TMI Blog2011 (2) TMI 1422X X X X Extracts X X X X X X X X Extracts X X X X ..... as discerned from the reading of the applicable laws, i.e., the BR Act and the NBARD Act, in conjunction with which the relevant provisions of the Act are to be read, and the judicial precedents brought to our notice, we are of the clear view that the assessee is a cooperative bank and, consequently, hit by the provision of s. 80P(4), so that the deduction provided by the said section would not be available to it from A.Y. 2007-08 onwards and, accordingly, stood rightly denied the impugned claim in its assessment for the year. So, however, we also clarify that to the extent the assessee is (also) or is acting (also) as a state land development bank , which too falls within the purview of the NBARD Act, exigible for financial assistance from NBARD, the assessee s claim merits acceptance, and it would be entitled to deduction u/s. 80P(2)(a)(i) on the income relatable to its lending activities as such a bank. The matter is, therefore, remitted to the file of the AO for a consideration of this aspect of the matter and adjudication as per law on factual verification and determination, per a speaking order, after allowing reasonable opportunity to the assessee to establish its claims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant case being an apex cooperative society lending money to such primary units functioning within the State of Kerala, he denied the assessee its claim for deduction u/s. 80P (2)(a)(i). 3.2 In first appeal, the matter, including the assessee s claims, was examined at length by the ld. CIT(A), to the same effect. She examined the activities and the structure of the assessee-society, to find it to be a state-level apex body of 48 affiliated primary cooperative agricultural and rural development banks (or primary ARDBs) functioning under a federal structure, with each primary unit having an area of operation of one to three taluks. It is formed as a successor to the Central Land Mortgage Bank by the Kerala State Cooperative Agricultural and Rural Development Banks Act, 1984 ( KSARDB Act hereinafter) (Act 20 of 1984) with a mission of comprehensive rural development in the State of Kerala. There has been a shift with time in the focus of lending by the banking industry in the rural sector, i.e., in terms of the segments and areas of financing (viz. rural housing, which, of late has been accorded a high priority status), so that the banks now function as development banks; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 The controversy, as would be apparent from the foregoing, revolves around whether the assessee is a cooperative bank or not. The assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969. It was initially formed as a Land Mortgage Bank known as Kerala Co-operative Central Land Mortgage Bank Ltd. However, with the enactment of KSARDB Act by the Kerala State Legislature, the assessee became an apex co-operative society of the State of which the primary agricultural and rural development banks, which includes co-operative societies registered or deemed to be registered under the said Act as primary co-operative land mortgage banks, are members. That it is not a primary agricultural credit society or a primary cooperative agricultural and rural development bank , i.e., the two entities that stand excepted from the provision of section 80P(4), which is even otherwise patent, is admitted. The assessee, nevertheless, contends that it is not a cooperative bank , so that it would not be hit by the rigour of section 80P(4) brought in by way of an amendment to s. 80P by the Finance Act, 2006 with effect from 1.4.2007, i.e., A.Y. 2007-08 onwards. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financing of other co-operative societies in the State. A central co-operative bank stands similarly defined (per section 2(d) of NBARD Act) as a co-operative society in a district in a State with the primary objective of financing other cooperative societies in the district, with a like proviso. It is not difficult to see that the assessee is, by definition, a state co-operative bank. It receives its corpus from the State Government and is the principal society in the state of Kerala for financing of other cooperative societies engaged in extending credit to the rural sector, including for agriculture and allied activities, which it does through the vehicle of primary and central (district) cooperative banks. It is eligible for financial assistance from the National Bank for Agricultural and Rural Development against its lending to its member societies. 4.5 Here it may be pertinent to state that the NBARD Act was enacted by the Parliament in the year 1981 to establish a bank known as National Bank for Agricultural and Rural Development ( NBARD hereinafter), for promoting and regulating credit and other facilities for the promotion and development of agriculture, includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/4/2007)] in section 2(24) of the Act, defining income inclusively, to include the profits and gains of any business of banking (including providing credit facilities) carried on by a cooperative society with its members. Two things, thus, bear mention; firstly, the amendment only impacts cooperative societies and, secondly, only those in the business of banking, which is construed broadly so as to include provision of credit facilities to the constituents. Now, without doubt, the said profits and gains would even otherwise, i.e., independent of the amendment, qualify to be income assessable as business income u/c IV-D u/s. 28(i) r/w s. 2(24)(i). The only purpose that the amendment therefore serves, is to delineate such income of the specified entities (i.e., cooperative societies) separately and, further, clarify that for the purposes of the Act the financing of its constituents is to be considered as integral to banking, i.e., as a part of the business of banking. That is, qua the underlying economic activity generating the income, financing forms part of banking, or at least as far as the specified entities, being cooperative societies, are concerned. 