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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George Mathan, JM
This appeal at the instance of the assessee is directed against order of the CIT(A), dated 15.12.2016, passed u/s. 250 of the Income-tax Act. The relevant assessment year is 2011-12.
The CIT(A), after passing the order u/s 250 dated 15.12.2016, has also passed an order u/s 154 of the Act dated 07.01.2020 rectifying his earlier order, wherein levy of interest u/s 234A of the Act has not been considered.
The assessee has raised the following grounds:-
1. The reasons recorded for initiating proceedings u/s. 147 was not communicated to the appellant. Assessment is liable to be set aside.
2. The Assessing Officer ought to have seen that as per section 194A(3)(v) and 194A(3)(viia)(a), the appellant is not liable to deduct TDS on interest payments. The assessing 2 M/s.The Vennala SCB Ltd. officer erred in making additions u/s. 40(a)(ia) for not deducting TDS. The learned Commissioner of Income Tax(Appeals) erred in not considering this ground.
3. Appellant is eligible for deduction u/s. 80P. the learned Assessing Officer erred in not considering the CBDT Circular 133 of 2007 dated 09/05/2007. As per the clarification of CBDT, all co-operative societies other than co-operative banks are eligible for deduction u/s. 80P. The appellant do not fall within the definition of co-operative bank.
The Appellant craves leave to add, amend alter, vary and/or withdraw any or all the above grounds of appeal
4. As regards ground No.1, relating to reopening of assessment is not argued by the learned Counsel for the assessee. Accordingly, the same is dismissed.
5. As regards ground No.2, relating to non-deduction of TDS on interest paid to the members of the assessee, the Assessing Officer observed that the assessee has not deducted tax at source from interest paid to its members, and accordingly, he disallowed the claim of the assessee u/s 40(a)(ia) of the I.T.Act. There was no discussion on this issue in the Appellate order. Aggrieved, the assessee is in appeal before the Tribunal.
After hearing both sides and perusing the material on record, we find that the issue is covered in favour of the assessee by the order of the ITAT Cochin Bench in case of Kadachira Service Co-op. Bank Ltd. v. ITO [(2013) 141 ITD 270 (Cochin-Trib.)]. The relevant finding of the ITAT reads as follows:-
“33. We have considered the rival submissions on either side and also perused the material available on record. The main contention of the taxpayers is that the taxpayer was registered as co-operative societies under the Kerala Co- operative Societies' Act and classified as primary agricultural co-operative societies. We find that this issue was considered by the Kerala High Court in the case of Moolamattom Electricity Board Employees 'Co-operative Bank Ltd., In Re [1999] 238 ITR 630/ 106 Taxman 242 (Ker). The Kerala High Court, after considering the provisions of section 194A of the Income-tax Act found that for the purpose of understanding the cooperative society, the meaning that is given in section 2(19) of the Income-tax Act has to be considered and not otherwise. The co-operative societies are not controlled and governed by RBI and they are registered under the provisions of the State Co-operative Societies Act. There-fore, the Kerala High Court found that the co-operative societies are exempt from provisions of section 194A of the Act. A similar view was taken by the Kerala High Court in the case of ITO v. Thodupuzha Urban Co-operative Bank Ltd [2003] 264 ITR 36/132 Taxman 284 (Ker.). In this case before us also, admittedly, the taxpayers are registered under the Kerala State Co-operative Societies' Act and no approval was obtained from the RBI for carrying out the banking activities. Therefore, for all practical purposes, the taxpayers have to be treated as primary agricultural cooperative societies within the meaning of section 2(19) of the Income-tax Act. In view of the above, as found by the jurisdictional High Court, the taxpayers are exempt from deduction of tax at source u/s 194A of the Act. Accordingly, we are unable to uphold the orders of lower authorities. Hence, the orders of lower authorities are set aside and the addition u/s 40(a)(ia) is deleted.” 6.1 Further, the Cochin Bench of the Tribunal in the case of ACIT v. Kodungallur Town Co-operative Bank Ltd. [ITA Nos.527-529 & 526/Coch/2017 – order dated 31.05.2018] held that the assessees are not liable to deduct TDS u/s 194A of the I.T.Act on the interest paid to its own members. The relevant finding of the Tribunal reads as follow:-
“6.6 The Ld. AR placed heavy reliance on the judgments of the Jurisdictional High Court in the cases of Moolamattom Electricity Board Employees’ Cooperative Bank Ltd. & others (supra) and Thodupuzha Urban Co-operative Bank Ltd. and another (supra). In these cases, it was an admitted fact that the assesses are co-operative societies. Hence, the Jurisdictional High Court came to the conclusion that sub- clause(a) of clause (viia) of sub-section (3) of section 194A was 4 M/s.The Vennala SCB Ltd. applicable. But in the present case, the assessees are not cooperative society but co-operative bank carrying on banking business with the approval of the Reserve Bank of India and as such, the assessees are not liable to deduct TDS under section 194A of the I.T. Act on the interest paid to its own members. On the other hand, the present assessees are liable to deduct TDS on the interest payments to its non members only. This ground of the appeals of the Revenue is partly allowed.”
