AI Drafter 
TaxTMI 
TaxTMI 
2024 (6) TMI 1022
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....17-18 29/05/2023 ITA No.1059/Bang/2023 2018-19 29/05/2023 ITA No.1060/Bang/2023 2020-21 29/05/2023 2. Brief facts of the case are as under: 2.1 The Ld.AR at the outset submitted that the facts and circumstances of the appeals under consideration are based on identical facts and on the disallowance of assessee's claim under section 80P(2)(a)(i)/(d) of the Act. Therefore all the appeals are considered in a consolidated manner on the principle issue. 2.2 It is submitted that the assessee is a state-level non-banking co-operative credit society established in the year 1929, well before the enactment of the Karnataka Co-operative Societies Act, 1959 ("KCS Act"), the Reserve Bank of India Act, 1934, or the Banking Regulation Act, 1949 (BRA). It is thus, submitted that the assessee though has the word "bank" in its name, it is not a bank, It is further submitted that the assessee is not licensed to carry on the operations of banking as per the Banking Regulation Act. Reliance is placed on the response to a query dated 07/09/2018, under the Right to Information Act, 2005 filed by the assessee to the Reserve Bank of India (RBI) placed at page 88 of PB Vol 1. ....
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....fore the Ld.CIT(A). 3. The Ld.AR submitted that for assessment years 2012-13, 2018-19 and 2020-21, the orders of the Ld.CIT(A) were passed ex-parte. 3.1 For AY 2013-14, assessment order was passed on 26.02.2016. In first appeal, an order was passed by the Ld.CIT(A) on 14.02.2017, against which the assessee preferred appeal before this Tribunal who passed order dated 06.04.2018 remanding the matter to the file of the CIT(A). Thereafter, the Ld.CIT(A) passed two orders, both on 11.05.2023 at different time with different DIN. In both these orders passed by the Ld.CIT(A) on merits, the disallowance by the Ld.AO was upheld. For remaining assessment years, orders were passed upholding the disallowance by the Ld.AO. 3.2 The primary observation of the Ld.CIT(A) for disallowing the claim u/s. 80P(2)(a)(i) was that assessee was dealing with the members of different classes such as regular / nominal / associate members. In respect of the nominal members / associate members who did not have certain rights in the society, the principle of mutuality did not exist. 3.3 In respect of the disallowance u/s. 80P(2)(d) of the act, the Ld.CIT(A) relied on the decision of Hon'ble ....
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....The Legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits ". The expression "sufficient cause" employed by the Legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that : 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. ................................................
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..... The Ld.AR submitted that, the claim of deduction disallowed under section 80P(2)(a)(i) in the pending appeals has been challenged by the assessee for the years under consideration in following grounds: Appeal No. Assessment Year Ground Number ITA No. 1052/Bang/2023 2012-13 2, 5, 6 ITA No. 1054/Bang/2023 2013-14 3, 6, 7 ITA No. 1055/Bang/2023 2014-15 2, 5, 6, 7 ITA No. 1056/Bang/2023 2015-16 2 ITA No. 1057/Bang/2023 2016-17 2 ITA No. 1058/Bang/2023 2017-18 2 ITA No. 1059/Bang/2023 2018-19 2 ITA No. 1060/Bang/2023 2020-21 2 9. The Ld.AR submitted as under: 9.1 The assessee is a State Level Federal Agriculture and Rural Development Credit Society registered under the provision of the Karnataka Co-op Societies Act, 1959. It is submitted that the assessee is not governed by the provisions of the Banking Regulation Act, 1949 (Central Act), and is a non-banking Co-op Society. The word "Bank" is used in its registered name as the same is allowed in the provisions of the Karnataka Co-op Societies Act, 1959 and the Rules, 1960 framed there under. He submitted that moreover the present State Co-op. Agricu....
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....amount because firstly the assessee is not allowed to collect deposits from the individuals and institutions that are not enrolled as its members and secondly the deposit insurance and guarantee scheme is not applicable to the deposit collected by the assessee. The assessee is also not sound financially due to poor recovery of Agriculture Loans from the farmers to the PCARD Bank resulting in poor recovery from the PCARD Banks to the bank also. Hence, assessee cannot attract the depositors in the competitive financial market. The Ld.AR thus submitted that, the core function of the Bank is as follows: a. Collection of share capital from its members that is the PCARD Banks. b. Availing refinance assistance from NABARD subject to the NABARD's refinances norms. c. Disbursement of Long Term agriculture and Allied loans to the farmers through its member's constituent's viz, the PCARD Banks. d. Management of recoveries at village levels. e. Over all supervision of functioning of the PCARD Banks. 10. It is submitted that the assessee lends to its members and to its staff in the ordinary course of business. The Ld.AR submitted that, except for ....
