TaxTMI 
TaxTMI 
TaxTMI 
2021 (5) TMI 406
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....ical. The learned counsel on both sides have advanced common arguments. So we dispose of all the appeals through this common judgment. For the narrative convenience, we will refer to the facts in Tax Appeal No.2 of 2018. 3. The Respondent ("the Assessee") is a Co-operative credit society said to be engaged in the activity of providing credit facilities to its members and carrying on the business of Banking. On 31 March 2013, the Assessee filed its e-return of income for the Assessment Year 2012-13 declaring total income as Nil after claiming deduction under section 80P of the Act. On 8 August 2013, the Assessee's return was processed under section 143(1) of the IT Act, and subsequently the case was selected for scrutiny under CASS and notice dated 08.08.2013 was issued under section 143(2). 4. Through Assessment Order, dated 10.03.2015, passed under section 143(3) of the Act, the Assessment Officer (AO) held that the Assessee is not a co-operative credit society but a Primary Co-operative Bank. As a result, it was declared ineligible for deductions under section 80P(2)(a)(i) and 80P(2)(c)(ii) of the Act. Besides, the AO has also held that because of section 40a(ia) of the IT Act,....
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....61? Submissions: 8. Given the clear precedential position, we need not set out the rival contentions in detail; it will suffice it we extract the core of contentions, especially, by the Revenue. 9. The learned Advocate General has raised these issues: (1) the Assessee is a co-operative society in the name, but it carries on its fullblown banking operations with nonmembers; and (2) this position having been admitted, it ought to be treated as a co-operative bank, rather than as a co-operative society. To support his contentions, the learned Advocate General has taken us through the statutory position: Section 80P(2)(a)(i) & (ii) and section 80P(4) of the IT Act; sections 3, 5(b), 22(1)(b), and section 56 of the Banking Regulation Act, 1949, the provisions of the Goa State Cooperative Societies Act, 2001, as well as the Assessee's bye-laws. 10. On the other hand, all the learned counsel for the Assessees have defended the impugned judgments. The learned counsel have submitted that the main object of the societies is to accept the deposits and provide financial accommodation to their membes So, they have asserted that the Assessees' core activity continues to the that of a coopera....
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....e Assessee is a Cooperative Bank and, therefore, not entitled to the benefit of Section 80P(2)(a)(i) of the Act. It has brought in the statutory exclusion under section 80P(4) of the IT Act. It has, thus, restored the AO's order. 15. Eventually, the Assessee came to this Court. This Court framed this substantial question of law: Was the Tribunal right in holding that the Assessee is a Co-operative Bank and, hence, is not entitled to deduction under Section 80P(2)(a)(i) by virtue of Section 80P(4) of the Act? 16. This Court, through its judgment, dated 17 April 2015, in TXA Nos.22, 23, and 24 of 2015, has examined the statutory scheme under section 80P of the IT Act. In paragraph 9 of the judgment, this Court has held that indisputably, the Assessee is a cooperative society as the same is registered under the Co-operative Societies Act. The Assessee is claiming deduction of income earned on providing credit facilities to its members as provided under Section 80P(2)(a)(i) of the Act. It is Assessee's case that it is not carrying on the business of the banking. In other words, not being a co-operative bank, it faces no hurdle through section 80P(4) of the Act to claime the benefit....
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....t restricts the benefits of deduction of Co-operative Society's income to the extent it earns by providing credit facilities to its members On the converse, to the extent of the income it earns by its dealings with the nonmembers, the benefit of Section 80P of the Act would not be available. So, the Court has concluded that the authorities under the IT Act would restrict the benefit of deduction under Section 80P of the Act only to the extent that the same is earned by the Asseesee by carrying on its business of providing credit facilities to its members, but not non-members. 23. Here, too, for the Appeasement Year 2012-13, the contentions and counter-contentions are identical. But we need not labour further on this point. Recently, the Apex Court, speaking through a three-Judge Bench, put paid to any controversy on whether a cooperative credit society can be regarded as a cooperative bank given its activities. Mavilayi Service Co-operative Bank Ltd: 24. In Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax (SC), the question concerns the deductions a primary agricultural credit society can claim under section 80P(2)(a) (i) of the Income-Tax Act, 1961 ("IT Act....
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....rposes, yet some of the objects go well beyond, and include banking operations 'as per rules prevailing from time to time'. Then, Mavilayi SC has examined the case holding of Citizen Cooperative Society. In fact, Mavilayi SC underlines the fact that even Citizen Cooperative Society acknowledges that section 80-P of the IT Act is a benevolent provision; it was enacted by Parliament to encourage and promote growth of cooperative sector in the country. Citizen Cooperative Society, as noticed by Mavilayi SC, has further accepted that once the assessee is entitled to avail itself of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction. Further, Citizen Cooperative Society also accepts that section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only cooperative banks which are cooperative societies that must possess a licence from the RBI to do banking business. In this backdrop, on facts, Citizen Cooperative Society concludes that the appellant assessee did not have RB....
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....have a licence from Reserve Bank of India. And, admittedly, the appellant does not have it. In Mavilayi (SC), as is the case here, the main reason for the Revenue to disentitle the appellant from getting the deduction under Section 80-P of the Act is not sub-section (4). It is the appellant's alleged activities in violation of the Cooperative Societies Act, under which it is formed. The AO has pointed out that the appellant has been catering to two distinct categories of people: the first category is the resident members or ordinary members; the second category is the "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. 34. As Mavilayi (SC) has noted, most of the appellant's business 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 the depositors and borrowers are quite distinct. 35. In reality, the appellant's activity, M....
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....ts the type of society which can get the deductions contained in those two sub-clauses, unlike any such restrictive language in Section 80P(2)(a)(i). 38. Mavilayi (SC) emphasises that once a co-operative society is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle the society from availing itself of the deduction. The distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to nonmembers cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted. 39. To sum up, Mavilayi (SC) has held that the ratio decidendi of Citizen Cooperative Society Ltd., must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably. And if there is ambiguity, it must be resolved the Assessee's favour. A deduction given without any reference to any restriction or limitation cannot be restricte....