In view of the orders of the Tribunal in case of Kadachira Service Co-op. Bank Ltd. and Kodungallur Town Co-operative Bank Ltd. (supra), which are similar to that of the issue under consideration, we hold that the assessee is not liable to deduct TDS u/s 194A of the I.T.Act on the interest paid to its own members. It is ordered accordingly.
As regards ground No.3, the issue relates whether the CIT(A) is justified in confirming the Assessing Officer’s order in denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act.
The brief facts of this issue are as follow: The assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969. For the assessment year 2011-2012, return of income was filed declaring NIL income after claiming deduction u/s 80P of the I.T.Act. The assessment order was passed for assessment year under consideration, wherein the Assessing Officer disallowed the claim of deduction u/s 80P of the I.T.Act. The reasoning of the Assessing Officer to disallow the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act was that the assessee was essentially doing the business of banking, and therefore, in view of insertion of section 80P(4) of the I.T.Act with effect from 5 M/s.The Vennala SCB Ltd. 01.04.2007, the assessee will not be entitled to deduction u/s 80P of the I.T.Act.
Aggrieved by the order passed by the Assessing Officer disallowing the claim of deduction u/s 80P(2) of the I.T.Act, the assessee preferred appeal before the first appellate authority for all the assessment year under consideration. The CIT(A) placing reliance on the judgment of the Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT [(2019) 414 ITR 67 (Ker.) (FB) (HC)] held that the Assessing Officer had made elaborate findings and has come to a factual finding that agricultural credit provided by the assessee is only minuscule and assessee cannot be termed as primary agricultural credit society. Accordingly disallowance of claim of deduction u/s 80P of the I.T.Act made by the Assessing Officer was upheld by the CIT(A). In the result the appeal filed by the assessee was rejected by the CIT(A) for assessment year under consideration.
Aggrieved by the order passed by the CIT(A), the assessee has preferred this appeal before the Tribunal.
The learned AR relied on the grounds raised. The learned Departmental Representative, on the other hand, strongly supported the order passed by the Income Tax Authorities.
We have heard the rival submissions and perused the material on record. The Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-operative Co-operative Bank
6 M/s.The Vennala SCB Ltd. Ltd. v. CIT [(2016) 384 ITR 490 (Ker.)] had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society, necessarily, the deduction u/s 80P(2) of the I.T.Act has to be granted to the assessee. However, the Full Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) had reversed the above findings of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Co- operative Bank Ltd. v. CIT (supra). The Larger Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) held that the Assessing Officer has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P of the I.T.Act. It was held by the Hon’ble High Court that the Assessing Officer is not bound by the registration certificate issued by the Registrar of Kerala Co-operative Society classifying the assessee-society as a co-operative society. The Hon’ble High Court held that each assessment year is separate and eligibility shall be verified by the Assessing Officer for each of the assessment years. The finding of the Larger Bench of the Hon’ble High Court reads as follows:-
“33. In view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1] it cannot be contended that, while considering the claim made by an assessee society for deduction under Section 80P of the IT Act, after the introduction of sub-section (4) thereof, the Assessing Officer has to extend the benefits available, merely looking at the class of the society as per the certificate of registration issued under the Central or State Co-operative Societies Act and the Rules made thereunder.