4.7 At this stag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., going by the decision in the case of U.P. Co-operative Cane Union Federation Ltd. vs. CIT (supra), since said to be impliedly overruled, there is no question of application of section 80P(4), which forms the edifice of the Revenue s case. Sec. 80P(4) would have application only where the income is otherwise exempt u/s. 80P. However, that would not in any manner detract from or throw any light on the manner in which the proscriptive clause of s. 80P(4) is to be read or interpreted. The provision clearly draws a distinction between those co-operative societies which continue to enjoy the benefit of section 80P and those which shall not. The Notes on Clauses (of the Finance Bill, 2006), referred to earlier, are also on the point. The decision in the case of Kerala State Co-operative Agricultural Federation Ltd vs. CIT (supra) does not overrule the decision in the case of U.P. Co-operative Cane Union Federation Ltd. vs. CIT (supra), which we have even otherwise found to be not supportive of the Revenue s case. The only issue clarified by the apex court per its latter decision which is relevant to the present case is that the members of a co-operative society which is a member of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Federation Ltd vs. CIT (supra), rather, supports the Revenue s case in-as-much as the Statute is explicit when it saves the two primary units from the blanket exclusion (of the co-operative banks) from the exemption of s. 80P with effect from A.Y. 2007-08 per s. 80P(4). The expressions primary agricultural credit society (to which the BR Act is not applicable), primary co-operative bank (which is the third entity comprised in the term co-operative bank ) and primary credit society are defined in the BR Act (refer ss. 5(cciv), 5 (ccv) and 5(ccvi) thereof respectively). Similarly, the term primary rural credit society is defined in NBARD Act (per s. 2(n)). It is not necessary to reproduce the said definitions here in view of the admitted position of the assessee being not a primary co-operative society, the distinguishing feature of which (subject to some exceptions) is that its bye-laws do not permit admission of another co-operative society as its member. 4.8 We may now advert to the several decisions cited by the assessee per its paperbook, even as in view of the clear language of the statutes, and its expounding by the apex court, as afore-noted, the same would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal State Warehousing Corporation vs. Indrapuri Studio Pvt. Ltd (supra) relates to the interpretation of the statute with reference to the scope of the word mean in the provision, and stands already considered. 4.9 We may, though not required to, i.e., in view of the express language of the statute and, further, considered in the light of the precedents on the subject, for the sake of completeness of the order, address the various arguments raised by the assessee, which though we have examined for their validity in arriving at our decision. It states that it is not a bank and, therefore, the BR Act is not applicable thereto. Section 3 of the BR Act clarifies that the said Act shall not apply to a primary agricultural credit society and a co-operative land mortgage bank . For other co-operative societies, it would have application only to the extent and in the manner specified in Part V of the said Act. We are unable to discern any relevance in the argument, i.e., in view of the specific (defined) entities to which section 80P(4) shall not apply and, by implication, apply, i.e., all cooperative banks other than the excluded categories. A primary agricultural credit societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gage bank is also engaged in financial accommodation of its members. There is nothing to limit the expanse of the word member to only individual members , so that it would include co-operative societies which are members as well. A co-operative credit society is not a co-operative bank and, therefore, if and to the extent the assessee is a co-operative land mortgage bank, it is not a co-operative bank and, consequently, not covered by s. 80P(4). Further, the NBARD Act does not bear any reference to land mortgage bank. On the other hand, it speaks of state land development bank as the principal co-operative society in the State with the object of providing long-term finance for agricultural development (s. 2(v)). As noted earlier, the NBARD is engaged in providing financial accommodation on both short-term as well as long-term basis; its relevant Chapter (Chapter VI) containing separate provisions for the same under the subject heads, inter alia, production and agricultural credit (ss. 21 to 23), investment credit medium term (s.24) and other investment credits (s. 25), i.e., NBARD extends financial assistance to both state co-operative banks and state land development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two separately, i.e., as state cooperative banks and state land development banks. It is the former that attract s. 80P(4), and not the latter. Where the same bank assumes the role of both, it is functioning as both, so that the distinction would have to be maintained on the basis of the income attributable to the distinct pattern of financing, i.e., long-term for agricultural development and others . 