By Sri. Y v. Raviraj, Advocate

IN THE HIGH COURT OF KARNATAKA DATED THIS THE 5 DAY OF FEBRUARY 2014 PRESENT THE HON’BLE MR.JUSTICE N.KUMAR AN THE HON’BLE MR.JUSTICE C.R.KUMARASWAMYINCOME TAX APPEAL NO.5006/2013 BHITWER7 1.THR COMMISSIONER OF INCOME TAXDR. B. R. AMBBDKAR ROADBRHLGAUDR. B. R. AMBBDKAR ROADBRHLGAU ?)THR INCOME TAX OFFICERWARD I, BAGALKOT |WARD I, BAGALKOT | APPELLANTS (BY SRI. Y. V. RAVIRAJ, ADVOCATE) AND: SRI BILURU GURUBASAVA PATTINASAHAKARI SANGHA NIYAMITHABAGALKOT RESPONDENT (BY SRI. A. SHANKAR, ADVOCATE) THIS APPEAL IS FILED UNDER SECTION 260AOF THE INCOME-TAX ACT, 1961 AGAINST THEORDER PASSED IN ITA.NO.514/BANG./2012 DATED 28.02.2013 ON THR FILE OF THR INCOME TAXAPPELLATE.TRIBUNAL,|BANGALORE,BENCH‘B’BANGALORE, ALLOWING THE APPEAL FILED BY THEASSHSSEB’S FOR ASSESSMENT YBAR 2007-08. THIS APPBAL COMING ON FOR ADMISSION THISDAY,N.KUMAR J.,DELIVERED THE FOLLOWING: JUDGMENT The Revenue has preferred this appeal against theorder passed by the Tribunal setting-aside the orderpassed by the Commissioner of Income Tax undersection 263 of the Income Tax Act, 1961 (hereinafterreferred to as the ‘Act’, 2. The assessee is a Credit Co-operative Societyengaged in providing credit facilities to its members. Ithas filed returns of the income for the assessment year2007-08 claiming deduction under Section 8O0P(2)(a)(1amounting to Rs.2,04,03,8/78/- (Rupees Two Crore FouLakh Three Thousand Fight Hundred and Seventy Eightonly). The Assessing Officer has passed assessmentunder Section 143(3) of the Act on 29.12.2009 disallowing to the tune of Rs.1,66,47,180/- (Rupees OneCrore Sixty Six Lakh Forty Seven Thousand OneHundred and Eighty only) in respect of interest receivedfrom Gem Sugars Limited, Bilagi Sugars Limited andNirani Cements Limited. However, the Assessing Officerallowed deduction under Section 8OP(2)(a)(i) to theextent of Rs.1,93,73,000/- (Rupees One Crore NinetyThree Lakh Seventy Three Thousand only). 3. The Commissioner of Income Tax invoking hispower under Section 263 of the Act, issued notice to theassessee calling upon him to show-cause as to why theorder of assessment should not be set-aside in view ofsection 80P(4) of the Act. After service of notice, theassessee entered appearance and brought to the noticeof the authority that the assessee is not a Co-operativebank and therefore, Section 8OP(4) has no application tothe case of the assessee. However, the RevisionalAuthority was of the view that the assessing authority has not considered the application of Section S8OP(4which was inserted with effect from 01.04.2007 andtherefore, he set-aside the order of assessment andremanded the matter back to the Assessing Authority toconsider the applicability of the aforesaid provision. 4. Aggrieved by the said order, the assesseepreferred an appeal before the Tribunal. 5. The Tribunal held that as the assessee is notaCo-operative Bank, Section 8OP(4) has no application.Moreover, the power under Section 263 of the Act couldbe invoked by the Revisional Authority only, if the orderis erroneous and thereby is prejudicial to the interest ofrevenue. In the instant case, as the assessee is not aCo-operative Bank i.e. there is no error committed bythe Assessing authority much less, the said order wasprejudicial to the interest of revenue and therefore, theorder passed by the Revisional Authority was set-aside. 6. Aggrieved by the said order, the Revenue haspreferred this appeal. 7. The only substantial question of law whicharises for our consideration in this appeal is:- In the facts and circumstances of this case,whether the Revisional Authority was justified ininvoking his power under Section 263 of the Act withoutthe foundational fact of assessee being Co-operativebank was not there? 6. Aggrieved by the said order, the Revenue haspreferred this appeal. 7. The only substantial question of law whicharises for our consideration in this appeal is:- In the facts and circumstances of this case,whether the Revisional Authority was justified ininvoking his power under Section 263 of the Act withoutthe foundational fact of assessee being Co-operativebank was not there? 8. In the assessment order, the Assessingauthority has clearly stated that the assessee is a Co-operative society and has not obtained any bankinglicense. The business of the assessee is to providecredit facilities to its members. Since the assesseecannot carry on any banking business, the interest oninvestment is taxable as income from other source.Therefore, the aforesaid facts, which is not in disputeclearly establishes that it is not a Co-operative Bank. Infact, the Revisional Authority also in its order hascategorically stated that the assessee is a Co-operativesociety, which provides credit facilities. Section 8OP ofthe Act deals with the deduction of income of a society.In the case of any assessee being a Co-operative society,the whole of the amounts of profits and gains ofbusiness attributable to any of other activities referredto sub-section (2) of Section 80P shall be deducted incomputing the total income of the assessee. In otherwords, the said income is not taxable. It is a benefitgiven to the Co-operative society. Section 80P(4) was|introduced by Finance Act, 2006 with effect from01.04.2007 excluding the said benefit to a Co-operative Bank. The said provision reads as under:- “(4) The provisions of this section shall