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....preme Court in Mavilayi which specifically holds that co-operative societies not licensed by the RBI cannot be regarded as banks within the meaning of section 80P(4). Reliance was also placed on the decision of Hon'ble jurisdictional High Court in case of, Shree Mahila Credit reported in (2017) 88 taxmann.com 712 and Sri Biluru Gurubasava reported in (2014) 369 ITR 86. 12. The Ld.AR submitted that the assessee claimed 80P(2)(a)(i) in respect of the interest income earned by it by providing credit facilities to its members which has been disallowed by the authorities below relying on the ratio of Hon'ble Supreme Court in case of Citizen Co-operative Society Ltd. (supra). The Ld.AR submitted that assessee is a co-operative society registered under Karnataka Co-operative Societies Act whereas Citizen Co- operative Society has been observed to be a mutually aided co- operative society and was functioning as a bank that had a RBI approval. He thus submitted that the ratio laid down therein is not applicable to assessee as assessee does not have a RBI approval to function like a bank. 13. The Ld.AR submitted that insofar as the associate and nominal members are concerned, the ratio....
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....s of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: "2. (n) 'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;"" Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). 47. Further, unlike ....
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....ee. The interest from the staff loans would therefore be covered by sub- clause (i) of section 80P(2)(a). The Ld.AR submitted that Hon'ble Supreme Court in case of Mavilayi(supra), noted that the "distinction between eligibility of deduction and attributability of amount of profits and gains to an activity is a real one." He submitted that the Hon'ble Court made this observation after noting that "once it is clear that the co-operative society in question is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle the society in question from availing of the deduction." The Ld.AR thus submitted that the assessee would be eligible to the deduction, as it is engaged in providing credit facilities to its members, and thereafter, the interest from staff loans would be attributable to this business of providing credit facilities to its members. 15. DISALLOWANCE OF INTEREST EARNED FROM INVESTMENT u/s. 80P(2)(a)(i)/(d) 15.1 In respect of the investments made by assessee from which interest / dividend has been earned, assessee submitted that deduction u/s. 80P(2)(a)(i)/(d) is available to assessee. This issue ar....
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....s under consideration. We have perused the submissions advanced by both sides in light of records placed before us. 15.4 We note that the disallowance can be categorized under following categories: I) Disallowance of interest under section 80P(2)(a)(i) earned by the assessee from the credit facilities; II) Disallowance of interest under section 80P(2)(a)(i) earned by the assessee from staff loans III) Disallowance of interest under section 80P(2)(a)(i)/(d) earned by the assessee from investments made. Admittedly, the assessee is not a bank as per the definition of Section 5(c) of the Banking Regulation Act. We infer this view from the reply to the RTI application issued by RBI vide its letter dated 07/09/2018. Thus in our considered view, the assessee do not fall under the exception as per section 80P(4). 16. In respect of the observation of the authorities below regarding the violation of Principle of Mutuality since the facilities are extended to associate members and nominal members are concerned, the ratio by Hon'ble Supreme Court in case of Mavilayi (supra) read with section 2(f) of Karnataka Co-operative Act 1959 covers the issue. 16.1 We n....
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....ct of the interest earned by the assessee from credit facilities extended to members that includes nominal / associate members. 16.3 In so far as interest earned from the loan extended to the employees of the assessee are concerned, the arguments advanced by the Ld.AR do not support the scheme of the Act under section 80P(2)(a). What is allowable under the section has been expressly provided for therein. As per section 80P, an income which is attributable to any of the specified activities in Section 80P(2) of the Act could be only eligible for deduction. Providing loan to the employees cannot be considered as, "attributable" to the business of the assessee, as the term "attributable to the business" is much narrow term, which is directly connected to the objects of the assessee for which it has been established. We therefore hold that, the interest earned by the assessee from loan give to its employees cannot be considered for deduction under section 80P(2)(a)(i) of the Act. It has to be treated as income form other sources. Accordingly we hold that the interest earned from the credit activities of the assessee to its members including nominal / associate is allowable under ....
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....tricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity." (emphasis supplied) 17.3 Therefore, the word "attributable to" is certainly wider in....
