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The Commissioner of Income Tax Versus M/s. Veerakeralam Primary Agricultural Co-operative Credit Society

2016 (7) TMI 922 - MADRAS HIGH COURT

Benefit under Section 80P denied - assessee is primarily engaged in lending loans for non agricultural purposes - Held that:- In the recent decision in the case of Chirakkal Service Co-operative Bank Ltd., Kannur vs. the Commissioner of Income Tax, (2016 (4) TMI 826 - KERALA HIGH COURT ), the High Court considered similar substantial questions of law as held that the assessee is a primary agricultural society, the Kerala High Court has answered the substantial question of law in favour of the as .....

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edit society. Hence, the appeals are accordingly dismissed. - Decided in favour of assessee - Tax Case Appeal Nos. 735, 755 of 2014 and 460 of 2015 - Dated:- 5-7-2016 - S. Manikumar And D. Krishnakumar, JJ. For the Appellant : Mr. T. R. Senthil Kumar For the Respondent : Mr. A. R. Sri Raman, Mr. S. Sridhar JUDGMENT ( Judgment of the Court was made by D. Krishnakumar, J ) These Appeals have been filed by the Revenue against the orders of Madras 'D' Bench dated 11.02.2014 in I.T.A.No.197/ .....

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r Section 143(2) of the Income Tax Act, was issued and served on the assessee. The Assessee, stating they are a Primary Agricultural Credit Society, carrying on the business of banking and providing credit facilities to its members, claimed deduction under Section 80P (2) of the Income Tax Act. The assessee society is registered under Tamil Nadu Co-operative Societies Act, primarily engaged in the principle business of providing financial assistance to its members, besides deriving income from i .....

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ural Co-operative Credit Society and with the insertion of Section 80P (4), all the co-operative banks other than primary agricultural credit society or a primary co-operative agricultural and rural development bank, become ineligible for exemption under Section 80P. 3. It is further stated that the meaning of Primary Agricultural Credit Society as defined in Section 5 (cciv) of the Banking Regulation Act, 1949, reads as follows :- (cciv) Primary Agricultural Credit Society means Co-operative So .....

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in the ambit of Primary Co-operative Society. As the assessee society is a co-operative bank within the meaning of explanation of Section 80P (4), the benefit under Section 80P is denied. Aggrieved by the said orders, the assessee society, went before the Commissioner of Income Tax (Appeals)-I, Coimbatore, on appeal, raising the following grounds :- 1. The assessee The Veerakeralam Primary Agricultural Cooperative Credit Society is engaged with the prime objective of providing agricultural credi .....

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ed in disallowing the deduction claimed under Section 80P by the assessee for the reason that the assessee being primary cooperative society carrying on the business of banking. Such a disallowance is not based on the facts and circumstances of the case. 2. The Assessing Officer erred in treating its interest etc., on investments made, as taxable under the head Income from other sources and not under banking business. The judicial decision cited i.e., M/s.Totgar's Cooperative Sale Society Li .....

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e statements made by the Authorised Representative at the time of assessment proceedings. 4. In the aforesaid circumstances, it is earnestly prayed that the deduction u/s 80P may be restored in toto in the assessment and the tax demand raised may be nullified. 4. The appellant has submitted before the Commissioner of Income Tax that Section 80P was amended vide Finance Act, 2006, with effect from 01.04.2007 i.e., from the Assessment year 2008-09 onwards. Sub section (4) was introduced under Sect .....

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s been modified by Section 56 of the said Act, defines 'the Primary Agricultural Credit Society'. In view of the above definition, the assessee society provides financial assistance only to its members for agricultural and related purposes. Its byelaw does not permit admission of any other cooperative society as a member. All the deposits it receive from the members, are deposited into the Coimbatore District Central Cooperative Bank and the credit facilities are withdrawn from these acc .....

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Society can carry on the business of banking. The assessee society is not a primary credit society and has not obtained any license from RBI and the business it carries is not banking as per the Banking Regulation Act. Further, the interest income is derived from Investment in a cooperative society and so claimed deduction under Section 80P (2)(d). Considering the above submissions, the appellate authority, in its order has clearly defined the difference between the Cooperative Bank and the Coop .....

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e Tribunal in the case of ACIT vs. Bangalore Commercial Transport Credit Co-operative Society Limited, in ITA No.1069/Bang/2010 relevant to the AY 2007-08 decided on 08.04.2011, which was subsequently followed by the co-ordinate Benches of the Tribunal and held that the activities are not regulated by the Reserve Bank of India or by the provisions of the Banking Regulation Act. Therefore, the appeal filed by the Revenue was dismissed by the Tribunal. 7. Aggrieved with the abovesaid orders render .....

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Development Bank . And that the deduction is not allowable to a Primary Agricultural Credit Society, carrying on the business of banking. The appellant Revenue has raised such substantial questions of law, in the above appeals. 9. Learned counsel for the respondent submitted that they are a Primary Agricultural Co-operative Credit Society, within the meaning of Section 5 of Banking Regulation Act, 1949. Subsection (cciv) of the said Section, defines the Primary Agricultural Credit Society. The s .....

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isions of sub section 4 of Section 80P, that the benefit shall not be available to Co-operative banks. There is a difference between Co-operative Bank and Co-operative Society, which are registered under different Acts. 'Co-operative banks' are governed by the Co-operative Society registered under the Bank Regulation Act, 1949 and the aforesaid regulation is binding on the Co-operative banks. Whereas, the 'Co-operative societies' are governed by the Co-operative Societies Act, re .....

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bunal, have rightly rejected the contention of the Revenue and passed orders in favour of the assessee society. 10. Heard Mr.T.R.Senthil Kumar, learned Senior Standing Counsel for the appellant and Mr. A.R. Sri Raman for Mr. S. Sridhar, learned counsel for the respondent. 11. At the time of admission, this Court admitted the instant appeals, framing the following substantial questions of law :- 1. Whether on the facts and circumstances of the case, the Appellate Tribunal was right in directing t .....

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adu Co-operative Societies Act, 1964, subsequently in 1968, has changed its name as Veerakeralam Primary Agricultural Co-operative Credit Society . The assessee claims to be a primary agricultural credit society , engaged primarily in the principle business of providing financial assistance to its members, during the assessment years 2008-2009, 2009-2010 and 2010-2011. The members of the society are agriculturists and are governed by the Tamil Nadu Co-operative Societies Act, 1964. A Co-operativ .....

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ing Regulation Act, 1949; going by Explanation (a) occurring after section 80P(4). 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 Income Tax Act. Therefore, primary agricultural credit society means a co-operative society . 13. Sub-section (4) of Section 80P of the Income Tax Act, 1961 is extracted below : (4) The provisions of this section shall not apply in relation .....

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nd the principal object of which is to provide for long-term credit for agricultural and rural development activities. It is seen that the primary object of the society is to provide financial accommodation to its members to meet all the agricultural requirements and to provide credit facilities to the members, as per the bye-laws and as laid down in Section 5 (cciv) of the Banking Regulation Act, 1949. Further, from the CPT Circular dated 12.03.2008, it is evident that a credit co-operative soc .....

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uded for deductions by co-operative banks, whereas the primary agricultural credit societies are entitled for the said deduction. 14. The assessee society does not satisfy the object, as defined under Section 5(cciv) of the Banking Regulation Act, 1949, for becoming a co-operative bank. The decisions, ACIT vs. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010 (AY 2007-08) decided on 08.04.2011, ITO vs. M/s. Yeswanthpur Credit Co-operative Society Ltd. .....

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