TMI Blog2016 (2) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... s rental income, the income thus received cannot partake of the character of profits and gains attributable to an activity carried on by the society. The building let out is not a commercial asset or the rent received is not profit or gain arising from the exploitation of a business asset. The word "activity" is wider than the word "business". It connotes a specified form of supervised action or 0field of action. Read in the context of the profit earning activity of a co-operative society, it means the corporate activity of the society, that is to say, whether or not they amount to a business, trade or profession in the ordinary sense. Clause (c) of section 80P(2) is intended to cover receipts from sources other than the actual conduct of the business but attributable to an activity which results in profits and gains. Letting out of surplus space in the building owned and used by the assessee is not such an activity falling under clause (c). The rent thus received by the assessee is not eligible for the exemption provided thereunder. In this view, assessee's claim is correctly rejected - Decided against assessee. - ITA No. 58/Coch/2015, CO No. 05/Coch/2015, ITA No. 592/Coch/2014 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being interest received from other co-operative societies. 1.1. The learned CIT(A) ought to have seen that by virtue of section 80P(2)(a)(i) in the case of a cooperative society carrying on the business of banking or providing credit facilities to its members, whole of the profits and gains attributable to such activities is eligible for deduction. If the income is derived by a co-operative society from the business of banking or providing credit facility to its members, it will fall within the exemption. In the case of CIT vs. Karnataka State Cooperative Apex Bank, reported in (2001), 251 IRE 194 (SC), it was held that interest from surplus funds kept as deposits in banks, being ancillary and incidental to the carrying on of the business of providing credit facility by the assessee cooperative society to its members is entitled to deduction u/s. 80(P)(2)(a)(i). It is a normal mode of carrying on banking business to invest money in a manner that are readily available and that is just as much as a part of the mode of conducting bank's business as a receiving deposits of or lending money. The returns following from them would form part of its profits from its business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 652/- u/s. 56 on unlawful arguments which was rightly deleted by the Learned Commissioner of Incometax( Appeals). 1.5 As per the provisions of the Income Tax Act, 1961, a regular business income cannot be assessed u/s. 56. But the appellant has done the same in the case of your respondent which was rightly deleted by the Learned Commissioner of Income-tax(Appeals). 1.6 All the interest income received on loans given to its members are your respondent's business income which is to be taxed under the head Profits and Gains of Business or Profession and being a Primary Agricultural Credit Society are eligible for exemption u/s. 80P. 1.7 The Learned Commissioner of Income Tax(Appeals) has convinced and rightly held that the decision in Totgar's Co-operative Sale Society Ltd. Vs. Income Tax Officer was not applicable to your respondent but the appellant was wrongly relied on it while making the assessment. 2. For these and other grounds that may be urged at the time of the hearing, it is humbly prayed that the appeal filed by Income Tax Officer, Ward-3, Kottayam be dismissed. 5. The brief facts of the case as emanating from the order of the Assessing offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the activities of the society. Hence this income is not eligible for deduction u/s. 80P(1) and hence assessed under section 56. (i) Own Fund Long Term Loan - 70,60,773/- (ii) Own Fund Short Term Loan - 1,31,80,270/- at 12.5% to 14% (iii)Gold Loans - 23,64,719/- at 13% (iv) Housing Loans - 8,94,833/- at 12% (v) Ordinary Loan - 42,86,229/- at 15.5% (vi) Trade Loan - 1,58,258/- at 13% (vii) Housing Repair - 18,570/- at 12.5% 2,79,63,652/- During the relevant asst year, the assessee had surplus funds which the assessee had invested in the short term deposits with Banks as follows and earned interest to ₹ 3385886/-. 1. District Co-operative Bank, Pala ₹ 5,57,461/- 2. District Co-operative Bank, pala ₹ 417/- 3. Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to a cooperative society, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members, on the surplus funds, which is not required immediately for business purposes, from investment in short term deposit and securities, has to be taxed as investment in short term deposit and securities, has to be taxed as income from other sources. Here, the A.O. has taken the entire interest income credited to the P L account as the income earned on the idle and surplus funds which is not a correct position of law interpreted in the Totgar's ratio of the Apex Court. Accordingly, the addition made by the A.O. on this count is deleted and the assessee's appeal on this ground is allowed. 