TMI Blog2015 (1) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... loss assets - Held that:- Only with reference to the assessment year in question appellants/assessees have created provision for bad and doubtful debts in the books of accounts. So far as this issue is concerned, opinion of the assessing officer and two appellate authorities is justified and we need not interfere with the opinion of the authorities in restricting deductions only to 7.5% of the total income as provided under sub-clause (viia) of Section 36(1). CIT(A) is justified in giving a finding that the assessee’s claim for deduction u/s. 36(1)(vii) (a) is to be considered subject to statutory limit and also the Ld. AR has not been able to show as to how this section is not applicable to the assessee’s case. Being so, we decline to interfere with the order of the CIT(A) on this issue. Accordingly, this ground of the assessee is dismissed.- Decided against assessee. - ITA No. 60/Coch/2014 - - - Dated:- 21-11-2014 - N. R. S. Ganesan, JM And Chandra Poojari, AM,JJ. For the Petitioner : Shri Arun Raj S Adv. For the Respondent : Shri K. K. John, Sr DR ORDER Per Chandra Poojari, Accountant Member:- This appeal filed by the assessee is directed against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of primary agricultural credit society and as such, the assessee is eligible for deduction u/s. 80P of the I.T. Act. 6. On the other hand, the Ld. DR relied on the orders of the lower authorities. 7. We have heard both the parties and perused the record. We are of the opinion that similar issue came for consideration before the Cochin Bench of the Tribunal on the earlier occasion in the case of Kunnamangalam Co-operative Bank in I.T.A. No. 156/Coch/2014 vide order dated 25/07/2014 which decided the issue against the assessee. The relevant portion of the said order is as follows: 8. We have heard both the parties and perused the material on record. In this case, the assessee s contention is that it is lending money primarily for the purpose of agricultural activities and its member agriculturists. Being so, the assessee is entitled for deduction u/s. 80P of the Act. We have carefully gone through the business carried on by the assessee. The Assessing officer has clearly brought on record that the assessee has lent only 3.56% of total loans advanced during the year under consideration for the purpose of agricultural activities. The assessee was unable to point out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. If the Assessee co-operative society carries on one or both of the activities, it will be eligible for deduction. These two activities are (a) cooperative society engaged in carrying on business of banking facilities to its members or (b) co-operative society engaged in providing credit facilities to its members. Both the activities must be carried on by the co-operative society for its members. If a co-operative society is engaged in carrying on these activities/facilities for the persons other than its members, the cooperative society, in our opinion, will not be eligible for deduction u/s 80P(2)(a)(i) on the income which it derives from carrying on the activities not relating to its members. Therefore, where a co-operative society is engaged in carrying on business of banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business of banking facilities to its members or providing credit facilities to its members will only be eligible for deduction u/s 80P(2)(a)(i). There is no prohibition u/s 80P not to allow deduction to such co-operative societies in respect of business relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill not be applicable in the case of the Assessee. Once, the Assessee will not fall within the provisions of Sec. 80P(4), the Assessee, in our opinion, will be eligible to get deduction u/s 80P(2)(a)(i) in respect of whole of the income which the Assessee derives from carrying on the business of banking or providing credit facilities to its members. 8.6 Whether condition no. 1 is applicable in the case of the Assessee, for this we have to look into the bye-laws of the Assessee. The objects of the Assessee in this case are enumerated as under : 1) To provide short terms, medium term and long term loans to its members. 2) To provide over draft facilities to members who are traders and kisan credit card loan to members who are farmers; 3) To invent and execute different schemes for the non agricultural purpose of the members; 4) To procure and distribute fertilizers, pesticides and equipments for agricultural purposes and different articles for house-hold needs of the members; 5) To devise different schemes for collection, processing and the marketing of agricultural produce of the members; 6) In order to lend money to members, take loans from government and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 95% percentage of the loans advance for non-agricultural purposes (normal banking business activities like any other commercial bank). The percentage of loans issued for agricultural purposes is only 3.56%. In short, it cannot be said that the primary object or principal business of the bank is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities. 