M/S The Advocates Mutually Aided ... vs Department Of Income Tax

2 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

ITA.No.546/Hyd/2012. AY 2007-08.

ITA.No.548/Hyd/2012. AY 2007-08.

2. Briefly stated, assessee is a cooperative society registered under the A.P. Mutually Aided Cooperative Societies Act (APMACSA). It is engaged in the business of providing credit facilities to its Members and accepting deposits from Associated/nominal Members. It filed its return of income on 07.09.2009 declaring income of Rs.31,06,406 after claiming deduction under section 80P of the Act of Rs.26,00,800. Assessee's gross receipts for the year ending March, 2007 are to the tune of Rs.1,51,48,494. This include interest received and receivable on Loans/ FDs with Societies/Banks/Members to an extent of Rs.1,37,32,229. Balance of receipts pertains to interest on gold loans, share-loans, sale of postal stamps, welfare stamps, other stamps and stationery. Assessee being a Mutually Aided Cooperative Society admits Members with whom it has certain transactions. It also has transactions with nominal Members, more particularly taking deposits of the bail amount from the bailees and keeping them in deposits on the orders of the Court while granting bail to the accused persons. Assessee while filing the return of income computed the gross total income at Rs.57,07,206 and did not claim deduction under section 80P of the entire income. Since, its receipts include gross receipts from Cooperative societies/ Banks/Members and also from general public and from Associated/Nominal Members assessee claimed proportionate deduction under 80P by taking eligible receipts from the Cooperative Sector over the gross receipts, thereby, assessee claimed only deduction of Rs.26,00,800. While claiming deduction under section 80P, it has claimed deduction only 3 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

under 80P(2)(a)(i) on the income from 'providing credit facilities to its members'. Even though it has interest income from the deposits made with other Cooperative Societies/Banks, it did not claim deduction under section 80P(2)(d) in respect of income by way of interest/ dividend from other cooperative society.

3. The A.O. while completing the assessment was of the opinion that assessee is not entitled for deduction under section 80P(2)(a)(i) on the reason that assessee has admitted nominal Members in violation of A.P. Cooperative Societies Act /Rules, 1964 as amended on 28.01.2002. He has elaborately discussed the rules and also the so-called violations stated to have been committed by the society. He came to conclusion that activity of the assessee is not 'banking activity' among its Members but finance business of accepting deposits (surety bonds for accused) and investing them in FDs/advancing loans to Members. A.O. noted that assessee is engaged in the activity of sale of stamps etc., to the outside world. AO denied the deduction under section 80P(2)(a)(i). However, A.O. also noted that assessee being a Cooperative Society made deposits with other Cooperative Institutions including Cooperative Banks. After analysing the income on certain parameters which he has considered, he allowed deduction of Rs.34,57,307 under section 80P(2)(d) thereby, enhancing the 80P deduction but at the same time enhancing the total income also in view of other calculations, determining total income at Rs.43,12,740 as against declared income of Rs.31,06,406. In doing so, A.O. indirectly disallowed amount of Rs.20,68,583 towards insurance on Mediclaim policies of Members while arriving at the profit for the purpose of taxation.

4 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

4. Before the Ld. CIT(A), assessee contended that A.O. has wrongly considered A.P. Cooperative Societies Act whereas, the assessee is registered under A.P. Mutually Aided Cooperative Societies Act (APMACSA). Ld. CIT(A) analysed the provisions and case law on the issue and came to the conclusion that assessee is engaged in providing credit facilities to its Members. He also was of the opinion that source of funds for providing such credit has not been specified in the section, therefore, since the funds are obtained as part of section 14(2) of the APMCSA, he was of the opinion that acceptance of deposits from non Members/nominal Members cannot said to disqualify the assessee from benefit of section 80P. Therefore, he directed the A.O. to allow deduction under section 80P(2)(a)(i).

