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TMI Blog2023 (1) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of provisions of section 194A of the Act. 4. Appellant craves leaves to add, to alter, to amend and to delete any other grounds at the time of hearing." 2. The first issue for our consideration is with regard to ground No.2, which reads as follows:- 2. "The order of the Hon'ble CIT(A)- NFAC, Delhi is against the Act and jurisdictional High Court decision in the case of M/s Swabhimani Souharda Credit Cooperative Ltd WP No 48414/2018 wherein is promulgated that cooperative registered under Souhard Act is also eligible for exemption u/s 80P of the Income Tax Act, 1961." 3. Facts of the case are that the assessee filed its ITR for AY. 2017-18 on 29.03.2018 showing total income of Rs.NIL after claiming deduction u/s 80P of the Income-tax Act,1961 ['the Act' for short] of Rs.35,41,970/-. Assessee is a Cooperative Society registered under Karnataka Souharda Sahakari Act, 1997. It is involved in business of providing credit facilities to its members in form of loans for business, housing etc. It also collects funds from its members. The ld. AO noted that as per Certificate filed by assessee, it is registered under Karnataka Souharda Sahakari Act, 1997 on 01.10.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. It held that if creation of Cooperative Society under Cooperative Societies act is doubtful then claim of deduction u/s 80P cannot be allowed. * Decision of SMC Bench cannot be relied as it is contrary to decision and has not yet reached finality. 3.2 The AO has discussed judgment of Bangalore Tribunal in M/s Udaya Souharda Credit Cooperative Society Ltd vs ITO dated 17.08.2018 wherein it has been held that- * Without a proper registration under Cooperative Societies Act nobody can claim it to be a Cooperative Society as activities of a Cooperative Society are to be controlled under Cooperative Societies Act through Registrar of Cooperative Societies. * Both Souharda Cooperative and Cooperative Societies are different entities and benefit of Sec 80P can only be applied to a Cooperative Society registered under Karnataka Cooperative Societies Act. 3.3 The AO held that all the above judgments of Division Benches of the Tribunal are binding on him so he held that assessee is not a Cooperative Society and is not eligible for deduction u/s 80P of Act. Thus, deduction claimed u/s 80P of the Act was disallowed and Net profit of Rs.35,37,272/- was taxed as Income in status of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vide UJAGAR PRINTS, ETC., vs. UNION OF INDIA, AIR 1989 SC 516; Chapter X of 1997 Act containing sec.67 enacts important co-operative principles that animate and brood through almost all the provisions of this Act; (ii) After noticing the statement and objects and reasons for introducing The Karnataka Suiharda Sahakara Bill, 1997 has the following as the Statement of Objects & Reasons and preamble to the Karnataka Co-operative Societies Act, 1959 and the Karnataka Souharda Sahakari Act, 1997, concluded as follows: "A perusal of these two preambles and various provisions of these two Acts leads one to an irresistible conclusion that both these Acts are cognate statutes that deal with co- operative societies, regardless of some difference in their nomenclature and functionality, the subject matter being the same; (e) the word 'co-operative' is defined by sec.2(d-2) of 1959 Act as under: "2(d-2): 'Co-operative' means a Co-operative registered under the Karnataka Souharda Sahakari Act, 1997 (Karnataka Act 17 of 2000), and includes the Union Co-operative and the Federal Co-operative" Similarly, the word 'co-operative' is defined by Sec. 2(e) of 1997 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of "co-operative society" as enacted in sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec.80P of the said Act; a Writ of Certiorari issues quashing the impugned notice dated 30.03.2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow. It is needless to mention that the other provisions of sec. 80P of 1961 Act and their effect on the claim of the petitioner-like-societies have been left to be addressed by the concerned authorities." 11. In the light of the decision of the Hon'ble Karnataka High Court, we are of the view that the assessee should be allowed deduction under section 80P(2)(a)(i) of the Act and the CIT(A) was justified in doing so. Except the ground that the Assessee was not a co-operative society entitled to deduction u/s.80P(2)(a)(i) of the Act, no other reasons were given for denying the benefit of the said deduction to the Assessee. Hence, the order of CIT(A) is upheld." 5. Further, same view was taken by the jurisdictional High Court in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions and perused the material on record. Originally this issue came up for consideration before this Tribunal in the case of Pinarayi Service Co-operative Bank Ltd. & others vs. ITO (152 ITD 90) wherein it was held as under: 42.1 We have heard both the parties. We find a similar issue came up for consideration of the Cochin Bench of Tribunal in the case of Karivelloor Service Co-operative Bank Ltd. vs. ITO in I.T.A. No. 311/Coch/2012 vide order dated 22-03-2013 wherein it was held as under: "11. We have considered the rival submissions on either side and also perused the material available on record. In the case of Kadachira Service Co-operative Bank Ltd. (supra), this Tribunal found that the taxpayers were not carrying on any banking activity and, therefore, they are agricultural cooperative societies. In view of the specific provisions exempting the agricultural co-operative societies from deduction of tax in respect of agricultural co-operative societies this Tribunal found that section 194A(3)(viia) is not applicable to agricultural co-operative societies. In this case, it appears that the taxpayer was accepting deposits and maintaining savings bank account and