THE INCOME TAX OFFICER, WARD -4, PUDUCHERRY vs. KALAPET PRIMARY AGRICULTURAL CO-OPERATIVE BANK LTD. , PONDICHERRY

आदेश / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

These are appeals filed by the Revenue directed against an

order dated 28.06.2017 of ld. Commissioner of Income Tax (Appeals)-

Puducherry.

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the Act. 2.The learned Commissioner of Income Tax (Appeals) has erred by restricting his consideration to clause (cciv) of Section 56 of Part-V of the Banking Regulation Act, 1949 where such restriction is not apparently mandated vide Explanation (a) to Section 80P(4) of the Income Tax Act, 1961. 3.The learned Commissioner of Income Tax (Appeals) erred by failing to consider the stipulations vide clause (ccv) of Section 56 of Part-V together with Section 5(b) of the Banking Regulation Act, 1949. 4. The learned Commissioner of Income Tax (Appeals) has erred by failing to take note of the Assessing Officer's finding that the assessee-society is engaged in banking activities viz., business of accepting, for the purpose of investment, of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise . 5. The learned Commissioner of Income Tax (Appeals) has erred by failing to consider the Assessing Officer's other finding that the assessee-society's paid-up share capital and reserves exceeded one lakh of rupees. 6. The learned Commissioner of Income Tax (Appeals) has erred by failing to consider that the assessee is a primary co-operative bank with reference to Clause (ccv) of Section 56 of Part-V considered together with Section 5(b) of Banking Regulations Act, 1949. 7. The ITAT in its order in ITA No. 634/Mds/2016 and 295/mds/2017 dt: 19.05.2017 has remitted the issue back to the file to the A.O. for fresh consideration for A.Y. 2009-10 and the same is under consideration. The A.O. has been directed to consider both the issues afresh by the ITAT’’.

indicate that it is aggrieved on ld. Commissioner of Income Tax

(Appeals) allowing deduction claimed by the assessee u/s. 80P(2)(a)

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(i) of the Income Tax Act, 1961 despite restriction contained in Sec.

80P(4) of the Act.

Ld. Counsel for the Revenue submitted that ld. Commissioner 4.

of Income Tax (Appeals) had not addressed the question in a proper

prospective. As per the ld. DR, Sec. 80P(4) of the Act clearly excluded

Co-operative Banks other than primary agricultural credit society and

primary co-operative agricultural and rural development bank from

the purview of Section 80P(2)(a) of the Act. As per the ld. DR, ld.

Assessing Officer had given a clear finding that assessee was neither

an agricultural credit society nor primary co-operative agricultural and

rural development bank. As per the ld. DR, assessee was engaged in

the business of banking and hence not eligible for deduction claimed

under Section 80P(2)(a)(i) of the Act.

Per contra, ld. Authorised Representative submitted that 5.

same issue had come up before the Tribunal in assessee’s own case

for assessment year 2009-2010. As per the ld. Authorised

Representative, the Tribunal in its order dated 19.05.2017 in ITA

No.634/Mds/2016 and 295/Mds/2017 had remitted the matter back to

the ld. Assessing Officer for considering the matter afresh. However,

as per the ld. Authorised Representative by virtue of judgment of

Hon’ble Jurisdictional High Court in the case of CIT vs. Veerakeralam

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Primary Agricultural Co-operative Credit Society, 388 ITR 492 and that

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)

assessee could not be denied deduction claimed u/s.80P(2)(a)(i) of the

Act.