4.1. Ld. CIT(A) also noted that there was a calculation error which has crept into computation of deduction under section 80P(2)(d) and therefore, he has directed the A.O. to restrict the deduction to Rs.31,89,338. Ld. CIT(A) also gave a finding that since assessee had other receipts like commission on postal stamps, labels, sale of stationery etc., which is not related to business of providing credit facilities to the Members of the society, he directed the A.O. to exclude an amount of Rs.9,38,866 consisting of the other receipts while calculating deduction under section 80P(2)(a)(i). Ld. CIT(A), however, did not agree with the assessee's contention of allowing expenses of Rs.20,68,583 on insurance and medical claim policies on its Members, which the A.O. held to be purely personal in nature. He was of the opinion that the expenditure on insurance policies cannot be said to be incurred for the purpose of 5 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

assessee's business. Therefore, he did not allow the above expenditure while deciding the issues.

5. Assessee is aggrieved on the disallowance of expenses of Rs.20,68,583 on insurance and medi-claim policies taken in the name of its Members whereas, Revenue is aggrieved on the direction of the Ld. CIT(A) to allow deduction under section 80P(a)(i). Revenue in its appeal has raised the following grounds :

1. "The CIT(A) erred in overlooking the violation of provisions of A.P. Cooperative Societies Act, 1964 and the finding of A.O. that the activity of assessee is "banking business" and not "carrying on the business of banking or providing credit facilities to its members"

as it was mobilizing funds from outsiders and doing normal banking business.

2. The observation of CIT(A) is misplaced with regard to deduction u/s.80P(2)(i)(a) is even otherwise given to the assessee even if it accepts deposits from non members.

3. The facts and issue involved in this case is similar for A.Y. 2008-09 also. The concept of mutuality and violation of banking regulation act, which are essential in determining the status and activity of assessee and whether assessee is eligible for deduction u/s.80P(2)(a)(i) was discussed elaborately in the assessment order for A.Y. 2008-09. This issue for A.Y. 2008-09 is also in appeal before ITAT. The A.O., though not discussed these issues in the assessment order for A.Y. 2007-08 is very much relevant in deciding the issue. Therefore, the same are applicable for this assessment year also."

5.1. As can be seen from the above, ground Nos. 1 and 2 pertain to allowance of deduction under section 80P2)(a)(i) and in support ground No.3 was raised on the basis of the issues involved in A.Y. 2008-09 also. The concept of mutuality 6 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

and violation of Banking Regulations Act which were the main discussion in A.Y. 2008-09 were raised. This issue does not arise from the order of the A.O. However, this ground is kept in mind while deciding the issues. For the time being, ground No.3 is not material in deciding the issues arising in impugned order for A.Y. 2007-08.

5.2. The main contention of the Revenue is that assessee is not carrying on the business of banking which the A.O. held in violation of the provisions of the Act. Basically, assessee was mobilizing funds for deposits and doing normal banking business and therefore, Revenue is of the opinion that deduction under section 80P(a)(i) should not be allowed to the assessee.

6. After considering the rival contentions and perusing the paper book placed on record and provisions of the Act, we do not find any merit in Revenue appeal on this issue. As far as the so-called violations of the provisions of A.P. Cooperative Societies Act, 1964 are concerned, this ground does not arise in the case of assessee as it is not registered under the said Act, but under APAMACS 1995. There is a finding by Ld. CIT(A) that assessee was registered under the said Act vide the Registration granted on 19.11.1997 by the Registrar of A.P. Mutually Aided Cooperative Societies. Therefore, analysing assessee's activities and determining the so-called violations by the A.O. is misdirected. The issue of transactions with nominal Members or non-Members is not an issue as the assessee has clearly claimed deduction under section 80P only to the extent of transactions with its Members. Since the transactions are inter-linked, assessee has proportionately claimed deduction under section 80P(a)(i) by 7 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

taking the transactions with the Members and the gross receipts. Ld. CIT(A) also examined this aspect on factual basis and excluded certain other incomes also. Therefore, on facts, the issue of violation of provisions of A.P. Cooperative Societies Act, 1964 does not arise at all.

