Income Tax Appellate Tribunal - Delhi
Muzaffarnagar District Cooperative ... vs Dcit, Circle- 1 , Muzaffarnagar on 5 December, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E', NEW DELHI
Before Sh. Satbeer Singh Godara, Judicial Member
&
Sh. M. Balaganesh, Accountant Member
ITA No. 1708/Del/2018 : Asstt. Year : 2015-16
Muzaffarnagar District Cooperative Vs DCIT,
Bank Ltd., C/o Anil Deep and Company, Circle-1,
41/85, Sadar Bazar, Muzaffarnagar, Muzaffarnagar
Uttar Pradesh-251001
(APPELLANT) (RESPONDENT)
PAN No. AAAAM4327P
Assessee by : Sh. Sanjay Malik, Adv.
Revenue by : Sh. Akhilesh Kumar Yadav, Sr. DR
Date of Hearing: 02.12.2024 Date of Pronouncement: 05.12.2024
ORDER
Per Satbeer Singh Godara, Judicial Member:
This assessee's appeal for Assessment Year 2015-16, arises against the order of CIT(A), Muzaffarnagar da ted 16.01.2018 in case No. 9258-7434-250-717, in proceedings u/s 143(3) of the Income Tax Act, 1961 (in short "The Act").
2. Heard both the p arties at length. Case files peruse d.
3. It emerges dur ing the course o f hearing that both the learned lower authoritie s have treated the asses see as a cooperative bank u/s 80P(4) than a cooperative society so as to be eligible for the imp ugned deduction u/s 80P(2) of the Act. The assessee's deduction claim in the impugned assessment year admitted ly involves dividends of Rs.20.02 la cs which have been held as not covered u/s 80P in very terms once it is sought to be treated as a cooperative bank. The learned lower 2 ITA No. 1708/Del/2018 Muzaffarnagar District Cooperative Bank Ltd.
authorities have undisputedly placed reliance on legis lative amendment in sectio n 80P(4) of the Act by the Finance Act 2006 w.e.f. 01.04.2007 to reject the impugned deduction forming subject matter of o ur ap t adjudication.
4. We have given our thoughtful consideration to the vehement r ival submissions against and in support of correctness of impugned se ctio n 80P disallowance made in the assessee's hands. We find no merit in the Revenue's arguments supporting the same thereby treating the assessee as a cooperative bank. It appears that case law Mavilayi Service Co- operative Bank Ltd. vs. CIT (202 1) 123 taxmann.com 161; as followed in Kerala State Co-O perative Agricultural & Rural Development Bank decision (2023) 458 ITR 384, has already rejected the Revenue's very arguments thereby holding that in absence of banking license being issued under the provisions of Banking Regulation law and dealing with gene ral pub lic at large; the departme ntal authorities co uld not proceed on the basis of "namesake" only to decline the impugned sectio n 80P deduction as under:
15.1. Section 80P spea ks abo ut deducti on i n res pec t of inc ome of c o- operative soci eti es fro m the gr os s t otal inc ome r efer red to i n s ub-s ecti on (2) of the s aid Secti on. From the said inc ome, ther e s hall be deducte d, in accor dance wit h t he provisi ons o f Section 80P, s ums specified in s ub- section (2), i n computi ng t he t otal inc ome of the ass ess ee for t he pur pose of pay ment of inc ome ta x. Sub-s ecti on (2) of Secti on 80P enumerates vari ous ki nds of co-opera tiv e s ocieties . S ub-
sec tion (2 )(a)(i) s tates that if a co-operativ e soci et y is enga ged i n carr y ing o n the business of banki ng or prov idi ng c redit facilities to its members , the whol e of the a mount of pro fits a nd gai ns of busi ness a ttributa bl e to a ny one or mor e of suc h acti viti es shall be deducte d. The s ub-s ecti on makes a cl ear distinc tion bet we en bus i nes s of ba nk ing on the one hand a nd providi ng credit fa cilities to its member s by co-opera tiv e s ociety on the ot her. Thus, the de finitio n of banking 3 ITA No. 1708/Del/2018 Muzaffarnagar District Cooperative Bank Ltd.
under S ection 5 (b) of the BR Act must be bor ne in mind as oppos ed t o providing cr edit fa cilities to its m embers .