We have considered the rival contentions and perused the 6.

orders of the authorities below. Ld. Commissioner of Income Tax

(Appeals) had followed his own order for assessment year 2009-2010

while allowing the appeal of the assessee. Relevant paras 7.1 to 7.4 of

the ld. Commissioner of Income Tax (Appeals) is reproduced

hereunder:- ‘’7.1 I have considered the facts of the -cases as narrated by the AO in the assessment order, claimed by the assessee in the grounds of appeal and explained by the ldAR in his written submission. 7.2 In respect of the denial of -deduction ujs.80P, in the assessee's own case for the AY 2009-10 on a similar set of facts, vide my orders in ITA No.223/CIT(A}- PDY/2013-14 dated 31/12/2015 held that the assessee is not a 'primary co- operative agricultural bank' within the meaning as provided in sec:80P(4)(b) and further that the assessee satisfies the second condition of s.56(cciv) of the Banking Regulation Act and thus held that as the assessee is a primary agricultural credit society, it continues to be eligible for deduction u/s.80P even after the insertion of sub-section (4) by the Finance Act, 1967.

7.3 As regards the disallowance on account of non- deduction of TOS on interest, in a similar set of facts for the AY 2009-10 in the assessee's own case vide my orders in ITA No.7/CIT{A}-PDY/2015-16 dated

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31/12/2015 held that as the assessee is held to be a primary agricultural credit society.. there is no mandate to deduct the tax at source on the interest credited or paid by it. 7.4 Consistent with the above view, I hold that the assessee is eligible for the deduction claimed u/s.80P and that the TDS provisions do not apply to the facts of the case’’.

Revenue came in appeal before the Tribunal for assessment year

2009-2010. What was held by the Tribunal in its order dated

19.05.2017 in ITA No.634/Mds/2016 and 295/Mds/2017 at para Nos.

5 & 6 is reproduced hereunder:-

‘’5. In summation The assessee, a co-operative society, claimed deduction under section 80-P of the Act on it’s entire income/profit for the year. Section 80P of the Act is in respect of deduction on the incomes specified there-under of a co- operative society. Sub-section (1) spells out the contours of the deduction, i.e., to an assessee, being a co-operative society, the gross total income of which includes any income referred to in sub-section (2), allowing deduction in accordance with and subject to the provisions of the said section. With regard to a cooperative society carrying on the business of banking or providing credit facilities to its members, it is the whole amount of profits or gains of the business attributable to such activity. Sub-section (4), inserted by Finance Act, 2006 w.e.f. 01.4.2007, provides that the provisions of sec. 80P shall not apply in relation to a ‘co- operative bank’ other than a ‘primary agricultural credit society’ or a ‘primary co-operative agricultural and rural development bank’. While the former two terms are to have the same meaning as respectively assigned to them in Part V of the Bank Regulation Act, 1949 (‘BR Act’ for short), a ‘primary co-operative agricultural and rural development bank’ stands defined vide Explanation (b) thereto. The assessee’s claim was disallowed by the AO in assessment on the ground that the assessee-society is a primary cooperative bank, a term defined under the BR Act, as a co-operative- society, other than a primary agricultural credit society, whose primary object or principal business is the transaction of banking business. Further qualifications (for it to be so

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regarded), and which are satisfied in the present case, is that it’s paid-up capital is not less than one lakh of rupees and, further, that its bye-laws do not permit admission of any other co-operative society as a member. At this stage, it may be clarified that in view of the Banking Laws (Application to Cooperative Societies) Act, 1965, the BR Act, to the extent specified there-under, applies to co-operative societies. Sec. 56 (falling under Part-V) of the BR Act, is relevant in this regard and is extracted as under in its relevant part: ‘PART V OF BANKING REGULATION ACT, 1949: APPLICATION OF THE ACT TO CO-OPERATIVE BANKS Act to apply to co-operative societies subject to modification 56. The provisions of this Act, as in force for the time being, shall apply to, or in relation to, Co- operative Societies as they apply to, or in relation to, banking companies subject to the following modifications, namely :— (a) throughout this Act, unless the context otherwise requires,— (i) references to a “banking company” or “the company” or “such company” shall be construed as references to a Co-operative Bank, (ii) references to “commencement of this Act” shall be construed as references to commencement of the Banking Laws (Application to Cooperative Societies) Act, 1965 (23 of 1965) ; (b) in section 2, the words and figures “the Companies Act, 1956 (1 of 1956), and” shall be omitted ; (c) in section 5,— (i) after clause (cc), the following clauses shall be inserted, namely:- ‘(cci) “Co-operative Bank” means a state Co- operative Bank, a central Cooperative Bank and a primary Co-operative Bank; (ccii) ……; (cciia) ‘co-operative society’ means a society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-State co-operative societies, or any other Central or State law relating to cooperative societies for the time being in force; (cciv) (extracted earlier) (ccv) “primary Co-operative Bank” means a Co- operative Society, other than a primary agricultural credit society,—