7. With reference to the finding of A.O. that the activity of assessee is banking business and not carrying on the 'business of banking or providing credit facilities to its Members'. This ground raised is also misplaced. Assessee by its bye laws has two types of Members. Vide bye law 3(iv)(a) Member means, Member/shareholder of the society. Bye-Law 3(iv)(b) defines Associate Member and Nominal Member means other than shareholder of the society. Therefore, the bye-laws itself distinguishes between Member and a Nominal Member/Associate Member, the later being not a shareholder of the society. As far as the objective is concerned, the objective of the society is to make economic and social upliftment and welfare of its Members and their families through the activities of the society in general and promote and protect the interest of the Advocates in particular, through mutually aid, thrift and self-help in accordance with the principle of cooperative, as enunciated in section 3 of the Act. The bye law 8 which define Membership clearly indicates that in case an applicant is admitted as a Member of the Society, the applicant has to remit the value of 50 shares at Rs.100 each and non-refundable admission fees as decided by the Board from time to time. Bye law 8(vii) empowers the Board to admit any person as Associate Member or Nominal-Member to avail loan from the society or make a deposit with the Society, who shall pay admission fee of Rs.50 or any other amount as 8 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

decided by the Board. It also clearly indicates that such person shall not be eligible to vote, attend meetings, claim profits or loss or any other privileges provided to the shareholder unless specifically permitted. It also restricts that Board shall not induct more than 250 Members as Associate Members. Thus the bye-laws pertain to Membership clearly distinguishes the Members of the Cooperative Society and Associate Members who cannot be treated as Member, as they are having only a right to pay admission fees and take loans from society and make deposit with society, without other privileges. There are certain judgments given under Cooperative Societies Act in case of societies involved in banking business, by virtue of which distinction between Members and non-Members was not considered material and their equal treatment as far as business of banking is concerned was accepted. In this case, as rightly pointed out by the Ld. CIT(A), assessee is not involved in business of banking and has only involved in providing credit facilities to the Members of the Society. Even though it has other objects, basically as per the assessee's admission before the authorities, the receipts of interest is on the loans provided to the Members per se. Most of the deposits accepted are from Associate Members who are not generally given any loans as their deposits are for surety on the bonds given to the accused and these amounts received from such non-Members are deposited in other Cooperative Societies/ Cooperative Banks or Scheduled Banks. As can be seen from the order of the A.O. itself, he has identified the amounts of interest received from the Cooperative Societies/Cooperative Banks and deduction under section 80P(2)(d) was allowed. Ld. CIT(A) also corrected certain calculation errors in restricting 9 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

deduction under section 80P(2)(d). There is no dispute on the above either by assessee or by the Revenue.

7.1. Assessee's activity cannot be considered as a banking activity and as rightly analysed and held by the Ld. CIT(A), assessee is involved in providing the credit facilities to its Members. Since the assessee only claimed proportionate deduction under section 80P on the activities with its Members only, while offering income to tax on the activities with non- Members/outside world, Revenue grounds raised in this regard are misconceived. We do not find any merit in the contentions raised by the Revenue in ground No.2.

8. With reference to ground No.3, also since assessee is not involved in business of banking and it is only a Cooperative Society registered under Mutually Aided Cooperative Societies Act, ground No.3 is also has no merit. However, the issue of ground No.3 is decided separately in A.Y. 2008-09. Therefore, as far as issues raised in A.Y. 2007-08 are concerned, we confirm the order of Ld. CIT(A) to that extent and reject the Revenue ground.

9. Coming to assessee's main contention about disallowance of an amount of Rs.20,68,583, it was submitted that medi-claim and insurance claim was paid on behalf of the Members for their welfare. It is one of the objectives of the society to consider the welfare of its Members. As part of it, assessee has taken policies to protect the interests of the Members. This cannot be considered as a personal in nature. Assessee being a Cooperative Society there cannot be any expenditure on personal nature. This expenditure is certainly for the objects of the society and therefore, has to be allowed 10 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

