9911796707
TMI Blog2016 (12) TMI 1475X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The society was initially registered in the name and style of Eluru Co-operative House Mortgage Bank Limited. However, the name was changed as The Eluru Co-operative House Mortgage Society Limited w.e.f. 19.2.2009. The assessee society is formed with the following objects: 1. To encourage thrift, self help of members in accordance with co-operative principles. 2. To borrow funds from members or others to be utilized for financing members for useful purposes. 3. To function as a bank and carry on banking business including acceptance of deposits. 4. Purchase and sell Govt. Trustee and other securities. To issue loan/loans on the mortgage of National Savings Certificates, Kisan Vikas, Indira Vikasa patras to a member or non-member as per the terms and conditions laid down by the Board of Management from time to time. 5. To maintain safe deposit vaults, lockers and let out on hire or otherwise; 6. To act as agent for any person in the course of business of the bank; 7. To purchase, acquire or lease or otherwise obtain movable or immovable property and dispose of the same for the needs of the bank or in connection with the settlement of loans due to it but it shall not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment, the assessee's status is a Co-operative Society but not a Co-operative Bank. The assessee further submitted that the assessee - society cannot be considered as a bank for the reason that the Reserve Bank of India has not issued license to carry the banking business and further submitted that section 80P(4) of the Act is not applicable to the assessee. The ld.CIT(A) by considering the submissions made by the assessee passed a detailed order from page Nos. 4 to 7 at paragraphs 3.2 to 3.9 and held that the assessee is not eligible for exemption under section 80P(2)(a)(i) and confirmed the order of the Assessing Officer. The ld. CIT(A), in his order, observed that as per the objects of the assessee it is found that the intention of the assessee to function as a bank and to carry on banking business. It is also not disputed fact that the assessee is carrying banking business by accepting the deposits and by issuing loans. It is also the object of the assessee to maintenance of safe deposit vaults, lockers and act as agent for any other person in the course of banking business. He has also given a finding that the assessee is doing banking business, both with members and non- memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reading of the objects of the society that the assessee is not only existed for the benefit of the members but also for non-members. In the assessment order, the Assessing Officer has noted that the assessee is doing banking business with members and non-members. It is very clear from the orders of the Assessing Officer as well as ld. CIT(A) that the assessee is carrying its activity not only with members but also non-members, therefore the assessee cannot be considered as working on the basis of principle of mutuality. 9. The main purpose and intention of the legislature to introduce section 80P to exempt income of the certain assessees, who are working on the principles of mutuality. Over a period of time, the same was misused by some of the assessees, who are carrying its activities in the commercial lines / on par with commercial banks which is contrary to the purpose for which the section was incorporated in the Act. To curb the misuse of Section 80P(2), the legislature has brought amendment to the Finance Act by incorporating sub-clause (4) to section 80P w.e.f. 01/04/2007, the same is extracted hereunder:- [(4) The provisions of this section shall not apply in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepting deposits from members as well as non-members and also extending its services. Under these facts and circumstances of the case, assessee cannot be considered as a cooperative society. In our opinion, sub-clause (4) to section 80P clearly applies to the assessee, therefore assessee is not eligible for exemption under section 80P(2)(a)(i) of the Act. 11. Insofar as the argument of the learned counsel for the assessee is concerned, the assessee cannot be considered as a bank for the purpose of sub-clause (4) to section 80P that RBI has not granted license. In our opinion, to avail benefit under section 80P(2)(a)(i), the underlying principle is that the assessee organization has to carry out its activities on the principle of mutuality. Once, the assessee failed to carry its activities on the above principle, the assessee is not entitled to get benefit under section 80P of the Act, as it will come within the purview of section 80P(4) after 01/04/2007. In the present case, it is very clear that the assessee is carrying its business activities with members and non-members. Once non-members entered into the organization, the principles of mutuality will automatically exists. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax (Appeals) confirmed the order of the Assessing Officer. 15. On being aggrieved, the assessee carried the matter in appeal before the Tribunal. 16. Before us, learned counsel for the assessee submitted that the very same issue has been considered by the Coordinate Bench of this Tribunal in the case of DCIT v. The Gandhi Co-op Urban Bank Ltd. in ITA No. 469/Vizag/2012 dated 30/11/2015, wherein the Tribunal by following the order of Coordinate Bench of this Tribunal in Durga Co-operative Urban Bank Ltd. decided the issue in favour of the assessee. 17. On the other hand, Ld. Departmental Representative relied on the orders of the authorities below. 18. The case of the assessee is that on some of the loans, assessee had not received interest for more than 90 days, the same has been treated as sticky loans and the interest which is accrued and already credited is reversed by creating reserve account and debiting the same as expenditure. The assessee submitted before the authorities below and even before us that whenever interest is received on actual receipt basis, the same is offered for taxation. Just because, the assessee following mercantile system of accounting unrealize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "10. Turning to the facts of the case before us, the assessee herein is a cooperative bank and it is not in dispute that it is also governed by the Reserve Bank of India. Hence the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the assessee as it is applicable to the companies registered under the Companies Act. The Hon'ble Supreme Court has held in the case of Southern Technologies Ltd (Supra), that the provision of 45Q of Reserve Bank of India Act has an overriding effect vis-à- vis income recognition principle under the Companies Act. Hence Sec.45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also. Hence the Assessing Officer has to follow the Reserve Bank of India directions 1998, as held by the Honible Supreme Court. 10.1 Based on the prudential norms, the assessee herein did not admit the interest relatable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our hands. Accordingly we do not find any infirmity with the decision of the learned CIT (A) in holding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order." Following the aforesaid discussion, which has been rendered on an identical issue under similar circumstances, we find no reasons to interfere with the ultimate conclusion of the CIT(A) in deleting the impugned addition relating to interest income in respect of NPAs." 9. The Hon'ble Supreme Court of India, in the case of UCO Bank Vs. CIT had an occasion to consider the issue. The Hon'ble Supreme Court, while dealing with similar issue held as under: "The method of accounting which is followed by the assessee-bank is mercantile system of accounting. However, the assessee considers income by way of interest pertaining to doubtful loans as not real income in the year in which it accrues, but only when it is realised. A mixed method of accounting is thus followed by the assessee-bank. This method of accounting adopted by the assessee is in accordance with accounting practice. Up to the asst. yr. 1978-79, the CBDT's circular of 6th Oct., 1952 would be appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Board under s. 119. Such a circular is binding under s. 119. The circular of 9th Oct., 1984, therefore, provides a test for recognising whether a claim for interest can be treated as a doubtful claim unlikely to be recovered or not." 10. Considering the facts and circumstances of the case and also applying the ratios of the judgments discussed above, we are of the view that interest on a loan whose recovery is doubtful and which has not been recovered by the assessee-bank, but has been kept in a suspense account and has not been brought to the P&L a/c of the assessee, could not be included in the income of the assesse. The CIT(A) rightly deleted the additions towards interest on NPAs. There is no error or infirmity in the order of CIT(A). Accordingly, we direct the A.O. to delete the additions made towards interest on NPAs." In view of the above, this ground of appeal raised by the assessee is allowed. 19 So far as Assessment Years 2007-08 & 2009-10 are concerned, the Assessing Officer has denied exemption claimed by the assessee under section 80P(2)(a)(i) of the Act. On appeal, Ld. Commissioner of Income Tax (Appeals) without considering the objects of the society an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
