AO to check whether society had license to do banking business for Section 80P Claim : ITAT

ORDER

Smt. Diva Singh, Judicial Member. – Both these appeals have been filed by the assessee wherein the correctness of the separate orders, dated 08.03.2017 and 11.09.2018, of CIT(A) Patiala pertaining to 2014-15 and 2015-16, assessment years was assailed on identical grounds. Accordingly, it was common stand of the parties before the Bench that the arguments advanced in ITA 1006/CHD/2017, would fully apply to the facts, circumstances and arguments in ITA 1598/CHD/2018.

2. The ld. AR submitted that in the facts of the present case, the assessee has been granted 80P deduction in the earlier years and only in these two years, the claim has been denied. The assessee, it was submitted, is Co-operative House Building Society wherein the only activity is the borrowings made from the members and the non-members. The amounts, it was submitted, are further advanced only to the members for a housing loan and not for any other purpose. It was submitted that the maximum limit for advancing housing loan to a member was also fixed at Rs. 2.50 lac. It was his submission that no services have been provided by the assessee to the non-members and only borrowings have been made from the non-members and these too have been utilized for the purposes of advancing loans to the members only.

3. In the year under consideration, it was submitted that the loan advanced to the members has increased from Rs. 4.35 lac to Rs. 7.61 lac. The relief is sought invoking the principle of mutuality amongst the members. It was argued that since no services are provided to the non-members and only the amounts borrowed from the non-members are transferred to the “reserve funds” and it is parked in the banks only for the specific period where the members have not sought a loan otherwise it is disbursed on request. It was his submission the assessee in 2009-10, 2010-11, 2012-13 and 2013-14, assessment years has been allowed exemption u/s 80P(2)(a)(i) in 143(3) proceedings. It was his submission that since there is no change in material facts, the departure from the accepted position in the years was questioned. Inviting attention to the specific orders of the tax authorities, it was his submission that the claim of the assessee has been denied relying upon the decision of the Apex Court in the case of Totgar Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283. It was his submission that the said decision has been distinguished in many cases and has been held to be inapplicable.

4. Attention of the ld. AR was invited to the finding of the AO recorded in para 3 wherein he categorically observes that the assessee-society does not confirm to the scheme of Section 80P of the Income Tax Act. The specific reasons set out in the order were required to be addressed by the ld. AR. These are extracted hereunder for ready reference:

5. The ld. AR in response referred to the submissions advanced before the AO on 15.07.2016 extracted in para 3.1 of the order. A perusal of the same shows that the assessee-society pleaded that:

“The Society is working on principles of mutuality and Cooperation as enshrined in it objects as per constitution of society” and that “The Cooperative House Building Society Ltd., Mandi Gobindgarh is engaged m accepting deposits and lending Home loans to its members- which is a principle of mutuality and Cooperation to members-as such Society eligible for deduction u/s 80(F)(2)(a)(i) of IT. Act, 1961.”

6. Attention of the ld. AR was also invited to the fact that as per the assessment order, the Society had maintained a balance of Rs. 8,99,28,854/- which was noticed to be saving deposits of non- members and at the same time, the Society was found to have long-term deposit of Rs. 8,92,22,863/- with the Co-operative Bank. The AO, it is seen has noted that the Society had paid lower rate of interest on the Savings Account and earned a higher rate of interest on FDR. In fact the AO has held that “…………Moreover, opening savings bank account, R.D. Accounts comes well within the ambit of providing banking services. Since, these services have been provided to non-members, as such, the concept of mutuality is not there. ” On this activity the ld. AR was specifically put to notice by the Co-ordinate Bench on 29.04.2018, as per the order sheet.

7. The ld. AR referring to para 4 of the assessment order submitted that the assessee in its submissions has canvassed that no services are being provided to the non-members, the money was for the benefit of the members only. The ld. AR in this factual background was required to address referring to the by-laws of the society as to on what terms and conditions, the non-members were depositing money. The ld. AR submitted that in the Paper Books filed, copy of by-laws has not been provided, though one copy maybe available with him. The ld. AR’s attention was invited to the order sheet entry, dated 29.04.2019, where he was specifically required to verify whether the assessee-Society was a Banking Co-operative Society having the License/Authority to do so.

8. The ld. AR submitted that the said information is not readily available with him. In the circumstances, ultimately he agreed that the matter maybe remanded back to be decided in accordance with the specific facts of the assessee society and its by-laws. It was put to the ld. AR that the past history in the circumstances where facts have not been referred to, would not be of much relevance as there is no heroism in perpetuating an error as decisions taken where neither the specific by-laws of the assessee society have been taken into consideration nor the relevant facts cannot be of any relevance for determining the issues

9. The prayer for remand was not objected to by the ld. Sr.DR.

10. Accordingly, in the absence of relevant discussion on the facts and in the light of the submissions of the parties before the Bench, the impugned order is set aside back to the file of the AO with a direction to first address the activities of the assessee-Society and then whether these are maintainable in the light of the by-laws of the assessee-society and thereafter, proceed to decide the issues in accordance with law. No doubt that the decision of the Apex Court in the case of Totgar Co-op Sale Society Ltd. (supra) has been held to be distinguishable in many cases but that distinction is fact specific and none of those decisions either of the Hon’ble High Court or the ITAT can be said to have been passed in defiance of the principle laid down by the Apex Court in the aforesaid case. All Courts and Tribunals are bound by the decisions of the Apex Court. However, where on facts, the decision has been misapplied by the AO basing his conclusions on incorrect appreciation of the principle on facts of certain cases, the Courts and the Tribunals would set right the mistake. Thus, the generalistic argument that the decision rendered by the Apex Court in the case of M/s Totgar Co-op Sale Society Ltd. is no longer good law has to be outrightly repelled. The principle laid down in the said decision has been followed in each and every case and cannot be ignored at the whims of the assessee.

11. In the facts of M/s Totgar Co-op Sale Society Ltd., the assessee was a Co-operative Society engaged in providing credit facilities to its members and marketing the agricultural products of the members. The interest earned by the assessee-society by investing the surplus funds in short-term deposits and government securities was held to be taxable under the head “income from other sources” u/s 56 of the Income Tax Act and the Apex Court affirmed the principle that it cannot be said to be attributable to the activities of the society and hence did not qualify for deduction u/s 80P(2)(a)(i) of the Act. The Apex Court affirmed the principle that income in respect of which deduction is sought, must constitute the operational income and not other income which accrues to the society. Accordingly, the arguments de hors facts that the decision of the Apex Court in the case of M/s Totgar Co-op Sale Society Ltd. is not applicable, we unambiguously hold is incorrect and of no relevance whatsoever. Its non-applicability to the facts of the case has to be established by the assessee. The reasons for applying the said decision to the facts of the present case, in the light of the specific reasons are set out by the AO succinctly. On consideration of facts as available on record, we find that prima facie they do not appear to be incorrect, however since the parties argue that the by-laws are not discussed which shortcoming we also notice on record and the request for remand has been made. Thus, the said exercise has to be done by the assessee in terms of the by-laws of the assessee-society wherein the assessee has been required to explain its acts of collecting deposits from non-members on which interest is being paid and address its arguments on whether it is a banking co-operative society, licensed to do so which stand has not been clarified by the assessee-society since 29.04.2019, despite the fact that the appeal came up for hearing thereafter on 10.06.2019, 07.08.2019 and finally on 26.09.2019. In the circumstances, agreeing to the request of the parties, the matter is remanded back with the aforesaid directions. Said order was pronounced in the Open Court at the time of hearing itself.

12. In the result, appeals of the assessee are allowed for statistical purposes.