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TMI Blog2014 (10) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... hat since the CIT has remanded the issue to the file of the Assessing Officer, directing the AO to redo the assessment afresh, there is no need to file any appeal before the Tribunal. It has further been stated that the Secretary of the assessee approached M/s. S. Venkatesan & Co., CAs., for further advice in the matter, who on going through the papers, advised the assessee to file appeals against the orders passed u/s. 263 of the Act. Therefore, the appeals were filed immediately and in the process there occurred a delay of about 195 days and 138 days in filing the appeals respectively before the Tribunal. It has been prayed that delay in filing the appeals is neither willful nor deliberate, but due to circumstances explained as above. The assessee has thus prayed for condonation of delay in filing the appeals. 3. We have considered the affidavits filed by the assessee and are satisfied that delay in filing the appeals was occasioned due to a reasonable cause. Accordingly, delay in filing the appeals for both the assessment years is condoned. ITA 1720/B/13 4. The assessee is a co-operative society registered with the Registrar of Co-operative Societies, Davangere vide Certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the above aspects and therefore his order was erroneous and prejudicial to the interests of revenue. The order of the AO was accordingly set aside with a direction to redo the assessment afresh by considering the above two issues. 6. Aggrieved by the order of the ld. CIT, assessee has preferred appeal before the Tribunal. 7. We have considered the rival submissions. As far as the issue of deduction u/s. 80P(2)(a)(i) of the Act with regard to income derived by the assessee from providing credit facilities to its members is concerned, this Tribunal has taken the view that co-operative society registered under the Co-operative Societies Act could not be considered as a co-operative bank so as to attract the provisions of section 80P(4) of the Act. 8. This Tribunal, in the case of ACIT v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010, held that section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1959. Registration Under the Banking Regulation Act, 1949 and Cooperative Societies Act, 1959. Cooperative Societies Act, 1959. Nature of business 1. As defined in section 6 of Banking Regulation Act. 2. Can open savings bank account, current account, overdraft account, cash credit account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts (DD), Pay Orders, Gift cheques, lockers, bank guarantees etc. 3. Cooperative Banks can act as clearing agent for cheques, DDs, pay orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI). 1. As per the bye laws of the cooperative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act as clearing agent, for cheques, DDs, pay orders and other forms. 4. Society are bound by rules and regulations as specified by in the cooperative societies act. Filing of returns Cooperative banks have to submit annual return to RBI every year. Society has to submit the ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king Regulation Act, 1949. 5. Assessing Officer held that by virtue of section 80P(4), the respondent assessee would not be entitled to benefits of deduction under section 80P. CIT(Appeals) as well as the Tribunal reversed the decision of the Assessing Officer on the premise that the respondent assessee not being a bank, exclusion provided in sub-section(4) of section 80P would not apply. This, irrespective of the fact that the respondent would not fall within the expression "primary agricultural credit society". 6. Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of subsection(4) only co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then Legislature specified primary agricultural credit societies along with primary cooperative agricultural and rural development banks for exclusion from such exclusion and in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is a co-operative society and not a co-operative bank, the order passed by the AO extending the benefit of exemption from payment of tax 80P(2)(a)(i) of the Act is correct and such an order is not erroneous and therefore, jurisdiction u/s. 263 of the Act cannot be invoked. 11. In view of the aforesaid decisions, we set aside the order of the ld. CIT and uphold the order of the AO allowing deduction u/s. 80P(2)(a)(i) of the Act to the assessee. 12. As far as the issue with regard to interest earned on deposits with Davangere Urban Co-op. Bank is concerned, we are of the view that the ld. CIT rightly invoked his powers u/s. 263 of the Act. This Tribunal in the case of Sri Basaveshwara Credit Co-operative Society Ltd., Hirekerur in ITA No.524/Bang/2012 by order dated 10.5.2013 held as follows:- "17. We have given a very careful consideration to the rival contentions. The Assessee is a Society registered under the Co-operative Societies Act providing credit facilities to its members. The Assessee accepts deposits from members and lends money only to members. The income of the society is in the form of the interest that it earns on credit facilities extended to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, the interest held not eligible for deduction under s. 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under s. 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under s. 28 of the Act ? In our view, such interest income would come in the category of "income from other sources", hence, such interest income would be taxable under s. 56 of the Act, as rightly held by the AO. In this connection, we may analyze s. 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(a)(i) of the Act or in s. 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the AO was right in taxing the interest income, indicated above, under s. 56 of the Act." 13. In the present case, the interest in question is from the deposits maintained with Davangere Urban Co-op. Bank, which is a co-operative Bank and the making of such deposit has no nexus with the business of the assessee. The interest earned on such deposit can therefore be not considered as income derived from the business of providing credit facilities U/s.80P(2)(a)(i) of the Act or interest derived by a co-op. society from its investments with any other co-op. society, as contemplated by the provisions of s. 80P(2)(a)(d) of the Act. Therefore, following the decision of the Tribunal in the case of Sri Basaveshwara Credit Co-operative Society Ltd., Hirekerur (supra), we hold that the order of the ld. CIT u/s. 263 of the Act on this issue calls for no interference. 14. In the result, the appeal for the A.Y. 2008-09 is partly allowed. ITA 1721/B/13 15. In this appeal for the A.Y. 2009-10, the only issue on which the ld. CIT invoked his powe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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