6. We have heard the rival contentions and perused the facts of the case. As evidenced from the order of the Assessing Officer wherein the assessee's arguments are referred to, the assessee has contended that the assessee is a Primary Agricultural Credit Co-operative Society (PACS) registered under Cooperative Societies Act. The contention of the assessee was that subject to satisfaction of provisions of section 80P(1), if the gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. 124/Coch/2013 2009- 10 M/s. Punnal Service Cooperative Bank Ltd., P.O. Kurichiyil, Kannur-670 102. [PAN:AAGFP 3042D] The Income Tax Officer, Ward-2, Kannur. 3. 133/Coch/2013 2009- 10 The Madikai Service Cooperative Bank Ltd., Madikai, Kasargod-671 531. [PAN:AAAAT 7221K] The Income Tax Officer, Ward-2, Kasargod. 4. 134/Coch/2013 5.719/Coch/2013 2009- 10 2010- 11 The Kotacherry Service Cooperative Bank Ltd., Kanhangad, Kasargod-671 315. [PAN: AAAAT 3164F] The Income Tax Officer, Ward-2, Kasargod. 6. 135/Coch/2013 7. 720/Coch/2013 2009- 10 2010- 11 The Nileshwar Service Cooperative Bank Ltd., Nileshwar, Kasargod-671 314. [PAN:AAAAT 3163C] The Income Tax Officer, Ward-2, Kasargod. 8. 325/Coch/2012 2009- 10 The Payyannur Service Cooperative Bank Ltd. Main Road, Payyannur, Kannur-7[PAN:AAEFT 2178E] The Income Tax Officer, Ward-4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by: Shri Prasanth Srinivas, CA CO No. 05/Coch/2014 (Arsg. out of ITA No.770/Coch/2013) Assessment Year: 2009-10 CHIRAKKADAVU SERVICE CO-OP BANK LTD CHIRAKKADAVU, KANJIRAPALLY KOTTAYAM-686520 PAN NO:AAABT2064P Vs INCOME TAX OFFICER WARD-4, KOTTAYAM Appellant Rep by: Shri Prasanth Srinivas, CA Respondent Rep by: Shri K K John, Sr. DR N R S Ganesan, JM Chandra Poojari, AM Date of Hearing: June 26, 2014 Date of Decision: July 31, 2014 ORDER Per: Chandra Poojari: These cross appeals filed by different assessees and revenue are directed against the orders of the Ld. CIT(A), Kozhikode for different assessment years. 2. The common ground in all these appeals and C.O. No. 05/Coch/2014 is with regard to allowability of deduction u/s. 80P(2) and 80P(2)(d) of the I.T. Act. 2. 1 The brief facts of the cases are that the lower authorities denied the claim of the assessees for deduction u/s. 80P of the Act. The primary object or principal business of the assessee is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of profits and gains of business attributable to any one or more of such activities: (3) . (4) The provision of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank Explanation. - For the purposes of this subsection,- (a) co-operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural an rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. 5. The sub clause (i) of clause (a) of sub section 2 of section 80P given above speaks of two incomes i.e., income from banking and income from providing credit facility to members. As per the newly introduced sub section 4, the provision of section 80P shall not apply in relation to any cooperative bank other than a primary agricultural credit society, or a primary co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admission of any other Cooperative society as a member; 9. The Ld. AR submitted that on a perusal of the bye-laws of the society, the primary object of the society is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities (including marketing of crops). It may also please be noted that the society can give membership only to individuals and certain other specified entities like state cooperative banks, district co-operative banks and the Government of Kerala. The bye-laws do not permit admission of any other cooperative society as a member. It is on fulfilling the above two conditions that the society is rightly classified as a primary agricultural credit society by the Registrar of Co-operatives. The authority to assign the status of a society being Registrar of Co-operatives, the contention of the Assessing officer that the society is not a primary agricultural credit society is beyond his powers and is invalid. 