15.2. Sec tion 80P wa s i nserted to the Act wit h effect from 01.04.1968, however, s ub-section (4 ) wa s rei ns ert ed with effect from 01.04.2007, in the pres ent form. Ea rlier sub-s ection (4) was omitted with eff ect from 01.04.1970. Sub-secti on (4) of Secti on 80P in the pres ent form is in the na t ure o f a n exc epti on whi ch stat es tha t the prov isi ons of S ecti on 80P s hall apply in rela tion to any co -opera tiv e ba nk other t han a prima ry agric ultural credit soci ety o r a primary c o-operativ e agric ultural and rural development ba nk. The expr es sions c o-operativ e ba nk a nd pr ima ry a gri c ultural credit soci et y as well as primary co -operati ve agric ultural a nd rural development ba nk are defi ned i n the Explanati on as c o-ope rative ba nk a nd pr ima ry agric ultural cre dit soci ety ha ving the mea ni ngs res pectiv el y assi gned to t hem in Par t V of the BR Act, 1949.
15.3. The c ontro versy i n thi s ca se is, whether, the appella nt entity i s a c o-ope rative bank a nd if s o, it woul d be c ove red withi n t he scope a nd meani ng of s ub- sec tion (4 ) of Section 80P a nd ther efo re, would not be eligibl e to t he be nefit o f deduc tion a s provided therei n.
15.4. Havi ng rega rd to t he Expla nation to s ub-s ec ti on (4 ) of S ec tion 80P, it is nec essary t o c onsider Cha pter V of the BR Act, 1949 whi ch states t hat the s aid Act s hall apply to c o-oper ative s oci eties subj ect t o modi ficatio ns made the reunder. Secti o n 56 begi ns with a non-obsta nte claus e a nd s tat es that notwithsta ndi ng a ny thi ng contai ned i n any ot her la w f or the time bei ng in forc e, the provisions of the said Ac t s hall apply to, or in rela tion t o, c o-operative soci eties as they a pply to, or in rela tion t o banki ng compa ni es subject to the followi ng modificati ons , na mel y, i n clause (a ) t hrougho ut the s aid Act, unl ess the cont ext otherwis e r equi res,- (i) ref erences to a "banki ng c ompa ny" or "the c ompany" or "s uch c ompany " shal l be c onstrued as referenc es to a co- o perativ e bank in claus e (c ), it is s ta t ed t hat in Section 5 as per cla us e (cci), "co- opera tiv e bank"
means a s tat e co-operative ba nk, a central co- operati ve bank and a primar y c o-operative ba nk cla us e (ccv) defi nes "primary co-opera tiv e ba nk" whil e c laus e (ccvii) defi nes "central co-opera tiv e ba nk" a nd "s tat e c o- ope rative bank" to have t he meanings assi gned to them in the NABARD Act , 1981. Since the expres sion 'banki ng company ' i s defi ned under the BR Ac t, 1949, it would be us eful to c onsid er the definiti on of banki ng compa ny in Section 5 (c) thereof which m eans any compa ny which 4 ITA No. 1708/Del/2018 Muzaffarnagar District Cooperative Bank Ltd.
tr ansa cts the busi ness of ba nki ng i n Indi a. "Ba nki ng" is defi ned i n S ecti on 5(b) of the said Act to mea n the ac cepti ng, for the purpose of l ending or i nv estment, of deposits of money from t he publi c, repayabl e on demand or otherwise, and withdrawal by c heque, draft, order or ot herwis e. Ther efore, a ba nki ng company must transact banki ng busines s vis-à -vis the public. T hus, in t he first place a c o-opera tive s ociety must be engaged i n banking bus i nes s as defi ned i n S ecti on 5 (b) of the s aid Ac t. For tha t, Secti on 22 of the BR Act, 1949, spea ks about lic enc e to be obtained by a ba nk to do banki ng bus i ness whic h is modified as per clause (o) of Sectio n 56 thereof whic h s tates tha t no co- operative s oci ety s hall c arry on banki ng busi ness in India unl ess it is a c o-operative bank and holds a licenc e iss ued i n tha t behalf by the Res erve Bank, s ubject to suc h conditions , if a ny, as the Res erve B ank may dee m fi t to impose. Sec ondly, a co- ope rative s ociety must obta in a l icence under S ec ti on 22 of the BR Act, 1949, only if it func tions as a c o- ope rative ba nk and not otherwise. Thus, a c o-operati ve society i ncl udi ng a c o-ope rativ e credit s ociety whic h is not a c o-opera tive ba nk does not require a licenc e to function as suc h.
