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Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI SATBEER SINGH GODARA & SHRI AMARJIT SINGH
PER SATBEER SINGH GODARA, J.M. : This assessee’s appeal, for assessment year 2011- 2012, arise against the CIT(A)-National Faceless Appeal Centre [in short the “NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/ 250/2022-23/1044638984(1), dated 12.08.2022, in proceedings u/s.147 r.w.s. 254 of the Income Tax Act, 1961 (in short “the Act”).
2 ITA.No.597 & SA.No.124/COCH./2024 Heard both the parties. Case files perused.
Delay of 622 days in filing the instant appeal is condoned as per assessee’s solemn averments in light of Collector, Land Acquisition vs., MST Katiji [1987] 167 ITR 471 (SC) having settled the law long back that all such technical aspects must make a way for the cause of substantial justice.
Coming to the assessee’s sole substantive ground raised in the instant appeal challenges both the learned lower authorities action disallowing it’s sec.80P(2)(a)(i) and sec.80P(2)(d) deduction(s); aggregating to Rs.83,70,765/- in the course of ast dated 22.09.2021 as upheld in the lower appellate order as follows :
“Decision: I have gone through the above submissions of the Appellant and have considered the facts and evidence on record.
The appellant, Aryanand Service Co operative bank Ltd. is an institution registered under the Kerala Co-operative Act, 1969, and is engaged in the business of banking activities and providing credit facilities to its members. The return of income was filed on 05/07/2017 declaring total income at 3 ITA.No.597 & SA.No.124/COCH./2024 Rs. Nil after claiming deduction of Rs.83,70,765/- under chapter VIA of the Act. The assessment order u/s 143(3) r.w.s. 147 of the Act was passed on 24/11/2017 by disallowing the deduction claimed by the appellant u/s 80P(2)(a)(i), and assessing the income of Rs.79,24,674/- and Rs.4,46,090/- under the head 'Profit & gains of Business or Profession' and 'Income from Other Sources' respectively. Against the impugned assessment order, the appellant had preferred an appeal before the Ld. CIT (Appeals), Thiruvananthapuram. The Ld. CIT (Appeals), vide appellate order dated 05.03.2019 allowed the appeal of the appellant. The department filed further appeal, against the impugned appellate order of the Ld. CIT (Appeals), before the Hon'ble ITAT, Cochin Bench, Cochin. The Hon'ble ITAT, vide its order pronounced on 01.08.2019, restored the issue of deduction u/s.80P(2)(a)(i) to the AO for examination of the activities of the appellant and determine whether the activities are in compliance with the activities of a Cooperative society functioning under the Kerala Co-operative Societies Act, 1969 and grant deduction u/s 80P(2) in accordance with law. As regards the issue of interest income earned on the investment
4 ITA.No.597 & SA.No.124/COCH./2024 with Co-operative banks and other Banks, it was observed that interest income earned is part of banking activities of the appellant, and therefore, the said interest income was eligible to be assessed as 'income from business' instead of 'income from other sources'. The assessing officer (herein after referred to as A.O.) subsequently passed the impugned assessment order u/s 147 r.w.s 254 read with section 144B of the Income-tax Act, 1961 on 22/09/21 determining total income of Rs.83,70,765/-. Aggrieved by the above order of the A.O., the present appeal has been filed.
In the assessment order dated 22/09/21, the A.O. reiterated "co-operative societies with the primary object of banking business activities will not come under the meaning of primary agricultural credit society. The perusal of the details furnished by the assessee shows that the society is providing loans and deposits services to its customers. The assessee is doing banking business rather than getting involved in advancing loan for agricultural activities. Hence, it is clear that the assessee is engaged in banking business, and therefore does not qualify as a primary agricultural credit society. It is held that the assessee is a co-operative bank
5 ITA.No.597 & SA.No.124/COCH./2024 other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. Thus, the deduction u/s 80P(2)(a)(i) would not be allowable to the assessee. Hence, the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act, amounting to Rs.83,70,765/- is hereby disallowed and added back to the income of the assessee".
In his submission, the appellant stated that they have not been provided with an opportunity to submit their contention in the said matter. In the impugned assessment order, the AO has not considered the income derived out of investments with other institution as part of the business income of the society and has not allowed deduction u/s 80 P of the Act. The appellant contended that it was a Primary Agricultural Cooperative Society incorporated on 25/12/1923, which is about 95 years back under the relevant Societies Act, for the purpose of development of agricultural activities in rural areas and it is substantiated by the by-law of this Society. The main objective of this society was development of agricultural activities in the rural areas in and around Aryanad Panchayath of Trivandrum District. The banking business was incidental to its main objective of agricultural
6 ITA.No.597 & SA.No.124/COCH./2024 and rural development activities of its members. Further, it does not possess any license from the Reserve Bank of India to carry out banking business and that it was not a cooperative bank carrying on exclusively banking business. The appellant reiterated that it was a cooperative society which also carried out the business of lending money to its members which was covered under section 80P(2)(a)(i) i.e.. carrying on the business of banking for providing credit facilities to its members.
