TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 847
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....after referred to as "Act"] for the Assessment year [A.Y.] 2014-15, wherein learned CIT(A) has confirmed the addition of Rs. 56,64,970/- made vide assessment order dated 21.12.2016 and dismissed assessee's appeal. 2. (i) The brief facts state that the assessee is a co-operative credit society, registered under Maharashtra co-operative society Act, 1960 and is engaged in providing credit facilities to those CIDCO employees who are members of credit society. The assessee e-filed its return of income on 29.11.2014, declaring total income of Rs. Nil. The return was processed u/s. 143(1) of the Act. The case was selected for scrutiny under CASS and statutory notices u/s. 143(2) and u/s. 142(1) of the Act were issued and served upon the assessee. Assessee responded and filed required details. During the year, the assessee has shown income of Rs. 56,64,971/- from business and claimed deduction u/s. 80P of the Act amounting to Rs. 56,64,971/-. Learned assessing officer held that assessee's credit society fell under the category of primary co-operative bank and therefore, the provisions of section 80P(4) is applicable in assessee's case and disallowed assessee's claim for deduction of Rs.....
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....e Act and is not entitled either to the benefit of section 80P(2)(a)(i) or of section 80P(2)(d) of the Act. 10. The law relevant to the facts of the case is extracted as under: i. Income tax Act 1961 "80P. Deduction in respect of income of co-operative societies. (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 referred to in sub-section (1) shall be the following, namely:- (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) the marketing of the agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collecti....
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....from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. [Explanation. - For the purposes of this section an "urban consumers' co-operative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment. (3) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC, or section 80HHD or section 80-1 or section 80-IA or section 80J, or section 80JJ, the deduction under sub-section (1) or this section, in realtion to the sums specified in clause (a) or clause (b) or clause....
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....rom the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise; (c) "banking company" means any company which transacts the business of banking in India. Explanation. Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause; XXX 22. Licensing of banking companies. (1) Save as hereinafter provided, no company shall carry on banking business in India unless it holds a licence issued in that behalf by the Reserve Bank and any such licence may be issued subject to such conditions as the Reserve Bank may think fit to impose. (2) Every banking company in existence on the commencement of this Act, before the expiry of six months from such commencement, and every other company before commencing banking business in India, shall apply in writing to the Reserve Bank for a licence under this section: Provided that in the case of a banking company in existence on the commencement of this Act, nothing in ....
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....ia will be in the public interest and that the Government or law of the country in which it is incorporated does not discriminate in any way against banking companies registered in India and that the company complies with all the provisions of this Act applicable to banking companies incorporated outside India. (4) The Reserve Bank may cancel a licence granted to a banking company under this section (i) if the company ceases to carry on banking business in India; or (ii) if the company at any time fails to comply with any of the conditions imposed upon it under sub-section (1); or (iii) if at any time, any of the conditions referred to in sub- section (3) and sub-section (3A) is not fulfilled: Provided that before cancelling a licence under clause (ii) or clause (iii) of this subsection on the ground that the banking company has failed to comply with or has failed to fulfil any of the conditions referred to therein, the Reserve Bank, unless it is of opinion that the delay will be prejudicial to the interests of the company's depositors or the public, shall grant to the company on such terms as it may specify, an opportunity of taking the necessary steps for complying ....
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....ce relating to the multi-State co-operative societies but does not include a national co- operative society and a federal co-operative; (cciv) "primary agricultural credit society" means a co- operative society, - (1) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (2) the bye-laws of which do not permit admission of any other co operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose; (ccv) "primary co-operative bank" means a co- operative society, other than a primary agricultural credit society, - (1) the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are not less than one lakh of rupees; and (3) the bye-laws of which do not permit admission of any other co operative socie....
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....years, as the Reserve Bank may, after recording the reasons in writing for so doing, extend. (2) Every co-operative society carrying on business as a co-operative bank at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965) shall before the expiry of three months from the commencement, every co-operative bank which comes into existence as a result of the division of any other co-operative society carrying on business as a co-operative bank, or the amalgamation of two or more co-operative societies carrying on banking business shall, before the expiry of three months from its so coming into existence, every primary credit society which had become a primary co-operative bank on or before the commencement of the Banking Laws (Amendment) Act, 2012, shall before the expiry of three months from the date on which it had become a primary co-operative bank and every co-operative shall before commencing banking business in India, apply in writing to the Reserve Bank for a licence under this section. Provided that nothing in clause (b) of sub-section (1) shall be deemed to prohibit- (i) a co-operative society carrying on business as a bank ....
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....by whatever name called) in a State and which has as its primary object the providing of long-term finance for agricultural development: Provided that, in addition to such principal land development bank in a State, or where there is no such bank in a State, the State Government may declare any cooperative society carrying on business in that State and authorised by the bye-laws of such cooperative society to provide long-term finance for agricultural development to be also or to be a State land development bank within the meaning of this definition; (w) words and expressions used herein and not defined but defined in the Reserve Bank of India Act, 1934, (2 of 1934), shall have the meanings respectively assigned to them in that Act; (x) words and expressions used herein and not defined either in this Act or in the Reserve Bank of India Act, 1934 (2 of 1934), but defined in the Banking Regulation Act, 1949 (10 of 1949), shall have the meanings respectively assigned to them in the Banking Regulation Act, 1949." iv) The Reserve Bank of India Act, 1934 (RBI Act): The relevant provisions of the RBI Act are extracted as under for immediate reference: "2.Definitions.- In this ....