On such a claim for deduction under Section 80P of the IT Act, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of Section 80P.
In Chirakkal [384 ITR 490] the Division Bench held that the appellant societies having been classified as Primary Agricultural Credit Societies by the competent authority under the KCS Act, it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rate of interest on such loans and advances to be at the rate to be fixed by the Registrar of Co-operative Societies under the KCS Act and having its area of operation confined to a Village, Panchayat or a Municipality and as such, they are entitled for the benefit of sub-section (4) of Section 80P of the IT Act to ease themselves out from the coverage of Section 80P and that, the authorities under the IT Act cannot probe into any issues or such matters relating to such societies and that, Primary Agricultural Credit Societies registered as such under the KCS Act and classified so, under the Act, including the appellants are entitled to such exemption.
In Chirakkal [384 ITR 490] the Division Bench expressed a divergent opinion, without noticing the law laid down in Antony Pattukulangara [2012 (3) KHC 726] and Perinthalmanna [363 ITR 268]. Moreover, the law laid down by the Division Bench in Chirakkal [384 ITR 490] is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1], on a claim for deduction under Section 80P of the Income Tax Act, by reason of sub-section (4) thereof, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of Section 80P of the IT Act. In view of the law laid down by the Apex Court in Citizen Co- operative Society [397 ITR 1] the law laid down by the Division Bench Perinthalmanna [363 ITR 268] has to be affirmed and we do so.
In view of the law laid down by the Apex Court in Ace Multi Axes Systems’ case (supra), since each assessment year is a separate unit, the intention of the legislature is in no manner defeated by not allowing deduction under Section 80P of the IT Act, by reason of sub-section (4) thereof, if the assessee society ceases to be the specified class of societies
8 M/s.The Vennala SCB Ltd. for which the deduction is provided, even if it was eligible in the initial years.”
13.1 In the instant cases, the Assessing Officer had denied the claim of deduction u/s 80P of the I.T.Act for the reason that assessee was essentially doing the business of banking and disbursement of agricultural loans by the assessee was only minuscule. Therefore, the Assessing Officer concluded that the assessee cannot be treated as co-operative society. The Assessing Officer after perusing the narration of the loan extracts in the statutory audit report for assessment year under consideration, came to the conclusion that out of the total loan disbursement, only a minuscule portion has been advanced for agricultural purposes. We are of the view that the narration in loan extracts in the audit reports by itself may not conclusive to prove whether loan is a agricultural loan or a non-agricultural loan. The gold loans may or may not be disbursed for the purpose of agricultural purposes. Necessarily, the A.O. had to examine the details of each loan disbursement and determine the purpose for which the loans were disbursed, i.e., whether it is for agricultural purpose or non-agricultural purpose. In these cases, such a detailed examination has not been conducted by the A.O. At the time of assessment, the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal Service Cooperative Bank Ltd. (supra) was ruling the roost and the certificate issued by the Registrar of Co-operative Society terming the assessee as a primary agricultural credit society would be sufficient for grant of deduction u/s 80P of the I.T.Act. In the light of the dictum laid down by the Full Bench of the Hon’ble Kerala
9 M/s.The Vennala SCB Ltd. High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra), we are of the view that there should be fresh examination by the Assessing Officer as regards the nature of each loan disbursement and purpose for which it has been disbursed, i.e., whether it for agricultural purpose or not. The A.O. shall list out the instances where loans have disbursed for non-agricultural purposes etc. and accordingly conclude that the assessee’s activities are not in compliance with the activities of primary agricultural credit society functioning under the Kerala Co-operative Societies Act, 1969, before denying the claim of deduction u/s 80P(2) of the I.T.Act. For the above said purpose, the issue raised in these appeals is restored to the files of the Assessing Officer. The Assessing Officer shall examine the activities of the assessee- society by following the dictum laid down by the Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) and shall take a decision in accordance with law. It is ordered accordingly.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 05th day of October, 2020.