Income Tax Appellate Tribunal - Bangalore
Sri Laxmi Venkatesh Credit ... vs Income Tax Officer Ward-1 , Udupi on 31 December, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND
SHRI LALIET KUMAR, JUDICIAL MEMBER
ITA No. 396/Bang/2018
Assessment Year : 2013-14
M/s. Sri Laxmi Venkatesh Credit
Co-operative Society Ltd.,
The Income Tax Officer,
Sunanda Devdas Tower,
vs. Ward - 1,
P.P.C. Road,
Udupi.
Udupi - 576 101.
PAN: AAAJL0987F
APPELLANT RESPONDENT
Appellant by : Shri Mahesh R. Uppin, Advocate
Respondent by : Shri R.N. Siddappaji, Addl. CIT (DR)
Date of hearing : 27.11.2018
Date of Pronouncement : 31.12.2018
ORDER
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT (A)-10, Bangalore dated 21.12.2017 for Assessment Year 2013-14.
2. The grounds raised by the assessee as per concise grounds of appeal are as under.
"The Appellant above named begs to submit as follows in addition to the grounds that may be urged at the time of hearing :
1. The Assessing Officer as well as the Appellate authority failed to consider that the petitioner in appeal is a co-operative society engaged exclusively in providing credit facilities to its members and further they have grossly erred in holding that the appellant is a Primary Co-operative Bank and thus making an addition to the returned income of the appellant to the tune of Rs. 24,44,970/- and demanding tax of Rs. 7,71,930/- which otherwise qualifies for full deduction u/s. 80P(2)(a)(i) of the Act.
2. The 1st Appellate authority is not a fact finding authority and unfortunately instead of deciding the appeal on merits, it proceeded to record speculative and imaginary facts as attributable to the activities of the appellant under Para 5.4 of Annexure - D order and dismissed appeal relying on the decision of the Hon'ble Apex Court in The Citizen Cooperative Society Ltd - Civil Appeal No. 10245 of 2017. The appellant submits that the findings of Appellate authority is opposed ITA No. 396/Bang/2018 Page 2 of 4 to the judgment of Hon'ble High Court of Karnataka in ITA No. 100043 & 100045/ 2014 - Sri Chandraprabhu Urban Credit Co-
operative Society Ltd. Nippani Vs. Income Tax Officer, Ward-1, Nipani.
3. The appellant submits, it is doing its business exclusively with its members well within the framework of its approved bye-laws and the provisions of Karnataka Co-operative Societies Act, 1959 / Rules framed thereunder.
4. The appellant submits that the impugned orders passed by the authorities below are illegal and are liable to be set aside in view of the good number of Orders passed by this Hon'ble Tribunal in similar cases involving similar matter and also the judgment of the Hon'ble High Court of Karnataka in ITA: 5006/2013 - The Commissioner of Income Tax vs. Sri Bilur Gurubasava Pattina Sahakara Sangha Niyamitha, Bagalkot."
3. It was submitted by ld. AR of assessee that the issue was decided against the assessee on this basis that the assessee is a co-operative bank and reliance has been placed on a judgment of Hon'ble Apex Court rendered in the case of The Citizen Co-operative Society Ltd. Vs. ACIT as reported in 397 ITR 1. He submitted that the facts of present case are different and therefore, in the facts of present case, it cannot be said that the assessee is a co-operative bank. At this juncture, the bench pointed out that as per Para no. 24 of this judgment of Hon'ble Apex Court rendered in the case of The Citizen Co-operative Society Ltd. vs. ACIT (supra), it was noted that in order to do the business of a co-operative bank, it is imperative to have a license from the Reserve Bank of India. But in that case, the RBI has itself clarified that the business of the assessee does not amount to that of a co- operative bank. The bench pointed out that in the present case also, if the assessee produces a certificate from RBI on similar line, it can be accepted that the assessee is not a co-operative bank. In reply, it was submitted by the ld. AR of assessee that if the matter is restored back to the file of AO / CIT (A), the assessee will obtain such certificate from RBI regarding the nature of business. The ld. DR of revenue supported the order of CIT(A).
4. We have considered the rival submissions. For ready reference, we first reproduce paras 24 and 25 of this judgment of Hon'ble Apex Court rendered in the case of The Citizen Co-operative Society Ltd. Vs. ACIT (supra).
ITA No. 396/Bang/2018 Page 3 of 4"24) Undoubtedly, if one has to go by the aforesaid definition of 'co-operative bank', the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a license from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P.
25) So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P of the Act is not sub-section (4) thereof. What has been noticed by the Assessing Officer, after discussing in detail the activities of the appellant, is that the activities of the appellant are in violations of the provisions of the MACSA under which it is formed. It is pointed out by the Assessing Officer that the assessee is catering to two distinct categories of people. The first category is that of resident members or ordinary members. There may not be any difficulty as far as this category is concerned. However, the assessee had carved out another category of 'nominal members'. These are those members who are making deposits with the assessee for the purpose of obtaining loans, etc. and, in fact, they are not members in real sense. Most of the business of the appellant was with this second category of persons who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-
operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a co- operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act."
5. From the above paras reproduced from this judgment, it comes out that in order to determine the nature of business as to whether the same is of a co- operative bank or not, certificate from RBI about the nature of business of the assessee is most important and hence, we feel it proper to restore back the matter to the file of AO for fresh decision after providing adequate opportunity to the assessee to produce such certificate from RBI regarding ITA No. 396/Bang/2018 Page 4 of 4 the nature of business of the assessee in reasonable time. This is also important that in Para 25 of its judgment, it is noted by Hon'ble Apex Court that the assessee was engaged in the activity of granting loans to general public as well. This was also noted in the same Para that most of the business of the assessee was with the second category of persons who were noted to be nominal members and from them, the assessee was getting deposits which were kept in Fixed Deposits with a motive to earn maximum returns and a portion of these deposits was utilized to advance gold loans etc. to members of the first category i.e. ordinary members. Hence, even if it is found that assessee is not a co-operative bank, then also, this factual aspect of the present case should be compared and thereafter final decision should be made. Needless to say, adequate opportunity of being heard should be provided to the assessee.
6. Accordingly, we set aside the order of CIT (A) and restore the matter back to the file of AO for fresh decision in the light of above discussion.
7. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/-
(LALIET KUMAR) (ARUN KUMAR GARODIA)
Judicial Member Accountant Member
Bangalore,
Dated, the 31st December, 2018.
/MS/
Copy to:
1. Appellant 4. CIT(A)
2. Respondent 5. DR, ITAT, Bangalore
3. CIT 6. Guard file
By order
Assistant Registrar,
Income Tax Appellate Tribunal,
Bangalore.