10. The principal business of the society is to provide financial accommodation to its members for agricultural purposes and for the purposes connected with agricultural activities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessee as a primary agricultural credit society recognizing the status assigned to it by the Reg. of Co-operatives. That is why the assessee society is capable of engaging in trading activity which is not allowed to a banking company as per Banking Regulation Act. Banking license refused by RBI 13. According to the Ld. AR, the Madai Co-operative Rural Bank Ltd., The Kadirur Service Co-operative Bank Ltd. Etc. which are co-operative Banks functioning at par with the assessee and having much higher volume of business had applied to the Reserve Bank of India for banking license. But the license was denied to them as according to the Reserve Bank of India the applicants are Primary Agricultural Credit Society. Thus according to the Reserve Bank of India also the assessee is a Primary Agricultural Credit Society. As per explanation below section 56 of Banking Regulation Act, if any dispute arises as to the primary object or principal business of any co-operative society a determination there of by the Reserve Bank of India shall be final. As the RBI has recognized the assessee as a Primary Agricultural Credit Society, the Assessing authority is bound to accept it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Banking Regulation Act is that the primary object or the principal business of it should be transaction of banking business. Primary Object 18. The objects of the society are prescribed in the bye laws. Banking business is not an object of the society. The object clause in the bye laws clearly indicates that the society is formed mainly for providing credit facility to the members for carrying out their agricultural activities and also to promote other agro based activities. Principal business 19. As per the second part of sub clause (1) of clause (ccv) quoted above, in order to become a Co-operative society a bank, its principal business should be transaction of banking business. The principal business of the assessee is not doing banking business for the following reasons: The assessee does not have a banking license from the RBI. 20. The first and foremost requisite in India to do the business of banking is to obtain a license from RBI. Without a valid license from the RBI nobody can do the business of banking. In this regard it may please be noted that the mere activity of collecting deposits and lending it will not constitute banking. If it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR drew our attention to s. 43D and submitted that the assessee is not eligible to the benefits of s. 43D as per which scheduled banks, financial institutions etc. need not account interest non performing assets on accrual basis Interest on NPA is accounted for banks on receipt basis. But the assessee not being a bank is not eligible for the benefits of sec. 43D. 25. The Ld. AR submitted that such banks are not allowed to do trading. As per sec. 8 of the Banking Regulation Act, a banking company may engage only in any one or more of the business as specified in clause 6 Part II of the Banking Regulation Act, 1949 which does not include trading activity. Thus the Ld. AR contended that it is clear that out of the three conditions prescribed for a Primary Co-operative Bank as defined under section 5 clauses (ccv) of Banking Regulation Act, 1949, the most important clause no. 1 is not being applicable to the assessee. Hence the assessee does not fall under the definition of cooperative bank as defined in Part V of the Banking Regulation Act, 1949 and therefore, sub-section 4 of section 80P of the Act is not applicable to it. 26. Alternatively, the Ld. AR contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 80P. According to the Ld. AR, now if these banks are not allowed the benefit of section 43D, it will be a great injustice to them. Those banks will be liable to pay tax even on interest charged on non-performing assets. 29.1 The Ld. AR also made a comparative study of the net profit, income assessed and tax liability of the assessees to show that the tax liability assessed is much more than the net profit. Such a situation could not be the consequence of the implementation of any prudent law as survival of the entity is at stake in the long run. 30. The Ld. AR drew our attention to the sub-section 80P(4) of the Act which is reproduced below: (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The Ld. AR submitted that even on a simple reading of sub-section, the usage of the words other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank implies that statute intends to exempt a certain category of co-operative banks from the adverse impact arising o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object of the aforesaid amendment is not to exclude the benefit extended u/s. 80P(1) to such society. (iii) The Hon'ble Gujarat High Court in the cases of(a) Surat Vankar Sahakari Sangh Ltd. and (b) Jafari Momin vikas Co-op Credit Society Ltd. has held as under: From the above classification, it can be gathered that subsection (4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Coop Urban Thrift Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a co-operative, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue contention that section 80P(4) would exclude not only the cooperative banks other than those fulfilling the description contained therein but also credit societies, which are not cooperative banks. In the present case, respondent assessee is admittedly not a credit co-operative bank but a credit cooperative society. Exclusion clause of sub-section(4) of section 80P, therefore would not apply. (iv) The Hon'ble Kerala High Court has held in Moolamattom Electricity vs. Unknown on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that deduction u/s. 80(P) of the I.T Act was denied to the above societies since it was found that the Societies were not fulfilling their primary object or principal business of providing financial accommodation to its members for agricultural purposes. The assessee societies were providing only meager percentage of their total loans disbursed towards agricultural purposes. 