Income Tax Appellate Tribunal - Cuttack
Ito, Kendrapara vs Kendrapara Credit Co-Op. Soceity ... on 14 February, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL,
CUTTACK 'SMC' BENCH, CUTTACK
BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
ITA No.3 5/CTK/2020
Assessment Year : 2 014-2015
ITO, Kendrapara Ward, Vs. Kendrapara Credit Co-op. Soceity
Kendrapara Limited, AT: New Bus Stand Road,
Kendrapara
PAN/GIR No.AABAK 6558 P
(Appellant) .. ( Respondent)
Assessee by : Shri C.Parida, AR
Revenue by : Shri J.K.Lenka, DR
Date of Hearing : 14 /02/ 2020
Date of Pronouncement : 14 /02/2020
ORDER
This is an appeal filed by the revenue against the order of the CIT(A), Cuttack dated 25.3.2019 for the assessment year 2014-15.
2. The Revenue has raised the following grounds:
"1 : On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in holding that the assessee-society is a "Cooperative Society", whereas, in reality, it is a "Primary Cooperative Bank" within the meaning of section 80P(4) of the IT. Act read with section 56(cci) and section 56(ccv) of the Banking Regulation Act, 1949 & therefore, its income is liable to tax.
2: On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in holding that the assessee-society does not satisfy all the conditions of definition of a "Co-operative Bank" given in Part-V of the Banking Regulation Act, 1949, ignoring Clause - 9 of the Bye-laws of the assessee-society.
3 : On the facts and in the circumstances of the case, the CIT(Appeals) has erred in granting deduction u/s 80P(2)(a)(i) to the assessee, which is available only to "Co-operative Society", but not to a "Co-operative Bank", without considering the provisions of section 80P(4) inserted by the Finance Act, 2006 w.e.f. 01.04.2007 i.e. from A.Y. 2007-08 onwards and in clear disregard to the Hon'ble Supreme Court's decision in the case of The Page 1|4 ITA No .3 5/ CTK /2 020 Assessm ent Y ear : 20 14- 201 5 Citizen Co-operative Society Ltd v. ACIT [2017] 397 ITR 1 (SC), whose facts were more or less similar to that of the assessee.
4 : On the facts and in the circumstances of the case, it is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer may be restored."
3. I have heard the rival submissions and perused the record of the case.
The facts of the case are that the assessee is a credit co-operative society engaged in the business of banking in the district of Kendrapara, Jagatsinghpur, Jajpur and Cuttack. During the course of assessment proceedings, the AO after perusing the bye laws of the society and the books of account, concluded that the benefit of section 80P(2) will be denied to the assessee as its case was falling under section 80P(4) of the Act. The AO held that the assessee enjoys the status of a Co-
operative bank as explained in Part V of the Banking Regulation Act, 1949 and would, therefore, not be eligible for deduction u/s.80P(2) of the Act.
4. On appeal, the ld CIT(A) held that the assessee would be eligible for the deductions envisaged u/s.80P(2) of the Act, inter alia, observing as under:
" Coming now to the first condition that a Co-operative society needs to satisfy, K the provisions of the Banking Regulation Act, 1949 it is seen that a Co-operative bank is not debarred from extending its banking facilities to the general public. In other words a Co-operative society as understood in terms of section 80P(4) can accept deposits, rr.3 loans and carrying out all banking operations even in respect of persons who are i members of the Co-operative society. This is in sharp contrast to the provisions of section -80P [2] where the benefit of the deduction can be availed only by a Co-operative society engaged in the business of banking or providing credit facilities to its members. This is a crucial distinction that sets apart a Co-operative society from a Co-operative Bank However, in the assessment order U/S.143(3) for AY.- 2014-15 dt. 27/12/2016, the 1TO, Kendrapara Ward has not given any finding in this regard and has based his decision of whether the Co-operative society in question is a Co- operative Bank Society solely on the comments of the statutory auditor of the assessee.
Page 2|4 ITA No .3 5/ CTK /2 020 Assessm ent Y ear : 20 14- 201 5 To rephrase the above argument, the first condition of section 5(CCV) of the Banking Regulation Act, 1949 entails the assessee to be engaged in the business of banking. Now, section 5b of the Banking Regulation Act, 1949 defines 'Banking' to mean accepting of deposits, for the purpose of lending or investment, from the public which will be repayable on demand or otherwise. In other words, a Co-operative society engaged in the business of 'banking' would not differentiate between members and non-members and would accept deposits from the public atlarge^«If we examine the bye-laws of the assessee it will be seen that clause 5 specifically restricts the scope of banking activities to the members of the society. The relevant portion of clause 5 of the bye-laws is reproduced as under:
Objectives-
(i)...
(ii) To accept following types of deposits of money from its members repayable on demand or otherwise and withdrawal, withdrawal by cheque, draft, order or otherwise for the purpose of lending or investment with permission of competent authority: 1. Savings Bank Deposit, 2. Daily Deposits (Ddhana Sambrudhi Yojana, 3. Term Deposits, 4. Current Account Deposits, 5. Biju Pattnaik Bikas Patra.
(iii)....
(iv) To lend or to advance money with security to members.
Therefore, it is evident that the bye-laws of the assessee Co-operative society do not make an allowance for extending banking facilities to non- members or the general public. Neither is there any finding in the assessment order u/s.143[3) for A.Y.-2014-15 dt 27/12/2016 to the extent that the assessee society has been accepting deposits or lending money from/to the public at large. Under these circumstances, the AO's assertion that the assessee co-operative society is engaged in the business of banking is perverse as it is not supported by any evidence.
Now, in order for a co-operative society to be called a primary Co-operative Bank, all the three conditions laid down in clause 5[CCV) of the Banking Regulation Act, 1949 have to be satisfied cumulatively. Failure to meet any one condition would imply that the Co-operative society in question is not a Primary Co-operative Bank. As has been established in the preceding paragraphs, the assessee is not engaged in the business of "banking' as understood within the scope of the Banking Regulation Act, 1949. Further, the assessee does not possess a banking license from the RBI which is essential for an "entity to engage in Banking activities. Hence, with these observations, it is held that the assessee. Society is not a primary Co- operative bank and that, therefore, it would be eligible for the deductions envisaged u/s. 80P (2) of the l.T. Act, 1961."
Page 3|4 ITA No .3 5/ CTK /2 020 Assessm ent Y ear : 20 14- 201 5
5. Ld D.R. did not controvert the above findings of the ld CIT(A). He also could not controvert that the assessee does not possess a banking license from the RBI which is essential for an entity to engage in banking business. Since the society is not a primary co-operative bank, it would be eligible for deduction u/s.
80P(2) of the Act. In view of above, I do not find any infirmity in the order of the ld CIT(A), which is hereby confirmed and grounds of appeal of the revenue are rejected.
6. In the result, appeal of the revenue is dismissed.
Order pronounced on 14 /02/2020.
Sd/-
(Chandra Mohan Garg) JUDICIAL MEMBER Cuttack; Dated 14 /02/2020 B.K.Parida, SPS Copy of the Order forwarded to :
1. The Appellant : ITO, Kendrapara Ward, Kendrapara
2. The Respondent. Kendrapara Credit Co-op. Soceity Limited, AT: New Bus Stand Road, Kendrapara
3. The CIT(A)- Cuttack
4. Pr.CIT- , Cuttack
5. DR, ITAT, Cuttack
6. Guard file.
//True Copy// By order Sr.Pvt.secretary ITAT, Cuttack Page 4|4