Income Tax Appellate Tribunal - Ahmedabad
Shree Vivekanand Co. Op. Credit Society ... vs Ito, Patan Ward-4,Unjha, Patan on 27 January, 2020
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'B' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER आयकर अपील सं./I.T.A. Nos. 1429 & 1430/Ahd/2018 ( नधा रण वष / Assessment Years : 2013-14 & 2014-15) Shree Vivekanad Co.op. बनाम/ ITO Credit Society Ltd. Vs. Patan, Gandhi Chowk, Unjha Ward-4, Unjha, Patan थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABTS3562J (अपीलाथ /Appellant) .. ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri Biren Shah, A.R. यथ क ओर से / Shri Samir Tekriwal, Sr. D.R. Respondent by :
सन ु वाई क तार ख / Date of 20/01/2020 Hearing घोषणा क तार ख /Date of 27/01/2020 Pronouncement आदे श/O R D E R PER PRADIP KUMAR KEDIA - AM:
The captioned appeals have been filed at the instance of the assessee against the respective orders of the Commissioner of Income Tax, Gandhinagar ('CIT' in short), both dated 23.03.2018 arising in the respective assessment orders dated 28.08.2015 & 26.07.2016 passed b y the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AYs. 2013-14 & 2014-15.
I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 2 -
2. The grievances raised being common, both cases were heard together and disposed of by way of the common order.
3. As per grounds of appeal, the assessee has challenged the revisional jurisdiction usurped b y the Commissioner of Income Tax under s.263 of the Act in both appeals.
4. In the instant appeals, the CIT in exercise of revisional power vested under s.263 of the Act has held the respective orders of the AO passed under s.143(3) of the Act to be erroneous and prejudicial to the interest of the Revenue on the ground that the interest earned b y the assessee societ y from deposits placed in Scheduled Co.op. Bank is not eligible for deduction under s.80P(2) of the Act.
5. The learned AR for the assessee contended that the assessee is eligible to claim deduction on interest earned from FDs with co- operative banks and the societies under s.80P(2)(d) of the Act. It was pointed out that the issue has been examined threadbare in a recent decision rendered in Uttar Gujarat Uma Co-op Credit Society Ltd. vs. ITO ITA Nos. 1670 & 1671/Ahd/2018 order dated 28.02.2019 b y the Ahmedabad Tribunal.
6. The learned DR, on the other hand, submitted that the issue has been adjudicated against the assessee by the decision of the Hon'ble Karnataka High Court in Pr.CIT vs. The Totagars Co-Operative Sale Society ITA No. 100066/2016 & Ors. (Karnataka). It was also pointed out that after the insertion of the provisions of Section 80P(4) of the Act b y the Finance Act, 2006 w.e.f. AY 2007-08, the benefits of deduction under s.80P of the Act is not available to co-operative bank and the credit societ y ex cept in few situation as mentioned therein. The assessee is therefore not entitled to the deduction claimed under s.80P of the Act on interest income in law. The AO has erroneousl y allowed the claim in contravention of law which has caused prejudice to the interest of the Revenue. It was also submitted that the department is not entitled to file I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 3 -
an appeal against the order of the AO and therefore, the C IT was constraint to invoke the provisions of Section 263 of the Act to remed y the loss of Revenue on account of the error committed b y the AO.
7. We have carefull y considered the rival submissions. Section 263 of the Act confers power upon the Pr.CIT/CIT to call for and examine the records of a proceeding under the Act and revise an y order if he considers the same to be erroneous and prejudicial to the interests of the Revenue. The Pr.C IT can take recourse to revision under Section 263 of the Act where the assessment order is erroneous as well as prejudicial to the interest of Revenue. The twin conditions are required to be satisfied simultaneousl y. The Pr.C IT in the present case has purported to act in exercise of power under s.263 of the Act and thereb y has sought to cancel the assessment order of the AO passed under s.143(3) of the Act. The Pr.C IT essentiall y observed that the AO has wrongly allowed deduction under s.80P of the Act to the assessee societ y in contravention of the provision of the Act. The ground for impugned action under s.263 of the Act is that the AO has failed to make requisite inquiry into the claim of deduction of the assessee under the ambit of s.80P of the Act and in the absence of proper inquiry on the eligibilit y of deduction involved, the order of the AO is erroneous in so far as prejudicial to the interest of the Revenue.