33. The Ld. DR submitted that apart from this, it was found that the principal business of the above societies was banking business. Hence the assessee societies/bank were treated as Co-operative banks. Since after the insertion of section 80P(4) w.e.f. 1-4-2007, co-operative banks are not eligible for any deduction u/s. 80P of the I.T. Act, 1961, deduction u/s. 80P was denied to them on this ground also. 34. The Ld. DR submitted that the orders of the respective Assessing officers denying deduction u/s. 80P for the service co-operative banks was upheld by the CIT(A), Calicut . While upholding the orders of the Assessing officers, the CIT(A), Calicut relied on his own order in the case of Karivellur Service Co-operative Bank Ltd. for the A.Y. 2009-10. The CIT(A)'s order was also confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fulfilling the objective as Primary Agricultural Credit Societies so as to absolve from further proceedings at the hands of the income tax Department. He submitted that the Hon'ble High Court of Kerala in I.T.A. No. 4 of 2014 dated 31- 01-2014 in the case of Perinthamanna Service Co-operative Bank has observed as under: The revisional authority was justified in saying, with the introduction of section 80P(4), necessarily, an enquiry has to be conducted into the factual situation whether co-operative bank is conducting the business as Primary Agricultural Credit Society or a primary co-operative agricultural and rural development bank and depending upon the transactions, the Assessing officer has to extend the benefits available and not merely looking at the registration certificate by the Kerala Co-operative Societies Act or the nomenclauture. 38. The Ld. DR further submitted that it is pertinent to note that the President of The Kizhathadiyoor Service Co-op Bank has vide letter dated 13-11-2010 written to the Hon'ble Finance Minister of India stated that the PACS in Kerala are doing banking business and providing credit facilities to member and non-members and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 under para 12 observed as under : 12. It is not possible to accept this contention. The petitioners are not the banking institutions coming under the purview of the Banking Regulation Act. They are the co-operative societies registered under the Act, and as such they are governed by the provisions of the Act passed by the State Legislature. Consequently, the State Government has control over them to the extent the Act permits. Major activities of the petitioners are to finance its members. For the purpose of financing its members, they borrow money from the financing agencies and repay the same. Merely because the petitioners the co-operative societies in question-are required to advance loans to their members, they do not cease to be co-operative societies governed by the Act nor can they be treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to banking as contemplated under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 of CIT vs. Kumbakonam Mutual Benefit Fund Ltd., 53 ITR 241 (SC) wherein it was held that if the profits are distributed to shareholders as shareholders, the principle of mutuality is not satisfied. A shareholder in the assessee-company is entitled to participate in the profits without contributing to the funds of the company by taking loans. He is entitled to receive dividend as long as he held shares. He did not have to fulfil any other condition. His position is in no way different from a shareholder in a banking company, limited by shares. Indeed, the position of the assessee is no different from an ordinary bank except that it lends money and receives dividend from its shareholders which does not by itself make its income any the less income from business. The same judgment was followed in the case of CIT vs. Arcot Dhanasekhara Nidhi Ltd., 59 ITR 480 (Mad.), CIT vs. Dharmavaram Mutual Benefit Permanent Fund Ltd., 67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 society, clause (c) would be attracted. It is then necessary that the cooperative society must prove that it has engaged itself in carrying on the activity giving rise to profits or gains. Such activity of the assessee must have a direct or proximate