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TMI Blog2024 (6) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... 20-21 29/05/2023 2. Brief facts of the case are as under: 2.1 The Ld.AR at the outset submitted that the facts and circumstances of the appeals under consideration are based on identical facts and on the disallowance of assessee's claim under section 80P(2)(a)(i)/(d) of the Act. Therefore all the appeals are considered in a consolidated manner on the principle issue. 2.2 It is submitted that the assessee is a state-level non-banking co-operative credit society established in the year 1929, well before the enactment of the Karnataka Co-operative Societies Act, 1959 ("KCS Act"), the Reserve Bank of India Act, 1934, or the Banking Regulation Act, 1949 (BRA). It is thus, submitted that the assessee though has the word "bank" in its name, it is not a bank, It is further submitted that the assessee is not licensed to carry on the operations of banking as per the Banking Regulation Act. Reliance is placed on the response to a query dated 07/09/2018, under the Right to Information Act, 2005 filed by the assessee to the Reserve Bank of India (RBI) placed at page 88 of PB Vol 1. 2.3 It is submitted that, In the state of Karnataka, 178 Primary Co-operative Agriculture and Rural Developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex-parte. 3.1 For AY 2013-14, assessment order was passed on 26.02.2016. In first appeal, an order was passed by the Ld.CIT(A) on 14.02.2017, against which the assessee preferred appeal before this Tribunal who passed order dated 06.04.2018 remanding the matter to the file of the CIT(A). Thereafter, the Ld.CIT(A) passed two orders, both on 11.05.2023 at different time with different DIN. In both these orders passed by the Ld.CIT(A) on merits, the disallowance by the Ld.AO was upheld. For remaining assessment years, orders were passed upholding the disallowance by the Ld.AO. 3.2 The primary observation of the Ld.CIT(A) for disallowing the claim u/s. 80P(2)(a)(i) was that assessee was dealing with the members of different classes such as regular / nominal / associate members. In respect of the nominal members / associate members who did not have certain rights in the society, the principle of mutuality did not exist. 3.3 In respect of the disallowance u/s. 80P(2)(d) of the act, the Ld.CIT(A) relied on the decision of Hon'ble Karnataka High Court in case of Totagars Co-operative Sales Society vs. ACIT reported in (2017) 395 ITR 611. 3.4 Aggrieved by all the orders of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficient cause" employed by the Legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that : 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. ......................................................1.Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 023 2012-13 2, 5, 6 ITA No. 1054/Bang/2023 2013-14 3, 6, 7 ITA No. 1055/Bang/2023 2014-15 2, 5, 6, 7 ITA No. 1056/Bang/2023 2015-16 2 ITA No. 1057/Bang/2023 2016-17 2 ITA No. 1058/Bang/2023 2017-18 2 ITA No. 1059/Bang/2023 2018-19 2 ITA No. 1060/Bang/2023 2020-21 2 9. The Ld.AR submitted as under: 9.1 The assessee is a State Level Federal Agriculture and Rural Development Credit Society registered under the provision of the Karnataka Co-op Societies Act, 1959. It is submitted that the assessee is not governed by the provisions of the Banking Regulation Act, 1949 (Central Act), and is a non-banking Co-op Society. The word "Bank" is used in its registered name as the same is allowed in the provisions of the Karnataka Co-op Societies Act, 1959 and the Rules, 1960 framed there under. He submitted that moreover the present State Co-op. Agriculture and Rural Development (Federal) and the Primary Co-op Agriculture and Rural Development (Primaries) were established throughout the country with the name Co-op Land Mortgage Banks much earlier to the Banking Regulation Act which came into force w.e.f. 1949 only. He further submitted that the assessee is not licensed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... griculture Loans from the farmers to the PCARD Bank resulting in poor recovery from the PCARD Banks to the bank also. Hence, assessee cannot attract the depositors in the competitive financial market. The Ld.AR thus submitted that, the core function of the Bank is as follows: a. Collection of share capital from its members that is the PCARD Banks. b. Availing refinance assistance from NABARD subject to the NABARD's refinances norms. c. Disbursement of Long Term agriculture and Allied loans to the farmers through its member's constituent's viz, the PCARD Banks. d. Management of recoveries at village levels. e. Over all supervision of functioning of the PCARD Banks. 