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The Income Tax Officer, Ward-3, Tirur M/s. Nannambra Service Cooperative Bank Ltd.

2018 (2) TMI 866 - ITAT COCHIN

Eligibility for claiming deduction u/s 80P - denial of claim as assessee failed to fulfil the principal objective of providing agricultural credits to members and it was engaged in the business of banking and only negligible percentage of loans disbursed by the assessee was for agricultural purposes - Held that:- An identical issue was considered by this Tribunal in the case of Edanad-Kannur Service Co-operative Bank Ltd [2018 (1) TMI 848 - ITAT COCHIN] wherein held that the Reserve Bank of Indi .....

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sing 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. - The assessee had extended credit facilities only to t .....

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os.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 appeals at the instance of the Department and the Cross Objections filed by the assessee are directed against the consolidated order of the CIT(A) dated 27/06/2016. The relevant assessment years are 2009-10 to 2011-12. 2. Since common issue is raised in these appe .....

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under section 8OP of the Income Tax Act when the assessee failed to fulfil the principal objective of providing agricultural credits to members? 3. The Kerala Co-operative Societies Act(Amendment) Act, 2010, Act 7 of 2010 stipulates that if the principal objective of providing agricultural credits to members is not fulfilled, such society shall lose all characteristics of a Primary Agricultural Credit Society. In view of this, is not the decision of the CIT(A) is against law? 4. The Hon'ble .....

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la Co-operative Societies Act or the nomenclature . 5. In view of the above, the reliance placed by the CIT(A) in the decision of the Hon ble High Court of Kerala in the case of M/s. Chirakkal Service Co-operative Bank and others in ITA No. 212 of 2013 is not correct, especially when a contrary view was taken by another division bench of eh High Court of Kerala in the case of M/s. Perinthalmanna Service Cooperative Bank in ITA No. 4 of 2014. 6. The decision of the Hon ble High Court of Kerala in .....

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s 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- .....

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come Tax Act cannot probe into question whether the assessee cooperative Society is a 'primary agricultural credit society', once it is registered and classified as 'primary agricultural credit society' by the competent authorities under the provisions of the Kerala Co-operative Societies Act,1969. 3. The learned CIT(Appeals) ought to have brought his attention to the decision of the Honourable High Court in the case of Perinthalmanna Service Co-operative Bank Ltd. reported in (2 .....

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ieties Act or at nomenclature of Co-operative Bank. 4. The learned CIT(Appeals) ought to have seen that the Apex court has admitted the SLPs filed by the Department against the decisions of (1) the Honourable Kerala High Court in the case of M/s Karakulam Service Cooperative Bank and (2) the Honourable Karnataka High Court in the case of CIT V. Lokmanya Multipurpose Cooperative Society Ltd. Reported in Part 4 of 394 ITR (ST.) 4. Briefly stated the facts of the case are as follows: The assessee i .....

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of loans disbursed by the assessee was for agricultural purposes. 5. Aggrieved by the denial of deduction u/s. 80P(2) of the Act, the assessee preferred 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 appeal .....

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-12 9.40 % 47.22%. Hence the Assessing Officer denied the exemption claimed u/s 80 P. The CIT (A) allowed the appeal of the assessee relying on the Kerala High Court decision in the case of M/s. Chirackkal Co-Op. Bank Ltd Vs CIT in ITA No: 212/Coch/2013 dated 15-02-2016. The SLP is being filed by the Department before the Hon. Supreme Court. Further reliance is placed on the Hon. Supreme Court judgment reported in 203 ITR 1027-case of Sabarkanthe Zilla Kharid Vechan Sangh Vs. CIT( held- what was .....

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een from para 1 above, appellant assessee has filed return of income for the A.Y. 2007-08 to 2010-11 beyond limit given u/s 139(1). In view of the judgement reported in 266 ITR 1 (SC) - Prakashnath Khanna & Another vs. CIT, order of the AO & CIT (A) be upheld. 6.1 Apart from the written submission, the Ld. DR has also relied on the judgment of the Hon ble Apex Court in the case of Citizen Service Co-operative Bank Ltd. vs. ACIT reported in 397 ITR 1. 6.2 The Ld. AR has filed paper book c .....

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Kannur Service Co-operative Bank Ltd. and others in I.T.A. Nos. 431 to 433/Coch/2017 & others dated 10/01/2018. The Tribunal followed the judgment of the Hon ble High Court of Kerala in the case of Chirakkal Service Co-operative Bank Ltd. (supra). The Tribunal held that the judgment of the Hon ble Apex Court in the case of The Citizens Co-Operative Society Limited vs Assistant Commissioner of Income Tax, reported in 397 ITR 1 (SC) is not applicable to the facts of the case. The relevant find .....