connection with or nexus to the earning in order that the assessee may enjoy the exemption. Section 80P(2)(c) of the Act exempts income of co-operative societies to the extent mentioned therein if the profits or gains are attributable to the activity in which the co-operative society is engaged. The expression attributable to is much wider than the expression derived from and it covers receipts from sources other than the actual conduct of the business of the assessee. In this view of the matter, interest earned by a co-operative society, which was carrying on the business of supplying sugarcane on statutory investment in Government securities, was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coch/2013,745/Coch/2013,746/Coch/2013, 747/Coch/2013, 800/Coch/2013,133/Coch/2013,124/Coch/2013,123/Coch/2013, 683/Coch/2013, 684/Coch/2013,685/Coch/2013,739/Coch/2013, 740/Coch/2013, 741/Coch/2013, 743/Coch/2013 744/Coch/2013 is with regard to deduction of 7.5% provision for bad and doubtful debts u/s. 36(1)(viia) of the Act. 41.1 After hearing both the parties, we are of the opinion that similar issue came up for consideration in the case of Kannur Co-operative Bank Ltd. in I.T.A. Nos. 182 183/Coch/2014 dated 27/06/2014 wherein the Tribunal held as under: 3. The assessee raised the ground in both the appeals that the Ld. CIT(A) erred in holding that the assessee was not entitled to deduction of 10% of the aggregate average advances made by its rural branches u/s. 36(1)(viia) of the I.T. Act. 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 assessee's own case in I.T.A. Nos. 179/2012, 33,37,238,241,243,254 258 of 2013 vide its judgment dated 3rd April, 2014. The Hon'ble Jurisdictional High Court held as under: 8. Section 36 of the Act deals with variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment 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 of co-operative bank, is to be included. Section 56(c) of Banking Regulation Act says: In section 5:- (i) after clause (cc), the following clause shall be inserted, namely:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 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 relation to or characteristic of a town or city. 11. According to us, there is no necessity to find out the generic meaning of either urban or rural for the simple reason th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 treated as a unit of rural area, can be rightly adopted. So much so, place referred to in the above definition clause for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 cooperative 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 non-scheduled 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 cooperative 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 banks only if they satisfy the terms and conditions referred to in the provision. 13. Therefore, we are of the opinion, authorities belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jewellery and mortgage of land. In view of the admitted fact that the taxpayer is maintaining savings account, current account and providing cheque facility to its customers, it is obvious that the taxpayer is engaged itself in the business of banking apart from other trading activities. Exemption u/s. 194A(3)(viia) is applicable only in respect of agricultural cooperative societies. The agricultural cooperative banks are bound to deduct tax. In this case, admittedly, the tax payer is engaged in the banking activity and maintaining savings bank account, current account and providing cheque facility to its customers. Therefore, the taxpayer is bound to deduct tax in respect of interest on the deposits. Therefore, this Tribunal is of the considered opinion that the decision in the case of Kadachira Service Cooperative Bank Ltd.(supra) may not be applicable to the facts of the present case. Accordingly, the orders of the lower authorities are confirmed. 42.2. Being so, this issue is identical and the facts are also similar to the one considered by this Bench of the Tribunal in the earlier occasion, we are inclined to decided the issue against the assessee. This ground in all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 156/Coch/2014 Assessment Year: 2009-10 KUNNAMANGALAM CO-OPERATIVE BANK KUNNAMANGALAM, KOZHIKODE PAN NO:AAAJT1353R VS INCOME TAX OFFICER WARD-2(3), KOZHIKODE N R S Ganesan, JM Chandra Poojari, AM Date of Hearing: July 2, 2014 Date of Decision: July 25, 2014 Appellant Rep by: Shri C B M Warrier, CA Respondent Rep by: Shri K K John, Sr. DR ORDER Per: Chandra Poojari: This appeal by the assessee is directed against the order dated 04-02-2014 passed by the CIT(A), Kozhikode for the assessment year 2009-10. 2. The assessee has raised the following grounds: 2. The assessee has raised the following grounds: 1. The assessee is Kunnamangalam Co-operative Bank, Kunnamangalam, Kozhikode and in regard to the assessment year 2009-10, the Assessing officer has disallowed the deduction u/s. 80P of the Act and the Commissioner of Income Tax has gone wrong in confirming the disallowance. 