15.5. Further , Section 2(d) of NABARD Act, 1981 defi nes centra l co- ope rative ba nk while S ection 2(u) defi nes a stat e c o-operativ e bank to mea n the pri ncipa l c o- ope rative s oci ety in a Sta te, the prima ry obj ec t of which is fina nci ng of ot her co -operative s oci eties i n the Stat e whic h mea ns, it is in the nature of an ape x c o-operative bank havi ng regard to t he defi nition under Secti on 56 o f the BR Ac t, 1949, in r ela tion to co- opera tiv e ba nk. The prov iso s tat es tha t in addition to s uc h pri nc ipal s ociety in a State, or where there is no suc h pr incipal society in a Stat e, the State Government may decla re a ny one or more c o-oper ativ e societi es carry ing on busi ness of banki ng i n that S tate to be also or t o be a s ta te c o- ope rative ba nk or state c o-opera tive banks wit hi n the meani ng of t he definiti on. Section 2(v) of NABARD A ct, 1981 defi nes stat e l and development ba nk t o m ea n the co-opera tive s oci ety whi ch is the principal land dev elopment bank (by whate ver name called) i n a Sta te and whic h has as its primary obj ect the pr ovidi ng of long-term fina nc e for a gricult ural development.
15.6. Secti on 2(w ) sta tes that words a nd e xpres sio ns us ed in the NABARD Act, 1981 whi ch ar e not defined therei n but defi ned i n the RBI Act, shall have the meani ngs respectively as signed to t hem in t hat Act. S ecti on 2 (x ) of t he said Act s tates tha t wo rds and expr es sions us ed in t he NABARD Act, 1981 a nd not defi ned either i n the sai d Act or in the RB I Act, but 5 ITA No. 1708/Del/2018 Muzaffarnagar District Cooperative Bank Ltd.
defi ned i n the B R Act, 1949, shall have the meanings res pectiv el y assi gned to them in the BR Act , 1949. Ther efore, we r evert bac k to BR Ac t, 1949.
15.7. What is central to the co ntrovers y in this batch of cases is, whethe r, the appella nt ba nk is a co-operative bank. What is of signi fi ca nce t o know is, a s tate c o- ope rative bank or central c o-operativ e bank under the NABARD Act, 1981 is esse nti ally a pri ncipal c o- ope rative soci ety either i n a di st rict or in a State, res pectiv el y, the primary object of whic h is the fi na nci ng of other c o-operative soci eti es in the distri ct or the Stat e res pectively . Further, NABARD Act, 1981 does not defi ne banki ng business. Henc e, relia nce is to be plac ed, on the definiti on of banki ng busi ness in terms of clause (w) of Sec tion 2 of NABARD Ac t, 1981 whic h mea ns the R BI Ac t ha s to be s een. When the RB I Ac t is perused, it is noted t ha t cla use (i ) of S ec ti on 2 defines "c o- operativ e bank", "c o-opera tive cre dit soc iet y", "director", "pri mar y agri cultural credit soc i ety", "prima ry co-opera tive ba nk" a nd "primary cr edit s ociety " t o have the mea ni ngs res pecti vely assigned to them i n Part V of the BR Ac t, 1949. Therefor e, we ha ve to a gain fal l bac k on Part V o f the BR Act, 1949 which has defi ned a c o-
ope rative bank i n Secti on 56 (c)(i )(c ci) to be a s ta te c o- ope rative bank, a central co-ope rative bank and a prima ry c o-operati ve ba nk and c entral co-opera tiv e ba nk and s ta te c o-operative ba nk to ha ve the sa me mea ni ngs as NABAR D Ac t, 1981.
15.8. Since the w ords 'ba nk' a nd 'b a nki ng c ompany ' ar e not defi ned in the NABARD Act, 19 81, t he d efi nition in sub-cla use (i) of c laus e (a) of Secti on 56 of the BR Act, 1949 has to be relied upon. It sta tes that a c o- ope rative s ociety in the c ontext of a co-operativ e ba nk is in rel ati on to or as a banki ng company. Thus, c o- ope rative ba nk shall be const rued as re fer enc es to a banki ng c ompany a nd when the defi niti on of banki ng c ompany in clause (c) of Secti on 5 of the BR Act, 1949 is see n, it mea ns any c om pany whi ch tr ansa cts the busi ness of ba nki ng i n India and a s alre ady noted banki ng business is defi ned i n cla us e (b) of S ec ti on 5 t o mean t he acc epti ng, for the purpos e of lendi ng o r i nves tme nt, of deposits of money from the public, repayable on dema nd or otherwise , and withdrawal by c heque, draft , order or otherwis e. Thus , i t is only when a co-operative s ociety is conduc ting banki ng busi ness in terms of the definiti on referre d to above that it b eco mes a co-opera tiv e ba nk a nd i n s uc h a case, Secti on 22 o f the BR Ac t, 1949 woul d a ppl y wherei n it would r equi re a licence to run a co-operati ve bank. In other wor ds, if a co-oper ativ e s ociety is not 6 ITA No. 1708/Del/2018 Muzaffarnagar District Cooperative Bank Ltd.
