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TMI Blog2015 (3) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... aged 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities, 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 bye11 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, ult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Regulation Act, therefore, do not apply to it and the question of violating its prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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./ 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of Rs. 1,40,910. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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