7.1 As pointed out on behalf of the assessee, two pre-requisites must co-exist before the designated authorit y to enable him to exercise the revisional jurisdiction conferred on him namel y; the order should be (i) erroneous & (ii) the error must be such that it is prejudicial to the interests of the Revenue. However, an erroneous order does not necessaril y mean an order with which the Pr.C IT is unable to agree. The AO while passing an order of assessment, performs judicial functions. An order of assessment passed b y the AO cannot be interfered onl y because an another view is also possible on the issue as held in CIT vs. Greenworld Corporation (2009) 181 Taxman 111 (SC). If in given facts and circumstances of the case, two views are possible and one view as I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 4 -
legall y plausible has been adopted b y the AO then existence of other possible view alone would not be sufficient to exercise powers under s.263 of the Act b y the Pr.CIT / C IT concerned. Hence, there can be no doubt that the provision cannot be invoked to correct each and ever y type of mistake or error committed b y the AO. It is onl y when an order is erroneous and causing prejudice, that the Section will be attracted. An incorrect assumption of facts or incorrect application of law will satisfy the requirements of the order being erroneous.
7.2 In the instant case, it is demonstrated on behalf of the assessee that the issue is squarel y covered in favour of the assessee b y the decision of the co-ordinate bench in Uttar Gujarat Uma Co-op Credit Society Ltd. vs. ITO (2019) 70 ITR (Trib) 49 (Ahmedabad), wherein the decision rendered b y the Hon'ble Karnataka High Court in The Totagars Co-Operative Sale Society (supra) relied upon b y Revenue has also been considered and all other facets of law in this regard was taken into account. It will be relevant to reproduce the operative para of the order of the Tribunal in Uttar Gujarat Uma Co-op Credit Society Ltd. (supra) for eas y reference:
"9. We have carefully considered the rival submissions. The dispute concerns section 80P of the Act which provides for deduction of income of a co-operative s ociety engaged in speci fied activity catalogued in Section 80P(2) of the Act. The principal controversy in the capt ioned appeal is towards maintainability of deduction under s.80P(2)(d) of the Act in the hands of the credit co-operative society towards interest earned from deposit placed with co-operat ive banks, more so, i n the light of insertion of s. 80P(4) of the Act by Finance Act, 2006. Thus, the incidental point in issue is whether the benefit of S. 80P deni ed to coop banks by the ins ertion of 80P(4) adver sely impacts the inves tment in such banks by a co-op society or not? It is common knowledge t hat a large number of co-op. societies place their surplus with co-op. banks and seek benefit of Section 80P(2)(d) of t he Act on interest income derived. Hence, a nuanced understanding of the raging controversy is strongly needed.
9.1 It is predominantly the case of the assessee that the co-operative banks essentially cont inue to be co-operative societies and while 'co- operative societies' is a genus term, the 'co-operative banks' are species thereto. Ther efore, such co-operati ve banks are essential ly co- operative societies notwithstanding their engagement in banking business. Consequent ly, it is claimed that the investment in co- operative banks are to be treated at par with investment in co-oper ative I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 5 -
societies for the purposes of eligibility of deduction under s.80P(2)(d) of the Act. The Revenue, on the other hand, has contended that in view of definition provided for co-operative societies under Section 2(19); deduction provided under Section 80P(2)(d) r.w.s. 80P(4) of the Act is not available to investment in a co-operati ve bank as such inves tment cannot be treated at par with the invest ment in co-operative societ y. It is also contended on behalf of the Revenue that the provisions of Section 80P of the Act are founded on 'principles of mutuality' i.e. common identity between the contributors and participators. The deposit in the co-oper ative bank lacks the degree of proximity bet ween the members of the society with that of co-operative bank and thus offends this sacrosanct principle of mutuality. It was thus contended that interest income by a co-operative society from a co-operative bank is not covered in the fold of Section 80P(2) of the Act. It is further case of the assessee that exclusion of co-op banks for eligibility of deduction under S. 80P owing to insertion of S. 80P(4) does not, in any manner, take away the benefit available under S. 80P(2)(d) to an investor society (excluding co-op bank) in a co- op bank which is a co-op society for all intent and purposes while carrying on the functions of a bank. It is thus paddl ed that while a co-op society functioning as a co- op bank is not entitled to benefit of 80P owing to exclusions made, a co-op society not bei ng a co-op bank remains unaffected by S. 80(4) and can enjoy the benefits of S. 80P(2)(d) conferred on the societ ies on fulfillment of pre-requisites.
