M/S Metrocity Criminal Courts ... vs Department Of Income Tax

These are Revenue appeals filed against the orders of the Commissioner of Income Tax(Appeals)-VI, Hyderabad for the Assessment Years (AYs) 2007-08, 2008-09, 2009-10 & 2010-11. There was a common order by CIT(A)-VI, Hyderabad dated 001-06-2011 for AYs.

ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 2 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

2007-08 to 2009-10 whereas CIT(A)-VI, has passed the order in AY 2010-11 dt.20-07-2013. Since common issues are involved, these appeals are considered together disposed-off by this common order.

AYs. 2007-08, 2008-09 & 2009-10:

2. The Revenue has raised the following common grounds in all the impugned assessment years.

"1. The order of the learned CIT(Appeals) is erroneous in Law and in the facts and circumstances of the case in allowing the assessee's appeal.

2. The learned CIT(Appeals) ought to have upheld the disallowance made u/s.80P(4) as the above provision does not apply to a Co-

operative Bank other than a primary Co-operative Agricultural and Rural Development Bank or Primary Agricultural Society.

3. The Learned CIT(A)-VI has erred in treating the assessee as a Co- operative Society rather than a Co-operative Society (Sic) as the assessee is carrying out Banking activities".

3. Briefly stated, assessee is a co-operative society registered under the AP Mutually Aided Co-operative Societies Act (APMACS Act) with membership consisting of all criminal court employees of twin cities and other towns. It collects interests from its Members on loans provided and receives interests from banks/ societies where the it has placed Fixed Deposits. In the impugned assessment years, assessee claimed deduction u/s.80P(2)(a)(i) of the Income Tax Act. The Assessing Officer in the three assessment years without analyzing the issue, relying on the CBDT circular No. F.173(3)/44/2009-ITA-Idt.20-09-2010 held that assessee is not eligible for deduction u/s.80P. Ld.CIT(A) analysed the circular No.06/2010 relied by the Assessing Officer and noticed that the subject matter in the circular is with reference to eligibility of deduction ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 3 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

u/s.80P to Regional Rural Banks and does not apply to assessee's case. Further, Ld.CIT(A) analysed the facts of the case with reference to the decision of the co-ordinate bench at ITAT, Bangalore in the case of ACIT Vs. M/s.Bangalore Commercial Transport Credit Co-operative Society Ltd., in ITA No.1069/Bang/2010 and held that assessee is a co- operative society engaged in the business of providing credit facilities to its Members and not a co-operative bank. The detailed order of CIT(A) in para No.5.4 to 5.8 is as under:

"5.4 The ITAT, Bangalore in the decision cited by the assessee has laid down the following difference between a cooperative bank and a cooperative society:

Nature Cooperative society Cooperative society registered under Banking registered under Regulation Act, 1949 Karnataka Cooperative Society Act, 1959 Registration Under the Banking Cooperative Societies Regulation Act, 1949 and Act, 1959 Cooperative Societies Act, 1959 Nature of 1.As defined in section 6 of 1.As per the bye laws business Banking Regulation of cooperative society.

2.Can open savings bank 2.Society cannot open account, current account, savings bank account, overdraft account, issue current account, issue letter of credit, discounting letter of credit, bills of exchange, issue discounting bills of cheques, demand drafts exchange, issue (DD), pay orders, gift cheques, demand cheques, lockers, bank drafts, pay orders, gift guarantees etc. cheques, lockers, bank

3.Cooperative Banks can act guarantees etc. as clearing agent for 3.Society cannot act as cheques, DDs, Pay orders clearing agent, for and other forms. cheques, DDs, pay

4.Banks are bound to follow orders and other forms.

the rules, regulations and 4.Society are bound by directions issued by Reserve rules as specified by in Bank of India. the cooperative ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 4 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

societies act.

Filing of returns Cooperative banks have to Society has to submit submit annual return to RBI the annual return to every year. Registrar of Societies. Inspection RBI has the power to inspect Registrar has the accounts and overall power to inspect functioning of the bank accounts and overall functioning of the bank. Part V Part V of the Banking Part V of the Banking Regulation Act is applicable Regulation Act is not to cooperative banks applicable to cooperative banks Use of words The work 'bank', 'banker', The word 'bank', 'banking' can be used by a 'banker', 'banking' cooperative bank cannot be used by a cooperative society.