current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative bank or Central Co-operative bank. We have therefore to find whether the assessee is a primary Co-operative bank. 8.4 The Primary Co-operative bank is defined under section 5 clause (CCV) of Banking Regulation Act 1949 as under:- "(CCV)" primary co-operative bank" means a co-operative society, other than a primary agricultural credit society- (1) The primary object or principal business of which is transaction of banking business: (2) the paid-up share capital and reserves of which are not less than one lakh of rupees: and (3) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capita l of such Co-operative society out of funds provided by the State Government "for the purpose " 8.5 From the aforesaid definition, it is apparent that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transacted by it is a banking business, secondly, the paid up share capital and reserve of which are 1 lakh or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket industrial products for the benefit of the members; 13) To issue loans to members under hire purchase scheme for purchasing household articles, machinery, jeep, autorikshaw, car etc. 14) To accept deposits from primary non-agricultural co-operative societies. Out of these, only four objects (i.e. clause no. 2,4,5 and 10) are related to agriculture or agricultural operations. So from the bye-laws of the bank it cannot be said that the primary object or principal business of the bank is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities. 8.7 On the basis of these objects whether it can be said that the primary object or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner : " banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. " From the said definition it is clear that banking means accepting deposit of money from the public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted are used by the Assessee co-operative society for lending or investment. This fact has not been denied. Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects as enumerated above. Thus, in our opinion, condition no. 1 stands satisfied and it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right. So far as the second condition is concerned, there is no dispute that the paid up share capital and reserves in the case of the Assessee is more than Rs. 1 lac. Therefore, the Assessee satisfies the second condition. 8.9 Thus, we notice that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with. 8.10 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT, 41 305 (Hyd). We notice that this decision is applicable to the facts of the case before us. In that decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Merely because the petitioners-the co-operative societies in question-are required to advance loans to their members, they do not cease to be co-operative societies governed by the Act nor can they be treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to "banking" as contemplated under the Banking Regulation Act, 1949, inasmuch as these co-operative societies are not established for the purpose of doing "banking" as defined in section 5(b) of the Banking Regulation Act, 1949. " This decision, in our opinion, is not applicable to the case before us because the provisions of Sec. 80P(2)(a)(i), as we have already held in the preceding paragraphs, are applicable to a co-operative society which is engaged in carrying on banking business facilities to its members if it is not a co-operative bank. We have also gone through the decision of this Bench in the case of DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. in ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra). While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 of its order, this Tribunal has held as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute is to be decided in favour of the assessee which is binding on the Revenue as held by the Supreme Court in the case of K.P. Varghese vs. ITO (131 ITR 597). 6.4 Further, it was noticed that in the case of ACIT vs. Visakhapatnam Cooperative Ltd. (47 SOT 295), it was held that the assessee being a cooperative bank is exempt from TDS provisions as far as the payment of interest was to its own members. Recently, the Madras High Court in the case of Coimbatore District Central Co-operative Bank Ltd. vs. ITO (382 ITR 266) had an occasion to go into the provisions of sec. 194A of the I.T. Act which is similar to the issue before us. In that case, after elaborate discussion, the High Court opined as under: "45 The second substantial question of law that we have framed for consideration is as to whether there exists a substantial or marked difference between a co-operative society engaged in carrying on banking business and a co-operative bank and if so, under which category the appellant would fall. The answer is too obvious in view of the foregoing discussion. Except the provisions of sub-clause (b) of clause (i), subclause (a) of clause (iii) and sub-clauses (a) and (b) of cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as only from April 1, 1970, that the income credited or paid in respect of deposits made with co-operative societies engaged in banking business, became exempt from liability to deduct tax at source. (iv) The reason perhaps as to why the benefit was sought to be extended to the deposits made in co-operative societies carrying on the business of banking was that the colonial acts namely, the Cooperative Societies Act, 1912 and the Multi-Unit Co-operative Societies Act, 1942 were debated after India attained independence and a co-operative movement was already at the dawn in the State of Maharashtra where sugarcane was grown to a large extent. (v) Finding that the benefit granted by the 1970 amendment was applicable only to the incomes credited or paid in respect of deposits made with co-operative societies carrying on the business of banking, the Government came up with the next amendment with effect from