The order of the Bench was delivered by
These three Revenue are appeals filed against the separate orders of the Commissioner of Income Tax(Appeals)-VI, Hyderabad dated 28-12-2011 for the Assessment Year (AY) 2008-09, dt. 15-06-2012 for the AY. 2009-10 and dt. 21-10-2013 for the AY. 2010-11. Since common issues are involved in all these appeals, these are heard together and disposed-off by this common order.
2. We have heard the Ld.DR and Ld.Counsel in detail.
3. Briefly stated, assessee is a co-operative credit society registered under the AP Mutually Aided Co-operative Societies Act (APMACS Act). It has both Members and Non-Members. Members are having a share(s) value of Rs. 10/- each and has voting rights with certain other privileges. Nominal Members/Associate Members has to deposit only Re.1/- per share and does not have voting rights. However, Nominal Members and Associate Members (collectively called as non-members) can deposit amounts and also obtain loans as per the bye laws of the society. In the course of assessment proceedings, the Assessing Officer was of the opinion that assessee admittedly received deposits mainly from Non- Members, particularly taking deposits of the bail amount from the bailees and keeping them in deposits on the orders of the court while granting bail to the accused persons. While completing the assessment, Assessing Officer was of the opinion that assessee has violated the provisions of Mutually Aided Co-operative Societies Act, 1995 and has not strictly followed the bye laws of the society and therefore not eligible for deduction u/s.80P(2)(a)(i). Assessing Officer also analysed the provision of Banking Regulation Act and considered that accepting the deposits/moneys from the public are akin to banking business, therefore, analyzing the provisions of the Banking Regulation Act and powers of RBI etc., has come to the conclusion that if the corporate veil is lifted, the society runs for the sole purpose and motive of earning profit, as such principle of mutuality cannot be extended to the facts of the case. The Assessing Officer there upon disallowed the deduction claimed u/s.80P.
4. Ld.CIT(A) having noticed that assessee is registered under APMACS Act and bye laws permits acceptance of deposits from the Non- Members also did not find any merit in the Assessing Officer's contentions. Since mobilization of funds is permitted u/s.14(2) of APMACS Act, CIT(A) was of the opinion that mobilizing funds from outsiders is not a violation of the provisions of governing Act i.e., APMACS Act. Even otherwise, Ld.CIT(A) held that the acceptance of deposits from Non-Members cannot said to disqualify assessee from the benefits of Section 80P. Since Section 80P(2)(a)(i) specifies only that assessee should be engaged in the business of providing credit facilities to its Members; what should be the source of funds of such credit is not specified in the section. Ld.CIT(A) also held that the principle of mutuality relied on by the Assessing Officer is not relevant to the facts of the assessee's case as assessee has not claimed any exemption on account of mutuality. The Ld.CIT(A) also held that there is no bar to categorize of Members as general, nominal and associate. By virtue of Section 19(3) of the Act, Ld.CIT(A) was of the opinion that assessee has not violated the provisions of APMACS Act and also not covered by the Banking Regulation Act as assessee is not engaged in banking activity but only providing credit facilities to its Members. Analysing the issue in detail, the Ld.CIT(A) held that assessee is eligible for deduction u/s.80P(2)(a)(i) on its profits and gains attributable to the business of providing credit facilities to its Members. Thereafter, Ld.CIT(A) went on to calculate the eligible deduction vide para 9.1 and directed the Assessing Officer to allow deduction u/s.80P(2)(a)(i) at Rs. 14,66,822/- and 80P(2)(d) of Rs. 14,61,250/- in AY. 2008-09. Similarly, in other years also, the deductions were quantified and directed to be allowed by the CIT(A) in the order. Revenue has raised the following grounds commonly for AYs.2008-09 and 2009-10:
"1. The observation of the learned CIT(Appeals) that the assessee is a Cooperative Society does not emanate from the Assessment Order as she has failed to give a clear finding whether the assessee is a cooperative society though it has violated the principles of the Andhra Pradesh Mutually Aided Cooperative Societies Act (APMACSA), 1995.
2. The observation of CIT(A) is misplaced with regard to deduction u/s.80P(2)(i)(a), is even otherwise given to assessee even if it accepts deposits from nonmembers.