2. The assessee is a co-operative bank which is a primary agricultural credit society for which deduction u/s. 80P is allowable under the Act. 3. The assessee were given deduction u/s. 80P in respect of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act, 1961, the Assessing officer after analyzing the activities of the assessee-society came to the conclusion that since the assessee has not fulfilled its main object of providing financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities, it is not eligible for deduction u/s. 80P of the Act. During remand proceedings, the Assessing officer again verified the claim of the assessee that most of the loans given during the year are for agricultural purposes, and found the claim of the assessee was not true. Further, it was held by the Hon'ble High Court of Kerala in WP(C) No. 14226 of 2012(C) dated 14th September, 2012 in the case of M/s. Thathamangalam Service Co-operative Bank Ltd. that: 16. True, some of the petitioners have obtained a certificate as to the classification/registration as Primary Agricultural Credit Societies. But, by virtue of the amendment of Section 2(oa) of the Kerala Co-operative Societies Act, if the Society does not continue to fulfil the obligation, it will lose the colour and characteristics of a Primary Agricultural Credit Society, except for the purpose of staff strength. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . From the above clarification, it can be gathered that sub-section(4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Co-op Urban Thrift and Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a co-operative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue's contention that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained therein but also credit societies, which are not co-operative banks. In the present case, respondent assessee is admittedly not a credit co-operative bank but a credit co-operative society. Exclusion clause of sub-section (4) of section 80P, therefore, would not apply. In the result, Tax Appeals are dismissed. 6. The Ld. AR further submitted that even on applying the concept of mutuality, the assessee's claim is to be allowed. For this, he relied on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Talangang Co-op Group Housing Society Ltd., (2010) 44 DTR (Del) 58 and the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural and rural development bank. Explanation.-For the purposes of this sub-section,- (a) co-operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. 8.1 In our opinion, Sec. 80P(2)(a)(i) provides two types of activities in which the co-operative society must be engaged to be eligible for deduction under subclause (i). These two activities are not alternate ones because the section allows deduction to the co-operative society on the whole of profits and gains of business attributable to any one or more of such activities. This pre-supposes that eligible co-operative society can carry on either one of these two businesses or can carry both these businesses for the members. If the Assessee cooperative society carries on one or both of the activities, it will be eligible for deduction. These two activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch cooperative bank subscribing to the share capital of such Co-operative society out of funds provided by the State Government for the purpose 8.5 From the aforesaid definition, it is apparent that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transacted by it is a banking business, secondly, the paid up share capital and reserve of which are 1 lakh or more and thirdly, by laws of the cooperative society do not permit admission of any other co-operative society as a member, it will be regarded to be primary co-operative bank. If co-operative society does not fulfill any of the conditions, it cannot be regarded to be a primary co-operative bank. Therefore, in the case of the Assessee we have to examine on the basis of the facts and materials on record whether the Assessee co-operative society complies with all the three conditions. In case, it does not comply with all the three conditions, it cannot be regarded to be a co-operative bank and the provisions of Sec. 80P(4), in our opinion, will not be applicable in the case of the Assessee. Once, the Assessee will not fall within the provisions of Sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner : banking means the accepting, for the purpose of lending or in vestment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwise and withdrawal of these deposits by cheque, draft, order or otherwise and these deposits are accepted for the purpose of lending or investment. These deposits must be accepted from the public, not only from the members. These deposits must be repayable on demand or otherwise and could be withdrawn by the depositor by cheque, draft or otherwise. We notice that the CIT(A) has given a categorical finding that the Assessee has carried on banking activities on the basis of findings in the assessment order. The relevant portion of the assessment order is as under : 16. This shows that more than 95% percentage of the loans advance for non-agricultural purposes (nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndition. 