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....o clarified that, they are confining the said judgment to the facts of that case. 17.5 In the instant case, there is nothing on record to come to the conclusion that the amount which was invested in banks to earn interest was amount due to its members, and that, it was a liability. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for objects of the society, but was required to be invested as required by the Karnataka Co-operative Societies Act, 1959. Therefore they had deposited the money out of which interest was earned. The said interest is thus attributable to carrying on the business of the assessee and therefore it is liable to be deducted in terms of Section 80P(2)(d) of the Act. In fact similar view is taken by the Hon'ble Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. reported in [2011] 12 taxmann.com 66. 17.6 We note that recently Hon'ble Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. vs. AO reported in (2023) 154 taxmann.com 305 has in detail analysed the allowability of deduction u/s. 80P(2)(d) of the Act. Ho....
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....in any other law for the time being in force, the provisions of the said Act, shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies subject to certain modifications. The object of section 56 is to provide a deeming fiction by equating a co-operative society to a banking company if it is a co-operative bank within the meaning of the said provision. This is because Chapter V of the BR Act, 1949, deals with application of the Chapter to co-operative societies which are co-operative banks within the meaning of the said chapter. For the purpose of these cases, what is relevant is that throughout the BR Act, 1949, unless the context otherwise requires, - references to a "banking company" or "the company" or "such company" shall be construed as references to a co- operative bank. Therefore, while considering the meaning of a co-operative bank inherently, such a co-operative society must be a banking company then only it would be construed as a co-operative bank requiring a licence under section 22 of BR Act, 1949 in order to function as such a bank. 15.10 Further, while considering the definition of a co- operative bank u....
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....5 1058/Bang/2023 2017-18 6 & 7 1059/Bang/2023 2018-19 Issue does not arise. 1060/Bang/2023 2020-21 Issue does not arise. 18.1 The assessee incurred Guarantee Commissions in favour of Government of Karnataka and debited the same to its Profit & Loss Account. The Government of Karnataka guarantees long term borrowings made by the assessee. The Ld.AO treated the Guarantee Commission as Income from other sources. The Ld.AO also disallowed the claim under section 43 B, by invoking clause (a) covering "tax, duty, cess or fee, by whatever name called, under any law for the time being in force." 18.2 The Ld.AR submitted that, the guarantees in the present case were extended by the Government to the assessee as a part of the executive power of the state under article 293(1) of the Constitution. It is submitted that, section 43B contemplates that, a law must levy a tax, duty, cess or fee, and that there is no such levy in the case of a guarantee commission. The Ld.AR thus submitted that Section 43B does not cover guarantee commission. 18.3 The Ld.AR submitted that the commission is paid as consideration/ recompense for a promise to repay in the event of de....
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....uld not come within the scope of section 43B(a). He submitted that the Court observed regarding the 'bottling fees' to be: "neither fee nor tax but the consideration for grant of approval by the Government as terms of contract in exercise of its right to enter a contract." It observed that, the items enumerated in clause (a) constitute species of the same genus and the expression "by whatever name called" was used ejusdem generis to confine their application to; "compulsory exaction in the exercise of the State's power of taxation where levy and collection is duly authorised by law as distinct from an amount chargeable on principle as consideration payable under contract." (g) The decision of Hon'ble Madras High Court in Tamil Nadu Minerals Lts. Vs.CIT reported in (2019) 107 taxmann.com 214, wherein the issue was one in which the amount paid was of 'nomination charges' by means of a Government order under some rules promulgated by the state Government. Hon'ble Madras High Court observed that, despite this, the payment actually arose out of a lease agreement entered into by the assessee with the state and that the payment was therefore contractual....
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....that this is made even clearer by section 29 which reads: "The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D." Thus, all the provisions in sections 30 to 43D govern only income chargeable under section 28, viz., income chargeable under the head profits and gains from business or profession. 18.9 The Ld.AR thus argued that the provisions of section 43B are not applicable to the guarantee commission paid by the assessee as a contractual obligation to the State Government, bit has to be treated as an expenditure in the hands of the assessee. 18.10 On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. 18.11 The issue before this Tribunal is, whether Guarantee commission paid by the Assessee to State Government can be said to fall within the ambit of sec.43B of the Act. We have perused the decisions relied on by the Ld.AR. To consider the submissions of the Ld.AR it is necessary to analyse section 43B that reads as under: "43B. [Certain deductions to be only on actual payment. [....