10. It is submitted that the assessee lends to its members and to its staff in the ordinary course of business. The Ld.AR submitted that, except for staff loans in the ordinary course, the assessee only lends to primaries and nominal members, both of which are members of the assessee. There is no evidence on the record whatsoever to support the allegations of the Ld.AO/CIT(A) that the assessee lends to non-members. The Ld.AR submitted that: * On the assessee's balance sheet, under the heading property and ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed 80P(2)(a)(i) in respect of the interest income earned by it by providing credit facilities to its members which has been disallowed by the authorities below relying on the ratio of Hon'ble Supreme Court in case of Citizen Co-operative Society Ltd. (supra). The Ld.AR submitted that assessee is a co-operative society registered under Karnataka Co-operative Societies Act whereas Citizen Co- operative Society has been observed to be a mutually aided co- operative society and was functioning as a bank that had a RBI approval. He thus submitted that the ratio laid down therein is not applicable to assessee as assessee does not have a RBI approval to function like a bank. 13. The Ld.AR submitted that insofar as the associate and nominal members are concerned, the ratio of Hon'ble Supreme Court in case of Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) would be applicable to the facts of the case. He referred to the relevant observations by Hon'ble Supreme Court that reads as under: "45. To sum up, therefore, the ratio decidendi of Citizen Co-operative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parlia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;"" Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). 47. Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows: "59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank. Provided further that, with the general or special sanction of the Registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o non-members does not disentitle the society in question from availing of the deduction." The Ld.AR thus submitted that the assessee would be eligible to the deduction, as it is engaged in providing credit facilities to its members, and thereafter, the interest from staff loans would be attributable to this business of providing credit facilities to its members. 15. DISALLOWANCE OF INTEREST EARNED FROM INVESTMENT u/s. 80P(2)(a)(i)/(d) 15.1 In respect of the investments made by assessee from which interest / dividend has been earned, assessee submitted that deduction u/s. 80P(2)(a)(i)/(d) is available to assessee. This issue arises in the following manner. I.T.A. No. AY Ground 1052/Bang/2023 2012-13 N/A 1053/Bang/2023 2013-14 8 1054/Bang/2023 2013-14 8 1055/Bang/2023 2014-15 8 1056/Bang/2023 2015-16 3 1057/Bang/2023 2016-17 3 1058/Bang/2023 2017-18 3 1059/Bang/2023 2018-19 N/A 1060/Bang/2023 2020-21 3 15.2 The assessee earned interest form investments in co- operative banks and co-operative societies. These investments are of two kinds. (d) Investments in the nature of statutory reserves or funds which the assessee is mandated by law (either unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he RTI application issued by RBI vide its letter dated 07/09/2018. Thus in our considered view, the assessee do not fall under the exception as per section 80P(4). 16. In respect of the observation of the authorities below regarding the violation of Principle of Mutuality since the facilities are extended to associate members and nominal members are concerned, the ratio by Hon'ble Supreme Court in case of Mavilayi (supra) read with section 2(f) of Karnataka Co-operative Act 1959 covers the issue. 16.1 We note that, Karnataka Co-operative Societies Act, 1959 defines Members to include nominal / associate members u/s. 2(f). Considering the definition of "Member" under the Karnataka Co-operative Societies Act, the present assessee qualifies for deduction u/s. 80P(2)(a)(i). At the cost of repetition, we draw reference from following observations of Hon'ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra):- "46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much narrow term, which is directly connected to the objects of the assessee for which it has been established. We therefore hold that, the interest earned by the assessee from loan give to its employees cannot be considered for deduction under section 80P(2)(a)(i) of the Act. It has to be treated as income form other sources. Accordingly we hold that the interest earned from the credit activities of the assessee to its members including nominal / associate is allowable under section 80P(2)(a)(i ) of the act. We also hold that the interest earned by the assessee from loan to its employees are to be treated as Income from other sources, not eligible for deduction under the provisions of Section 80P. 17. In respect of deduction available to the assessee on interest earned from investments, Hon'ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. (supra), Hon'ble Supreme Court analysed applicability of section 80P(2)(d) deduction to an assessee in great detail. 