17. The assessee bank is having four types of share holdings. (A) Class equity shares of ₹ 5/- each with voting rights. It is explained that these shares are issued to individuals. (B) Class equity shares of ₹ 250/- each. It is submitted that presently Kerala Government is holding three shares. (C) Class equity shares of ₹ 5/- each without voting rights. These shares are issued to individuals. (D) Class equity shares of ₹ 25/- each without voting rights. These shares are also issued to individuals. As per the bye-laws of the banks, (B) class shares can be issued to State Government, State Co-operative bank, District Co-operative bank, Kerala Coconut Farmer s Co-operative Federation, Local bodies and trust falling under the area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed the order of CIT(A) following the decision of the Tribunal in the case of ACIT, Circle 3(1), Bangalore vs. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No. 1069/Bang/2010 holding that Sec. 80P(2)(a)(i) is applicable only to a co-operative bank and not to credit co-operative society. With due regards to the Bench, we are unable to find any term credit co-operative society‟ u/s 80P(2)(a)(i) or u/s 80P(4), therefore, this decision cannot assist us. We noted that the Hon'ble Gujarat High Court in the case of CITvs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeals no 442 of 2013, 443 of 2013 and 863 of 2013 (supra) vide order dt. 15.1.2014 took the view that Sec. 80P(4) will not apply to a society which is not a co-operative bank. In the case of Vyavasaya Seva Sahakara Sangha vs. State of Karnataka Ors. (supra) we notice that the issue before the Hon'ble High Court in the Writ Petition filed by the Petitioner related to the legislative competence of the State Legislature for issuing a circular. The issue does not relate to the claim of deduction u/s 80P(2)(a)(i). While dealing with this issue, the Hon'ble High Court unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regarded to be primary cooperative bank and in consequence thereof, it cannot be a co-operative bank as defined under part V of the Banking Regulation Act 1949. Accordingly, in our opinion the provisions of section 80P (4) read with explanation there under will not be applicable in the case of the assessee. The assessee, therefore, in our opinion will be entitled for the deduction u/s 80P(2)(a)(i). We accordingly confirm the order of CIT(A) allowing deduction to the assessee. The other decisions also relied on are not applicable to the facts of the case of the assessee. 8.11. In view of our aforesaid discussion, we hold that the assessee is a primary cooperative bank and therefore hit by the provisions of section 80P(4). 9. On the other hand, the assessee made an alternative plea that the assessee is lending money only to its members. Being so, applying the concept of mutuality, the total income of the assessee has to be exempt from tax. However, we find that this argument of the assessee is also devoid of merits. The Hon ble Supreme Court had an occasion to consider this mutuality concept. Similar issue came up for consideration of the Hon ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals were accordingly allowed. The question of law arises out of the order of the Tribunal. Section 80P of the Income-tax Act, 1961, allows a straight deduction, in the computation of the total income of a cooperative society, to the extent mentioned. Clause(c) of section 80P(2) provides that in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) either independently of, or in addition to, all or any of the activities so specified, so much of its profits and gains attributable to such activities as does not exceed ₹ 20,000 shall be deducted in computing the total income. The co-operative society engaged in carrying on the business of banking or providing credit facilities to its members falls under clause (a) of section 80P(2). The claim for exemption under clause (c) is in addition to the exemption provided under clause (a). The provisions are cumulative and mutually supplementing. The limits specified in clause(c) are in relation to the profits and gains attributable to the activity other than that specified in clause (a). If the rental income received by the society is attributable to any activity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the assessee s claim. 10. In view of the above discussions, we are inclined to hold that the assessee is not entitled for deduction u/s. 80P of the Act on any reasoning. 8. In view of the above Tribunal order, we are inclined to dismiss this ground of the assessee. 9. The assessee raised the ground that the CIT(A), having considered the assessee as Co-operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, and allowed deduction u/s. 36(1)(viia) ought to have allowed deduction vide proviso to section 36(1) (viia) for provisions made for assets classified as doubtful assets or loss assets in accordance with the guidelines issued by the Reserve Bank of India. 