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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George Mathan, JM
O R D E R
Per CHANDRA POOJARI, AM :
This appeal at the instance of the assessee is directed against the order of the CIT(A), dated 29/11/2019 passed u/s 154 r.w.s. 250 of the Income-tax Act. The assessee has also preferred Stay Petition in S.P. No.46/Coch/2020 seeking recovery of outstanding tax arrears. The relevant assessment year is 2009-10.
The assessee has raised the following grounds of appeal:
A. The Commissioner (Appeals), Thrissur ought to have considered that the issue whether the assessing officer shall probe into the activities of Co-operative Society to find out whether it is eligible for deduction u/s. 80P of the Income Tax Act 1961 or will it be hit by Section 80P(4) is a matter to be decided by the Hon’ble Supreme Court in the appeals [SLP (Civil) Diary No. 27628/2019] filed by the Co- operative Societies in Kerala, against the reference order dated 19/03/2019 of the Full Bench of Hon’ble High Court of Kerala in the case of Mavilayi Service Co-operative Bank Ltd., vs. Income Tax Officer,
M/s.The Ollukkara SCB Ltd. Kannur and that the Apex Court has issued notice on the prayer for stay of the order of High Court. B. The Commissioner(Appeals) Thrissur as well as the AO ought to have appreciated that even if the appellant is not a Primary Agricultural credit Co-operative Society the appellant is not a Co- operative Bank and hence eligible for deduction u/s. 80P of the Income Tax Act, 1961 in the light of the clarification No.133/06/2006-07 dated 19-05-2007 issued by CBDT, New Delhi, which is binding on the AO. C. The view of the Commissioner(Appeals) Thrissur as well as the AO that Primary Agricultural Credit Co-operative Societies only are eligible for deduction u/s. 80P is diametrically opposite to the view points expressed by various appellate authorities all over the country in the decisions mentioned below, to name a few: (a) High Court of Karnataka in Bangalore Commercial Transport Credit Society Ltd. – dated 27-06-2014. (b) High Court of Gujarat – Jafari Momin Vikas Co-op Credit Society Ltd. In Tax Appeals No. 442 of 2013, 443 of 2013 and 863 of 2013 on 15-01-2014. (c) High Court of Karnataka – Income Tax Officer Vs. Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot on 5th February 2014. (d) High Court of Bombay at Goa – Quepem Urban Co-operative Credit Society Ltd. Vs. Assistant Commissioner of Income-tax on 17-04-2015. (e) Madras High Court – The Commissioner of Income Tax vs. NIC Employees Co-operative Society on 10 august 2016. (f) ITAT, Panaji – Athani Taluka Primary Teachers Co-operative Credit Society Ltd. ITA No. 06/PNJ/2014 on 04/07/2014 (g) ITAT, Poona- Jankalyan Nagri Sahakari Pat Sanstha Ltd. Reported in 24 Taxmann.com (Pune Tribunal) 127. (h) ITAT, Ahmedabad – Jafri Momin Vikas Co-op Credit Society on 31 October, 2012. (i) ITAT, Indore – Bhee Thrift & Credit Co-operative Society on 31 October, 2012 (j) ITAT, Bangalore – Yeshwantpur Credit Co-operative Society on 11 April, 2012.
M/s.The Ollukkara SCB Ltd. (k) ITAT, Ahmedabad – Sarvodaya Credit Cum Consumers Co- operative Society on 3 May, 2013. (l) ITAT, Pune – Jain Nagri Sahakari Pat Sanstha Department of Income Tax on 14 September, 2012. (m) ITAT, Pune – Dharasur Mardini Nagar Sahakari on 20 November, 2012. (n) ITAT, Pune – Vardhman Nagari Sahakari Path Sanstha on 22 November, 2012. (o) ITAT, Delhi – Palhawas Primary Agriculture Co-op Society Ltd. Palhawas Distt., ITA No.2368/Del/2011. (p) ITAT, Delhi Dharuhera Primary Agriculture Co-op Society – dated 02-08-2018. (q) ITAT, Mumbai – The Income Tax Officer, Ward-20(2)(1), Mumbai – ITA No.1820/Mum/2017 dated 02-08-2018.
D. When there is no dearth of decisions of various High Courts and ITATs in India in which detailed discussions were made and conclusion arrived on the subject matter of eligibility for deduction u/s. 80P, disallowance of claim under the said Section made by the AO and CIT(Appeals) relying on unrelated decisions is denial of natural justice to the appellant. E. The Appellant prays that the general outlook in the decisions of various High Courts and ITATs across the country on the disallowance of claim for deduction u/s. 80P, adopted on the basis of CBDT Clarification No.133/06/2006-07 dated 19-05-2007 shall be taken into consideration while disposing this appeal petition. F. The Appellant prays that the disallowance of claim for deduction u/s. 80P made in respect of income from banking and credit business with members may be deleted.
The main issue that is raised is 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.
M/s.The Ollukkara SCB Ltd. 4 The brief facts of the case are as follow: The assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969. For the assessment year 2009-10 return was filed after claiming deduction u/s 80P of the I.T.Act. The assessment order was passed for assessment year 2009-10 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 01.04.2007, the assessee will not be entitled to deduction u/s 80P of the I.T.Act.
Aggrieved by the order of assessment denying the claim of deduction u/s 80P(2) of the I.T.Act, the assessee preferred appeal to the first appellate authority. The CIT(A) allowed the appeal by holding that the assessee was eligible for deduction u/s 80P of the I.T.Act. The interest income received from other banks and treasury also was allowed as deduction u/s 80P(2)(a)(i) of the I.T.Act. In allowing the appeal of the assessee, the CIT(A) followed the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal Service Co- operative Co-operative Bank Ltd. v. CIT [(2016) 384 ITR 490 (Ker.).
Subsequently, the CIT(A) issued notice u/s 154 of the I.T.Act proposing to rectify his order passed, in view of the subsequent judgment of the Full Bench of the Hon’ble
M/s.The Ollukkara SCB Ltd. jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT [ITA No.97/2016 order dated 19th March, 2019]. The assessee objected to the issuance of notice. However, the CIT(A) rejected the objections raised by the assessee and passed order u/s 154 of the I.T.Act, disallowing the claim of the assessee u/s 80P(2) of the I.T.Act.
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 orders 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 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
M/s.The Ollukkara SCB Ltd. 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 M/s.The Ollukkara SCB Ltd. 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 for which the deduction is provided, even if it was eligible in the initial years.” 9.1 The CIT(A) had initially allowed the appeal of the assessee and granted deduction u/s. 80P(2) of the I.T. Act. Subsequently, the CIT(A) passed order u/s. 154 of the I.T. Act, wherein the claim of deduction u/s. 80P of the I.T. Act was denied, by relying on the judgment of the Larger Bench of the Hon’ble Jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. Vs. CIT (supra). The CIT(A) ought not to have rejected the claim of deduction u/s. 80P(2) of the I.T. Act without examining the activities of the assessee-society. The Full Bench of the Hon’ble
M/s.The Ollukkara SCB Ltd. Jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. vs. CIT (supra) had held that the A.O. 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. In view of the dictum laid down by the Full Bench of the Hon’ble Jurisdictional High Court (supra), we restore the issue of deduction u/s. 80P(2) to the files of the Assessing Officer. The Assessing Officer shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co- operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s. 80P(2) of the I.T. Act.
Regarding Ground No. 2 relating to disallowance of claim for deduction u/s. 80P made in respect of income from banking and credit business with members, we find that a similar issue came up for consideration before the co-ordinate Bench of the Tribunal As regards the interest on investments with Co-operative Banks and other Banks, the co-ordinate Bench order of the Tribunal in the case of Kizhathadiyoor Service Co-operative Bank Limited in (order dated 20.07.2016), had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as ‘income from business’ instead of ‘income from other sources’. However, as regards the grant of deduction u/s. 80P of the I.T. Act on such interest income, the Assessing Officer shall follow the law laid down by the M/s.The Ollukkara SCB Ltd. Larger Bench of the Hon’ble Jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. vs. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s. 80P of the I.T. Act on such interest income. It is ordered accordingly. Thus, the appeal filed by the assessee is allowed for statistical purposes.
Since we have remitted the appeal of the assessee to the file of the Assessing Officer, the Stay Petition filed by the assessee in S.P. No.46/Coch/2020 has become infructuous and is dismissed as such.
In the result, the appeal filed by the assessee is allowed for statistical purposes and the Stay Petition filed by the assessee is dismissed.
Order pronounced on this 5th day of October, 2020.