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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George George K, JM
Per Chandra Poojari, AM:
These three appeals filed by the Revenue are directed against common order of the CIT(A), dated 12.09.2018. The relevant assessment years are 2009-2010, 2013-2014 and 2014-2015.
Common issue is raised in these appeals. Hence they were heard together and disposed of by this consolidated order.
The only issue raised in these appeals is with regard to granting of deduction u/s 80P of the Income-tax Act, 1961.
ITA Nos.582-584/Coch/2018 2 M/s.The Kadannamanna SCB Limited. 4. The brief facts of the case are that the assessee is a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969. During the course of assessment proceedings, the Assessing Officer observed that the primary object or principal business of the assessee is not providing financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities, therefore, the society losses all the characteristics of a Primary Agricultural Society. Hence, the A.O. held that the assessee is not entitled for deduction u/s 80P(2) of the I.T.Act. Against this, the assessee went in appeal before the CIT(A). The CIT(A) by placing reliance on the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. and others [(2016) 384 ITR 490 (Ker.)] held that the assessee is entitled to the benefit of deduction u/s 80P(2) of the I.T.Act. The observation of the learned CIT(A) is extracted below :-
“7. I have considered the submissions of the appellant. The Hon’ble High Court of Kerala has considered the question of law in Chirakkal Service Co-operative Bank Ltd. and others [(2016) 68 taxman. Com 298 (Kerala). In considering the above question of law, the Hon’ble High Court of Kerala rendered the following findings:-
"15. Appellants in these different appeals are indisputably societies registered under the Kerala co-operative 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 authority under the provisions of that Act The parliament having defined the term 'co-operative society' for the purposes of the BR Act with reference to, among other things, the
ITA Nos.582-584/Coch/2018 3 M/s.The Kadannamanna SCB Limited.
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 under such State law. This, we visualise as due reciprocative legislative exercise by the Parliament recognising the predominance of decisions rendered under the relevant State Law. In this view of the matter. all the appellants 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 fixed by the Registrar of co-operative societies under the KCS Ad 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 provisions, the appellants had shown to the authorities and the Tribunal that they are primary agricultural credit societies in terms of clause (cciv) of section 5 of the BR Act having regard to the primary object or principal business of each of the appellants. It is also clear from the materials on record that the bye-laws of each of the appellants do not permit admission of any other co- operative society as member, except may be, in accordance with the proviso to sub-clause 2 of section 5(cciv) of 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 80P of the IT Act by virtue of sub- section 4 of that sect; on. In this view of the matter, the appeals succeed.
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 80P 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.”
ITA Nos.582-584/Coch/2018 4 M/s.The Kadannamanna SCB Limited. 5. Aggrieved by the orders of the learned CIT(A), the Revenue is in appeal before us. The learned Departmental Representative submitted as under:-
A division bench of Hon'ble High Court of Kerala vide order in ITA No : 4 of 2014 dated 31.01.2014 in the case of M/s Perinthalmanna Service Co- Operative Bank Ltd had upheld the order of the Commissioner of income Tax revising the order of the assessing officer in which the assessing officer had granted deduction u/s. 80P merely looking at the registration certificate provided by the Registrar of the Kerala Co-Operative Societies. The Court held that the Assessing Officer has to complete the assessment proceedings after conducting an enquiry and not by merely looking at the registration certificate provided by the Registrar. Whereas, vide order No : 212 of 201:: & Ors, the High Court in the case of M/s Chirakkal Service Co- Operative Bank Ltd have ruled that the assessee was classified as Primary Agricultural Credit Society by the competent authority under the Kerala Co- operative Societies Act, it has necessarily to be held that the principal object of such society is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes. The authorities under the Income Tax Act cannot probe into any issue or such matter relating to such assesses. However, when the case was again taken for hearing in the case of other assessees, the Hon'ble High Court of Kerala vide order in ITA No : 97 of 2016 dated 09.07.2018 cited has held that since two contrary decisions of benches of equal strength exists for the same issue, the issue should be referred to a larger bench relying on the decision of the Apex Court in the case of MIs Victory Aqua Farm Ltd. Therefore, the issue of deduction u/s. BOP has not attained finality. In this scenario, isn't the order of the CIT(A) relying on the decision of one division bench of the Hon'ble
ITA Nos.582-584/Coch/2018 5 M/s.The Kadannamanna SCB Limited. High Court in the case of MIs Chirakkal Service Co- Operative Bank Ltd without merits when there existed another division bench decision of the High Court which was favourable to the revenue?
The CIT(A) should have appreciated the fact that the Hon'ble Apex Court in the case of MIs The Citizen Co-Operative Society Limited Vs Assistant Commissioner of Income Tax, Circle- 9(1), Hyderabad has decided the issue of deduction u/s. 80P in favour of the revenue as the assessee society did not satisfy the principle of mutuality which also applies squarely to the assessee society. In view of this, order of ClT(A) against law and the facts and circumstances ofthe case?
The Commissioner of Income Tax (Appeals) placing reliance on the decision of the Honourable High Court of Kerala in the case of M/s Chirakkal Service Co-op Bank Ltd. & others in ITA 212 of 2013, had held that the assessee is eligible for deduction u/s 80P of the Income Tax Act solely on the basis that it has been registered and classified as a Primary Agricultural Credit Society by the Competent Authority under the Kerala Co-operative Societies (KCS) Act. As against this, the Honourable Supreme Court has while deciding in the case of The Citizen Co-Operative Society Limited Vs Assistant Commissioner of Income Tax, Circle- 9(1), Hyderabad had taken into consideration the activities of the assessee society and not relied only on the certificate of registration issued by the Central Registrar of Co-operative societies. In view of this, is not the decision of the CIT(A) against the prevailing positions of law that differentiates between de jure and de facto positions and which permits the principle of penetration of the corporate veil to determine the true nature of the activities of the cooperative society?
ITA Nos.582-584/Coch/2018 6 M/s.The Kadannamanna SCB Limited.
5.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 & others in ITA 212 of 2013 that held that the authorities under the Income Tax Act cannot probe into the question of 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.
The learned CIT(Appeals) ought to have seen that the Honourable Supreme Court in the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd Vs CIT reported in 203 ITR1027 (SC) had held that the 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.
7.The judicial ratios in the cases of Rodier Mill Employees Co-op Stores Ltd. Vs CIT 135 ITR 355 (Mad), ClT Vs Kerala State Co-operative Marketing Federation Ltd.[1998] 234 ITR 301(Ker) and Kerala State Co-operative Agricultural Rural Development Bank Ltd. Vs ACIT [ITA No.506/Coch/2010 & S.P. No.67/Coch/2010 hold that carte blanche deductions u/s 80P are not available to cooperative societies merely on the basis of professed agricultural credits on the basis of mere registration and classification. In view of this, is not the decision of the CIT(A) without merits?”
ITA Nos.582-584/Coch/2018 7 M/s.The Kadannamanna SCB Limited. 6. On the other hand, the learned AR supported the orders of the learned CIT(A). In support of his argument, he has furnished a written submission, which is on record.
We have heard the rival submissions and perused the material on record. Admittedly, similar issue was considered by the Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. (supra) and the learned CIT(A) has rightly followed the decision of the Hon’ble Kerala High Court and granted relief u/s 80P(2) of the I.T.Act, to the assessee. Therefore, we do not find any infirmity in the orders of the learned CIT(A), the same are confirmed.
In the result, appeals filed by the Revenue are dismissed. Order pronounced on this 18th day of February, 2019.
Sd/- Sd/- (George George K) (Chandra Poojari) JUDICIAL MEMBER ACCOUNTANT MEMBER
Cochin ; Dated : 18th February, 2019. Devdas*
Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT (A), Kozhikode. 4. The Pr.CIT, Kozhikode. 5. DR, ITAT, Cochin 6. Guard file.
BY ORDER,
(Asstt. Registrar) ITAT, Cochin