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(1) the primary object or principal business of which is the transaction of banking business ; (2) the paid-up share capital and reserves of which are not less than one lakh of rupees ; and (3) the bye-laws of which do not permit admission of any other Co-operative Society as a member : Provided that this sub-clause shall not apply to the admission of a Co-operative Bank as a member by reason of such Cooperative Bank subscribing to the share capital of such Cooperative Society out of funds provided by the State Government for the purpose; (ccvi) “primary credit society” means a Co-operative Society, other than a primary agricultural credit society,-’ In appeal, the assessee claimed to be a primary co-operative agricultural and rural development bank, a species of a primary co-operative bank, defined in section 80-P, which excepts such a bank from the operation of section 80- P(4), which sub-section, inserted by Finance Act, 2006, w.e.f. 01.4.2007, excludes a co- operative bank from the purview of section 80-P(1). Reference here may also be drawn to s. 2(24)(viia), also inserted along with, including the profits and gains of any business of banking, or provision of credit facilities to its members, by a co-operative society, in the definition of income, inclusively defined u/s. 2(24). The ld. CIT(A), with reference to the assessee’s bye-laws, found it to be not so in-as-much as the assessee is engaged in, among others, providing short-term and medium-term credit for agricultural purposes. The assessee, however, was found by him to be a primary agricultural credit society, i.e., a co-operative society whose primary object or principal business is to provide financial accommodation to its members for agricultural and allied purposes, excepted u/s. 80-P(4). In further appeal by the Revenue, while it challenges the finding on the basis of which the assessee stands allowed relief, the assessee supports the impugned order. Without doubt, upon amendment by Finance Act, 2006, a co-operative society engaged in the business of banking or provision of credit facilities to its members, which (businesses) are thus regarded at par (also refer s. 2(24)(viia)), only societies excepted u/s. 80-P(4) would qualify for deduction u/s. 80-P(1). The law in the matter is amply clear, with the Hon’ble jurisdictional High Court in CIT v. Madras Autorickshaw Driver’s Cooperative Society Ltd. [1983] 143 ITR 981 (Mad) (affirmed in [2001] 249 ITR 330 (SC)), clarifying that deduction u/s. 80-P is assessee specific, so that the same shall extend to eligible societies only. Taxing statutes, it is well settled, are to be strictly construed