3. The principle of Mutuality relied upon by the Assessing Officer emanate to distinguish that the assessee has violated the principles of mutuality, which the CIT(A) fails to comprehend. Having established on record that the assessee has deposited money in Regional Rural Banks, the status of which is not recognized in the Income Tax Act, as Cooperative Bank, can the interest arising out of the deposit of this Regional Rural Bank would qualify for deduction u/s.80P(2)(d)".
5. As can be seen from the above, the Ground No.1 is mis-placed. Assessee-society is clearly a co-operative society and Assessing Officer herself has stated that assessee is a co-operative society, but violated the provisions of the Co-operative Societies Act. Therefore, Ground No.1 in our view is misconceived.
6. Ground No.2 is also not maintainable as there is no restriction of getting any deposits from outsiders, leave alone from nominal Members and Associate Members. As rightly pointed out by the Ld.CIT(A), the source of funds for doing the business is not a criteria. What is required to be examined by the Assessing Officer is whether the deduction u/s.80P(2)(a)(i) is from the profits and gains of providing credit facilities to its Members. To that extent the Assessing Officer can examine the assessee's transactions. Just because assessee has deposits from Non Members, it does not prevent being a co-operative society nor it prevents claiming deduction u/s.80P(2)(a)(i), if it is otherwise eligible on the said incomes.
7. Ground No.3 raised on principle of mutuality is also does not apply because assessee has not claimed any exemption of income on the principle of mutuality. As far as deduction u/s.80P(2)(d) is concerned, they are eligible under the Act. Assessee can claim deduction u/s.80P(2)(d) on the deposits of money made in Regional Rural Banks, Co-operative Societies etc. as per the provisions. The restrictions placed u/s.80P(4) does not apply to the facts of the case as the said provision is applicable only in the case of incomes received by a co-operative bank and not by a co-operative society. This issue is also discussed in the coordinate bench at Hyderabad decision in the case of "The Advocates Mutually Aided Coop Society, Hyderabad" pronounced on 20-02-2015 as under:
"22.1 The ground No.3 regarding deduction under section 80P(2)(d) is in respect of interest received from Cooperative Societies and the Cooperative Banks. We are unable to understand why the Cooperative Banks are not considered as Cooperative Societies in Banking business. The sub-section (4) introduced by Finance Act, 2006 w.e.f. 1.4.2007 is as under :
(4) The provisions of this section shall not apply in relation 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 subsection (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 dividends received by the cooperative society from its investments with any other cooperative society. Therefore, in the case of the assessee society, sub-section (4) is not applicable and deduction under section 80P(2)(d) is certainly eligible to assessee. In the assessment of a Cooperative Bank, the incomes may not be exempt after 01.04.2007 by virtue of sub-section (4), but assessee is not a Cooperative Bank. Therefore, the Revenue ground is not only illogical but also not supported by the facts of the case. Moreover as seen, the recommendation made by the A.O. to the Ld. CIT in their internal correspondence is extracted as a ground. This also indicates non-application of mind either by the A.O. or by higher authority like CIT. This sorry state of affairs should come to an end and Officers should act responsibly while preferring second appeal on the orders of the senior officer like Ld. CIT(A). Revenue appeal is dismissed".
In view of this, we did not find any merit in the Revenue's grounds, per se.
8. However, we are unable to approve the calculations resorted by the Ld.CIT(A) in quantifying and allowing the deductions. While holding that assessee has transactions with Non-Members, it was incumbent on the CIT(A) to examine whether assessee has claimed any deduction u/s.80P(2)(a)(i) on the transactions with Non-Members also. There seems to be no examination of the above aspect.