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.... the Reserve Bank of India, by virtue of its power under Section 22 cannot grant a licence to any co-operative society unless it is a state co-operative bank or a central co-operative bank or a primary co-operative bank. For that it would be necessary that a declaration under the NABARD Act, 1981 be first obtained....." 11. In Mavilayi Service Co-operative Bank Limited V Commissioner of Income Tax, Calicut, (2021) 7SCC 90, it has been held by the Apex Court that Section 80P of the Act is a beneficial provision which was enacted in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and therefore, has to be read liberally in favour of the assessee. That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in sub- section (2) of Section 80P must be given by way of deduction vide Citizen Co-operative Society Limited V Commissioner of Income Tax, (2017) 9SCC 364. This is because sub-section (4) of Section 80P is in the nature of a proviso to the main provision contained in sub- sections (1) and (2) of Section 80....
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....imitation cannot be restricted or limited by implication. That sub- section (4) of Section 80P which is in the nature of a proviso specifically excludes co-operative banks which are cooperative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from Reserve Bank of India." 15. It is on the aforesaid touchstone that these appeals must now be further considered from the point of view of the applicable provisions of law. 15.1 Section 80P speaks about deduction in respect of income of co- operative societies from the gross total income referred to in sub-section(2) of the said Section. From the said income, there shall be deducted, in accordance with the provisions of Section 80P, sums specified in sub- section (2), in computing the total income of the assessee for the purpose of payment of income tax. Sub-section (2) of Section 80P enumerates various kinds of co-operative societies. Sub-section (2)(a)(i) states that if a co-operative society is engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profits and gains of business attributab....
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....se (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgars struck a different note." 14. This apart, Hon'ble Karnataka High Court in Principal Commissioner of Income Tax and another V Totgars Cooperative Sale Society, [2017] 392 ITR 74 (Karn.), has, after referring Hon'ble Apex Court Judgement in Totgar (Supra) held in para 7,8,9,10 as under: "7. However, the contention being taken by the learned counsel is untenable. For the issue that was before the Income-tax Appellate Tribunal, was a limited one, namely whether for the purpose of section 80P(2)(d) of the Act, a co-operative bank should be considered as a co-operative society or not? For, if a co-operative bank is considered to be a co-operative society, then any interest earned by the co-operative society from a co-o....
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....ssessee is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court, in the case of M/s. Quepem Urban Credit Society Ltd. V. ACIT (Supra) [2015 377 ITR, 272], where under identical set of facts, the Hon'ble High Court held that interest and dividend earned from investments with other co-operative banks/societies is entitled for deduction u/s. 80P(2)(a)(i) of the IT Act. We further note that the ITAT Mumbai "D" Bench, in the case of Mahapalika Kshetra Madhyamik Shikshak Sahakari Patsanstha Maryadit V. ITO(Supra) (2019) [112taxman.com 165], had considered an identical issue and held that where assessee, a co-operative credit society had not undertaken any of banking business and was providing credit facilities to its members only and not to general public, it would not hit by provisions of section 80P(4) of the IT Act 1961 and thus, entitled for deduction u/s. 80P(2)(a)(i) of the IT Act 1961 and thus entitled for deduction u/s. 80P(2)(a)(i) of the IT Act 1961..................." 16. As per section 56(cci) of the BR Act, the term "co-operative bank" means "state co-operative bank", a "Central co-operative bank" and a "primary co-operative bank". Revenue....
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....t & gains of Rs. 56,64,971/- during the term under consideration is not disputed by the revenue. The income from interest on investment & dividend is eligible for deduction u/s. 80P(2)(d) and the remaining amount received from the interest from members on deposit is attributable to assessee society's business income and is deductible u/s. 80P(2)(a)(i) of the Act. The Assessing Officer was thus not justified in denying the benefit of Section 80P of the Act to the assessee society. The aforesaid point is accordingly determined in favour of the assessee and against the revenue. The impugned order passed by learned CIT(A), thus, cannot be sustained. ITA No. 698/MUM/2024 (Assessment Year : 2017-18) 19. This appeal has been preferred against the impugned order dated 18.12.2023 passed in Appeal no. NFAC/2017- 18/10081209 by the Ld. Commissioner of Income- tax(Appeals)/ National Faceless Appeal Centre (NFAC) [hereinafter referred to as the "CIT(A)"] u/s. 250 of the Income tax Act, 1961 [hereinafter referred to as "Act"] for the Assessment year [A.Y.] 2017-18, wherein learned CIT(A) has confirmed the addition of Rs. 72,75,520/- vide assessment order dated 19.11.2019 and dismissed assesse....