5.5 Examined on these touchstones, I find that:

a) The assessee is registered under the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995 vide registration certificate dated 19.2.1995.

b) The assessee has claimed, and the AO has not brought on record any evidence to the contrary, that it is not engaged in the activities of opening savings bank accounts, current accounts, issuing letter of credit, demand drafts, pay orders, bank guarantees etc. which would lend it the character of a bank.

c) I have called for the assessment records and a perusal of the Annual Report does not reflect any activity of this kind.

d) It has been submitting its annual report to the Registrar of Societies and not to the RBI.

5.6 In view of the above, I am of the view that the assessee is a cooperative society engaged in the business of providing credit facility to its members, and that it is not a cooperative bank.

5.7 The ITAT, Bangalore has held in the case of Bangalore Commercial Transport Credit Cooperative Society Ltd:

"If the intention of the legislature was not to grant deduction u/s.80P(2)(a)(i) to cooperative societies carrying on the business of providing credit facilities to its members, then this section would ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 5 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

have been deleted. The New Provision to Sec.80P(4) which is brought into statute is applicable to cooperative banks and not to credit cooperative societies. The intention of the legislature of bring cooperative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and not a cooperative bank, the provisions of Sec.80P(4) will not have applicable in the assessee's case and therefore it is entitled for deduction u/s.80p(2)(a)(i) of the act."

5.8 Respectfully following the decision of the ITAT and on the basis of the facts in the case of the present assessee, the AO is directed to allow deduction u/s.80P to the assessee. Ground No.2 is allowed for all the 3 years".

4. After considering the rival contentions, we do not see any reason to interfere with the order of Ld.CIT(A). Obviously, assessee is a co- operative society engaged in the business of providing credit facilities to its Members. There is no dispute with reference to the transactions with the Members, as Assessing Officer has not considered that issue at all in the order. Therefore, assessee being a co-operative society registered under the APMACS Act is eligible for deduction u/s.80P(2)(a)(i) of the Act. Not only that, assessee is also eligible for deduction u/s.80P(2)(d) on the incomes received from other eligible co-operative societies/banks. Therefore, on the facts of the case, we do not see any reason to disallow the deduction u/s.80P. Revenue has raised the grounds that provisions of u/s.80P(4) were applicable to assessee. We do not see any reason to consider this ground as the restrictions brought out subsequently u/s.80P(4) is applicable in the case of a co-operative bank not a co- operative society. This issue is also discussed in the co-ordinate bench at Hyderabad decision in the case of "The Advocates Mutually Aided Coop Society, Hyderabad" pronounced on 20-02-2015 as under:

"22.1 The ground No.3 regarding deduction under section 80P(2)(d) is in respect of interest received from Cooperative Societies and the Cooperative Banks. We are unable to understand why the ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 6 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

Cooperative Banks are not considered as Cooperative Societies in Banking business. The sub-section (4) introduced by Finance Act, 2006 w.e.f. 1.4.2007 is as under :

(4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural 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 Cooperative 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."

22.1. As per this section, the exemption provided under sub- section (2) or sub-section (3) does not apply to the incomes of the Cooperative Bank other than a primary agricultural Cooperative Society or a primary Cooperative Agricultural and Rural Development Bank. However, the above provision applicable in the case of Cooperative Bank is not in respect of interest received from Cooperative Banks by a Cooperative Credit Society/Cooperative Society. Section 80P(2)(d) is applicable to the assessee society in respect of incomes by way of interest or dividends received by the cooperative society from its investments with any other cooperative society. Therefore, in the case of the assessee society, sub-section (4) is not applicable and deduction under section 80P(2)(d) is certainly eligible to assessee. In the assessment of a Cooperative Bank, the incomes may not be exempt after 01.04.2007 by virtue of sub-section (4), but assessee is not a Cooperative Bank. Therefore, the Revenue ground is not only illogical but also not supported by the facts of the case. Moreover as seen, the recommendation made by the A.O. to the Ld. CIT in their internal correspondence is extracted as a ground. This also indicates non-application of mind ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 7 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

either by the A.O. or by higher authority like CIT. This sorry state of affairs should come to an end and Officers should act responsibly while preferring second appeal on the orders of the senior officer like Ld. CIT(A). Revenue appeal is dismissed".