17.1 At the outset, assessee has invested to meet the statutory requirement as provided u/s. 58 of the Karnataka Co-operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity." (emphasis supplied) 17.3 Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co- operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar view is taken by the Hon'ble Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. reported in [2011] 12 taxmann.com 66. 17.6 We note that recently Hon'ble Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. vs. AO reported in (2023) 154 taxmann.com 305 has in detail analysed the allowability of deduction u/s. 80P(2)(d) of the Act. Hon'ble Court observed and held as under: "15.8 Since the words 'bank' and 'banking company' are not defined in the NABARD Act, 1981, the definition in sub- clause (i) of clause (a) of section 56 of the BR Act, 1949 has to be relied upon. It states that a co-operative society in the context of a co-operative bank is in relation to or as a banking company. Thus, co-operative bank shall be construed as references to a banking company and when the definition of banking company in clause (c) of section 5 of the BR Act, 1949 is seen, it means any company which transacts the business of banking in India and as already noted banking business is defined in clause (b) of section 5 to mean the accepting, for the purpose of lending or investment, of deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be construed as references to a co- operative bank. Therefore, while considering the meaning of a co-operative bank inherently, such a co-operative society must be a banking company then only it would be construed as a co-operative bank requiring a licence under section 22 of BR Act, 1949 in order to function as such a bank. 15.10 Further, while considering the definition of a co- operative bank under section 56(cci) of the BR Act, 1949, to mean a state co-operative bank, a central co-operative bank and a primary co-operative bank which is defined in (ccviii) thereof, to have meanings respectively assigned to them in the NABARD Act, 1981 would imply that if a state co-operative bank is within the meaning of NABARD Act, 1981 then it would be excluded from the benefit under section 80P of the Act. Conversely, if a co-operative society is not a cooperative bank within the meaning of section 56 of the BR Act, 1949, it would be entitled to the benefit of deduction under section 80P of the Act." 17.7 We therefore direct the A.O. to verify whether interest / dividend is received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplates that, a law must levy a tax, duty, cess or fee, and that there is no such levy in the case of a guarantee commission. The Ld.AR thus submitted that Section 43B does not cover guarantee commission. 18.3 The Ld.AR submitted that the commission is paid as consideration/ recompense for a promise to repay in the event of default. It is to compensate the guarantor for the risk undertaken in extending the guarantee. He submitted that this is also demonstrated by the Central Government's guarantee policy and Rule 246 of the General Financial Rules, 2005 of the Government of India, both of which contemplates risk profiling and prioritisation and estimation of the credit-worthiness of the principal debtor before extending guarantees. 18.4 The Ld.AR further submitted that, if the primary claim of the assessee for the deduction in respect of the assessee's income from extending credit facilities under section 80P(2)(a)(i) is allowed, this disallowance will only go to increase the income for which deduction should be allowed under section 80P(2)(a)(i), resulting in no variation to the assessee's income. The Ld.AR placed reliance on the decision of the coordinate bench of this Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges' by means of a Government order under some rules promulgated by the state Government. Hon'ble Madras High Court observed that, despite this, the payment actually arose out of a lease agreement entered into by the assessee with the state and that the payment was therefore contractual. Hon'ble Court held held that; "'other levies' made by the State Government in the realm of contractual laws" Hon'ble Court thus held that other levies, cannot come within the scope of section 43B(a) and that the the provision was to be interpreted literally, and not liberally, so that the scope of the provision was not widened. Hon'ble Court was of the opinion that the application of section 43B would depend on, whether the payment involved was 'statutory' or 'contractual (non-statutory).' 