April 1, 1971, to enlarge the scope of the benefit to members of cooperative societies irrespective of whether the society carried on banking business or not. In other words, by the amendment that came with effect from April, 1, 1971, two sets of exemptions were granted, one wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repayable on the expiry of fixed periods. Thus, interest on savings bank accounts and recurring deposit accounts is not subject to deduction of tax at source. " 48. The amendment inserted with effect from October, 1, 1991, appears to have drawn flak within a few months. It appears that representations poured in from several quarters, forcing the Government to come up with yet another amendment with effect from June 1, 1992. By this amendment, the position that prevailed prior to October 1, 1991, was restored. In fact, the next Circular bearing No. 636 dated August 31, 1992 explained the rationale for the restoration of the position on the following lines: "Modification of the provisions regarding deduction of tax at source: 49.1 A large number of representations have been received from members of public, representative bodies and banks pointing out various difficulties which had arisen on account of the operation of these provisions. Keeping in view these difficulties, the Act amends, - (a) section 194A of the income-tax Act, to restore the position as obtaining before October 1, 1991, in relation to deduction of income tax a source in the case of income credited or paid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortgage bank or a co-operative land development bank, will not be subject to the requirement of deduction of income-tax at source. The expression "time deposits" is defined to mean deposits, excluding recurring deposits, repayable on the expiry of fixed period. 46.3 The amendment will take effect from July 1, 1995." 50 As we have indicated earlier, sub-section (1) of section 194A imposes an obligation upon every person. Even individuals and Hindu undivided families are covered by the proviso subject to certain conditions. Therefore the exclusions found in sub-section (3) are naturally to be construed stricto sensu. 51. But unfortunately, if a taxing statute and an exclusion clause contained in the taxing statute are to be construed strictly, the provisions themselves should make it clear as to who are the persons who are to be charged or exempted and what are the circumstances under which they are charged or excluded. Though the legislative intent appears to be to deal with four different types of co-operative societies, the categorization appears to have been made by the various sub-sections and clauses of section 194A without defining each one of those categories. The four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society' shall be substituted; (c) after clause (v), the following Explanation shall be inserted, namely :- 'Explanation.- For the purposes of this clause, "co-operative bank " shall have the same meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (d) for clause (ix), the following clauses shall be substituted, namely:- (ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal; (ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees, ' (e) in Explanation 1 below clause (xi), for the word 'excluding,' the word 'including' shall be substituted. " The relevant portion of the memorandum explaining the clauses in the Finance Bill reads as follows "Section 194A(1) read with section 194A(3)(i) of the Act provide for deduction of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3)(v) of the Act. This is because the specific provision of tax deduction provided under section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act for co-operative banks override the general exemption provided to all co-operative societies for non-deduction of tax from interest payment to members under section 194A(3)(v) of the Act. As there is no difference in functioning of the co-operative banks and other commercial banks, the Finance Act, 2006, and Finance Act, 2007, amended the provisions of the Act to provide for co-operative banks a taxation regime which is similar to that for the other commercia l banks. Therefore, there is no rationale for treating the co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative societies formed for the benefit of small number of members. However, as mentioned earlier, a doubt has been created regarding the applicability of the specific provisions mandating deduction of tax from the payment of interest on time deposits by the co-operative banks to its members by claiming that general exemption provided is also applicable for payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee. In. view of this judgment of Madras High Court, according to the Ld. counsel, the assessee need not deduct tax in respect of interest paid till l 31.05.2015. This judgment of Madras High Court was subsequently followed in the assessee's own case by judgment dated 29.10.2015. The Madras High Court considered an identical issue in assessee's own case in TC(A) No.588/2015 & others Madras High Court, after considering the amendment made in Section 194A of the Act by Finance Bill, 2015 with effect from 01.06.2015, found that the express language of Section 194A (3) clearly indicates that the exemption provided for deduction of tax from the payment of interest to the members by a co-operative society under Section 194A(3)(v) of the Act shall not apply to payment of interest on any deposit by the cooperative banks to its members with effect from 01.06.2015. The Madras High Court found that after 01.06.2015, the assessee cannot escape from the liability of deduction of tax at source. The Madras High Court further found that the amendment made in Section 194A(3) of the Act was not retrospective in operation. It is intended to have prospective effect with effect from 01. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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