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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, ignor .....

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eties by the competent authority under the provisions of that Act The parliament, having defined the term 'cooperative society' for the purposes of the BR Act with reference to, among other thing the registration 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 u .....

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cultural purposes; the rate of interest on such loans and advances to be at the rate fixed by the Registrar of cooperative societies under the KCS Act and having its area of operation confined to a village, panchayat 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 provi .....

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the BR Act. 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 .....

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;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 said effect and the same is on record. The Hon ble High Court, in the case cited supra, had held that primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969, is entitled to the benefit of deduction u/s 80P(2). Since there is a certificate issued by the Registrar .....

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oing the business of banking and therefore, would not be entitled to deduction u/s 80P(2) of the Income-tax Act. In the context of the submission made by the Revenue let me examine whether the judgment of the Hon ble Apex Court in the case of Citizens Co-operative Society Ltd. (supra) has application to the facts of the present case. 9. The Hon'ble Apex Court judgment in the case of Citizen Co-operative Society (supra) Ltd. was rendered in the context of eligibility of a Credit Co-operative .....

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r the amendment made to the provisions of section 80 P of the Act by insertion of section 80P(4) of the Income-tax Act, the Primary Agricultural Credit Society is eligible for deduction under section 80 P of the Act. 9.1 The assessee society in the case considered by the Hon'ble Supreme Court was established on 31-5-1997 and was registered under section 5 of the Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995. Thereafter as the operations of the assessee had increased manifold .....

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e 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 .....

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rs in the real-sense. Therefore the deposits received from the carved out category viz nominal members who are not the members as per the provisions of the law referred to therein and without the permission of the Registrar of Societies was held to be violative of the provisions and were treated/ proceeded with as deposits from the Public. In other words, in the case before the Hon ble Supreme Court, the finding on the principle of mutuality was arrived at interalia; on the factual finding that .....

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er' as provided in Section 2(1) of the Kerala Cooperative Societies Act includes a nominal member. Section 2 (1) of the said Act is as follows: Member means a person joining in the application for the registration of a co-operative society or a person admitted to membership after such registration in accordance with this Act, the Rules and the Bye law and includes a nominal or associate member 9.4 The 'nominal member' is defined under 2(M) of the Kerala Cooperative Societies Act, 196 .....

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t, it is relevant to mention that the Hon ble Supreme Court in the case of U.P. Co-operative Cane Union v. Commissioner of 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 t .....

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ber 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 defined in the Income Tax Act. Since the Co-operative Society has to be established under the provisions of law made by the State Legislature in that regard, the expression Member in Section 80P(2)(a)(i) must, ther .....

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Act, 1960 takes within its sweep even a nominal member, associate member and sympathizer member. There is no distinction made between duly registered member and nominal, associate and sympathizer member. 19. In the case of K.K.Adhikari (cited supra), Division Bench of this Court has held that the definition of a Member under Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 includes a nominal member or a sympathizer member. It is further held that notwithstanding the fact that a .....

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in Section 80P(2)(iii) of the Income Tax Act to the contrary. 9.8 As per section 3 of the Banking Regulation Act, 1949 the provisions of Banking Regulation Act shall not apply to Primary Agricultural Credit Societies. The explanation to section 80P(4) states that 'Primary Agricultural Credit Society' and 'Co-operative Bank' will have the same meaning as provided in Part V of the Banking Regulation Act, 1949. The explanation provided after clause (ccvi) of section 5 r.w.s 56 of th .....

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he 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 Soc .....

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of the Hon ble jurisdictional High Court is identical to the facts of the present cases and is squarely applicable. Therefore, I hold that the CIT(A) has correctly allowed the claim of deduction in the above cases and I uphold the orders of the CIT(A). It is ordered accordingly. 10. In the result, these appeals filed by the Revenue are dismissed. 7.1 The facts of the instant cases are identical to the facts considered by the Tribunal in the above cases. Following the order of the Tribunal in the .....

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uthority of Co-operative Department of Government of Kerala having been satisfied with the activities of the assessee, has classified the assessee as PACS (primary agricultural credit society). The Hon ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Limited &, Ors. (supra) has elaborately considered the issue and has categorically held that the certificate issued by the competent authority in this regard is binding and the income tax authorities have no right to prob .....

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u/s 263 of the Act. In the said judgment, the Hon ble High Court upheld the order of the ITAT, after directing the Assessing Officer to pass a fresh assessment order untrammeled by any of the views expressed by the revisionary authority. 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 t .....

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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 Court in the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. vs. CIT reported .....

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