9.2 Before we proceed to deal with the issue in hand, it would be apt to quote the relevant provisions governing the controversy in hand.
9.2.1 Section 2(19) defines t he meaning of express ion 'Co-op Society' as under:
"co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912 ), or under any other law for the time being in force in any State for the registration of co-operative societies;
9.2.2 Income under S. 2(24) of the Act also includes:
the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members 9.2.3 The relevant portion of S. 80-P governing deduction available to co-operative societies is also quoted hereunder:
"Deduction in respect of incom e of co-operative societies.
80P. (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 referr ed to in sub-section (1) shall be the following, namely :--
I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 6 -
(a) in the case of a co-operative society engaged in--
(i ) carrying on the business of banking or providing credit facilities to its members; or
(ii) a cottage industry ; or
(iii) ---
(iv) ---
(v) ---
(vi ) ---
(vii) ----
the whole of the amount of profits and gains of business attributable to any one or more of such activities :
(b) -----------
(c) -----------
(d)
in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such incom e;
(e) -----------
(f)
(4) 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 agri cultural and rural development bank.
Explanation.--For the purposes of this sub-section,--
(a) "co-operative bank" and "primary agricultural credit society"
shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949);
(b) "primary co-operative agricultural and rural development bank"
means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities."
9.2.4 Part V of Banking Regulation Act, 1949 defines 'co-operative bank' in Section 5(cci ) as under:
" Co-operative bank' means a state co-oper ative bank, a central co-operative bank and a primary co-operative bank; 9.2.5 A 'primary co-operat ive bank' as per Sectionn 5(ccv) of Part V of Banking Regulation Act, 1949 reads to mean:
I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 7 -
"(ccv) "pri mary co-operative bank" means a co-operative society, other than a primary agricultural credit society,-
...............................
9.2.6 As per clause (ccvii) of Section 5, however, 'Central Co-op Bank' and 'State Co-op Bank' shall have the same meanings respectively assigned to them in the National Bank for Agriculture and Rural Development (NABARD) Act, 1981. NABARD, in turn defines these two terms as under:
Section 2(d) of NABARD defines 'central co- operative bank' means the "d. "central co-oper ative bank" means the principal co- operati ve society in a district in a State, the primary object of which is the financing of other co- operative societies in that district:.........."
u. "State co-operative bank" means the principal co- operative society in a State, the primary object of which is the financing of other co-operative societies in the State:.................."
9.3 Having noted the relevant provisions in earlier para, it would be expedient to firstly refer to the decision of The Citizen Co-Oper ative Society Ltd. (supra) to gather the rules of interpretation of various sub-
sections of the beneficial provision of S. 80P. The Hon'ble Supreme Court inter alia has observed that different heads of exemption enumerated in the Section 80P of the Act should be treated as separate and distinct head of 'exemption'. If any particular category of an income falls within any one head of 'exemption', the assessee would be free from tax notwithstanding that the conditions of other head of exemption are not sati sfied and such income is not free from tax under other head of 'exempt ion'. Thus , in view of the express judicial dicta, provisions of Section 80P(2)(a) and 80P(2)(d) are mutually exclusive and are to be read independent of each other .
9.4 We are presently concerned with the availability of deduction to a co-op society within the realm of Section 80P(2)(d) of the Act. Two things need to be noted in this regard; firstly, unlike Section 80P(2)(a) or (b) or (c) of the Act where the assessee is qualified for deduction of "profits & gains of business" attributable to one or more of act ivities enumerated in these s ub-sections, Section 80P(2)(d) of the Act, in sharp departure, provides for deduction of "whole of such income" [ without any distinction on nature of income] as derived by a co-operative society from its investment with any other co-operative society. Needless to s ay, in a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment and one has t o look fairly at the language used. Thus , scope of benefit under s.80P(2)(d) is not restricted to 'business income' alone but also extends to income derived from invest ments ordinarily falling under the head 'income from other sources' as well ; secondly doctrine of mutuality is not necessarily a pre-condition in appropriate circumstances, for ins tance 80P(2)(a(ii ); and thi rdly and quite significantly ; the investment by a co-op society in a co-op society should result in interest or dividend income from its investment. Thus what is pertinent is that the investment by the assessee society should be parked in another 'co-op society' for the purposes of sub-clause 2(d) of S. 80P. The moot I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 8 -
question thus naturall y emerges is; whether the investment in a co-op bank is to be regarded as investment in-effect in a co-op s ociety or not?
9.5 At this juncture, we also take simultaneous note of such Section 80P(4) of the Act inserted by Finance Act, 2006 whereby a co- operative bank has been deprived of deduction under s .80P of the Act. To put it slightly differently, with advent of section 80P(4), co-op banks have been brought to tax by denying them the benefit of Section 80P of the Act.
9.6 The insertion of Secti on 80P(4) of the Act has purportedly also obfuscated and cast aspersion on the deductibility of income derived by a co-operative society from investments placed with co-operative bank under S. 80P(2)(d) of the Act. In this context, it would be interesting to note that the aforesaid clause 80P(4) itself holds that a co-operative bank may also possibly include 'a credit society'; for instance, a primary agricultural credit society. Therefore, on an incisive reading of Section 80P(4) of the Act, it appears that co-operative banks can also be co-operative society for the purposes of Section 80P(2)(d) of the Act. Thus , on a conjoint reading of Section 80P(2)(d) and 80P(4), it would appear that while the co-operative banks in certain cases [ as specified in Section 80P(4)] may not qualify for deduction under s.80P of the Act, a co-operative society per se would not come withi n the mischief of sub-section 4 of the Act of Section 80P of the Act and would continue to avail the benefit of Section 80P(2)(d) of the Act. Thus, simply put, while a co-operative bank has been stripped of the benefit of Section 80P of the Act on its various income by insertion of S. 80P(4), the invest ment in such co-operative bank [ bearing the legal trappings of a co-op society ] by a co-op society as envisaged in Section 80P(1) of the Act is not divested of s uch benefit.
9.7 Joining the issue in hand, as per Section 80P(2)(d) of the Act, the only requirement is that the income should be received from investment by a co-operative society in other co-operative societ y and it is claimed that co-operative bank namel y 'Ahmedabad District Co- operative Bank', in t he present case, is nothing but a co-oper ative society recognised by the competent authority of the Stat e as contemplated under Section 2(19) of the Act. On these facts, the eligibility of deduction under Section 80P(2)(d) of the Act is required to be evaluated independent of mutualit y doctrine taken away by insertion of S. 2(24)(viia). The assessee society would thus be entitled to benefit of section 80P(2)(d) on interest income from investment in co-op bank. As noti ced from the definition of 'co-op bank' with reference to Banking Regulation Act, 1949; read with NABARD Act, it is ostensible that the co-op banks of various types are essentially co- op. societies. Hence, the claim of deduction made under S. 80P(2)(d) by a co-op society in such co-op banks can not be denied notwithstanding that some these co-op banks are not eligible for 80P benefits despite being co-op societies.
9.8 Coupled with this, certain observations made by the Hon'ble Gujarat High court in State Bank of India (supra) and in Sabarkantha District (supr a) also reinforces that interest earned on fixed deposit with co-operative bank can be said to be qualified for deduction under I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 9 -
s.80P of the Act notwi thstanding that such observations appear to be in the nature of an obiter in the context of thos e cases.