9. As can be seen from the order of the Assessing Officer, Members are allowed with admission of minimum number of shares and face value of Rs. 10/-, whereas the Nominal Members/Associate Members are allowed with a share valued at Re.1/-. Moreover, Nominal Members/Associate Members does not have any voting rights. The Ld. Assessing Officer discussed the bye laws of the society but the full text of the bye laws are not placed on record. We had an occasion to examine the bye laws of the ‘Advocates Mutually Aided Coop Society, Hyderabad’, wherein it was noticed that by law (3)(iv)(b) defines Associate Member and Nominal Member means other than shareholder of the society. Even the Ld.CIT(A) gives a finding that Associate Members and Nominal Members are not regular Members, but the deposits from Non-Members does not prevent the co-operative society in claiming deduction u/s.80P. When the bye laws distinguishes a Member and Nominal Member/Associate Member, the later being not a shareholder of a society, deduction u/s.80P cannot be allowed to the extent of incomes/profits and gains on providing credit facilities to Associate Members and Nominal Members. There may be restrictions that the society shall not induct more than a certain number of Members as Associate Members/Nominal Members. When the bye laws pertain to ‘membership’ define the Members of the co-operative society and Nominal/Associate Members cannot be treated shareholder/Member, as they having only a right to pay admission fee and take loans from society and make deposits with society without other privileges, they cannot be considered equal to the Members of the society. There are certain judgments given under the Co-operative Societies Act in the case of Societies involved in banking business, by virtue of which distinction between Members and Non-Members was not considered material and their equal treatment as far as business of banking is concerned was accepted. However, as rightly pointed out by the Ld.CIT(A), assessee is not involved in business of banking and has only involved in providing credit facilities to the Members of the society.
10. In view of this it is to be examined whether there are incomes from the credit facilities provided to Non-Members i.e., Nominal/Associate Members. If so, assessee is not eligible for deduction on those profits. In the case of 'The Advocates Mutually Aided Coop Society', in ITA Nos.546, 547 & 1331/Hyd/2012 & ITA No.1860/Hyd/2013 & ITA Nos.548 & 549/Hyd/2012 & ITA No.1859/Hyd/2013 pronounced on 20- 02-2015, it was noticed that the said co-operative society was claiming only proportionate deduction u/s.80P excluding the transactions with the Non-Members. We did not find any such working in this case. Since the CsIT(A) took open themselves to quantify the Section 80P, we are not sure whether, having given a finding that Nominal/Associate Members are not Members of the society, the incomes from them are excluded while calculating deduction u/s.80P(2)(a)(i).
11. In view of this, while accepting in principle that assessee is eligible for deduction u/s.80P(2)(a)(i) and 80P(2)(d), quantification of income ie. income/profits and gains on credit facilities provided to Members, is restored to the file of Assessing Officer for necessary examination of the details of the transactions and quantifying the same. Therefore, while upholding the order of the CIT(A) on the principles of law, the quantification of deductions made by CIT(A) is therefore set aside and restored to the file of Assessing Officer to examine it afresh, in the light of the above observations/ directions.
12. In view of this, Revenue's appeal is treated as partly allowed for statistical purposes.
AY.2010-11:
13. In this year, the Revenue has raised the following grounds:
"1. The order of CIT(A)-V, Hyderabad is against facts of the case.
2. Whether the Ld.CIT(A) is correct in law in holding that the assessee is eligible for deduction u/s.80P(2)(a)(i) of the Act, in view of the clear finding of the Assessing Officer that, the assessee had violated the provisions of AP Mutually Aided Co-Operative Societies Act, 1995.
3. Whether the Ld.CIT(A) is correct in Law in holding that the society eligible for deduction u/s.80P(2)(a)(i) of the Act, observing that the section does not stipulate any condition as to what should be the source of the funds and what should be the quantum of the loans to each of the category of the members are not specified therein.
4. Whether the Ld.CIT(A) is correct in law in holding that the society is eligible for deduction u/s.80P(2)(a)(i) and 80P(2)(d) of the Act, in view of the fact that, the assessee society is accepting the loans, deposits from even non-members from which, it can be inferred that the society is engaged in the activity of banking and the deduction u/s.80P is not allowable to the societies engaged in Banking activities as per the provisions of Section 80P(4) of the Act".
14. As can be seen from the above grounds, even though they are differently worded, the issues are more or less same. Since these are already considered in the above appeals, there is no need to adjudicate it afresh. However, in this year also the Ld.CIT(A), took open himself to quantify the deduction u/s.80P(2)(a)(i). Therefore, to that extent of quantification of deduction, for the reasons stated above in the other two appeals, we set aside the order of the CIT(A) on quantification of deductions and restore the issue to the file of Assessing Officer for fresh computation of deduction of examining the facts of the case and after giving due opportunity to assessee.
15. The grounds are considered allowed partly to that extent.
16. In the result, all the three appeals are partly allowed for statistical purposes.
The order pronounced in the open court on 04th March, 2015.