5. In view of the obtaining legal position, as discerned from the reading of the applicable laws, i.e., the BR Act and the NBARD Act, in conjunction with which the relevant provisions of the Act are to be read, and the judicial precedents brought to our notice, we are of the clear view that the assessee is a cooperative bank and, consequently, hit by the provision of s. 80P(4), so that the deduction provided by the said section would not be available to it from A.Y. 2007-08 onwards and, accordingly, stood rightly denied the impugned claim in its assessment for the year. So, however, we also clarify that to the extent the assessee is (also) or is acting (also) as a state land development bank , which too falls within the purview of the NBARD Act, exigible for financial ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions by the apex court. We find none, and neither is the point in issue, virgin; the apex court in the case of Jute Corporation of India Ltd. (supra) having considered the same in light of its decision in the case of CIT (Addl.) vs. Gurjargravures Pvt. Ltd. (1978) 111 ITR 1 (SC), wherein, similarly, the action of the assessing authority in rejecting the assessee s claim on the ground that it stood not made before the assessing authority was upheld. It, examining the issue comprehensively, held as under:- (i) Power to tax on discovery of a new source of income is quite different from granting deduction on the admitted facts fully supported by the decision of the Supreme Court. If the tax liability of the assessee is admitted and if the Income-tax Officer is afforded an opportunity of hearing by the appellate authority in allowing the assessee s claim for deduction on the settled view of the law, there is no good reason to curtail the powers of the appellate authority u/s. 251(1)(a) of the Income-tax Act, 1961. (ii) An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its view in the case of Gurjargravures P. Ltd. (supra), further clarifying that even the claim before the AO has to be made in the mode and manner prescribed under law, i.e., per the original return or the revised return of income. That is, the same is permissible and, thus, admissible in law, only where so made, having in the facts of that case been made before the AO by way of a letter, which stood rejected by him on the ground that there was no provision in the Act for allowing any amendment to the return as furnished except per a revised return, and which action of the AO stood confirmed by the apex court, affirming the decisions by the tribunal and the Hon ble Delhi High Court to that effect preceding it. The same, it may be noted, also conforms to the trite law that where the law prescribes a mode and manner (including a time limit) for doing a particular thing, the same has to be followed, at least in substance, so as to derive the advantage of the benefit provided. The decision in the case of NTPC Ltd. (supra) was also considered and distinguished by the apex court therein. 7.4 The position in law is, thus, amply clear. The only manner in which the assessee can make a cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncore (supra), on the basis of which the assessee presses its claim is dated 8.8.2007, i.e., even prior to the date of the furnishing the return of income. As such, it obviously cannot be said that the claim could not have been made per the return of income or during the time available for its revision. 7.6 The second exception laid down by the apex court is a change in the circumstance(s) or change in law, i.e., after the passing of the assessment order. No such change has been reported to us, the only basis stated being the decision by the tribunal in the case of State Bank of Travancore (supra), which as afore-noted stands rendered much earlier. Also, in our considered view, the same would not even otherwise qualify to be either a change of circumstance or in law as envisaged in the decision in the case of Jute Corporation of India Ltd. vs. CIT (supra). The assessee had disclaimed the impugned contribution in view of sub-section (9) of 40A, which is the non obstante clause prevailing over the other provisions of the Act relating to the computation of income under the head profits and gains of business and profession , i.e., including s. 37(1). As such, the disallowance by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er any determination thereof by the authorities below for it to be considered as a question of law arising from the assessment. The said decision, thus, has no application in the facts of the instant case. To state in other words, the decision in the case of Jute Corporation of India Ltd. (supra) is applicable to the tribunal, and stands further explained by the apex court in the case of NTPC Ltd. vs. CIT (supra), allowing the raising of a legal plea/ground on established or proven facts at the appellate stage. Coming to the applicability of the same to the facts of the present case, the question under reference is a mixed question of law and fact. The fund, the contribution to which is being claimed, is said to be for the retired employees. Apart from the legal question of applicability or otherwise of section 40A(9), the factual issues that arise and, thus, need to be addressed would be along the following lines: Whether there is any contractual relationship between the assessee and its retired employees? That is, is the impugned contribution in pursuance to any pre-existing obligation, i.e., on being given effect to, or a result of a fresh contract? If it is the latter case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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