8.9 Thus, we notice that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with. 8.10 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT, 41 305 (Hyd). We notice that this decision is applicable to the facts of the case before us. In that decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a cooperative bank. The Society is governed by the Banking Regulations Act. Therefore, the society being a co-operative bank providing banking facilities to members is not eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of sub-section (4) to section 80P. In view of this finding, the Assessee was denied deduction u/s 80P(2)(a)(i). We have also gone through the decision of the Bangalore Bench of the Tribunal in the case of ITO vs. Divyajyothi Credit Cooperative Society Ltd. (supra) in ITA No. 72/Bang/2013. In this case, we notice that the Hon'ble Tribunal confirmed the order of CIT(A) following the decision of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have already held in the preceding paragraphs, are applicable to a co-operative society which is engaged in carrying on banking business facilities to its members if it is not a co-operative bank. We have also gone through the decision of this Bench in the case of DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. in ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra). While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 of its order, this Tribunal has held as under : 12. From the aforesaid objects, it is apparent that none of the aims and objects allows the assessee cooperative society to accept deposits of money from public for the purpose of lending or investment. In our opinion until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. Therefore, the assessee will not comply with the first condition as laid down in the definition as given u/s. 5(ccv) of the Banking Regulation act, 1959 for becoming primary cooperative bank . The assessee, therefore, cannot be regarded to be primary cooperative bank and in consequence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o claim any further exemption under clause (c) as the assessee is entitled to exemption u/s. clause (a) in respect of the banking activities. The Appellate Assistant Commissioner, in allowing the assessee's appeal, held that exemption under clause (c) is in addition to the exemption allowable under clauses (a) and (b) and directed the Income-tax Officer to allow a deduction of ₹ 20,000 separately, taking into consideration the property income earned by the assessee. The Revenue carried the matter in appeal before the Appellate Tribunal. The Tribunal held that the rule of construction of ejusdem generis applies to the construction of clause (c), which results in profits and gains, that the income from house property has been dealt with in sections 22 to 27 as income and not as profits and gains and that the assessee is not, therefore, entitled to any exemption under clause (c). The Tribunal did not accept the alternative contention raised by the assessee for the first time before the Tribunal that the letting out of surplus space should be treated as a business activity under clause (a) of sub-section (2) of section 80P of the Act. The appeals were accordingly allowed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as owner of certain property lets out that property and receives rental income, the income thus received cannot partake of the character of profits and gains attributable to an activity carried on by the society. The building let out is not a commercial asset or the rent received is not profit or gain arising from the exploitation of a business asset. The word activity is wider than the word business . It connotes a specified form of supervised action or 0field of action. Read in the context of the profit earning activity of a co-operative society, it means the corporate activity of the society, that is to say, whether or not they amount to a business, trade or profession in the ordinary sense. Clause (c) of section 80P(2) is intended to cover receipts from sources other than the actual conduct of the business but attributable to an activity which results in profits and gains. Letting out of surplus space in the building owned and used by the assessee is not such an activity falling under clause (c). The rent thus received by the assessee is not eligible for the exemption provided thereunder. In this view, the Appellate Tribunal was justified in rejecting the assessee's clai ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