conduc ti ng the busines s of banki ng as defi ned i n claus e
(b) of S ec ti on 5 of the BR Ac t, 1949, it would not be a co-opera tive bank and not so wi thi n the meanings of a stat e co-operativ e ba nk, a cent ral co-operativ e ba nk or a primary c o-ope rative bank in terms of S ec tio n 56(c)(i )(cci). Whereas a co-operative bank is in the nat ure of a b a nki ng c ompany which trans ac ts the bus i nes s of ba nki ng a s defi ned in clause (b) of S ec ti on 5 of t he BR Act , 1949. But if a co- operativ e s ociety does not tra ns ac t the business of banking as defi ned in claus e (b) of Secti on 5 of the BR Act, 1949, it would not be a c o- operative ba nk. Then the defi ni tions under the NABARD Act, 1981 wo uld not a pply. If a co -operative society is not a c o-ope rative ba nk, then s uc h a n ent ity woul d be entitl ed to deducti on but on the other ha nd, if it is a co-operati ve ba nk wi t hi n t he meani ng of S ec tion 56 of BR Act, 1949 rea d wit h the provisions of NABARD Act, 1981 then it woul d not be entit led to the benefit of deduc tion under sub-secti on (4 ) of S ection 80P of the Act.
15.9. Secti on 56 o f t he BR Act, 1949 begins wit h a non- obs tant e c lause which s ta t es t ha t not wi thstanding any thi ng contai ned in any ot her la w for the tim e bei ng in forc e, the provi sions of the said Act , sha ll apply to, or in rela tion t o, c o-operative soci eties as they a pply to, or in rela tion t o, ba nki ng c ompa nies subj ect to ce rta in modificati ons . The obj ect o f Section 56 is to prov ide a dee mi ng fiction by equa ti ng a co -operative s ociety to a banki ng compa ny i f it is a co-opera ti ve bank wi thi n the meani ng of t he sai d provis ion. This is bec aus e Chapter V of the BR Act, 1949, dea ls wi th applic ati on of the C hapter to co-operative societies whic h ar e co-operativ e banks withi n the mea ni ng of the s ai d c ha pter. For the pur pose of t hese c as es, what is releva nt is t hat thr ougho ut the B R Act, 1949, unl ess the c onte xt ot herwis e requi res, - refe renc es to a "ba nki ng c ompany"
or "the company" or "suc h com pa ny" s hall be c onstrued as refere nc es to a co-o pera tiv e bank. T heref ore, whil e consideri ng t he meani ng of a co-operative ba nk inhere ntly, such a co- oper ative soci ety must be a banki ng c ompany t hen o nly i t woul d be c ons trued as a co-opera tive bank requir ing a licenc e under S ec tion 22 of BR Act , 1949 in order to f unction as s uch a ba nk.
15.10. Fur ther, while conside ri ng the de fi ni tion of a co- ope rative bank under S ecti on 56(c ci) of the BR Act, 1949, to mean a stat e c o- opera tive bank, a c entra l c o- ope rative bank and a primary co-o perative bank which is defi ned i n (c cviii) t hereo f, to have meani ngs res pectively as signed to them in the NABARD Ac t, 1981 woul d impl y tha t if a state c o-opera tive bank is wit hi n the meani ng 7 ITA No. 1708/Del/2018 Muzaffarnagar District Cooperative Bank Ltd.
of NABAR D Act, 1981 t hen it woul d be exc l uded from the benefit under S ec tion 80P of the A ct. C onv ers ely, if a co-opera tive society is not a co-operative b ank within the meani ng of Section 56 of the BR Act, 1949, it would be entitled to t he benefit of deduction under S ec ti on 80P of the Act.
15.11. Looked at from a nother angl e, a co -operat ive society which is not a sta t e co-oper ative ba nk wi thi n the meani ng of NABA RD Ac t, 1981 would not be a c o- ope rative ba nk wi t hi n t he mea ni ng of S ec tion 56 of the BR Act, 1949. In the i nstant ca se, as already noted in A. P. Va rghese cas e, the K er ala State Co -operat ive Bank bei ng declared as a st ate co-opera tive ba nk by the Keral a Sta te Government i n t erms o f NA BARD A ct, 1981 and the appella nt s ociety not bei ng s o declare d, woul d imply that the a ppella nt society is no t a state c o- ope rative bank.
