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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 ..... ssee 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 ₹ 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 Mutual Society, that too ‘lifting corporate veil’ when there is no claim at all. - Decided in favaour of assessee. Whether 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd simply raised ground for the sake of objection on the Ld. CIT(A) order. - Decided against revenue. Insurance amounts disallowed by the A.O. under section 37(1) - Held that:- 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). - Decided in favour of assessee. Disallowance of doctor’s salary - Non deduction of TDS - Held that:- Since the issue pertains to deduction of TDS on doctor’s salary to the tune of ₹ 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 adjudication, after affording a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. - ITA.No.546, 547 & 1331/Hyd/2012 & ITA.No.1860/Hyd/2013, ITA.No.548 & 549/Hyd/2012 & ITA.No.1859/Hyd/2013 - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on only 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 Inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Assessee is aggrieved on the disallowance of expenses of ₹ 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalysed 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety 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 ₹ 63,04,563. Thus, as against in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etail. 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 ₹ 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation 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 divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 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 ₹ 66,79,000 after claiming deduction under section 80P. A.O. disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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