On analysis of the above contentions of the A.O. and the appellant, it is held that "Section 80P of the Income Tax Act, 1961 was amended by insertion of sub-section (4) thereto by Finance Act, 2006, with effect from 1.4.2007, which reads as under :
"The provisions of this section shall not apply in relation to any co-operative bank other than a Primary Agricultural Credit Society or a Primary Co- operative Agricultural and Rural Development Bank.
"Explanation - for the purposes of this sub-section,
7 ITA.No.597 & SA.No.124/COCH./2024 (a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (B) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and that principal object of which is to provide for long-term credit for agriculture and rural development activities.'
3-2. In the Explanatory Notes to Finance Bill 2006, under the head withdrawal of tax benefit available to certain cooperative banks, it is prescribed that, "The Cooperative Banks are functioning at par with other commercial banks, which do not enjoy any tax benefit. It is, therefore, proposed to amend section 80P by inserting a new sub section (4) so as to provide that the provisions of the said section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. It is also proposed to define the expressions "cooperative bank".
8 ITA.No.597 & SA.No.124/COCH./2024 "Primary agricultural credit society" and "Primary cooperative agricultural and rural development bank". It is also proposed to insert a new sub clause (VII-a) in clause 24 of the said section so as to provide that the profits and gains of any business of banking including providing credit facilities carried on by cooperative society with its members shall be included in the definition of income". The amendment will take effect from 1st April 2007 and will accordingly apply in relation to the assessment year 2007-2008 and subsequent years. (Clause 3and 19)"
4. The Finance Act 2006 has limited the deduction u/s. 80P of the Income Tax Act, 1961, only to Primary Agricultural Credit Societies and Primary Co- operative Agricultural and Rural Development Bank with the intention to allow tax benefits only to primary societies which help agriculturists by providing agricultural credits to promote agricultural activities in the country. Societies which are functioning to provide non agricultural credits and doing banking activities are therefore not eligible for any deduction u/s.80P of the Income Tax Act 1961.
9 ITA.No.597 & SA.No.124/COCH./2024 5. The Finance Act, 2006 has defined the expression "Primary Agricultural Credit Society" as a co-operative society whose primary objective or principal business is that of providing financial accommodation for agricultural purposes. The relevant provisions of Section 5 (cciv) of the Banking Regulation Act, is as under.
"Primary Agricultural Credit Society" means a co-op. society, - (L) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (2) the bye-laws of which do not permit admission of any other co-operative society as member:
In order to get the classification of a Primary Agricultural Credit Society, the primary object or principal business of the Co-operative, Society should be that of providing agricultural credits. As per the Law Lexicon, "Primary" means that which is first in order, rank or importance' and 'Object' means 'the end aimed at or the thing sought to be accomplished or attained. Therefore "Primary Object" means the first and 10 ITA.No.597 & SA.No.124/COCH./2024 foremost result aimed at or sought to be attained. To ascertain the primary object of a concern, it's action, plan and activity to achieve the target also to be analyzed. The bye-law and the activity of the bank were analyzed in detail. Though there is reference in the bye-law regarding the provision of financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities, it has not been classified as the primary objective of the bank, instead more emphasis is given for doing other normal banking business. Thus it is clear that the primary objective of the bank is not of providing agricultural loans but includes non agricultural loans also, which do not fall in the ambit of definition of Primary Agricultural Credit Society as per the Income Tax Act, 1961."
Thus, the appellant is a co-operative society and engaged in banking business and the section 80P(4) says that the provision of section 80P shall not apply in relation to any co- operative bank other than a primary agriculture credit society or a primary agricultural and rural development bank. The appellant is a co- operative society and engaged in banking business and the section 80P(4) says that the provision of 11 ITA.No.597 & SA.No.124/COCH./2024 section 80P shall not apply in relation to any co- operative bank other than a primary agriculture credit society or a primary agricultural and rural development bank. The appellant is not a primary agricultural credit society.
In view of the above, these grounds of appeal are, accordingly, dismissed and the addition made by the Ld. AO on this account is, hereby, confirmed. In view of the above, these grounds of appeal are, accordingly, dismissed and the assessment made by the Ld. AO on this account is, hereby. confirmed.
Since the Appellant has not adduced any additional ground(s) and since no ground of appeal has been altered/modified/changed, this ground of appeal is dismissed as "not pressed".
In the result, the appeal is dismissed and decided as above.”
Learned DR vehemently argued that the assessee has not derived neither it’s income from impugned profits from making credit facilities available in agricultural sector. And also 12 ITA.No.597 & SA.No.124/COCH./2024 that the latter head of sec.80P(2)(d) deduction involves interest income derived from co-operative bank(s). We are of the considered view that case law Mavilayi Service Co-operative Bank Ltd., vs., CIT [2021] 431 ITR 1 (SC) regarding former issue and Pr. CIT vs. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker), dealing with both these issues have rejected the Revenue’s identical stand. We accordingly accept the assessee’s instant sec.80P deduction(s). Ordered accordingly.
This assessee’s appeal ITA.No.597/Coch./2024 is allowed and stay application S.A.No.124/Coch./2014 has become infructuous. A copy of this common order be placed in the respective case files.
Order pronounced in the open Court on 25.09.2024.