15.12. In fact, i n Citizen Co-operative S ociety Ltd., t his Court held that the appella nt ther ei n was ha ving both members as wel l as nomi nal members who were depositing a nd av ail ing loan facilities from the a ppellant therei n and ther efore, appel lant therei n was not entitl ed to the benefit of S ec ti on 80P of the Act as it was functioni ng a s a co- opera tive bank . B ut, the appella nt herei n is not a co-opera tive bank a nd neit her has it been so decla red under t he provisions of NABAR D Ac t, 1981 or the S ta te Act . On the othe r ha nd, under the provisio ns of State Act, 1969, the Keral a State C o-oper ativ e Ba nk has been s o declared by the G overnment of K er ala as a co-opera tive bank.
15.13. Further, under the provisions of t he S ta te A ct, 1984, 'agric ultura l and rural devel opment ba nk' mea ns the K erala Co- opera tiv e C entral La nd Mort gage Ba nk Limited, register ed under S ecti on 1 0 of the Tra vanc ore- Coc hi n C o-operati ve Soci eti es Act, 1951, which s hall be kno wn as K erala State C o-opera tive Agricult ural and Rural Dev elopment Ba nk Li mit ed i.e. the a ppellant herei n. Thus , from a conj oi nt readi ng of all the rel evant stat utory as all uded t o her ei na bov e, it is qui te cle ar t hat the appellant is not a c o-operativ e ba nk wit hi n the meani ng of s ub-secti on (4) of Sectio n 80P of the Act. The a ppellant is a co-operati ve cre dit s oc ie ty under S ection 80 P(2)(a)(i ) of the Act whos e pr imary obj ec t is to provide fi nancia l acc ommodati on t o its members who are all ot her c o-operative s oc ieties and not members of the public.
15.14. There for e, when the defi nition of "co -operati ve bank" i n S ection 56 of BR Act, 1949 is viewed i n terms 8 ITA No. 1708/Del/2018 Muzaffarnagar District Cooperative Bank Ltd.
of S ec ti ons 2(u) of the NABARD Ac t, 1981, it is clear tha t onl y a s ta te co-oper ative bank woul d be wit hi n the scop e and mea ni ng of a banking compa ny under Sec ti on 2(c ) of the BR Act, 1949 on obta i ni ng licenc e under S ection 22 of the sa id Act.
Conclusion:
In t he instant ca se, alt hough the appella nt s oci ety is an apex c o-operativ e s oc iety within the mea ni ng o f the Stat e Ac t, 1984, it is not a co-o perative ba nk within the meani ng of S ection 5 (b) rea d with Sec tio n 56 of the BR Act , 1949.
In the res ul t, the appeals filed by the appellant ar e allowed and the order (s ) of the Kerala High C ourt and ot her authorities to the c ontra ry a re s et aside. Consequently , we hold that t he a ppella nt is entitl ed to the benefit of deduc ti on under Section 80P of t he A ct. The questions for co nsidera tion a re a ns w ered ac cordi ngl y. "
4.1 We adopt the ir lordships foreg oing detailed discussion mutatis mutandis to conclude that the lo wer authorities have erred in la w and on facts in de clining the assessee's section 80P deduction. So far as the Revenue's relianc e on the very issue having got decided against the assessee in the earlier assessment year is co ncerned, we conclude that the same would not amount to adopting a correct approach in light o f the aforesaid case law. The assessee's instant for mer subs tantive ground succeeds there fore.
5. Next co mes various other disallowance of payment of gratuity to LIC e tc. under the regular business he ads whic h are found as covered under the CBDT's landmark Circular No. 37/2016 dated 02.11.2016 in assessee's favour and against the department that any such disallowance made under the regular business heads incre ases the business profits eligible for deduction(s) prescribed under C hapter- VIA of the Act. We reiterate that the assessee's section 80P deduction claimed stands a ccepted in the preceding paragraphs. We thus allow all 9 ITA No. 1708/Del/2018 Muzaffarnagar District Cooperative Bank Ltd.
it's instant remaining substantive ground against the department in very terms. Necessary comp utation shall fo llow.
6. This assessee's appeal is allowed in above terms. Order Pronounced in the Open Court o n 05/12/2024.
Sd/- Sd/-
(M. Balaganesh) (Satbeer Singh Godara)
Accountant Member Judicial Member
Dated: 05/12/2024
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
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