M/S Shimoga Housing Society Ltd.,, ... vs Assessee

This appeal by the assessee is against the order dated 17.3.14 of

the CIT, Davangere passed u/s. 263 of the Act.

2. Assessment of the assessee was completed by the AO u/s. 143(3)

of the Act by an order dated 30.12.2011. The CIT, in exercise of his ITA No.716/Bang/2014 Page 2 of 9

powers u/s. 263 by the impugned order held that the AO while completing

the assessment did not examine the claim of assessee for deduction u/s.

80P(2)(a)(i) of the Act, in the light of provisions of section 80P(4) of the Act.

According to the CIT, the assessee was a co-operative bank and therefore

provisions of section 80P(4) will apply and income of the assessee from

providing credit facilities to its members will have to be considered as akin

to income from business of banking, not eligible for deduction u/s.

80P(2)(a)(i) of the Act r.w.s. 80P(4) of the Act.

3. The CIT was also of the view that certain interest income were also

allowed as deduction u/s. 80P(2)(a)(i) . According to him, interest income

was assessable under the head 'income from other sources' and therefore

cannot be considered as income derived from business of banking or

providing credit facilities to members.

4. The CIT set aside the order of AO and directed the AO to verify the

above two aspects and frame the assessment afresh.

5. Aggrieved by the order of CIT, the assessee has filed the present

appeal before the Tribunal, challenging only that part of the impugned order

whereby the CIT held that the assessee is a co-operative bank and

therefore not eligible for deduction u/s. 80P(2)(a)(i).

6. At the time of hearing, it was agreed by both the parties that similar

issue has been considered by this Tribunal in the case of ACIT, Circle ITA No.716/Bang/2014 Page 3 of 9

3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit

Co-operative Society Ltd. in ITA No.1069/Bang/2010 by order

dated 11.7.2014 wherein this Tribunal held that section 80P(4) is

applicable only to cooperative banks and not to credit cooperative

societies. The intention of the legislature of bringing in 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 section 80P(4) will not have application in the

assessee's case and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of

the Act. The following were the relevant observations of the Tribunal:-

"9. We have heard the rival submissions and perused the material on record. The assessee was denied the deduction u/s 80-P(2)(a)(i) of the Act for the reason of introduction of sub section 4 to section 80P. Section 80P(4) reads as follows:-

"(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 ITA No.716/Bang/2014 Page 4 of 9

principal object of which is to provide for long term credit for agricultural and rural development activities".

9.1 The above sub-section 4 of section 80P provides that deduction under the said section shall not be available to any cooperative bank other than a primary agricultural credit society or rural development bank. For the purpose of the said sub section, cooperative bank shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949. In Part V of the Banking Regulation Act, "cooperative bank" means a State Cooperative Bank, a Central Cooperative Bank and a Primate Cooperative Bank.

9.2 From the above section, it is clear that the provisions of section 80P(4) has got its application only to cooperative banks. Section 80P(4) does not define the word "cooperative society". The existing sub-section 80P(2)(a)(i) shall be applicable to a cooperative society carrying on credit facility to its members. This view is clarified by Central Board of Direct Tax vide its clarification No.133/06/2007-TPL dated 9th May, 2007. The difference between a cooperative bank and a cooperative society are as follows:-

Cooperative society registered under Cooperative society registered Nature Banking Regulation Act, 1949 under Karnataka Cooperative Society Act, 1959.

Registra Under the Banking Regulation Act, Cooperative Societies Act,

-tion 1949 and Cooperative Societies Act, 1959.

1959.

Nature 1. As defined in section 6 of Banking 1. As per the bye laws of the of Regulation Act. cooperative society. business 2. Can open savings bank account, 2. Society cannot open savings current account, overdraft account, bank account, current account, cash credit account, issue letter of issue letter of credit,

credit, discounting bills of exchange, discounting bills of exchange, issue cheques, demand drafts (DD), issue cheques, demand drafts, Pay Orders, Gift cheques, lockers, pay orders, gift cheques, bank guarantees etc. lockers, bank guarantees etc.

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

4. Banks are bound to follow the forms.

rules, regulations and directions 4. Society are bound by rules issued by Reserve Bank of India and regulations as specified by (RBI). in the cooperative societies Act.

ITA No.716/Bang/2014 Page 5 of 9

Filing of Cooperative banks have to submit Society has to submit the returns annual return to RBI every year. annual return to Registrar of Societies.

Inspec- RBI has the power to inspect Registrar has the power to tion accounts and overall functioning of inspect accounts and overall the bank. functioning of the bank. Part V Part V of the Banking Regulation Act Part V of the Banking is applicable to cooperative banks. Regulation Act is not applicable to cooperative banks. Use of The word 'bank', banker', 'banking' can The word 'bank', banker', words be used by a cooperative bank. 'banking' cannot be used by a cooperative society.