18.6 The Ld.AR also relied on a circular of CBDT Circulat No.372 dated 08/12/1983 explains why the terms 'cess' and 'fees' were added to clause (a) of section 43B with effect from 01.04.1989 in the following terms: "Modification of the provisions relating to deduction in respect of certain liabilities ........... 21.2 The words tax and duty have been the subject-matter of judicial interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43B of the Act. We have perused the decisions relied on by the Ld.AR. To consider the submissions of the Ld.AR it is necessary to analyse section 43B that reads as under: "43B. [Certain deductions to be only on actual payment. [Inserted by Act 11 of 1983, Section 18 (w.e.f. 1.4.1984).] Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a)[ any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or] (b)any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, [or] [ Inserted by Act 4 of 1988, Section 15 (w.e.f. 1.4.1989).] (c) [any sum referred to in clause (ii) of sub-section (1) of section 36, (d) [any sum payable by the assessee an interest on any loan or borrowing from any public financial institution or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing; or (da) [any sum payable by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank in accordance with the terms and conditions of the agreement governing such loan or advances. 18.13 Section 43B falls in Part-V of the Act. What is apparent is that the scheme of the Act is such that Sections 28 to 38 deal with different kinds of deductions, whereas Sections 40 to 43B spell out special provisions, laying out the mechanism for assessments and expressly prescribing conditions for disallowances. In terms of this scheme, Section 40 (which too starts with a nonobstante clause overriding Sections 30-38), deals with what cannot be deducted in computing income under the head "Profits and Gains of Business and Profession" 18.14 Each of these deductions, has its contours, depending on the expressions used, and the conditions that are to be met. It is therefore necessary to bear in mind that, specific enumeration of deductions, dependent upon fulfilment of certain conditions, that would qualify as allowable deductions, and failure by the assessee to comply with those conditions, would render the claim to be rejected. 18.15 In the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively on a state government undertaking, contained in 40 (a) (iib). Therefore we are persuaded to hold that the disallowance made with respect to the licence fee and shop rental (kist) paid with respect to the FL1 licences granted to the appellant for retail trade in foreign liquor, cannot be sustained." 14. We therefore accept the argument of the Assessee that for applying the provisions of sec.40(a)(iib) of the Act there should be a levy of "royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called", which is levied exclusively on State Government undertaking by the State Government. Guarantee commission is not paid directly to the State Government and they are not levies imposed exclusively on the Assessee. The State Government issues Guarantees on behalf of the Government Departments, Public Sector Undertakings, Local Authorities, statutory Boards and Corporations and Co-operative Institutions. Consequently, we hold that the disallowance made u/s.4- (a)(iib) of the Act cannot be sustained. 15. We are also of the view that Guarantee Commission is not in the nature of a "levy" on a state Government undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue needs to be verified by the Ld.AO while giving effect to the order of this Tribunal. Accordingly this issue in ITA No.1058/Bang/2023 for AY 2017-18 in ground no. 10 stands remanded for necessary verification. 20. ADDITION OF E-STAMPING INCOME This issue has been raised in the following grounds. I.T.A. No. AY Ground Number 1052/Bang/2023 2012-13 Issue does not arise. 1053/Bang/2023 2013-14 Issue does not arise. 1054/Bang/2023 2013-14 Issue does not arise. 1055/Bang/2023 2014-15 Issue does not arise. 1056/Bang/2023 2015-16 5 1057/Bang/2023 2016-17 Issue does not arise, but see below. 1058/Bang/2023 2017-18 9 1059/Bang/2023 2018-19 5 1060/Bang/2023 2020-21 5 20.1 The Ld.AR submitted that the Ld.AO observed that since the Appellant renders e-stamping services and receives income from non-members, the deduction under section 80P(2)(a)(i) will not be allowable. However, no disallowance of the deduction under section 80P was made specifically as it relates to e-stamping income. 20.2 The income from e-stamp vending does not alter the position with respect to the deduction under section 80P. (h)The revenue from e-stamping is Rs. 2,11,580 as opposed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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