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....ndered. 3. Any sum payable as interest on loan or borrowing from any • public financial institutions (i.e., IFCI, LIC, etc.); • a State financial corporation; or • State industrial investment corporation. 4. Any sum payable by the assessee as interest on any loan or borrowing from a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company, in accordance with the terms and conditions of the agreement governing such loan or borrowing: • Systemically important non-deposit taking non-banking financial company means a non-banking financial company which is not accepting or holding public deposits and having total assets of not less than 500 crore as per the last audited balance sheet and is registered with the RBI. • Deposit taking non-banking financial company means a non- banking financial company which is accepting or holding public deposits and is registered with the RBI. 5. Any sum payable as interest on any loans and advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a prima....
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....la High Court in this regard : ....... Therefore the question is whether the 'exclusivity' will be lost if it is levied from more than one State Government I.T. Appeal Nos. 135, 146 & 313/2019 -22- undertaking. Sub-clause (iib) of clause (a) of section 40 provides that, any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge "which is levied exclusively on" a state government undertaking by the State Government (emphasis supplied) alone will satisfy the ingredients for disallowance. The statute has not used the word; levied exclusively on the state government undertakings by the State Government. Instead, the word used is "exclusively on" "a state government undertaking". Therefore, in order to bring the disallowance within the ambit and scope of section 40 (a) (iib), it should be an exclusive levy on the assessee, which should be a state government undertaking. Since the licence fee and shop rental (kist) are also levied from the Consumer Federation with respect to the FL-1 licence granted, it becomes out of the purview of the term 'levied exclusively on a state government undertaking, contained in....
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....this issue to the Ld.AO to carry out necessary verification, based on the agreement entered into by the assessee with the state Government and to analyse if the payment of guarantee Commission is an admissible deduction under section 37(1) of the Act. Accordingly grounds raised on this issue for AY:2015- 16,2016-17 & 2017-18 in grounds mentioned herein above stands allowed for statistical purposes. 19. DISALLOWANCE OF BUSINESS LOSS This issue arises only in ITA No.1058/Bang/2023 for AY 2017-18 in ground no. 10. 19.1 The Ld.AR submitted that the assessing officer ought not to have disallowed business loss of Rs. 29,48,007. 19.2 The Ld.AR submitted that the assessee returned loss under the head profits and gains from business or profession of Rs. 29,48,007. It is submitted that, on account of the income from other heads exceeding the loss declared, the gross total income as declared became positive. 19.3 The Ld.AR submitted that the Ld.AO, in determining the gross total income, has taken income under the head profits and gains from business and profession as nil and, he has ignored the loss of Rs. 29,48,007. In our opinion this issue needs to be verified by the L....
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....in para 16.3 and hold that the income earned by the assessee from E stamping cannot be considered for the purpose of deduction under section 80P(2) of the act. However we direct the Ld.AO to consider the alternate claim of the assessee in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee. Accordingly grounds raised on this issue for AY 2015- 16,2017-18 , 2018-19 & 2020-21 stands allowed for statistical purposes. 21. INCORRECT QUANTIFICATION OF TOTAL INCOME (GROUND 5) This issue arises only in ITA No.1058/Bang/2023 for AY 2017-18 as ground no. 5. We direct the Ld.AO to quantify total income if the assessee, in accordance with law in the light of evidences filed by the assessee. Needless to say that proper opportunity of being heard must be granted to the assessee. Accordingly grounds raised on this issue for ITA No.1058/Bang/2023 for AY 2017-18 as ground no. 5 stands allowed for statistical purposes. 22. The Ld.AR submitted that ITA No.1052, 1059 and 1060 pertaining to AY 2012-13, 2018-19 and 2020-21 are exparte orders by the Ld.CIT(A). He also submitted that the disallownace are identically made by the L....
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....perative Society registered under the Karnataka Cooperative Societies Act lending money to the Primary Cooperative Agriculture and Rural Development Banks (PCARD Banks) who are its members, and that the paid-up share capital of the Appellant is held by these PCARD Banks, the Government of Karnataka and some government undertakings: 2. That this appeal has been filed by the Appellant against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre served on the Appellant on May 29, 2023; 3. That, accordingly, the period of limitation for filing this appeal before the Tribunal expired on July 28, 2023; 4. That this appeal is being filed on 14th December, 2023 resulting in a delay of 139 days; 5. That Smt. B. Gowramma who was the Deputy General Manager, Finance, dealing with the income-tax matters of the Appellant passed away due to COVID-19 on May 5, 2021(Annexure 1) since then her post has remained vacant: শ NGO TA MAMATHA N.K BALL BENGALURU Reg. No. 10201 INDIA Document 3 6. That Smt. Sindhu Gowda, who was Legal Officer handling various litigation matters including assisti....