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The Chirakkal Service Co-Operative Bank Ltd. Versus The Commissioner of Income Tax

2016 (4) TMI 826 - KERALA HIGH COURT

Exemption under section 80P - assessee is a primary agricultural credit society - Held that:- Tribunal erred in law in deciding the issue regarding the entitlement of exemption under section 80P against the appellants. We hold that the primary agricultural credit societies, registered as such under the KCS Act; and classified so, under that Act, including the appellants are entitled to such exemption. - Denial of claim on belated filing of return by the assessee - Held that:- Tribunal was no .....

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treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the IT Act. - Decided in favour of assessee. - ITA. No. 212 of 2013 - Dated:- 15-2-2016 - Thottathil B. Radhakrishnan And K. Harilal, JJ. For the Petitioner : Sri. I. V. Pramod , Dr. K. P. Pradeep For the Respondent : Sri. P. K. R. Menon, Senior SC, GOI ( Taxes), Sri. Jose Joseph, SC I.T.A. Nos. 212, 273, 278, 292, 299 & 313 of .....

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and classified as such under the provisions of the Kerala Co-operative Societies Act, 1969, for short, 'KCS Act', relate to exemptions claimed by them with reference to section 80P(4) of Income Tax Act, 1961; hereinafter, 'IT Act'. Issues are also raised relating to the validity or otherwise of the returns filed by the assessees beyond the period stipulated under section 139(1)/(4) or section 142(1)/148 for the purpose of deciding exemption under section 80P of the IT Act. Incid .....

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A.No.212 of 2013 was admitted on 21.11.2013 and the following substantial questions of law were formulated at the time of admission for consideration: A) Whether on the facts and in the circumstances of the case under consideration, the Tribunal is correct in law in deciding against the assessee, the issue regarding entitlement for exemption under section 80P, ignoring the fact that the assessee is a primary agricultural credit society? B) Whether the Tribunal is justified in denying the exempti .....

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tal income, on the reason that the assessee is not entitled for the status of rural branch to claim 10% of the aggregate average advances as bad and doubtful debt, under section 36(1)(viia) of the Income Tax Act, 1961? 4. Thereafter, noticing that all the captioned appeals give rise to the same questions of law, the other appeals were also admitted on the substantial questions of law as framed in ITA.No.212 of 2013 and those substantial questions of law were incorporated into the other appeals a .....

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n in terms of sub-section 4 of section 80P of the IT Act. The characteristics of the appellants as primary agricultural credit societies including the fact that they are registered under the KCS Act and that their fund management is in terms of the regulatory directions of the Registrar of Co-operative Societies and other aspects are referred to, to show that all the appellants are eligible to the exemption provided for through section 80P(4) of the IT Act. We will detail the relevant statutory .....

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ng on the question of delay. 8. On behalf of the department, it is argued that the Tribunal was justified in holding that the appellants are not entitled to exemption in terms of section 80P(4) and therefore, they fall into the tax net by virtue of section 80((1), subject only to the permissible deductions under sub- section 2 of section 80P. The findings of the Tribunal are sought to be supported also as regards the belated filing of returns and claim for exemption. It is argued that the appell .....

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ted, in accordance with and subject to the provisions of section 80P, the sums specified in sub-section 2 thereof, in computing the total income of the assessee. Sub-section 4 of section 80P provides that the provisions of section 80P 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. This provision in sub-section 4 of section 80P means that the provisions of section 80P shall no .....

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4) of the IT Act. For the purpose of that sub-section, 'primary co- operative agricultural and rural development bank' is defined to mean what is stated in Explanation (b) to Section 80P(4) of the IT Act. 11. Part V of the BR Act carries section 56 of that Act, which prescribes modifications to the provisions of the BR Act in their application and in relation to co-operative societies. 12.'Co-operative bank' is a term defined in section 5(cci) of the BR Act to mean, inter alia, a .....

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ideration as a co-operative bank for the purpose of sub-section 4 of section 80P of the IT Act. Resultantly, the consequential legal implication is that a primary agricultural credit society is one among the two types of institutions which gain the benefit of sub-section 4 of section 80P to ease themselves out from the coverage of section 80P. The argument advanced on behalf of the Revenue, to the contrary is repelled. 13. Reverting to section 5(cciv) of the BR Act; 'primary agricultural cre .....

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f such co-operative bank subscribing to the share capital of such co- operative society out of funds provided by the State Government for the purpose. This is the effect of the proviso occurring after sub-clause 2 of section 5(cciv) which is referred to herein only for continuity, though we are not really concerned with the effect of that proviso. Keeping in mind that 'primary agricultural credit society' is defined with reference to the term 'co-operative society'; reverting to .....

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, when the term 'co- operative society' is defined to mean, inter alia, a society registered under any State law relating to co-operative societies for the time being in force; one such is a co-operative society for the purposes of the BR Act and if that co-operative society satisfies the definition of 'primary agricultural credit society', it would be one to which the exemption as per sub-section 4 of section 80P of the IT Act would apply. 15. Appellants in these different appea .....

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stration of a society under any State law relating to co-operative societies for the time being; it cannot but be taken that the purpose of the societies so registered under the State Law and its objects have to be understood as those which have been approved by the competent authority under such State law. This, we visualise as due reciprocative legislative exercise by the Parliament recognising the predominance of decisions rendered under the relevant State Law. In this view of the matter, all .....

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chayat or a municipality. This is the consequence of the definition clause in section 2 (oaa) of the KCS Act. The authorities under the IT Act cannot probe into any issue or such matter relating to such applicants. 16. The position of law being as above with reference to the statutory provisions, the appellants had shown to the authorities and the Tribunal that they are primary agricultural credit societies in terms of clause (cciv) of section 5 of the BR Act, having regard to the primary object .....

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ompetent authority under the KCS Act is anything different from what we have stated herein above. For this reason, it cannot but be held that the appellants are entitled to exemption from the provisions of section 80P of the IT Act by virtue of sub- section 4 of that section. In this view of the matter, the appeals succeed. 17. In the light of the aforesaid, we answer substantial question 'A' in favour of the appellants and hold that the Tribunal erred in law in deciding the issue regard .....

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142 (1) or section 148, as the case may be. There are no cases among these appeals where returns were not filed. There are cases where claims have been made along with the returns and the returns were filed within time. Still further, there are cases where returns were filed belatedly, that is to say, beyond the period stipulated under sub- section 1 or 4 of section 139; and, there are also returns filed after the period with reference to sections 142(1) and 148 of the IT Act. 19. Section 80A(5 .....

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ause, the inhibition against allowing deduction is worded in quite similar terms in sections 80A(5) and 80AC, of which section 80A(5) is a provision inserted through the Finance Act 33/2009 with effect from 1.4.2013 after the insertion of section 80AC as per the Finance Act of 2006 with effect from 1.4.2006. This clearly evidences the legislative intendiment that the inhibition contained in sub- section 5 of section 80A would operate by itself. In cases where returns have been filed, the questio .....

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t saying that the claim for exemption will also stand effectuated as a claim duly made as part of the returns so filed, for due consideration. 21. When a notice under section 142(1) is issued, the person may furnish the return and while doing so, could also make claim for deduction referable to section 80P. Not much different is the situation when pre-assessment enquiry is carried forward by issuance of notice under section 142 (1) or when notice is issued on the premise of escaped assessment re .....

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