ACIT NON CORPORATE CIRCLE 2, CHENNAI vs. TAMILNADU COOPERATIVE STATE AGRICULTURE AND RURAL DEVELOPMENT BANK LTD., CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:

Income Tax (Appeals) held the assessee to be eligible for deduction u/s.80(P)(2) of the Act.

Contention of the ld. DR was that assessee was disbursing loans through its member primary banks which were treated as associate members. Contention of the ld. DR was that by virtue of judgment of Hon’ble Apex Court in the case of The Citizen Co-Operative Society Ltd vs. ACIT, (Civil Appeal No.10245 of 2017, dated 8.8.2017) the deduction u/s.80 (P) (2) of the Act could not be given where business of the assessee society included lending to associate members.

Relying on Section 80P(4) of the Act, ld. DR submitted that assessee’s operations were not restricted to a Taluk but spread all over the State.

As per the ld. DR, Section 80P(4) of the Act specifically disentitled a society doing banking business, from claiming deduction u/s.80P(2)(a)

(i) of the Act.

Per contra, ld. Authorised Representative strongly supporting the 3.

orders of the authorities below submitted that ld. Commissioner of Income Tax (Appeals) had followed assessee’s own case for & 52/CHNY/2017 :- 3 -: assessment year 2009-2010. According to him, assessee was not a bank recognized by the RBI and hence Section 80P(4) of the Act have no application. Ld. Counsel fairly admitted that for assessment year 2010-2011, this Tribunal in assessee’s own case in dated 16.11.2017 had held in favour of the Revenue.

‘’4.In the Revenue’s appeal, the Revenue has raised the following grounds:

1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case. 2.1 The learned CIT(A) erred in holding that the assessee is eligible for deduction u/s.80(P)(2) of the Act. 2.2 The Learned CIT(A) has not appreciated the fact that the assessee bank may not function as a normal scheduled bank. But it functions as a bank specialized in re-finance. The business of banking cannot be narrowly taken to the definition of banking as per the Banking Regulations Act. The assessee bank gets loans from NABARD, State Governments, raises debentures and finance to its members.

2.3 The learned CIT(A) failed to appreciate that the assessee bank claims that it only lends to its members. The annual report of the bank states that the bank has disbursed jewel !oans both directly and also through its member primary banks, but the bank claims that the members of its member banks become associate members and avail loans. Sec. 80P(2) speaks only about lending loans to its member and the scope cannot be widened.

& 52/CHNY/2017 :- 4 -:

2.4 The learned CIT(A) failed to appreciate that the intention of the legislature is that the provisions of section 80P(2) cannot be Agricultural credit society or a primary Co-operative Agricultural and Rural Land Development Bank. 2.5 The CIT(A) failed to appreciate that the Tamil Nadu Co- operative State Agricultural & Rural Development Bank Limited is the Apex bank to all primary Co-operative agricultural and rural development banks in the state. According to explanation (b) to section 80P(4), the primary co-operative agricultural and rural land development banks can claim this deduction only if its operation is restricted to a “Taluk”. In the instant case, the operations are spread all over the state and being the apex bank, the assessee cannot claim the status of a primary bank. 2.6 The learned CIT(A) erred in holding that the assessee being a co-operative bank is eligible for deduction u/s.80P of the Act, without appreciating the fact that the assessee bank is entitled to float debentures and to receive deposits as per clause 4 of the bye-laws and further entitled to subscription of shares, debentures and other borrowings as per clause-13 of the bye- laws, making it clear that the assessee has all characteristics of a bank, and not a primary agricultural credit society.

5. It was submitted by the Ld.DR that the AO had denied the assessee the benefit of deduction u/s.80P of the Act. On appeal, Ld.CIT(A) had held that the assessee was entitled to the deduction u/s.80P. The Ld.CIT(A) had followed the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for the AY 2009-10 in dated 01.05.2014. It was a submission that the issue was now squarely covered by the decision of the Hon’ble Kerala High Court in the case of Kerala State Co-operative Agricultural & Rural Development Bank Ltd., reported in [2016] 67 taxmann.com 111 (Kerala), wherein it has been held that “in terms of the definition clauses of the BR Act which apply to the interpretation of the terms in Secti6n 80P(4) of the IT Act in view of the Explanation to that sub-section as enunciated above, an assessee co- operative society which has other co-operative societies as members is not eligible to the exemption and the appellant is not a primary agricultural credit society as found above”. It was a submission that the order of the Ld.CIT(A) was liable to be reversed.

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However, when the case was heard by this Tribunal none of the parties pointed out the judgment of Hon’ble Apex Court in the case of The Citizen Co-Operative Society Ltd (supra). Their lordships in the case had considered the issue whether deduction u/s. 80P(2)(a) (i) of the Act could be given to a society which was doing business with associate members. One of the contention raised by the ld. DR here is that assessee was disbursing loans through its member primary banks which were treated as associate members. Neither ld. Assessing Officer nor other authorities had the benefit of the judgment of Hon’ble Apex Court in the case of The Citizen Co-Operative Society Ltd (supra) while deciding whether assessee was eligible for claiming deduction u/s.80P(2)(a) (i) of the Act. In fact ld. Commissioner of Income Tax (Appeals) had allowed the claim of the assessee & 52/CHNY/2017 :- 6 -: u/s.80P(2)(a) (i) of the Act, considering an alternative ground of the assessee. In the circumstances, we are of the opinion that the issue requires a fresh look by the ld. Assessing Officer. We therefore set aside the orders of the lower authorities and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with law.

Order pronounced on Monday, the 5th day of March, 2018, at Chennai.