9.9 At this stage, it would also be pertinent to again restate that for the purposes of Section 80P of the Act, the principle of mutuality has been obliterated in view of insertion of Section 2(24) (viia) of the Act by Finance Act, 2006 and such principles thus no longer serve as strict guiding principle to test the relief eligible under S. 80P(2)(d) of the Act. Therefore, the plea raised on behalf of the Revenue towards absence of principle of mutuality in such deposits with co-oper ative banks is a damp squib. Thus, the assessee being a co-operative society as contemplated under s. 80P(1) of the Act, cannot be deprived of benefit of S.80P(2) (d) despite purported absence of mutual ity in investment with a co- op bank. We, thus , concur with plea of ass essee for allowability of deduction on interest income derived from co- operative society in the form of Co-operative bank on first principles. The issue is accordingly resolved in favour of the assessee and against the Revenue.
9.10 We are conscious of the decision of the Hon'ble Karnatka High Court in Pr.CIT vs. Totagars Co.oper ative Sales Society (2018) 395 ITR 611 (Karn) wherein it was held that interest income not arising from business operations is not eligible for deduction under s.80P of the Act. A reading of the judgment of the Hon'ble High Court shows that i t was guided by nature of activity to determine the character of income for the purposes of Section 80P(2)(d) of the Act. Placing reliance upon the judgments rendered in the context of 80P(2)(a)(i ) of the Act , the Hon'ble High Court concluded that the deduction of interest income is not permissible unless it arises from business operations. Clearl y, the distinction between Section 80P(2)(a) and 80P(2)(d) of the Act of substantial nature (as discussed in para 9.4 of this order) was not brought to the notice of Hon'ble High Cour t. The deduction under s. 80P(2)(a) or (b) or (c) of the Act is available only on account of income/profits arising from business activity. However, this requirement is not applicable under s.80P(2)(d) of the Act where whole of the income arising from interest or dividend etc. is allowable without such limitation of business activity. This cardinal difference of overwhelming nature was not brought to the notice of the Hon'ble High Court. Cons equently, the decision rendered by the Hon'ble High Court appears to be subsilentio. Thus, gover ned by the observations of the Hon'ble Gujar at High Court in the case of Sabarkantha District (s upra) and State Bank of India (supr a), we have not hesitation to affirm the plea of the assessee for allowability of deduction."
7.3 Thus, in the light of reasoning of the Tribunal in favour of assessee on eligibility of deduction under s.80P of the Act on interest earned from deposits placed with co-operative banks, the issue cannot b e regarded to be free of an y debate to the least. In the circumstances, the action of the AO in granting relief under s.80P of the Act cannot be dubbed as erroneous per se. Therefore, the twin conditions for invoking provisions of Section 263 of the Act are clearl y not satisfied. Thus, the I T A N o s . 1 4 2 9 & 1 4 3 0 / Ah d / 1 8 [ S h r e e V i v e k a n a n d C o . o p . C r e d i t S o c i e t y L t d . v s . I T O ] A. Y s . 2 0 1 3 - 1 4 & 2 0 1 4 - 1 5 - 10 -
revisional action of the C IT cannot be regarded to be within the spheres of jurisdiction available under s.263 of the Act. Hence, the order of the CIT under s.263 of the Act is required to be set aside and cancelled.
7.4 In the result, both the appeals of the assessee bearing similar grievances, are required to be allowed for the reasons noted above.
8. In the result, both appeals filed by the assessee are allowed.
This Order pronounced in Open Court on 27/01/2020
Sd/- Sd/-
(MAHAVIR PRASAD) (PRADIP KUMAR KEDIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: Dated 27/01/2020
Tru e Co p y
S. K. SINHA
आदे श क त!ल"प अ#े"षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आय,
ु त- अपील / CIT (A)
5. 0वभागीय 3त3न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड9 फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपील य अ*धकरण, अहमदाबाद ।