9.3 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 have been deleted. The new proviso to section 80P(4) which is brought into statute is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature of bringing in 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 section 80P(4) will not have application in the assessee's case and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act. Hence, we are of the view that the order of the CIT(A) is correct and in accordance with law and no interference is called for."

7. The Hon'ble Gujarat High Court in the case of Tax appeal No.442 of

2013 with Tax appeal No.443 of 2013 with Tax appeal No.863 of 2013 in

the case of CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd. by

judgment dated 15.1.2014 had to deal with the following question of law:-

"Whether the Hon'ble Tribunal is correct in allowing deduction under section 80P(2)(a)(i) to assessee's society even though same is covered under section 80P(4) rws 2(24) (viia) being income from providing credit facilities carried on by a co-operative society with its member?"

ITA No.716/Bang/2014 Page 6 of 9 The Hon'ble Court held as follows:

"4. As per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. As per the explanation, the terms "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.

5. Assessing Officer held that by virtue of section 80P(4), the respondent assessee would not be entitled to benefits of deduction under section 80P. CIT(Appeals) as well as the Tribunal reversed the decision of the Assessing Officer on the premise that the respondent assessee not being a bank, exclusion provided in sub-section(4) of section 80P would not apply. This, irrespective of the fact that the respondent would not fall within the expression "primary agricultural credit society".

6. Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of subsection(4) only co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then Legislature specified primary agricultural credit societies along with primary cooperative agricultural and rural development banks for exclusion from such exclusion and in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplified by virtue of CBDT circular No.133 of 2007 dated 9.5.2007. Circular provides as under:-

"Subject: Clarification regarding admissibly of deduction under section 80P of the Income-Tax Act, 1961.

1. Please refer to your letter no.DCUS/30688/2007, dated 28.03.2007 addressed to Chairman, Central Board of Direct Taxes, on the above given subject.

2. In this regard, I have been directed to state that sub-section(4) of section 80P provides that deduction under the said section shall not be allowable to any co-

ITA No.716/Bang/2014 Page 7 of 9 operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub-section, co-operative bank shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949.

3. In part V of the Banking Regulation Act,"Co- operative Bank" means a State Co-operative bank, a Central Co-operative Bank and a primary Co-operative bank.

4. Thus, if the Delhi Co op Urban T & C Society Ltd. does not fall within the meaning of "Co-operative Bank" as defined in part V of the Banking Regulation Act, 1949, subsection(4) of section 80P will not apply in this case.

5. The issues with the approval of Chairman,Central Board of Direct Taxes."

7. From the above clarification, it can be gathered that sub- section(4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Coop Urban Thrift & Credit Society Ltd. was under

consideration. Circular clarified that the said entity not being a cooperative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue's contention that section 80P(4) would exclude not only the co- operative banks other than those fulfilling the description contained therein but also credit societies, which are not cooperative banks. In the present case, respondent assessee is admittedly not a credit co-operative bank but a credit co- operative society. Exclusion clause of sub-section(4) of section 80P, therefore, would not apply. In the result, Tax Appeals are dismissed."

8. Our attention was invited to a recent judgment dated 5.2.2014 of the

Hon'ble High Court of Karnataka in CIT v. Sri Biluru Gurubasava

Pattina Sahakari Sangha Niyamitha Bagalkot in ITA

No.5006/2013 dated 5.2.2014, wherein the Hon'ble jurisdictional High ITA No.716/Bang/2014 Page 8 of 9

Court took the view that when the status of the assessee is a co-operative

society and not a co-operative bank, the order passed by the AO extending

the benefit of exemption from payment of tax 80P(2)(a)(i) of the Act is

correct and such an order is not erroneous and therefore, jurisdiction u/s.

263 of the Act cannot be invoked.

9. In view of the aforesaid decision, we are of the view that the order

u/s. 263 insofar as it relates to the deduction u/s. 80P(2)(a)(i) of the Act

holding that assessee as a co-operative bank cannot be sustained and is

hereby quashed. The other part of the order of CIT regarding interest

income that is not challenged before us remains as such.

10. In the result, the appeal by the assessee is allowed to the extent

indicated above.

Pronounced in the open court on this 20th day of February, 2015.

Sd/- Sd/-

( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member

Bangalore, Dated, the 20th February, 2015.

/D S/ ITA No.716/Bang/2014 Page 9 of 9

Copy to:

1. Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar / Senior Private Secretary ITAT, Bangalore.