Andhra HC (Pre-Telangana)
M/S The Eluru Cooperative House ... vs Income Tax Officer, Ward-2, Kks Towers, ... on 13 September, 2017
Equivalent citations: AIRONLINE 2017 HYD 12
Author: T.Rajani
Bench: T.Rajani
HONBLE SRI JUSTICE V.RAMASUBRAMANIAN AND HONBLE SMT. JUSTICE T.RAJANI
I.T.T.A. Nos.399 of 2017 and batch
13-9-2017
M/s The Eluru Cooperative House Mortgage Society Ltd., Gopaluvari Street, R.R. Pet, Eluru, Rep. by its President Appellant
Income Tax Officer, Ward-2, KKS towers, R.R. Pet, Eluru Respondent
Counsel for Appellant: Mr. A.V. Krishna Koundinya,
Senior Counsel, representing
Mr. A.V.A. Siva Kartikeya
Counsel for Respondent:Mr. B.Narasimha Sarma,
Senior Standing Counsel
<Gist:
>Head Note:
? Cases referred:
Nil.
HONBLE SRI JUSTICE V.RAMASUBRAMANIAN
AND
HONBLE SMT. JUSTICE T.RAJANI
I.T.T.A. Nos.399, 400 and 401 of 2017
Common Judgment: (per V.Ramasubramanian, J.)
These appeals are by the assessee viz., the Eluru
Cooperative House Mortgage Society Limited, filed under
Section 260A of the Income Tax Act, 1961.
2. Heard Mr. A.V. Krishna Koundinya, learned Senior
Counsel appearing for the appellant and Mr. B.Narasimha
Sarma, learned Senior Standing Counsel for the respondents/
Department.
3. The appellant is a Cooperative Society, established
way back in the year 1963. Originally, the appellant was
registered as The Eluru Cooperative House Mortgage Bank
Limited. But the Reserve Bank of India as well as the
Cooperative Department of the State refused to accord
permission to the appellant to carry on the business of
banking under the said name. Therefore, the word Bank
was deleted from the name of the appellant, with effect from
19-02-2009. In other words, the appellant claimed that it is
not a bank within the meaning of Section 80P(4) of the
Income Tax Act, 1961.
4. The appellant filed its returns of income for the
Assessment Years 2007-08, 2008-09 and 2009-10, declaring
nil income after claiming deduction under Section 80P(2),
on the ground that it was running on the principle of
mutuality, dealing only with its own members.
5. However, the Assessing Officer issued show cause
notices proposing to refuse deduction on the ground that the
appellant was carrying on banking businesses and was
accepting deposits from non-members. The objections filed by
the assessee/appellant were overruled and the Assessing
Officer passed orders of assessment.
6. As against the order of assessment passed in respect
of all the three Assessment Years 2007-08, 2008-09 and
2009-10, the appellant filed statutory first appeals before the
Commissioner of Income Tax (Appeals). The CIT (Appeals)
accepted the claim of the appellant that they were not dealing
with non-members, insofar as Assessment Years 2007-08 and
2009-10 are concerned and consequently allowed the appeals
insofar as the deduction under Section 80P(2) is concerned.
But the appeal filed by the assessee in respect of the
Assessment Year 2008-09 was dismissed by CIT (Appeals),
recording a contra finding to the effect that the appellant was
dealing with non-members. It is interesting to note that the
order of the CIT (Appeals) in respect of the Assessment Year
2008-09 was dated 25-01-2012 and the order of the CIT
(Appeals) in relation to the Assessment Years 2007-08 and
2009-10 was dated 09-10-2012. Therefore, naturally it can be
presumed that the Commissioner (Appeals) who dealt with
the appeals in relation to the Assessment Years 2007-08 and
2009-10, had the benefit of the order of the CIT (Appeals) in
relation to the Assessment Year 2008-09.
7. The assessee filed an appeal as against the order of
the CIT (Appeals) dated 25-01-2012. The Department filed
two appeals as against the order of the CIT (Appeals) dated
09-01-2012. There were also cross-objections in relation to
certain other aspects, about which we are not concerned in
the present batch of appeals.
8. The three appeals, one filed by the assessee in ITTA
No.137 of 2012 in relation to the Assessment Year 2008-09
and the other two in ITTA Nos.473 and 474 of 2012 in
relation to the Assessment Years 2007-08 and 2009-10 were
taken up together by the Tribunal along with the cross-
objections.
9. By a common order dated 23-12-2016, the Tribunal
dismissed the appeal filed by the assessee in respect of the
Assessment Year 2008-09, but allowed the two appeals of the
Revenue in respect of the Assessment Years 2007-08 and
2009-10. Therefore, the assessee has come up with the above
three appeals raising the following substantial questions of
law:
1. Whether on facts and in circumstances of the
case, the Honble Tribunal was right in upholding the
perverse conclusion of the Assessing Officer, that the
Assessee was dealing with non-members, without bringing
on record any specific instance of such dealings and
referring to the Assessees denial? and
2. Whether on facts and in circumstances of the
case, the conclusion of the Honble Tribunal, in holding that
the Assessee was dealing with non-members is not
perverse, especially when it did not resolve the conflict on
the point between the two 1st Appellate Authorities, nor it
went into the factual arena, being the highest fact finding
authority?