10. We have heard both the parties and perused the record. A similar case came up for consideration before the Cochin Bench of the Tribunal in the case of The Kannur District Co-operative Bank Ltd. vs. DCIT in I.T.A. Nos. 182 183/Coch/2014 dated 27/06/2014 wherein it was held as under: 4. After hearing both the parties, we are of the opinion that an identical issue was considered by the Hon ble Jurisdictional High Court in the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the relevant figures have been published before the first day of the previous year. Co-operative bank , primary agricultural credit society and primary co-operative agricultural and rural development bank shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of Section 80P. Scheduled bank means a bank for the time being included in the Second Schedule to the Reserve Bank of India Act. In order to understand what is a banking company, one has to refer to Banking Regulation Act and to understand whether a particular bank is a scheduled bank, one has to see whether such bank finds a place in the Second Schedule to Reserve Bank of India Act. Cooperative Bank means a bank as explained under sub-section (4) of Section 80P of the Act. Section 5(c) of Banking Regulation Act defines banking company as under: Banking company means any company which transacts the business of banking in India. U/s. 80P, it again refers to Section 56 of Banking Regulation Act. U/s. 56, falling under Chapter V of Banking Regulation Act, entire provisions deal with co-operative societies. Section 56 says, after clause (cc) clause (cci), definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming benefits applicable to them u/s. 80P. During the assessment year in question they claimed deductions u/s. 36(1)(viia)(a) of the Act. Only with reference to the assessment year in question appellants/assessees have created provision for bad and doubtful debts in the books of accounts. So far as this issue is concerned, opinion of the assessing officer and two appellate authorities is justified and we need not interfere with the opinion of the authorities in restricting deductions only to 7.5% of the total income as provided under sub-clause (viia) of Section 36(1). 10. Then coming to the other controversial issue whether a cooperative bank, irrespective of having rural branch as explained under Explanation, is entitled to have the benefit of second part of Section 36(1)(viia)(a), we have to see, in the absence of cooperative bank in the definition of rural branch under explanation to Section 36(1) would it make any difference. Learned counsel appearing for appellants tried to convince the court that adjective of rural would mean in relation to or characteristic of the countryside rather than the town; remote rural areas. Urban, no doubt, is opposite to rural. Urban is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The basic unit for rural areas is the revenue village with definite surveyed boundaries. The rural area is, however, taken as the residual portion excluding the urban area and for that no strict definition is followed. In our view, the definition clause does not exclude the literal meaning of rural branch which necessarily excludes urban areas. If the assessee s case accepted by the Tribunal that population in a ward has to be reckoned for deciding as to whether the location of a panchayat is in a rural area or not is accepted, then probably even in municipal areas there may be wards with less than 10000 population thereby answering the branch located in such municipal area also as a rural branch. Going by the ordinary meaning of rural branch, we feel only branches of the bank located in rural areas are covered. When the Legislature adopts population as the basis for classification of rural branches, that too, with reference to the last Census Report, we feel the basic unit as available for identification of rural area in the Census Report can be legitimately adopted. So much so, we feel the above meaning of rural area contained in the Census Report wherein revenue village is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk and a co-operative bank other than a primary agricultural credit society, etc. It is to be noted that appellants/assessees are not primary agricultural credit cooperative society or other kind of bank so as to go out of the definition of co-operative bank under sub-clause (a) to clause (viia) of Section 36(1). No doubt, Explanation (ia) to Section 36(1)(viia) defines what is a rural branch. It is with reference to a place and certain number of population. It refers to branch of a scheduled bank or a non-scheduled bank. Apparently, we do not find the term co-operative bank. Section 5(cci) of Banking Regulation Act though has brought in definition of co-operative bank, virtually every bank which is not a scheduled bank would fall under the definition of nonschedule bank. Reading of definition of non-schedule bank along with meaning of rural branch under Explanation to Section 36(1) of the Act, clearly indicate that co-operative bank also falls under the category of non-schedule bank for the purpose of this Section. Therefore, reading of entire Section 36(1)(viia)(a) along with explanation would mean two kinds of deductions referred to in the section will be allowed to all those ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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