessee went in appeal before the ld. CIT(A) who vide his appellate order deleted the addition made by ld. Assessing Officer by observing that assessee is not a co-op. bank but is a co- op. credit society which confines its activities only to its members and does not perform banking function and allowed the ground of assessee for deduction u/s 80P(2)(a)(i) of the Act. However, on going through the financial statement of the co-op. credit society, ld. CIT(A) observed that assessee has earned bank interest and calculated the same at Rs.63,190/- as interest income taxable u/s 56 of the Act and for doing so ld. CIT(A) followed the decision of Hon. Supreme Court in the case of Totgars co-op. Sale Society Ltd. vs. ITO, Karnataka 322 ITR 283 (SC).
5. Aggrieved, Revenue is now in appeal before us against the action of ld. CIT(A) allowing deduction u/s 80P(2)(a)(i) of the Act and ITA No. 1723 & CO.161/Ahd/2012 4 Asst. Year 2009-10 assessee has also filed Cross Objection for the addition of Rs.63,190/- made by ld. CIT(A).
6. First we will take up revenue's appeal in ITA No.1723 /Ahd2012.
7. Ld. DR supported the order of Assessing Officer and the ld. AR relied on the order of ld. CIT(A) in regard to his decision in relation to deduction u/s 80P(2)(a)(i) of the Act.
8. We have heard the rival contentions and perused the material on record. The only issue raised by Revenue is against the action of ld. CIT(A) deleting the disallowance of Rs.35,90,300/- made u/s 80P(2)(a)(i) of the Act. From perusal of the record, we observe that assessee is a co-op. credit society which confines its business only to its members and objects of the assessee society depicts the picture of the working of the society wherein the object relates to collecting funds and deposits from its members and to give funds for its business and other needs to its members. Further from going through the order of ld. CIT(A) we find that the issue has been dealt in elaborately by observing as under :-
6. I have gone through the facts of the case, the assessment order and the submissions.
As per the definition of banking as per sec 5(b) of Banking Regulation Act, "Banking" means the accepting for the purpose of lending or , of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. The definition is basic law to be considered to decide whether a credit society is a co-operative bank or not.
ITA No. 1723 & CO.161/Ahd/2012 5Asst. Year 2009-10 Only, those credit societies which are allowed to take deposits of money from the public and do other banking activities as defined in the sec 5(b) of Banking Regulation Act would quality to be a cooperative bank. In my considered view deposits from public cannot be equivalent to taking deposits from members of the society only which has got a much restricted meaning and the relationship between a society and a public has to be understood in a much larger sense.
The issue has been explained in a report of a high level committee appointed by the Reserve Bank of India in May 1999 under the Chairmanship of Shri K. Madhava Rao, Ex-Chief Secretary, Government of Andhra Pradesh to review the performance of Urban Cooperative Banks (UCBs) and suggest necessary measures to strengthen this sector. The report was published on 14/01/2000 and in para. 7.1 & 7.2 of the report, the following has been narrated:
"7.1 Cooperative credit structure in India is characterised by a plethora of institutional segments. Leaving aside the agricultural cooperative credit institutions, in the urban cooperative credit fold itself, there are 3 types of institutions recognised by the Banking Regulation Act 1949 (As Applicable to Cooperative Societies). As discussed else where in the Report, these are (I) primary credit societies, who virtually function likebanks, but whose networth is less than Rs.l lakh; who are not members of the payment system and to whom deposit insurance' is not extended,
(ii) primary cooperative banks, popularly called Urban Cooperative Banks, whose net worth is Rs.l lakh and above; who are recognised as banks, are members of payment system and who enjoy deposit insurance
(iii) cooperative credit societies, who confine their activities to their members alone and who do not ,v perform banking functions. In this chapter, the Committee deals with these cooperative credit societies.
7.2 Under the provisions of Section 5(ccii) of Banking Regulation Act, 1949 (AACSJ, a cooperative credit society is defined as a cooperative society, "the primary object of which is to provide financial accommodation to its members and includes a cooperative land mortgage bank." This type of institutions are thrift societies. The distinction between a primary credit society and a cooperative credit society is with reference to their nature of business. The primary object or principal business of a primary credit society is the transaction of banking business. When its paid up capital and reserves attain the level of Rs.l lakh, a primary credit society automatically becomes a primary cooperative bank. However, even after a primary credit society ITA No. 1723 & CO.161/Ahd/2012 6 Asst. Year 2009-10 becomes a cooperative bank, it has to apply to RBI for a license to carry on banking business. But it can carry on banking business until it is granted a license or notified that a license cannot be granted to it."
The above report clearly defines the circumstances in which a credit society can be allowed to carry on banking business. These include 'Primary Credit Society', when its paid up capital and reserve attain the level of Rs. 1 lac, which can carry on business of banking until it is granted a license or notified that a license cannot be granted to it. These credit societies would not get the benefit of the deduction u/s 80P(2)(a)(i).
