TMI Blog2012 (6) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... CS (or not) - restore the matter for the purpose of necessary verification and issue of definite findings of fact/s, back to the file of the first appellate authority - no basis to consider the assessee as being a primary cooperative agricultural and rural development bank as defined in section 80P, so as to be entitled for tax benefit thereunder on its income as one such – in favour of assessee for statistical purpose. - IT APPEAL NO. 764 (JP.) OF 2011 - - - Dated:- 23-3-2012 - R.K. GUPTA, SANJAY ARORA, JJ. Sanjeev Jain for the Appellant. Vinod Johri for the Respondent. ORDER Sanjay Arora, Accountant Member This is an Appeal by the Assessee, arising out of the Order by the Commissioner of Income-tax (Appeals), Ajmer ('CIT(A)' for short) dated 28-06-2011, dismissing the assessee's appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' for short) dated 31-12-2009 for the assessment year (A.Y.) 2007-08. Facts 2. The assessee is a Cooperative Society, formed under the Rajasthan State Co-operative Societies Act, 2001. It filed its return for the year on 29-02-2008, claiming exemption u/s. 80P(2)(a)(i) of the Act on its total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pex court in the case of Madras Auto Rickshaw Drivers' Co-operative Society v. CIT [2001] 249 ITR 330/117 Taxman 370. In the facts of that case, the assessee co-operative bank was formed to promote the economic interests of its members by purchasing auto rickshaw vehicles and selling them to its members on hire purchase terms. It claimed exemption u/s. 80P(2)(a)(i) on the ground of carrying on the business of providing credit facilities to its members. The same was disapproved by the hon'ble High Court in the case of CIT v. Madras Autorickshaw Drivers' Co-operative Society Ltd ., [1983] 143 ITR 981 (Mad) on the basis that the object of the society was to purchase and sell autorickshaws, the payment of which was effected by the members in the form of hire purchase arrangement, which could not be considered an object of offering credit facilities to the members. The same was affirmed in appeal by the apex court, stating that though it sympathised with what the assessee was doing, it did not think that its activities can be said as provision of 'credit facilities to its members'. The assessee's claim for the deduction u/s. 80P(2)(a)(i) was, accordingly, dismissed by him. Arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is only engaged in lending activities and, as such, could not be considered as engaged in the business of banking, the defining feature of which is the acceptance of deposits from the public. The term 'co-operative bank' stands defined in section 5(cci) of the Banking Regulation Act, 1949 to mean a 'State Co-operative Bank', a 'Central Co-operative Bank' and a 'Primary Co-operative Bank'. A primary co-operative bank, in terms of section 5(ccv) of the B.R. Act, means a co-operative bank, other than a primary agricultural credit society (which stands excluded u/s. 80P (4)), the primary object of which is transaction of banking business, besides other ingredients. The assessee is clearly not a 'state co-operative bank' or a 'central co-operative bank' which, per section 5(ccvii) of the B.R. Act, are defined to have the meanings as respectively assigned to them in the National Bank for Agriculture and Rural Development Act, 1981 ('NABARD Act' for short). The mere existence of the power to accept deposits, the exercise of which was subject to approval from NABARD/RBI, could not by itself be considered as debilitating the assessee's case. So however, it would yet be eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral and rural development activities.' The Banking Regulation Act, 1949 Interpretation '5. In this Act, unless there is anything repugnant in the subject or context,-- ( a ) "approved securities" means - .. ( b ) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise; ( c ) "banking company" means any company which transacts the business of banking in India; Explanation.--Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;' Part V APPLICATION OF THE ACT TO COOPERAIVE BANKS Act to apply to co-operative societies subject to modifications '56. The provisions of this Act, as in force for the time being, shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies subject to the following modifications, namely:-- ( a ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses (cciv),(ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final; ( ccvii ) "central co-operative bank", "co-operative society", "primary rural credit society" and "state co-operative bank" shall have the meanings respectively assigned to them in the National Bank for Agriculture and Rural Development Act, 1981;"' National Bank for Agriculture and Rural Development Act, 1981 '2. ( d ) "Central Co-operative Bank' means the principal co-operative society in a district in a state, the primary object of which is the financing of other Co-operative societies in the district: Provided that in addition to such principal society in state, or where there is no such principal society in a district, the State Government may declare any one or more Co-operative societies, carrying on business in that district to be also or to be a Central Co-operative bank or Central Co-operative banks within the meaning of this definition; ( u ) "State Co-operative Bank' means the principal co-operative society in a state, the primary object of which is the financing of other Co-operative societies in the State: Provided that in addition to such principal society in state, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment bank. Now, could the assessee possibly claim to be both or either of the two excepted categories, i.e., PACS or primary cooperative agricultural and rural development bank, without conceding to being a co-operative bank? In fact, the two, i.e., the business of banking and providing credit facilities, are considered at par insofar as a co-operative society is concerned, as would be apparent from conjoint reading of sections 2(24)(viia) (inserted by the Finance Act, 2006 w.e.f. 01-04-2007), 80P 2(a)(i), 80P(4) and Explanation thereto. As such, in our view nothing turns on by seeking to emphasize the distinction between the two activities, i.e., business of banking and providing credit facilities, being para materia insofar as section 80P is concerned. A reading of the relevant provisions makes it clear that for the purposes of the Act, the financing of its constituents is considered as integral to banking, considering the same in a broad manner in relation to a co-operative society, even as clarified by the tribunal in the case of Kerala State Co-operative Agricultural. Rural Development Bank Ltd. v. Asstt. CIT [2011] 10 taxmann.com 145 (Coch.) (refer para 4.6). It may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to which deduction or exemption is exigible in law is squarely on the assessee. 4.3 Next, we consider the assessee's case from the stand point of it falling within the two excepted categories as specified in section 80P(4). For this, we reproduce here-in-below appeal its main objects (refer para 3, page 2 of the appellate order): '2. The objects for which the society is formed are as under: ( a ) To provide finance to its members against immovable property, agricultural land, residential house and plot, liquid assets (NSC, KVP and FDR of Bhumi Vikas Bank) and taking guarantee of two persons, against salary income for the objectives mentioned in section 67 of the Rajasthan Cooperative Societies Act, 2001, to finance without any securities to the members under various plans of State Govt./Central Govt. ( b ) To receive deposit from members and others after getting approval from NABARD/RBI. ( c ) To fulfil the objects, society shall become member of the Rajasthan State Cooperative Land Development Bank and shall follow the policies laid by Rajasthan State Cooperative Land Development Bank.' In the light of the foregoing, we find nothing in its object clause to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketing of crops), it would in law qualify to be a PACS and, thus, exempt u/s. 80P(2)(a)(i) r/w s. 80P(4). As apparent, the purpose for which the finance is provided, as against its securitization, is only relevant, so that that the assessee would need to satisfy the taxing authority with regard thereto. Needless to add, this requirement has to be satisfied by it independently for each year, as there could well be a change in the profile of its lending activities with time. Further, we observe that the assessee's claim of being a primary cooperative agricultural and rural development bank, which though would require independent examination and finding/s, is strongly indicative of the nature of its lending activities, which has a direct bearing on the question of it being a PACS (or not). There being no finding in the matter by the authorities below, we restore the matter for the purpose of necessary verification and issue of definite findings of fact/s, back to the file of the first appellate authority, who shall adjudicate the same after hearing the parties, including recourse to rule 46A, where the assessee leads any new evidence in this regard. Also, where any cooperative ban ..... X X X X Extracts X X X X X X X X Extracts X X X X
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