Commissioner Of Income Tax Circle-I, Vellore v. The Kalpadi Co-Operative Township Limited, C 1538 Gandhi Nagar, Vellore - 632 006

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 06.09.2016 Coram: The Hon'ble Mr.Justice NOOTY. RAMAMOHANA RAOANDThe Hon'ble DR. Justice P.DEVADASS TAX CASE APPEAL Nos.655 to 658 of 2016 Commissioner of Income TaxCircle-I, Vellore...AppellantVersus The Kalpadi Co-operative Township Limited, C 1538 Gandhi Nagar,Vellore - 632 006. .. Respondent Appeal under Section 260A of the Income Tax Act, 1961,against the order of the Income Tax Appellate Tribunal, 'B'Bench, Chennai, dated 20.01.2016 in ITA Nos.2034, 2035, 2036 and2037/MDS/2015. against the order dated 21/09/2015 in ITANo.213,214,215 & 216/CIT(A)-13/14-15 passed by the Commissionerof Income Tax (Appeals-13), Nungambakkam, Chennai 600 034 andagainst the order dated 26.03.2014 passed by the AssistantCommissioner of Income Tax, Circle-I, Vellore for the assessmentyears 2008-2009 to 2011-2012 respectively. For Appellant..Mr.M.Swaminathan Standing Counsel. (Judgment of this Court was made by NOOTY. RAMAMOHANA RAO, J)These Tax Case Appeals are preferred by the Revenue underSection 260A of the Income Tax Act, 1961, calling in questionthe correctness of the common order passed by the Income TaxAppellate Tribunal, Chennai 'B' Bench, in four differentI.T.A.Nos. 2034, 2035, 2036 and 2037/MDS/2015 on its Bench. TheSubstantial Questions of Law raised in these Tax Case Appealsare as follows:- (i) Whether on the facts and circumstances of thecase and in law, the Income Tax Appellate Tribunalwas right and justified in allowing the claim of https://hcservices.ecourts.gov.in/hcservices/ deduction u/s 80P to assessee on the basis of adecision in the case of the Coimbatore DistrictCentral Co-operative Bank which was on the issue oftax deduction u/s 194A? (ii) Whether on the facts and circumstances of thecase and in law, the Income Tax Appellate Tribunalis justified and correct in granting deduction u/s80P to assessee after coming to conclusion thatassessee is co-operative society carrying on bankingbusiness? (iii) Whether on the facts and circumstances of thecase and in law, the Income Tax Appellate Tribunalwas justified and correct in granting deduction u/s80P to assessee society carrying on banking businesswhen sub-section (4) of Section 80P dis-entitlessuch Societies? 2. In all the four cases, the Assessee is a Co-operativeSociety. Pursuant to a notice served on it by the AssessingOfficer under Section 148 of the Act, the Assessee has made aclaim that its income is not liable to suffer any assessment itbeing a Co-operative Credit Society, but not a Co-operativeBank. (iii) Whether on the facts and circumstances of thecase and in law, the Income Tax Appellate Tribunalwas justified and correct in granting deduction u/s80P to assessee society carrying on banking businesswhen sub-section (4) of Section 80P dis-entitlessuch Societies? 2. In all the four cases, the Assessee is a Co-operativeSociety. Pursuant to a notice served on it by the AssessingOfficer under Section 148 of the Act, the Assessee has made aclaim that its income is not liable to suffer any assessment itbeing a Co-operative Credit Society, but not a Co-operativeBank. 3. Section 80P of the Act deals with all aspects relating todeduction in respect of income of Co-operative Societies. Sub-section (1) thereof clearly spelt out that in case of anAssessee being a Co-operative Society, the gross total income ofit includes any income referred to under sub-section (2), thereshall be deduction in accordance with and subject to theprovisions of the said Section, the sums specified in sub-section (2) in computing the total income of the Assessee. Thesums referred to in sub-section (1) have been clarified in sub-section (2). With regard to a Co-operative Society carrying onthe business of banking or providing credit facilities to itsmembers, the whole of the amount of profits and gains ofbusiness attributable to such activities, becomes the totalincome of such a society. If, thus a Co-operative Society isproviding facilities to its members alone then the incomegenerated thereby is not liable to be taken into account andshall be deducted from its gross total income. Sub-section (4)of Section 80P is however, provided that the provisions ofSection 80P shall not apply in relation to any Co-operative Bankother than a Primary Agricultural Credit Society or Primary Co-operative Agricultural and Rural Development Bank. In otherwords sub-section (4) of Section 80P gets attracted only to suchCo-operative Societies which fall within the ambit of theexpression 'Co-operative Bank'. Therefore, the whole question which is required to be examined in the present cases is whetherthe Assessee falls within the ambit and four corners of theexpression 'Co-operative Bank' or it is merely a credit societywhich is carrying on its business by making available creditfacilities to its members. which is required to be examined in the present cases is whetherthe Assessee falls within the ambit and four corners of theexpression 'Co-operative Bank' or it is merely a credit societywhich is carrying on its business by making available creditfacilities to its members. 