notapply in relation to any co-operative bankother than a primary agricultural creditsociety or a primary co-operative agriculturaland rural development bank. (a)“co-operative bank” and “primary agriculturalcredit society” shall have the meaningsrespectively assigned to them in Part V of theBanking Regulation Act, 1949 (10 of 1949);credit society” shall have the meaningsrespectively assigned to them in Part V of theBanking Regulation Act, 1949 (10 of 1949); $>'“primary co-operative agricultural and ruraldevelopment bank" means a society havingits area of operation confined to a taluk andthe principal object of which is to provide forlong-term credit for agricultural and ruraldevelopment activities. development bank" means a society havingits area of operation confined to a taluk andthe principal object of which is to provide forlong-term credit for agricultural and ruraldevelopment activities. Therefore, the intention of the legislature is clear. If alCo-operative Bank is exclusively carrying on bankingbusiness, then the income derived from the saidbusiness cannot be deducted in computing the totalincome oft the assessee. The said income is liable fortax. A Co-operative bank as defined under the BankingRegulation Act includes the primary agricultural creditsociety or a primary co-operative agricultural and ruraldevelopment bank. The Legislature did not want todeny the said benefits to a primary agricultural creditsociety or a primary co-operative agricultural and rural Therefore, the intention of the legislature is clear. If alCo-operative Bank is exclusively carrying on bankingbusiness, then the income derived from the saidbusiness cannot be deducted in computing the totalincome oft the assessee. The said income is liable fortax. A Co-operative bank as defined under the BankingRegulation Act includes the primary agricultural creditsociety or a primary co-operative agricultural and ruraldevelopment bank. The Legislature did not want todeny the said benefits to a primary agricultural creditsociety or a primary co-operative agricultural and rural development bank. They did not want to extend the saidbenefit to a Co-operative bank which is exclusivelycarrying on banking business i.e. the purport of thisamendment. Therefore, as the assessee is not a Co-operative bank carrying on exclusively banking businessand as it does not possess a licence from Reserve Bankof India to carry on business, it is not a Co-operativebank. It is a Co-operative society which also carries onthe business of lending money to its members which iscovered under Section 8OP(2)(a)(1) 1.e. carrying on thebusiness of banking for providing credit facilities to itsmembers. The object of the aforesaid amendment is notto exclude the benefit extended under Section 80P(1) tosuch society. Therefore, there was no error committedby the Assessing Authority. The said order was notprejudicial to the interest of the Revenue. The conditionprecedent for the commissioner to invoke the powerunder Section 263 is that the twin condition should be satisfied. The order should be erroneous and it shouldbe prejudicial to the interest of the revenue. QO This Court had an occasion to consider Section263 ot the Act in the case ot -|COMMISSIONER OFINCOME-TAX AND ANOTHER V. DIGITAL GLOBALSOFT LTD. [2013] 354 ITR 489 (Karn)whereparagraph-18, it has held as under: “AS is clear from the wording in section263, the Commissioner gets the jurisdiction torevise any proceedings under this Act if heconsiders that any order passed therein bythe Assessing Officer is erroneous in so far asit is prejudicial to the interests of theRevenue. Therefore, it is clear that he cannotexercise the power of revision solely on theground that the order passed is erroneous,He gets jurisdiction only tf such erroneousorder is prejudicial to the interest of theRevenue. “Prejudicial to the Revenue” means,lawful revenue due to the State has not beenrealized or cannot be realized. In othenwords, by the order of the assessing authority uf the lawful revenue to the State has not beenrealized or cannot be realized, as the saidorder is prejudicial to the interests of theRevenueandalsoe€rrorleoduhegetsjurisdiction to interfere with the said orderunder section 263. Therefore, for attractingsection 263, the condition precedent ts (a) theorder of the Assessing Officer sought to berevised is erroneous, and (b) it is prejudicial tothe interests of the Revenue. If one of them isabsent, te., uf the order of the Income-taxOfficer its erroneous but is not prejudicial tthe Revenue, recourse cannot be had tosection 263(1) of the Act. The satisfaction ofboth the conditions stipulated in the section isthe sine qua non for the Commissioner toexercise his Jurisdiction under Section 263.” In the instant case, when the status of theassessee is a Co-operative society and is not a Co-operative bank, the order passed by the AssessingAuthority extending the benefit of exemption frompayment of tax under Section 8OP(2)(a)(i) of the Act iscorrect. There is no error. When there is no error, the question of order being prejudicial would not arise. TheTribunal has rightly entertained the appeal and set-aside the order. Therefore, the said order is inaccordance with law and cannot be found fault with.The substantial question of law is answered in favour ofthe assessee and against the revenue. SD/-JUDGE LB SD/-JUDGE