10. A careful look at the order of assessment passed by
the Assessing Officer would show that insofar as the claim for
deduction under Section 80P(2) is concerned, the Assessing
Officer held the appellant ineligible, for the following reasons:
(i) that the assessee earlier carried a name that had
a word Bank which came to be deleted only on 19-02-2009;
(ii) that in the original certificate of incorporation issued
on 19-6-1963, the assessees name included the word Bank;
(iii) that assessee is a Mutual Benefit Society registered
under Section 10 of the Andhra Pradesh Cooperative Societies
Act, 1932 on the basis of limited liabilities, and the same was
reflected in the Bye-laws of the Society; and
(iv) that the profits and gains of any business of banking
including the provision of credit facilities, carried on by
a cooperative society with its members, shall be treated as
income as per the provisions of Section 2(24)(viia).
11. The Assessing Officer also drew inspiration from the
Bye-laws of the appellant/Society to come to the conclusion
that one of the objects of the appellant/assessee was to
function as a bank and to borrow funds from members and
others. Additionally the Assessing Officer invited a reference
to the audit report of the assessee for the Financial Year
2007-08, wherein it was reported in the defects part that
the appellant was collecting deposits from members and
non-members.
12. Therefore, on the basis of the above findings, the
Assessing Officer came to the conclusion that the appellant
was carrying on banking business.
13. The CIT (Appeals), while dealing with the appeal
relating to the Assessment Year 2008-09, primarily went by
the objects clause incorporated in the Bye-laws of the
appellant/Society and the cooperative audit report, to come to
the conclusion that the assessee was carrying on banking
business. Additionally, the CIT (Appeals) held in his order
dated 25-01-2012 relating to the Assessment Year 2008-09
that a Primary Cooperative Bank would also include
a cooperative society, in view of the provisions of
Section 56(ccv) of the Banking Regulations Act, 1949.
14. However, another CIT (Appeals), who dealt with the
appeals relating to the Assessment Years 2007-08 and
2009-10 recorded a factual finding in para-5.2 of his order
that there are no transactions with persons outside the
society. The CIT (Appeals) in the said order, also pointed out
that the appellant was directed to drop the word Bank from
its name by a mandate of law and that therefore the denial of
the benefit was not proper.
15. When all the three appeals, two passed in favour of
the assessee and one passed in favour of the Revenue became
the subject matter of second appeal before the Tribunal, the
Tribunal first took up the Assessment Year 2008-09 for
consideration.
16. In paragraphs-8 to 11 of its common order, the
Tribunal observed that the deletion of the word Bank from
the name of the appellant in the year 2009; and the objects of
the society which included acceptance of deposits from
non-members are all pointers to the effect that they were
carrying on banking business. In other words, on the sole
basis that the name of the appellant/Society carried the word
Bank up to 19-02-2009 and also on the basis that the
objects clause in the Bye-laws of the Society indicated
dealings with non-members, the Tribunal reversed the
findings of the CIT (Appeals) in relation to the Assessment
Years 2007-08 and 2009-10. After doing so in the first part of
the order, the Tribunal took up for consideration the appeal
in respect of the Assessment Year 2008-09 and followed the
same logic in para-19.
17. A careful look at the entire order of the Tribunal
would show that not even a single piece of evidence was
produced either before the Assessing Officer or before the CIT
(Appeals) to show that the appellant was in fact dealing with
non-members. The fact that the name of the assessee carried
the word Bank, up to the year 2009 by itself cannot be
a pointer to the fact that the appellant was carrying on
banking business. Similarly, the inclusion of some business
in the objects clause of a company or a society, cannot be the
sole basis to decide that the company or society was actually
carrying on business as per the said objects clause.
Unfortunately, the Assessing Officer did not record a single
transaction that the appellant had with a non-member.
This is why the CIT (Appeals) was compelled to allow the
appeals in respect of the Assessment Years 2007-08 and
2009-10. But another officer in respect of the Assessment
Year 2008-09 followed the same logic that the Assessing
Officer followed, to hold that the appellant was dealing with
the non-members.
18. The entitlement of an assessee to the benefit of
deduction under Section 80P(2), does not depend upon either
the name of the assessee or the objects for which the assessee
was established. The entitlement to deduction under the said
provision would depend upon the actual carrying on of the
business activity viz., banking. The fact that all cooperative
banks would necessarily be cooperative societies, cannot lead
to the presumption that all cooperative societies are also
cooperative banks. There are different types of cooperative
societies, many of whom may not be transacting any banking
business. Let us take for instance an agricultural society.
They may be indulging in the buying and selling of
agricultural produce or seeds. In a way, the same could also
be termed as a commercial or banking activity. But the same
would not make such societies banks within the meaning of
the Banking Regulations Act, 1949.
19. The place where the Tribunal went wrong was that
without reference to a single transaction that the appellant
had with any non-member, the Tribunal upheld the findings
of the Assessing Officer merely on the basis of the name of the
appellant and one of the objects clause in the Bye-laws of the
appellant/Society. Therefore, the finding of the Tribunal is
obviously perverse and such a finding could not have been
recorded on the basis of the material available on record.
Hence, the questions of law are to be answered in favour of
the appellant/assessee. Accordingly, they are answered in
their favour and the appeals are allowed. The miscellaneous
petitions, if any, pending in these appeals shall stand closed.
No costs.
___________________________
V.RAMASUBRAMANIAN, J.
___________ T.RAJANI, J. 13th September, 2017.