as a deduction. Moreover, as seen from the working made out by the A.O. he has excluded incomes received from the Cooperative Banks/Societies separately. The receipts from the Members are separately considered for allowing proportionate deduction under section 80P(2)(a)(i). In case, this expenditure is not allowed, the income to that extent will go up from the income computed on the transactions with Members. The deduction under section 80P(2)(a)(i) also has to be proportionately increased. This is an academic view, but the fact is that the expenditure is an allowable expenditure, as it is spent for the benefit of the Members, in the course of society activities, as permitted by the bye-laws of the society. In view of this, we are of the opinion that the expenditure cannot be disallowed as personal in nature. Assessing Officer is directed to allow the amounts and compute the incomes accordingly on proportionate basis between the incomes on the transactions with Members and on transactions with Associated/Nominal Members and allow deduction under section 80P(a)(i) accordingly. Therefore, assessee's grounds on this issue are considered as allowed.

10. In the result, revenue appeal is dismissed and assessee appeal is allowed.

ITA.No.547/Hyd/2012: AY 2008-09 ITA.No.549/Hyd/2012: AY 2008-09

11. In this assessment year A.O. has in fact deviated from the order of his predecessor in analysing the issue, but still disallowed the claim of deduction under section 80P(2)(a)(i). In doing so, the A.O. mainly analysed the activities of the society at a glance, admission of Members vis-à-vis bye-

11 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

law of the society, principles of the Cooperative Societies and then analysed the activity under Banking Regulation Act, 1949 as applicable to Cooperative Societies, analysed the provisions of such business and also the concept of mutuality, ultimately holding that assessee is running its business in violation of Banking Regulation Act. Since the Finance Act, 2006 withdrew the benefits pertaining to banking business, A.O. was of the opinion that income derived from the Cooperative Society involved in banking business is not eligible for deduction either under section 80P(2)(a)(i) or under section 80P(2)(d). A.O. relied on the certificate given by the auditor that society is not eligible for such claim. Further, A.O. also discussed that society is not eligible for any deduction under section 80P as it is for earning profits and has not confirmed to the doctrine of mutuality. For these reasons, A.O. after discussion on the issue running into 28 pages (from pages 2 to 29) came to conclusion that 'corporate will lifted (sic.) and it found that society runs for the sole purpose and motive to earn profit'. In addition to disallowing the claim under section 80P, A.O. also disallowed the expenditure on medi-claim, life insurance premium, accident insurance under section 37(1) stating that expenses are not relatable to its business, of capital nature and for personal use and hence, not allowable as business deduction. The third issue raised by the A.O. in this order is of treating the income earned by the society as taxable under the head 'income from other sources' of income received from Cooperative Institutions, to an extent of Rs.63,04,563. Thus, as against income returned at Rs.84,87,960, the total income was determined at Rs.1,73,66,845.

12 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

12. Ld. CIT(A) after considering the assessee's submissions and objections to the A.O's arguments of violation of Banking Regulation Act, has however, allowed the deduction under section 80P by stating as under :

"4.5. I have considered the submissions of the A.R. and the facts available on record. Similar issue arose in the assessee's case for A.Y. 2007-08 where I have dealt with the majority of the arguments of the Assessing Officer and have held that the assessee was eligible for deduction u/s.80P(ii)(a)(i) on the profits and gains from providing credit facilities to members (ITA.No.0235/09-10 dated 20.1.2012). While agreeing with my view for the preceding year, certain additional arguments put forth by the Assessing Officer in the assessment order for this year need to be addressed.

4.6. Sec.2(24)(viia) provides as under :

"(24) "Income" includes -

(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a cooperative society with its members;"

There is no dispute that the profit from the business of providing credit facility to members by a cooperative society is liable to tax. The fact that sec.80P provides a deduction for such profits presupposes that such profits is liable to tax. However, sec.(24) cannot be said to undo the specific benefit granted by sec.80P. The two provisions have to be read harmoniously to mean that while such profits are liable to tax, an assessee would be eligible for deduction u/s.80P if the conditions specified therein are satisfied. The reliance of the A.O. on sec.2(24) is, therefore, misplaced.

4.7. Similarly, the A.O. has quoted extensively from the Banking Regulation Act for her view that the assessee was running its business in violation of the Banking Regulation Act. As held in the assessee's case for A.Y. 2007-08, the assessee is engaged in the business of providing credit facility to its members and not in the business of banking. The provisions of the Banking 13 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

Regulation Act, therefore, do not apply to it and the question of violating its provisions does not arise.

4.8. The sum of Rs.1,07,52,623 on which the assessee had claimed deduction u/s.80P included miscellaneous receipts of Rs.13,69,777 consisting of the following :

Commission on postal stamps 26,700 Commission on IG Stamps 4,25,768 Admission Fees 81,500 Misc. Income 3,32,308 Profit from sale of stationery 4,02,496 Commission on Welfare Stamps 1,01,005

Receipts like commission on postal stamps, sale of stationery etc., have no relation whatsoever to the business of providing credit facility to the members of the society. Further, deduction u/s.80P(2)(a)(i) is to be confined to the profits and gains from the business of providing credit facilities to members; for reasons discussed in the following paragraphs, the interest from banks, whether cooperative banks or scheduled banks, cannot be classified as profit from such business. Deduction u/s.80(2)(a)(i) cannot, therefore, be allowed on such incomes."

13. With reference to issue of treating the income from other Cooperative Banks as income from other sources, relying on the decision of Hon'ble Supreme Court in the case of The Totgars Cooperative Sale Society Ltd., vs. ITO 322 ITR 283 (SC), Ld. CIT(A) agreed with the opinion of the A.O. in treating the income as other sources, but however, directed the A.O. to allow deduction under section 80P(2)(d) as allowed in A.Y. 2007-08. With reference to acceptance of various insurance claims, Ld. CIT(A) agreed with the order of the A.O. on similar lines as that of A.Y. 2007-08.

13.1 Both assessee and Revenue are in appeal. Assessee mainly on the issue of allowance of various insurance claims and Revenue on the issue of violation of Banking Regulation 14 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

Act, violation of Principles of APMECSA and also allowing deduction under section 80P(2)(d).

14. After considering the rival contentions and perusing the orders of the authorities, we are of the opinion that the A.O. misdirected herself by analysing the issue in a tangential way ignoring the basic facts of the case. As briefly stated in A.Y. 2007-08, in this year also assessee has not claimed any deduction under section 80P(a)(i) either on the incomes arrived from associate or nominal-Members or on the transactions of miscellaneous nature. What assessee has claimed deduction is proportionately on the net receipts eligible for deduction out of the gross receipts, after arriving at the profits of the society. This basic fact was ignored by the A.O. Moreover, as considered in earlier year, assessee being a Cooperative Society registered under APMECSA, 1995 analysis of the Society under A.P. Cooperative Societies Act does not arise at all. Not only that assessee has neither involved in Banking activity nor obtained any license for doing the banking activity. Therefore, the entire discussion of the A.O. on the so-called violation of Banking Regulation Act and guidelines of the RBI is superfluous. Even the principles of mutuality analysed by the A.O. does not pertain to the assessee at all. Even though assessee is registered as Mutually Aided Cooperative Society, assessee never claimed any exemption of income on the principle of mutuality. The deduction claimed is limited to the proportionate income on the credit facilities provided to its Members as a Cooperative Society. Balance of the income was offered to tax and there is no dispute to the fact that assessee declared income of Rs.84,87,660. In view of these facts, we are unable to 15 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

understand why the A.O. has to do lot of research in analysing the principles of mutuality and coming to a conclusion that assessee is not a Mutual Society, that too 'lifting corporate veil' when there is no claim at all. The order of the A.O. cannot be justified on the facts of the case.

15. Now coming to the grounds 2 and 3 raised by the Revenue, the issue is similar to the issues discussed in A.Y. 2007-08 above. As far as assessee's activities are concerned, since assessee has claimed deduction under section 80P(2)(a)(i) only on the income of credit facilities provided to its Members, A.O. was correctly directed by the Ld. CIT(A) to allow the deduction. Ld.CIT(A) also analysed other miscellaneous income and directed the A.O. to exclude the same. Therefore, we do not find any reason to interfere with the orders of the Ld. CIT(A) in directing the A.O. to allow deduction under section 80P(2)(a)(i). However, A.O. is directed to examine the quantum of income earned and allow the deduction accordingly. We also find no reason to interfere with the directions of the Ld. CIT(A) in granting deduction under section 80P(2)(d). The Ld. CIT(A) direction is with reference to the incomes earned from the Cooperative Societies/Cooperative Banks as covered by section 80P(2)(d).

16. Ground No.4 raised by the Revenue is infructuous. Ground No.4 is extracted for the sake of record.

"The principle of mutuality relied on by the A.O. emanate to distinguish that assessee has violated the principles of mutuality, which the CIT(A) fails to comprehend. Having established on the record that the assessee has deposited money in RRBs/Cooperative Banks, status of which is not recognized under the Income Tax Act as cooperative bank, 16 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

can the interest arising out of the deposit of this RRBs/Co- op Banks would quality for deduction u/s.80P(ii)(d)."

17. We are unable to understand the reasoning given /contentions made in this ground by the Revenue. As already stated above, assessee has not claimed any benefit of mutuality. So contention on principle of mutuality itself is misplaced, so raising ground on that is misconceived. Not only that, Ld. CIT(A) direction is to allow deduction under section 80P(2)(d) and this direction was similar to the direction given in A.Y. 2007-08. Surprisingly, Revenue has not preferred any ground on that issue in that year as the assessee is eligible for such deduction. Why they preferred the ground in this assessment year is not understandable at all. This indicates that neither the A.O. nor the Ld. CIT, who authorised the second appeal has not applied their mind to the issue. Moreover, it is surprising that Revenue states in the ground that Having established on the record that the assessee has deposited money in RRBs/Cooperative Banks, status of which is not recognized under the Income Tax Act as cooperative bank, can the interest arising out of the deposit of this RRBs/Co-op Banks would quality for deduction u/s.80P(2)(d). We fail to comprehend this contention. Cooperative banks are basically registered as cooperative societies. These are involved in banking activity by obtaining necessary permissions. Only incomes of such banking societies are not made eligible to claim deduction under 80P, consequent to amendments made to the Act. We are of the opinion that Revenue did not understand the issues and simply raised ground for the sake of objection on the Ld. CIT(A) order. Since the ground itself is not maintainable on the facts of the case, we have no hesitation in rejecting the same. We earnestly hope that A.O./ 17 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

Ld. CIT will apply their mind in contesting the issues before Judicial Forums.

18. In the result, appeal of the Revenue is dismissed.

19. Coming to assessee's appeal, the issue is on allowance of insurance amounts disallowed by the A.O. under section 37(1). This issue was already considered in assessee's appeal in A.Y. 2007-08 in detail. Since this expenditure is for the benefit of members as per objects of society, there is direct nexus with the income earned from members. For the reasons stated therein, we direct the A.O. to allow expenses while working out the profit of assessee from the activity of credit facilities to members and then allow deduction under section 80P(2)(a)(i). With these directions, assessee's ground is considered as allowed.

20. In the result, appeal of the assessee is allowed.

ITA.No.1331/Hyd/2012 : (Revenue Appeal) AY 2009-10

21. In this year, assessee has declared income of Rs.60,96,670 while claiming proportionate deduction under section 80P. As in earlier years, A.O. disallowed the claim under section 80P and Ld. CIT(A) allowed the claim proportionately. In doing so, Ld. CIT(A) did not allow the disallowance of amount of medi-claim, LIC and accident insurance. Assessee has not preferred any appeal on these disallowances. Revenue preferred the appeal. With reference to claims under section 80P, the Revenue grounds are as under :

1. "The observation of the Ld. CIT(A) that the assessee is a Cooperative Society does not emanate from the assessment order as she has failed to give a clear finding 18 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

whether the assessee is a cooperative society though it has violated the principles of the Andhra Pradesh Mutually Aided Cooperative Societies Act (APMACSA), 1995.

2. The observation of CIT(A) is misplaced with regard to deduction u/s.80P(ii)(i)(a) is even otherwise given to assessee even if it accepts deposits from non-members.

3. The assessee had received interest of Rs.94,47,231 from Cooperative Banks and one Cooperative Society, i.e., A.P. High Court Employees Coop. Society. Out of Rs.94,47,231/- the amount received from Cooperative Society is Rs.63,468/- only. Since deduction u/s.80P(2)(d) is allowable only in respect of interest received from Cooperative Societies, the proportionate income was treated as income from other sources. However, the CIT(A) allowed deduction u/s.80P(2)(d) in respect of interest received from all the above institutions. Since the deduction u/s.80P(2)(d) is allowable only in respect of interest received from cooperative societies and not the cooperative banks, further appeal to ITAT, is recommended on this issue also."

22. This issues are already considered in earlier year's appeals and facts are similar. A.O. was directed by Ld.CIT(A) to allow the deduction under section 80P(2)(a)(i) proportionately on the income of credit facilities provided to its Members. Since the issue is elaborately discussed in earlier two years appeals, we are of the opinion that there is no need to discuss again. Suffice to say, that assessee being a Cooperative Society incomes earned on credit facilities to Members is eligible for deduction under section 80P(2)(a)(i). Not only that, as per the provisions of section 80P(2)(d) assessee is also eligible for deduction in respect of interest received from other Cooperative Societies/Cooperative Banks. In view of that, Revenue grounds are dismissed. As noted in earlier year also, Revenue is raising the grounds without understanding the issues.

19 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

22.1 The ground No.3 regarding deduction under section 80P(ii)(d) is in respect of interest received from Cooperative Societies and the Cooperative Banks. We are unable to understand why the 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 20 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

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 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.

ITA.No.1860/Hyd/2013 (Revenue Appeal) : AY 2010-11.

23. In this appeal the Revenue has raised the following grounds.

1. "The order of CIT(A), Hyderabad is against facts of the case.

2. Whether the Ld. CIT(A) is correct in law in holding that the assessee is eligible for deduction u/s.80P(2)(a)(i) of the Act, in view of the fact that, the assessee is accepting the deposits from non-members and extending the credit facilities to other than members also.

3. Whether the Ld. CIT(A) is correct in law in holding that the society is not governed by the Banking Regulations and is eligible for deduction u/s.80P(2)(a)(i) of the Act, in view of the fact that the A.O. has clearly established that the depositors and borrowers are quite distinct and the business is only a finance business and not cooperative activity, from which it can be implied that the assessee is covered by the provisions of section 21 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

80P(4) of the Act and not by the provisions of section 80P(2)(a)(i).

4. Any other ground that may be urged at the time of hearing".

24. Ground Nos. 1 and 4 are general in nature and therefore, it need not be adjudicated.

25. Ground No.2 is already decided against Revenue in above appeals. Since assessee has not claimed any deduction under section 80P(2)(a)(i) on the incomes from the non-Members and claimed only to the extent of income from credit facilities to the Members, the ground is per se not maintainable. However, in case, there are incomes from extending credit facilities to other Members like Associate Members or non-Members, the income to that extent is not eligible for deduction. Therefore, A.O. is directed to work out the incomes accordingly and allow deduction under section 80P(2)(a)(i) on the income from credit facilities to the Members.

26. With reference to ground No.3 as already discussed in earlier year, assessee society is not in the business of Banking and therefore, Banking Regulations does not apply. Moreover, as already discussed, provisions of section 80P(4) also does not apply. This ground raised in this year is different from the ground raised in A.Y. 2009-2010 on allowing deduction u/s 80P(2)(d). A.O. it seems is very much conscious about the provisions of the Act and so the illogical ground in A.Y. 2009-2010 has not been raised in A.Y. 2010- 2011, for which we appreciate the A.O.

26. In the result, ITA.No.1860/Hyd/2013 of the Revenue is dismissed.

22 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

ITA.No.1859/Hyd/2013 (Assessee Appeal) AY 2010-11

27. Briefly stated, assessee filed its return of income for the A.Y. 2010-2011 declaring an amount of Rs.66,79,000 after claiming deduction under section 80P. A.O. disallowed the deduction u/s.80P of Rs.1,95,28,003, which issue was subject matter of Revenue appeal. Apart that, the claim of Rs.64,18,509 as expenses was also disallowed. Aggrieved, assessee preferred appeal before the Ld. CIT(A) and the Ld. CIT(A) confirmed the order of A.O. Aggrieved, assessee filed the present appeal before us and has raised the following grounds:

1. "The order of the A.O. is contrary to law, circumstances and facts of the case.

2. The A.O. ought not to have disallowed the medi-claim and other insurance paid of Rs.32,52,615.

3. The appellate Commissioner ought not to have confirmed the disallowance of Rs.32,52,615 made by the A.O.

4. The A.O. ought not to have disallowed the insurance claim of Rs.28,87,005.

5. The appellate Commissioner ought not to have confirmed the disallowance of Rs.28,87,005 made by the A.O.

6. The A.O. ought not to have disallowed the accident insurance of Rs.2,78,889.

7. The appellate Commissioner ought not to have confirmed the disallowance of Rs.2,78,89 made by the A.O.

8. The A.O. ought not to have disallowed the doctor salary of Rs.1,40,910.

23 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

9. The appellate Commissioner ought not to have confirmed the disallowance of Rs.1,40,910 made by the A.O.

10. Any other ground which the A.O. might urge either before or at the time of hearing."

28. Ground Nos. 1 and 10 are general in nature and therefore, need not be adjudicated.

29. Ground Nos. 2 to 7 are on disallowance of Mediclaim, LIP, accident insurance. The facts are similar to that of A.Ys. 2007-08 to 2009-10. These issues are already decided by us in the foregoing paras of this order. For the reasons stated therein, we direct the A.O. to allow expenses while working out the profit of assessee from providing credit facilities to the members and allow deduction accordingly under section 80P(2)(a)(i). With these directions, assessee's grounds 2 to 7 are considered as allowed.

30. Assessee also raised ground Nos. 8 and 9 against the disallowance of doctor's salary Rs.1,40,910. The facts are that the A.O. disallowed the claim of Rs.1,40,910 towards doctor's salary as no TDS was deducted on the said amount. Since, assessee has not elaborated nor pressed this ground before the Ld. CIT(A), the Ld. CIT(A) confirmed the disallowance made by A.O. However, assessee raised grounds Nos. 8 and 9 before the Tribunal.

31. Since the issue pertains to deduction of TDS on doctor's salary to the tune of Rs.1,40,910, in the absence of relevant details before us, whether the payment falls under TDS provisions or not has to be examined by the A.O. and therefore, we set aside this issue to the file of A.O. for fresh 24 ITA.No.546 & 548/Hyd/2012 The Advocates Mutually Aided Coop. Society, Hyderabad.

adjudication, after affording a reasonable opportunity of being heard to the assessee. However this expenditure is to be allowed as deduction as it was spent for the objects of society as revenue expenditure u/s 37(1), if not disallowable for violation of TDS provisions as contended by AO. Accordingly, Grounds No. 8 and 9 are allowed for statistical purposes.

32. In the result, appeal of the assessee is partly allowed for statistical purposes.

33. To sum-up, ITA.No.546, 547, 1331/Hyd/2012 and ITA.No.1860/Hyd/2013 of the Revenue are dismissed and ITA.No.548, 549/Hyd/2012 of the Assessee are allowed and 1859/Hyd/2013 of the Assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 20.02.2015.

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

Hyderabad, Dated 20th February, 2015

VBP/-

Copy to

1. The Assistant Commissioner of Income Tax, Circle 9(1), 1st Floor, 'B' Block, I.T. Towers, A.C. Guards, Hyderabad.

2. The Advocates Mutually Aided Coop. Society, City Civil Court Premises, Diwan Dewadi, Hyderabad.

3. CIT(A)-VI, 6A, I.T. Towers, A.C. Guards, Hyderabad - 500 004.

4. Commissioner of Income Tax-VI, Hyderabad.

7. D.R. "A" Bench, ITAT, Hyderabad.