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(viz. UOI vs. Bombay Elphinstone Spinning & Weaving Co. Ltd. & Ors. 2001(1) SC 536;); more so an exemption provision, cast as it does an exception from the general rule and natural tenor of the statute (Orissa State Warehousing Corpn. vs. CIT [1999] 237 ITR 589 (SC); Novapan India Ltd. v. CCE 1994 (73) ELT 769 (SC)), and is accordingly to be interpreted only in terms of the language used by the statue (Bombay Elphinstone Spinning & Weaving Co. Ltd. (supra); IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521 (SC)). Not to do so, i.e., to take cognizance of the same, interpreting it by applying the recognized interpretative processes, amounts to legislating, which the courts of law, cannot, even as clarified by the Apex Court time and again, further clarifying in CBI vs. Keshub Mahindra & Others [in Curative Petition Nos. 39- 42 of 2010 in Criminal Appeal Nos. 1672 1675 of 1996] that no Court, including itself, could read the law in a manner so as to nullify the express provisions of an Act or Code (para 4 of the decision). Coming back to the facts of the case, we observe that while the finding of the assessee being a primary co-operative bank, i.e., by the assessing authority, has not been disputed, the finding as to it being a primary agricultural credit society cannot be said to be correct on facts on record, as its’ bye-laws clearly provide, and in no small measure, for extension of credit to its members by the assessee for non-agricultural purposes. In-as- much as, however, the assessee’s principal business, in pursuance to some of its’ objects, could yet be to finance agricultural and allied activities, it, nevertheless and despite its’ objects, may be a primary agricultural credit society, eligible for deduction u/s. 80- P(1) r/w s. 80-P(4); it admittedly being not a primary cooperative agricultural and rural development bank. In other words, it being a primary co-operative bank, one of the three cooperative banks, shall not be a limiting factor, or shall become an irrelevant consideration where the assessee is shown to be a primary agricultural credit society; rather, the definition of the former excludes the latter (s.5(ccv) of the BR Act). The only option available for the assessee is of its’ claim being examined on this aspect, and the issue determined on the basis of a finding in the matter, a question of fact, allowing it an opportunity to exhibit its’ case in the matter, with reference to its principal or dominant business. We are conscious that the assessee has at no stage claimed to be so, i.e., to be a primary agricultural credit society; rather, stating of its’ claim to have been erroneously so regarded by the AO (refer ‘statement of facts’ forming part of the Memo of Appeal before the ld. CIT(A)). And, further, of the claim by its’ counsel before us as without reference to and de hors any material on record; nay, contrary thereto. The question, however, is one of fact, on which we find no examination at any stage, so that the

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claim may well be true and, in any case, remains to be determined. It needs to be appreciated that it is the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter (CIT v. C. Parakh & Co. (India ) Ltd. [1956] 29 ITR 661 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)). Finally, even where the assessee succeeds, it being only on the basis of its’ ‘principal business’, which, could vary in it’s composition from year to year, i.e., in response to the market (supply and demand) forces, the assessee- bank’s claim would necessarily require being reviewed on a year to year basis, and decided on the basis of facts found. Two, the deduction u/s. 80P(1) shall be necessarily restricted to the income from the activities, as well as the income/s, specified u/s. 80P(2). The matter, accordingly, is restored to the file of the AO to determine the assessee’s claim as made before us, i.e., of its’ principal business being to provide financial accommodation to its members for agricultural (and allied) activities. The word ‘principal’, a word of common usage, is well understood both in law and in common parlance. Its use, in conjunction with the words ‘primary object’, as explained in Madras Autorickshaw Driver’s Cooperative Society Ltd. (supra), is to ascertain the character of the business being actually carried out by the society in terms of its’ objects. The maintainability of section 194A(3)(viia), on the basis of which relief stands allowed to the assessee by the ld. CIT(A) in the Revenue’s second appeal, is consequential, though the assessee, a co-operative society in the business of banking, is at liberty to advance its’ case, i.e., as to the non-application of section 194A(1), alternatively, on any other ground/basis in the set-aside proceedings. The AO shall decide per a speaking order, allowing the assessee a reasonable opportunity to state and present its’ case before him. The onus to establish its claim/s, we may though clarify, would be strictly on the assessee. We decide accordingly.

orders of the ld. Commissioner of Income Tax (Appeals) for the

impugned assessment years also and remit the issue back to ld.

Assessing Officer for consideration afresh. We may hasten to add that

ld. Assessing Officer has to consider the judgment of Hon’ble

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Jurisdictional High Court in the case of Veerakeralam Primary Agricultural Co-operative Credit Society (supra) as well as that 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) while deciding the issue afresh. Assessee shall be given proper opportunity to explain its eligibility for claiming deduction u/s.80P(2)(a) (i) of the Act.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (अ�ाहम पी. जॉज�) (DUVVURU RL REDDY) (ABRAHAM P. GEORGE) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:6th February, 2018. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF