Eligibility of Deduction u/s 80P to Co-operative society engaged in providing Credit facilities to its members and general public
Short Overview : Where assessee-society was engaged in activity of finance business and was also engaged in activity of granting loans to general public as well, it could not be termed as co-operative society meant only for its members and providing credit facilities to its members, hence assessee was not entitled to deduction under section 80P.
Assessee-co-operative society was carrying on the business of providing credit facilities and claimed deduction under section 80P. AO held that deduction in respect of income of co-operative societies under section 80P was not admissible as the benefit of deduction was admissible only to those co-operative societies which carry on banking business or providing credit facilities to its members. On the contrary, assessee-society was carrying on the banking business for public at large and for all practical purposes; it was acting like a co-operative bank governed by the Banking Regulation Act, 1949, and its operation was not confined to its members but outsiders as well.
it is held that Assessee was catering to the resident members or ordinary members and nominal members. Nominal are those members who made deposits with the assessee for the purpose of obtaining loans, etc., and, in fact, they are not members in real sense. Most of the business of the assessee was with the nominal members who have been giving deposits, which were kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits was utilised to advance gold loans, etc., to the ordinary members. It was found that the depositors and borrowers were quiet distinct. In reality, such activity of the assessee was that of finance business and could not be termed as co-operative society. Assessee was engaged in the activity of granting loans to general public as well. All this was done without any approval from the Registrar of the Societies. Therefore, assessee was not entitled to deduction under section 80P(2)(a)(i).
Decision: Against the assessee by way of remand.
Followed: The Citizen Co-Operative Society Limited v. ACIT (2017) 397 ITR 1 (SC) : 2017 TaxPub(DT) 2053 (SC), M/s. Udaya Souharda Credit Cooperative Society Ltd. v. ITO [ITA No.2831/Bang/2017, dt. 17-8-2018] : 2018 TaxPub(DT) 5483 (Bang-Trib).
Referred: CIT & Anr. v. Biluru Gurubasawa Pattina Sahakari Sangha Niyamitha Bagalkot [Civil Appeal No(s). 5103/2015, dt. 19-4-2017].
IN THE ITAT, BANGALORE BENCH
A. K. GARODIA, A.M. & LALIET KUMAR, J.M.
ITO v. Siddasiri Pattin Souharda Sahakari Niyamit
29 March, 2019
Assessee by: Sukesh Patil, CA
Revenue by: Kapila H, JCIT
Laliet Kumar, J.M.
The present appeal is filed by the Revenue against the order of the Commissioner (Appeals), Belagavi, dated 18-12-2017, for the assessment year 2009-10.
2. The Revenue has raised the following grounds :–
(i) In the facts and circumstances of the case, the Commissioner (Appeals) erred in admitting additional evidence in the form of Affidavit in contravention of Rule 46A since the assessing officer was not provided with an opportunity to examine the contents of the affidavit filed by the assessee.
(ii) In the facts and circumstances of the case, the Commissioner (Appeals) erred in accepting as correct the affidavit of the assessee without examining the Balance-sheet wherein, the category of members dealt with by the assessee society clearly indicated that the assessee is not doing business with members alone.
(iii) The learned Commissioner (Appeals) failed to consider the remand Report, dt. 24-5-2013 submitted by the assessing officer wherein it was submitted that though opportunity was given to the assessee vide his Letter, dt. 29-4-2013 the assessee has not complied to substantiate its claim regarding deduction under section 80P(2)(a)(i)
(iv) The learned Commissioner (Appeals) in the facts and circumstances of the case of Hon’ble Apex Court ought to have called for remand report in regard to whether the assessee is a co-operative society meant for its members only and whether any income was earned by way of investment/loans etc to non-members
(v) The learned Commissioner (Appeals) erred in not applying the ratio of the decision of Hon’ble Supreme Court in the case of Citizen Co-op Society Ltd, Hyderabad v. ACIT, C-9(1), Hyderabad in Civil Appeal No.10245 of 2017 (Arising out of SLP (C) No.20044 of 2015) dt. 8-8-2017since the assessee is also catering to the category of members called associate members which is not akin to regular member.
(vi) The learned Commissioner (Appeals) erred in coming to the conclusion that the assessee society is a co- operative society meant only for its members and eligible for deduction under section 80P(2)(a)(i) ignoring the ratio laid down by the Hon’ble Apex Court in he case of Citizen Co-op Society Ltd.
(vii) The learned Commissioner (Appeals) erred in not considering the fact that the Special Leave Petition filed by the Department before the Hon’ble Supreme Court, vide SLP No. 18221 of 2015 has been converted to Civil Appeal No. 5103/2015 which is pending for a final decision on the same issue, in the case of CIT v. Biluru Gurbasava Pattin Sahakari Sangh Niyamit.
3. At the outset, it was submitted by the learned DR that the Commissioner (Appeals) had not considered the binding decision of the Hon’ble Supreme Court in the matter of Citizen Cooperative Society v. ACIT (2017) 397 ITR 1 (SC) : 2017 TaxPub(DT) 2053 (SC), wherein at para 24, it was held as under :–
24. Undoubtedly, if one has to go by the aforesaid definition of ‘co-operative bank’, the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of section 80P.
It was the case of the learned DR that the assessee is involved into giving funds to the non-members. For that purposes, our attention was drawn to assessment order wherein the assessing officer had examined the status of the assessee and came to the conclusion that the assessee is not entitled for deduction under section 80P(2)(a)(i) because the principle of mutuality is not followed.
4. Per contra, the learned AR relies on the decision of the Tribunal in the matter of M/s. Udaya Souharda Credit Co operative Society Ltd. [ITA No.2831/Bang/2017, dt. 17-8-2018] : 2018 TaxPub(DT) 5483 (Bang-Trib). The learned AR submitted that the assessee is not into banking business and therefore no licence is required from the RBI. Further it was submitted that the assessee is registered under the Karnataka Cooperative Societies’ Act, 1959, and therefore the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act.
5. We have heard the rival contentions and perused the material on record. We have reproduced hereinabove, para 24 of the order of the Hon’ble Supreme Court in the matter of Citizen Cooperative Society (supra), which is relevant here. In a recent order in the matter of M/s. Udaya Souharda Credit Co operative Society Ltd. [ITA No. 2831/Bang/2017, dt. 17-8-2018], it was noted by the Tribunal that Karnataka State has notified Karnataka Co-Operative Societies Act, 1959 as well as the Karnataka Souharda Sahakari Act, 1997 and both Acts are in force. Therefore, conversion from one into another is possible. Thereafter the Tribunal held that the deduction under section 80P can only be applied to a cooperative society registered under the Karnataka Co-Operative Societies Act, 1959 and thereafter the matter was restored back to the assessing officer for fresh decision after making necessary enquiry and investigation. In the present case, the facts are identical and one more plea was raised pertaining to mutuality.
6. In view of the above, respectfully following the decision of the Hon’ble Supreme Court in Citizen Cooperative Society (supra) and Udaya Souharda Cooperative Society (supra), we remand the appeal to the file of the Commissioner (Appeals) to decide the issue afresh in the light of the observations made hereinabove. Needless to say the Commissioner (Appeals) shall give opportunity of hearing to the assessee and shall also consider the submissions, if any made by the assessee in this regard and also seek a remand report from the assessing officer, and thereafter decide the matter in accordance with law.
7. In the result, appeal of the Revenue is allowed for statistical purpose.