5. In view of the above, we do not see any merit in the Revenue's grounds. Accordingly, Revenue's appeals are dismissed.

AY. 2010-11:

6. In the assessment year, Assessing Officer had passed little detailed order holding that assessee has violated the A.P.Co-operative Societies Act, 1964, therefore not eligible for deduction. Assessing Officer however, allowed the deduction u/s.80P(2)(d) of an amount of Rs.51,45,018/-. Ld.CIT(A) following the predecessor's order in earlier years, however, elaborately discussed the issue and re-worked out the deduction u/s.80P(2)(a)(i) as well as 80P(2)(d). The order of Ld.CIT(A) in para No.5.3 to para 8 is as under:

"5.3 Perused the observations of the assessing officer and the submissions of the appellant. As could be seen from the facts of the case, the appellant society is Mutually Aided Cooperative Society, governed by the APMACS Act, 1995, but not the Cooperative Societies Act. Hence, the reasons attributed by the assessing officer, for rejecting the deduction u/s.80P(2)(a)(i) are not applicable to the appellant society. This has been clearly held by my predecessor, in the case of the appellant's own case for earlier assessment years. Hence, the reasons assigned by the assessing officer for rejecting the claim u/s.80P(2)(a)(i) are not applicable to the assessee. Regarding the disallowance of the said claim by virtue of the amendment to 80P(4) is also clarified in the decision of Hon'ble ITAT, Bangalore, in the case of M/s.Bangalore Commercial Transport Credit Cooperative Society Ltd (ITA No.1069/Bang/2010 dt.08.04.2011), wherein it was clarified that the new proviso to ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 8 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

Sec.80P(4) which is brought into statue, is applicable only to cooperative banks and not credit cooperative societies. Considering the finding given by the ITAT, Bangalore (supra), it is held that the appellant society being a cooperative credit society is eligible for deduction u/s.80P(2)(a)(i). However, it may be relevant to note that in this case, while furnishing the return of income, the appellant claimed deduction of Rs.1,72,46,463/- u/s.80P(2)(a)(i) which was disallowed by the assessing officer. The said deduction is recomputed in the revised computation at Rs.1,66,13,779/-, which is as under, which appears to be based on the correct facts/information.

a) Gross/total receipts : Rs.5,35,97,746

(i) Business receipts : Rs.3,82,77,265 (ii) Other sources : Rs.1,53,20,481 a) Interest from Bank & others Rs.1,39,78,009 b) Interest from Co.op banks Rs.13,42,472

(iii) Net profit from all sources : Rs.2,32,63,447

Deduction u/s.80P(2)(a)(i) : Business receipts X Net profit Gross receipts

: 38277265X23263447: Rs.1,66,13,779/-

53597746 Accordingly, the claim of deduction u/s.80P(2)(a)(i) is restricted to Rs.1,66,13,779/- and this ground of appeal is treated as partly allowed.

6.0 The next ground of appeal relates to restriction of claim of deduction u/s.80P(2)(d). As per the appellant, the assessing officer has allowed the deduction u/s.80P(2)(d) to Rs.51,45,018/- as against the claim of Rs.1,72,46,463/- made u/s.80P(2)(a)(i) of the Income-tax Act, whereby a separate ground of appeal was raised by the appellant relating to the claim. However, this claim stand revised, on account of reconsidering the facts to the case in the ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 9 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

background of claim of deduction u/s.80P(2)(a)(i), with the support of judicial decisions.

6.1 As per the appellant, the eligible deduction u/s.80P(2)(d) has been quantified at Rs.7,03,784/-, which has been worked out as under:

1. Total interest receipts Rs. 1,26,84,283

2. Interest receipts from Co.op Societies Rs. 13,42,472

3. Income from other sources Rs. 66,49,668 (Total profits - profits from business) i.e. Rs.2,32,63,447 - Rs. 1,66,13,779

Deduction u/s.80P(2)(d) :

Interest from coop societies X Income from other sources Total interest receipts

1342472X6649668 : Rs. 7,03,784 12684283

Based on the facts of the case, the quantification of the deduction u/s.80P(2)(d) in this case is justified and upheld at Rs.7,03,784/-. However, the fact remains that the total deduction claimed u/s.80P by the appellant while furnishing the return of income was at Rs.1,72,46,463/- and by including the deduction u/s.80P(2)(a)(i) to the extent of rs.1,66,13,779/- and Rs.7,03,784/-, in the revised computation, the total claim made by the appellant (16613739 + 703784) amounted to Rs.17317523/- which exceeds the total claim made in the original return of income (Rs.1,72,46,463/-). Thus, the claim of the deduction u/s.80P(2)(a)(i) and the claim for deduction u/s.80P(2)(d) is restricted to the total amounts of deduction of Rs.1,72,46,463/-, as claimed in the original return of income, in order to avoid the situation that the assessed income is less than the returned income.

7.0 The appellant made the additional claim of deduction u/s.80P(2)(c) being eligible for deduction, as cooperative credit society, which was omitted to be claimed in the original return of ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 10 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

income. Though, on facts the appellant is eligible for deduction u/s.80P(2)(c), for the reasons mentioned for restricting the allowance u/s.80P, wherein the claims made in revised computation/grounds of appeal exceeds the claims made while furnishing the return of income, the additional claim of the appellant is not held to be entertainable at this stage. Hence, the additional claim though accepted in principle, the deduction is restricted to Rs.1,72,46,463/- to keep the returned income floating at Rs.60,16,984/-. Hence, this additional ground is treated to have been disallowed, for statistical purpose.

8.0 In the result, the assessing officer is directed to allow the deduction u/s.80P(2)(a)(i), for Rs.1,66,13,779/- and the deduction u/s.80P(2)(d), to the extent of Rs.6,32,684/- being the difference between the original claim u/s.80P (Rs.1,72,46,463) and revised deduction u/s.80P(2)(a)(i) (Rs.1,66,13,779), without any further deduction u/s.80P(2)(c). In the result, the appeal is allowed".

7. In view of the detailed discussion by the CIT(A), we do not see any reason to interfere with the orders of the Assessing Officer. Assessee is not in appeal on the above order of Ld.CIT(A).

8. Ld.Counsel placed on record various case law. In the case of ACIT Vs. The Jafri Momin Vikas Credit Co-op Society Ltd., Palanpur in ITAT, Ahmedabad Bench order dt.01-03-2013 held that assessee-company being a co-operative society and not in banking business is eligible for deduction u/s.80P and provisions of Section 80P(4) will not have any application in assessee's case. In the case of CIT Vs. Surat Vankar Sahakari Sangh Ltd., [43 taxmann.com 431 (Gujarat)], the Hon'ble Gujarat High Court has considered the deduction allowable u/s.80P and held that Section 80P deductions are to be denied only to co-operative banks and not to co-operative society, after CBDT clarification on Section 80P. Considering the facts of the case and position of law, we ITA Nos. 1328, 1329, 1330/Hyd/2012 :- 11 -: & 1448/Hyd/2013 M/s. Metrocity Criminal Courts Employees Mutually Aided Coop Credit Society Ltd.,

are of the considered opinion that the Ld.CIT(A) is justified in directing the Assessing Officer to allow the deduction claimed by assessee u/s.80P of the Act, both under 80P(2)(a)(i) and also 80P(2)(d). There is no merit in Revenue's grounds. Accordingly, the same is dismissed.

9. In the result, all the appeals of Revenue are dismissed.

Order pronounced in open Court on 04th March, 2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 04th March, 2015

TNMM

Copy to :

1. Assistant Commissioner of Income Tax, Circle-7(1), 2nd Floor, B-Block, Income Tax Towers, A.C.Guards, Hyderabad.

2. M/s. Metrocity Criminal Courts Employees Mutually Aided Cooperative Credit Society Ltd., M.C.Courts Complex, Red Hills, Nampally, Hyderabad.

3. CIT(Appeals)-VI, Hyderabad.

4. CIT-VI Hyderabad.

5. D.R. ITAT, Hyderabad