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TMI Blog2012 (6) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, in response, claimed to be a primary co-operative agricultural and rural development bank, which category of co-operative banks stood excepted u/s. 80P(4). The same did not find the favour with the AO as the assessee was engaged in financing activities even other than purely agricultural activities. Also, its area of operation extended to Bhinai Tehsil and Arai Gram Panchayat, i.e., in addition to Kekri Tehsil. As such, the same were not confined to one Taluk, as stipulated under the defining clause of the said provision of section 80P(4) per Explanation (b) thereto. In appeal, the assessee agitated its case with reference to the decision in the case of CIT v. D. Ananda Basappa, [2009] 309 ITR 329/180 Taxman 4 (Kar), rendered in the context of section 54 of the Act, wherein, drawing on section 13 of General Clauses Act, 1897, it was clarified that where the singular is used for a word, it is permissible to include plural. Accordingly, the expression 'a residential house' in section 54(1) should not be understood to indicate a singular number. It was further argued that the assessee is not a co-operative bank inasmuch as it does not engage in the business of banking. Though a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and or otherwise, and withdrawable by cheque, draft, or otherwise. The assessee not accepting any deposits from the public, could not be said to be a co-operative bank for the proscription of section 80P(4) to apply thereto. Reference was made to Circular No. 14 of 2006 dated 28-12-2006 by the CBDT explaining various provisions of the Finance Act, 2006 (Paper Book page 34-65), whereby vide para 22 (PB pg.50) the amendment to section 80P stands explained as under:- '22. Withdrawal of tax benefits available to certain co-operative banks 22.1 Section 80P, inter alia, provides for a deduction from the total income of the co-operative societies engaged in the business of banking or providing credit facilities to its members, or business of a cottage industry, or of marketing of agricultural produce of its members, or processing, without the aid of power, of the agricultural produce of its members, etc. 22.2 The co-operative banks are functioning at par with other commercial banks, which do not enjoy any tax benefit. Therefore section 80P has been amended and a new sub-section (4) has been inserted to provide that the provisions of the said section shall not apply in relation to any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , so that the same merit confirmation. Findings 4.1 We may before proceeding to discuss the assessee's case on merits, extract the relevant provisions of the Act as well as the BR Act and the NABARD Act (relevant parts): Income-tax Act, 1961 Definitions '2. In this Act, unless the context otherwise requires,- (24) "income" includes - (viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;' Deduction in respect of income of cooperative societies '80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:-- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (iii) the marketing of agricultural produce grown by its members, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965); (b) in section 2, the words and figures "the Companies Act, 1956 (1 of 1956), and" shall be omitted; (c) in section 5,-- (i) after clause (cc), the following clauses shall be inserted namely:-- (cci) "co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank; (ccii) "co-operative credit society" means a co-operative society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank; (cciv) "primary agricultural credit society" means a co-operative society,-- (1) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (2) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2 We may first examine the assessee's claim that it not a co-operative bank, being not engaged in the business of banking and, therefore, not impeded or hit by the provisions of section 80P(4). We do not find any merit in the said claim. This is for the reason that the requirement of transacting banking business is not a pre-requisite for a Central or a State Co-operative Bank, i.e., other than a primary co-operative bank, even though the former are, without doubt, only co-operative banks (refer section 5 (cci) of the B. R. Act). The provisions of section 80P(4) read with Explanation thereto, does appear to be internally inconsistent insofar as a primary co-operative bank, which is also a co-operative bank, is concerned. It is defined as exclusive of primary agricultural credit society (Section 5 (ccv) of the B.R. Act), so that the two, i.e., 'co-operative bank' and 'primary agricultural credit society' (PACS for short), are mutually exclusive. That would, however, imply turning section 80P(4) on its head, i.e., treat the said provision as self-contradictory, a position which we are loathe to assume. The apparent dichotomy gets resolved when viewed in light of the provision of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80P(4) would have been worded differently. All that was necessary, in that case, was to state so explicitly, i.e., exclude only the co-operative societies engaged in the business of banking and, thus, the entities covered by the first limb of section 80P(2)(a)(i), even as being contended by the assessee. Going by the assessee's arguments, it would be permissible for a co-operative bank, though holding a banking license from RBI, yet engaged only in lending activities, which a banking company/cooperative bank can by virtue of sec. 6 of the BR Act., to claim exemption u/s. 80P(2)(a)(i), even post Finance Act, 2006. In fact, the income of most commercial banks also comes principally only from lending activities, i.e., providing financial accommodation to its constituents, and which could well be from own monies/capital. In our view, therefore, the assessee's argument would be of no consequence, and notwithstanding its claim of being not a co-operative bank, though eligible for tax benefit u/s. 80P, it would stand to w.e.f. 01-04-2007, i.e., AY 2007-08 onwards, be exigible for relief thereunder only if it falls within the two categories of co-operative banks excepted by section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit society' (PACS). The only object which enables it to provide financial accommodation is its object clause 2(a). The same only specifies the assets on the security of which the assessee-society may provide finance to its members. The securitization of a loan or advance is a different aspect of the matter, and completely different from the purpose or the activity for which finance is being provided, and which is being thus financed. The assessee claims the decision in the case of Madras Auto Rickshaw Drivers' Co-operative Society (supra) as not applicable thereto, as while in that case the object clause was the promotion of economic interests of its members by purchasing auto rickshaw vehicles and selling the same to them on hire purchase terms, and not providing credit facilities to its members, in the present case, it is expressly so. We agree. However, that by itself is not sufficient, and it is to be in addition expressed to be for agricultural purposes or for purposes connected with agricultural activities, and on which its object clause, as also the assessee, is silent. So however, we are not inclined to oust the assessee's case on that basis. This is as there is another w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout prejudice also examine the assessee's claim of being a primary co-operative agricultural and rural development bank. The Revenue has rejected the assessee's claim on the ground that it does not meet the definition thereof inasmuch as its area of operation is not confined to a Taluk (Explanation (b) of section 80P(4)). In this regard, we firstly observe that the assessee has not clarified if it is a member of the Rajasthan State Co-operative Land Development Bank and, if so, since when. Secondly, it has not shown that its principal object is to provide long term credit for agricultural and rural development activities, which constitutes the defining attribute of such a bank, with its object clause nowhere indicating so. Thirdly, its area of operation admittedly extends beyond one Taluk. The reliance placed on the decision in the case of D. Ananda Basappa (supra), based on section 54(1), invoking the provision as enshrined in section 13 of the General Clauses Act, 1897, is clearly misconceived, and rightly rejected by the Revenue. It does not take much strain, and a bare reading of said section would convince one that the investment that qualifies for exemption u/s. 54(1) is th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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