4. If we spare a look at the provisions of Tamil Nadu Co-operative Societies Act, 1983 henceforth called as Co-operativeSocieties Act, 1983 as well as its immediate predecessor namelyTamil Nadu Co-operative Societies Act, 1961, which have providedfor the registration of Co-operative Societies. Under Section 4of the 1983 Act, a society can be registered which has as itsobjects of promotion of the economic interests or generalwelfare of its members in accordance with the Co-operativePrinciples or a society established with the object tofacilitate the operations of such society by the societyregistered under the Act with limited or unlimited liability.Thus if a society is interested in extending certain creditfacilities on the basis of Co-operative Principles, such acredit society is liable to be registered under the provisionsof the 1983 Act as well as its predecessor 1961 Act. As is nowmade out such societies essentially render certain services orfacilities for purposes of the benefit and promotion of thewelfare of its members. In other words the basic theme behindthe formation of such a society and its registration is topromote the objectives for which it is established for thebenefit of its members only. In contrast to the aboveprinciples, if we examine the expression 'banking' as defined inSection 5 (b) of the Banking Regulation Act, 1949 thedistinction between a 'Co-operative Credit Society' and a 'Co-operative Society' carrying on banking business becomesimminently clear. The expression 'banking' has been defined inthe following terms by the Banking Regulation Act, 1949."(b) "banking" means the accepting, for the purposeof lending or investment, of deposits of money fromthe public, repayable on demand or otherwise, andwithdrawable by cheque, draft, order or otherwise." Thus, banking means accepting of deposits of money from thepublic repayable on demand or otherwise and withdrawable bycheque, draft, order or otherwise and such acceptance of moneyis intended for the purpose of lending or investment by itself.Therefore, the crucial expression relevant for making one answerthe description of banking is that it is capable of acceptingmoney from the general public but not necessarily confined toits members. Any such activity carried on by anybody requires,apart from licensing, to answer the regulatory domain prescribedunder the 1949 Act. Even a Co-operative Bank which carries onbanking activity requires to be regulated by the provisions ofthe 1949 Act. Section 80P(4) therefore is clearly attractive tosuch an institution. But not to credit society. Even while dealing with a Co-operative Bank sub-section (4) has taken careto ensure that the Primary Agricultural Credit Societies andPrimary Co-operative Agricultural and Rural Development Banksare kept out of the purview of the said provision. Sub-section(4) of Section 80P therefore, in its application is confined inrelation to Co-operative Banks only. In the instant case theAssessee being, a Co-operative Credit Society which in turn isproviding for certain credit facilities to its members alone butnot to the general public at large and which also does notreceive monies by way of deposit from the general public, itdoes not answer the description of a Co-operative Bank.Consequently, the main provision contained under sub-section (i)of Section 80P gets attracted and consequently the Assessee isentitled to seek the deduction which has been provided for underSection 80P. 5. Sri.M.Swaminathan, learned Standing Counsel for theIncome Tax Department, however, is certainly right to a certainextent in his criticism about the reasoning assigned by theTribunal in the impugned order. We see some force behind thesubmission of the learned Standing Counsel. The learned StandingCounsel contended that the Tribunal ought to have confined itsscrutiny as to whether the Assessee answers the expression 'Co-operative Bank' or not, for it to fall within the four cornersof the provision contained in sub-section (4) of Section 80P sothat it will not be in a position to derive the benefit of themain part contained under Sub-Section (1) and (2). Instead ofconfining its scrutiny the Tribunal has made certainobservations which fall out of the purview while examining theissue in the perspective of Section 80P of the Act and to thatextent, the order of the Tribunal does warrant interference. 6. However, in view of our concurrence that the Assessee isa mere Co-operative Credit Society but not a Co-operative Bank,we are of the view that the order passed by the AssessingOfficer as well as the Appellate Authority and the conclusionarrived at by the Tribunal are not erroneous and hence there isno merit in these appeals and accordingly all the four appealsstand rejected. No costs. Consequently, connected MiscellaneousPetitions are closed. /true copy/ Sub Asst. Registrar. To 1 The Income Tax Appellate Tribunal, 'B'Bench, Chennai'B'Bench, Chennai 2 The Commissioner of Income Tax (Appeals 13) Nungambakkam, ChennaiNungambakkam, Chennai 3 The Assistant Commissioner of Income Tax, Circle - I, VelloreCircle - I, Vellore 4 The Assistant Registrar, Income Tax Appellate TribunalBesant Nagar, Chennai 90 5 The Director,Central Board of Direct Taxes,New Delhi +1 CC to M/s. M. Swaminathan, Advocate Sr.No.50389 T.C.A.Nos.655 to 658 of 2016 SAI (CO)MD : 03/10/2016