TMI Blog2018 (4) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... s order dated 18.10.2016. The relevant assessment year is 2013- 2014. 2. The brief facts of the case are as follows:- 2.1 The assessee is a primary agricultural credit society, registered under the Kerala Co-operative Societies Act, 1969. For the assessment year 2013-2014, the return of income was filed on 26.12.2014 declaring Nil income after claiming exemption u/s 80P(2) of the Income-tax Act, 1961, amounting to ₹ 2,81,61,642. The assessment u/s 143(3) of the I.T.Act was completed vide order dated 10th March, 2016. In the assessment completed, the Assessing Officer rejected the claim of deduction u/s 80P(2) of the I.T.Act. The Assessing Officer concluded that since the assessee was doing the business of banking it was not entitled to deduction u/s 80P(2) of the I.T.Act, in view of the insertion of section 80P(4) of the I.T.Act with effect from 01.04.2007. The Assessing Officer further on adhoc basis disallowedRs.60,83,552 being 5% of the total interest expenditure incurred by the assessee. Further, the Assessing Officer also denied deduction u/s 80P for the interest earned on FDs with Co-operative Bank etc. amounting to ₹ 17,06,876. 3. Aggrieved by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and in the circumstances of the case. 2. The learned CIT (Appeals) ought to have seen that the Supreme Court in the case of Sabarkhanta Zilla Kharid Vechar Sangh Ltd. Vs. CIT reported in 203 ITR 1027 (SC) had held that eligible deduction under section 80P of the Income tax Act, 1961 in respect of co-operative societies/ banks doing both agricultural and non-agricultural activities should not be 100% of the gross profits of such societies etc. but should be limited to the profits generated from agricultural activities alone performed by such assessees. 3. The learned CIT (appeals) ought to have seen that the above Apex court's decision is in sharp contrast to the decision of the Kerala High Court in the case of M/s Chirakkal Service Co-operative Bank ft others in ITA No. 212 of 2013, that held that the authorities under the Income 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 Cooperative Societies Act, 1969. For these and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Chirakkal Service Cooperative 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 Hon'ble High Court rendered the following findings: 15. Appellants in these different appeals are indisputably societies registered under the Kerala Cooperative societies Act 1969, for short, KCS Act and the bye-laws of each of them, as made available to this court as part of the paper books, clearly show that they have been classified as primary agricultural credit societies by the competent autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 of Cooperative Societies, stating that the assessee is a primary agricultural credit society, going by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 actually non-members as per the provisions of law referred. The Hon ble Apex Court specifically took note of the fact that the assessee therein has carved out a category of 'nominal members' who are infact not the members 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 withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 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, therefore, be construed in the context of the provisions of law enacted by the State Legislature under which the co-operative society claiming exemption has been formed. The Supreme Court has further observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 that the judgment of the Hon ble Apex Court in Citizen Co-operative Society Ltd. is not applicable to the facts of the present case. According to me, the judgment 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). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court in the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. vs. CIT reported in 203 ITR 1027 (SC). In the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. (supra), the assessee-society was effecting sales of agricultural inputs of both members as well as non members. The assessee claimed share of the gross profit out of the transactions with members as a deduction from the combined net profit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to the income returned. 9.2 Aggrieved by the above disallowance of interest expenditure, the assessee preferred an appeal to the first appellate authority. The CIT(A) deleted the disallowance made by the Assessing Officer. 9.3 Aggrieved by the order of the CIT(A), the Revenue has raised the issue before the Tribunal. The learned Departmental Representative submitted that the assessee has not produced any details of the interest expenditure before the A.O., therefore, the Assessing Officer was justified in disallowing 5% of the interest expenditure incurred by the assessee. 9.4 The learned AR, on the other hand, relied on the findings of the CIT(A). 9.5 We have heard the rival submissions and perused the material on record. Five percentage of the interest expenditure debited to the profit and loss account was disallowed by the Assessing Officer on adhoc basis for the reason that the assessee was unable to produce the details of the interest expenditure claimed. The CIT(A) had deleted the disallowance after carefully examining the details and evidences that was furnished by the assessee. The CIT(A) categorically found that the adhoc disallowance of 5% of the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by the assessee from financial institutions other than co-operative societies is assessed to tax under income from other sources. 10.2 Aggrieved by the order of the assessment, the assessee preferred an appeal to the first appellate authority raising the above issue. The CIT(A) allowed the appeal of the assessee. 10.3 The Revenue being aggrieved by the CIT(A) s order, has raised ground No.5 and 6 before the Tribunal. The learned Departmental Representative supported the order of the Assessing Officer. 10.4 The learned AR, on the other hand, relied on the findings of the CIT(A). 10.4 We have heard the rival submissions and perused the material on record. The Assessing Officer had denied the benefit of section 80P(2)(d) of the I.T.Act for the reason that the interest received by the assessee was with regard to investments made not from co-operative societies, but with Co-operative Banks. Therefore, according to the A.O., the provisions of section 80P(2)(d) does not have application. The Assessing Officer has identified the interest on such FDs amounting to ₹ 17,06,876. The CIT(A), on the other hand, had given a general finding that a major source of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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