TMI Blog2018 (2) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society' or a 'Co-operative bank', within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section 5 r.w.s Section 56 of the Banking Regulation Act. The assessee had extended credit facilities only to the members. The Revenue does not have a case that such credit facilities are extended to the outsiders. Therefore the income generated in the instant case is only out of the transaction with the members. Deduction u/s. 80P is allowed only for the said income. The assessee had claimed deduction u/s. 80P only in respect of net income which is derived by extending credit facilities to the members. - Decided against revenue - I.T.A. Nos.436 to 438/Coch/2016, C.O. Nos. 40 to 42/Coch/2016 And I.T.A. Nos.436 to 438/Coch/2016 - - - Dated:- 8-2-2018 - SHRI CHANDRA POOJARI , AM AND GEORGE GEORGE K., JM For The Revenue : Shri A. Dhanaraj, Sr. DR For The Assessee : Shri M. Ram Kumar Menon, CA ORDER Per GEORGE GEORGE K. JUDICIAL MEMBER: These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on by the Commissioner of Income Tax(Appeals) has not become conclusive as the deduction was not accepted by the department and SLP is being filed in the Supreme Court. 7. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the CIT(A) may be set aside and that of the Assessing Officer restored. 3.1 The Revenue has also filed additional ground which is identical for all the assessment years. The additional ground raised reads as follows: 1. The learned CIT(Appeals) ought to have seen that the Hon'ble Supreme Court in the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. V. CIT reported in 203 ITR 1027(SC) had held that eligible deduction under section 81(l)(d) [substituted by section 80P by the Finance (No.2) Act,1967 w.e.f. 01/04/1968] of the Income Tax Act,1961 in respect of cooperative societies/banks doing both agricultural and non-agricultural activities should not be 100% of the gross profits and gains of business of such societies etc. but should be limited to the profits generated from agricultural activities alone performed by such assesses. 2. The learned CIT(Appeals) ought to have seen that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals to the first appellate authority. The CIT(A) decided the issue in favour of the assessee by following the judgment of the Hon ble Jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. vs.CIT reported in 384 ITR 490. 6. Aggrieved by the consolidated order of the CIT(A), the Revenue has filed the present appeals before the Tribunal. The Ld. DR, apart from relying on the grounds and the additional grounds raised by the Revenue, has filed a brief written submission. The contents of the same are reproduced below: In the case of NSCB Ltd, out of the total loan sanctioned, only negligible percentage given for agricultural purpose. Return filed A.Y. percentage (only agriculture Agriculture Allied 17-1 0-2013 (in response to 148 2009-10 5.90 % 48.21% 17-10-2013 (do) 2010-11 9.40 % 47.22% 17-10-2013 (do) 2011-12 9.40 % 47.22%. Hence the Assessing Officer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC) is not applicable to the facts of the case. The relevant finding of the Tribunal dated 10/01/2018 is reproduced below: 8. I have heard the rival submission and perused the material on record. The undisputed facts are that the assessees in these cases are all primary agricultural credit society and they are registered as such under the Kerala Cooperative Societies Act. The Hon'ble jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Limited , Ors. (supra) had categorically held in para 17 page 14 of the judgment that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. The Hon'ble High Court was considering the following substantial question of law: 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 8OP, ignoring the fact that the assessee is a primary agricultural credit society? 8.1 In considering the above question of law, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The different orders of the Tribunal which are impeached in these appeals do not contain any finding of fact to the effect that the bye- laws of any of the appellant or its classification by the competent 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 8OP of the IT Act by virtue of subsection 4 of that sect; on. 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 regarding the entitlement of exemption under section 8OP 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. 8.2 In the instant case, the assessee's are all primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969. The certificate has been issued by the Registrar of Cooperative Societies to the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee-society got itself registered on 26.07.2005 under the Multi State Co-operative Societies Act, 2002 (MACSA) 9.2 The Hon ble Apex Court in the aforementioned case specifically took note of the factual findings of the assessing officer (which was stated in para 15 of the judgment) referring to the bye laws and the provisions of Mutually Aided Cooperative Societies Act, 1995. The assessing officer was of the view that the assessee therein cannot admit 'nominal members' and most of the deposits were taken from such category of person (as they were not members as per the provisions referred). The Apex Court in para 25 of the Judgment has pointed out that the main reason for disentitling the assessee from getting the deduction provided under section 80 P of the Act is not sub-section (4) of the Act. On the contrary, the Hon'ble Apex Court held that the Credit Co-operative Society was not entitled for deduction u/s 8OP of the Act for the reason of categorical finding of the A.O. that the activities of the assessee are in violation of the Provisions of the MACSA under which it is formed as the substantial deposits were from 'nominal members' who are act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (1999) 237 ITR 574 (SC)-para 8 of the judgment has observed as under:- 8. The expression members is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression members in section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption, has been formed. It is, therefore, necessary to construe the expression members in Section 80P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Co-operative Societies Act. 9.7 The Bombay High Court in Jalgaon District Central v. UOI (2004) 265 ITR 423 (Bom) in the light of the above Supreme Court judgment had held that nominal member is also member under the Maharashtra Co-operative Societies Act and entitled for benefits under section 8OP. [Para 17 to 20 of the judgment], as under:- 17. In case of M/s U. P. Co-op. Cane Union Federation Ltd., Lucknow (cited supra), the Supreme Court has held that the expression Member is not defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final. The Reserve Bank of India, which is the competent authority as per the Banking Regulation Act, treats assessee society and similar societies as only Primary Agricultural Credit Society not falling within the ambit of Banking Regulation Act. The Reserve Bank of India has given letters to the societies similar to assessee stating that they are Primary Agricultural Credit Societies and therefore in terms of section 3 of the Banking Regulation Act are not entitled for banking license; (Copies of such letter from RBI are placed on record). 9.9 That being the case, the assessing officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society' or a 'Co-operative bank', within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section 5 r.w.s Section 56 of the Banking Regulation Act. 9.10 In view of the aforesaid reasoning, I hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority. Whereas the judgment of the Hon ble Jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. (supra) was in respect of the assessment order passed by the Assessing Officer denying the deduction u/s. 80P and is identical to the facts of the present case. 7.4 Further the Reserve Bank of India, which is the authority under the Banking Regulations Act to decide as to whether a Co-operative Society is a Primary Agricultural Credit Society or not, has vide letter UBD(T) No. 438/12-01- 008/2013-14 dated 25/10/2013 informed The Secretary, The Madai Co-operative Rural Bank Ltd. No. F.1233, Head Office, Payangadi Kannur-670303 and vide letter No. UBD(T) No.440/12-01-008/2013-14 dated 25/10/2013, The Kadirur Service Co-operative Bank Ltd. No.F 1262 HO Kadirur, Kannur-670 642 that an institution registered as a Primary Agricultural Credit Society (PACS) is not entitled to obtaining a Banking License, which implies that an entity which is registered as a Primary Agricultural Credit Society cannot be a Bank. A copy of said letter is on record. 7.5 In the additional grounds of appeal, the Revenue has placed reliance on the judgment of the Hon ble Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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