2018 (12) TMI 1915 - AT - Income Tax

Entitlement to deduction u/s 80P(2)(a)(i) - nature of business of assessee - petitioner in appeal is a co-operative society engaged exclusively in providing credit facilities to its members - HELD THAT - In order to determine the nature of business as to whether the same is of a cooperative bank or not, certificate from RBI about the nature of business of the assessee is most important and hence, we feel it proper to restore back the matter to the file of AO for fresh decision after providing adequate opportunity to the assessee to produce such certificate from RBI regarding the nature of business of the assessee in reasonable time. As noted in CITIZEN COOPERATIVE SOCIETY LIMITED 2017 (8) TMI 536 - SUPREME COURT the assessee was engaged in the activity of granting loans to general public as well. This was also noted in the same Para that most of the business of the assessee was with the second category of persons who were noted to be nominal members and from them, the assessee was getting deposits which were kept in Fixed Deposits with a motive to earn maximum returns and a portion of these deposits was utilized to advance gold loans etc. to members of the first category i.e. ordinary members. Hence, even if it is found that assessee is not a co-operative bank, then also, this factual aspect of the present case should be compared and thereafter final decision should be made. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Nature of business - Whether the appellant is a cooperative bank.
2. Compliance with Section 80P(2)(a)(i) of the Act.
3. Violation of provisions of the MACSA.
4. Need for a certificate from RBI regarding the nature of business.

Issue 1: Nature of business - Whether the appellant is a cooperative bank.

The appellant contended that it is a cooperative society providing credit facilities to its members and not a cooperative bank. The Assessing Officer and the Appellate authority treated the appellant as a cooperative bank, leading to additional income and tax demands. The appellant argued that it operates within the framework of its approved bye-laws and the Karnataka Co-operative Societies Act, 1959. The Tribunal referred to a judgment of the Hon'ble Apex Court regarding the definition of a cooperative bank and the necessity of a license from the Reserve Bank of India (RBI). The Tribunal suggested that if the appellant obtains a certificate from the RBI clarifying its business nature, it could impact the classification. The matter was remanded to the AO for a fresh decision after allowing the appellant to produce the required certificate from the RBI.

Issue 2: Compliance with Section 80P(2)(a)(i) of the Act.

The Assessing Officer highlighted that the appellant's activities violated the provisions of the MACSA under which it was formed. The appellant was found to cater to two distinct categories of individuals - resident members and nominal members. The latter group deposited funds for loans without being actual members. Most of the business was conducted with these nominal members, engaging in finance activities beyond cooperative society operations. The Tribunal noted that the appellant granted loans to the general public without proper approval, leading to violations of the Co-operative Societies Act. Consequently, the appellant was deemed ineligible for deduction under Section 80P(2)(a)(i) of the Act.

Issue 3: Violation of provisions of the MACSA.

The Assessing Officer observed that the appellant's activities, particularly dealing with nominal members and engaging in finance-related transactions, contravened the provisions of the MACSA. By operating without approval from the Registrar of the Societies and granting loans to non-members, the appellant's actions were deemed in violation of the Co-operative Societies Act. The Tribunal agreed with the Assessing Officer's findings, emphasizing the need for compliance with the regulatory framework governing cooperative societies.

Issue 4: Need for a certificate from RBI regarding the nature of business.

The Tribunal stressed the importance of obtaining a certificate from the RBI to ascertain the nature of the appellant's business accurately. Referring to the judgment of the Hon'ble Apex Court, the Tribunal underlined the significance of such certification in determining whether the appellant qualified as a cooperative bank. The appellant was given the opportunity to procure the necessary certificate from the RBI to aid in the reassessment of its business classification by the AO. This requirement was deemed crucial for a comprehensive and informed decision on the appellant's status.

In conclusion, the Tribunal set aside the CIT (A)'s order and remanded the matter to the AO for a fresh decision after the appellant obtains the certificate from the RBI regarding its business nature. The appeal was allowed for statistical purposes, emphasizing the need for adherence to regulatory requirements and proper classification based on the nature of operations within the cooperative framework.