Considering the above facts, it is clear that the appellant is not allowed to do banking business as defined under Banking Regulation Act and therefore, is not a co-operative bank. Therefore, it is not excluded from the benefit of deduction u/s 80P(2)(a)(i) of the IT Act 'as it does not fall under the exceptions as provided u/s 80P(4). I have also noted the decision of honorable ITAT Mumbai bench in the case of Salgaon Sanmitra Sahakari Pathped Ltd. 12 taxmann.com 246 ; where both the CIT (Appeals) and the HAT have held that the corporative credit society in that case was not a cooperative bank.
Therefore, it is held that the appellant is entitled to the benefit of deduction u/s 80P(2)(a)(i) of the IT Act.
9. We are, therefore, of the view that assessee being a credit co- op. society does not fall within the provisions of section 80P(4) of the Act as the assessee society is not required to be registered with Reserve Bank of India because for carrying on banking business it is must. We are therefore of the view that assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act and no interference is called for in the order of ld. CIT(A) relating to this ground. Revenue's ground is dismissed.
10. Other grounds of revenue are general in nature, which need no adjudication.
ITA No. 1723 & CO.161/Ahd/2012 7Asst. Year 2009-10
11. Now we take up assessee's Cross Objection. Assessee has filed this Cross Objection against the order of ld.CIT(A) wherein new addition of Rs.63,190/- has been made by ld. CIT(A) by way of disallowing deduction u/s 80P(2)(a)(i) of the Act on the interest earned from bank deposits by treating it as taxable income u/s 56 of the Act by applying the decision of Hon. Supreme Court in the case of Totgars co-op. Sale Society Ltd. vs. ITO(supra).
12. At the outset ld. AR submitted that the issue raised in this cross objection is squarely covered by the decision of co-ordinate bench in the case of ITO vs. M/s Jafari Momin Vikas Co-op. Credit Society Ltd. in ITO No.1491/Ahd/2012 with CO No.138/Ahd/2012 for Asst. Year 2009-10 vide order dated 31.10.2012, wherein interest from bank deposits earned by assessee credit co-op. society in view of keeping liquid funds available for the benefit of members was held to be eligible for deduction u/s 80P(2)(a)(i) of the Act and also facts were clearly distinguished with the facts which were there before Hon. Supreme Court in the case of Totgars co-op. Sale Society Ltd. vs. ITO(supra).
13. Ld. DR supported the order of ld. CIT(A).
14. We have heard the rival contentions and perused the material on record. Solitary grievance raised by the assessee in its Cross Objection is arising out of the decision of ld. CIT(A) who has held that interest income on bank deposits at Rs.63,190/- is taxable as income ITA No. 1723 & CO.161/Ahd/2012 8 Asst. Year 2009-10 from other sources u/s 56 of the Act and is not eligible for deduction u/s 80P(2)(a)(i) of the Act as it has not earned the same through the regular activities relate to its members as enumerated in the objects of the assessee co-op. credit society.
15. We find that ld. AR has referred and relied on the decision of the co-ordinate bench in the case of ITO vs. M/s Jafari Momin Vikas Co-op. Credit Society Ltd.(supra) wherein similar issue came up before the Bench as that of the present assessee. We further observe that co-ordinate bench in its decision (referred above) has clearly distinguished the facts before it vis-à-vis the facts before Hon. Supreme Court in the case of Totgars co-op. Sale Society Ltd. vs. ITO(supra) and has come to a conclusion that looking to the nature of business of the assessee credit co-op. society wherein it accepts deposits from and lends the same to its members and in order to meet any eventuality liquidity funds needs to be maintained and for this purpose short term deposits are kept with the banks which fetch bank interest and similarly interest is also earned on the bank balances and certainly such interest earned from banks are eligible to claim u/s 80P(20(a)(i) of the Act and while deciding so the co-ordinate bench has observed as under :-
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 ITA No. 1723 & CO.161/Ahd/2012 9 Asst. Year 2009-10 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.
ITA No. 1723 & CO.161/Ahd/2012 10Asst. Year 2009-10 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;
- 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.
16. Respectfully following the decision of the co-ordinate bench in the case of ITO vs. M/s Jafari Momin Vikas Co-op. Credit Society Ltd.(supra), we are of the view that assessee is eligible for deduction of bank interest of Rs.63,190/- and allow the ground raised by assessee in its Cross Objection.
17. Other ground of the C.O. is general in nature.
ITA No. 1723 & CO.161/Ahd/2012 11Asst. Year 2009-10
18. In the result, appeal of Revenue is dismissed and the Cross Objection of the assessee is allowed.
Order pronounced in the open Court on 07/04 / 2016
Sd/- sd/-
(Shailendra Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 7/4/2016
Mahata/-
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: 7/4/2016
2. Date on which the typed draft is placed before the Dictating Member: 7/4/2016 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: 8/4/16
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: