M/S KODIYATHUR SERVICE CO-OP BANK,CALICUT vs. THE ITO, CALICUT

आदेश / O R D E R आदेश आदेश आदेश

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER This appeal is remitted back to this Tribunal by Hon’ble Jurisdictional High Court through its judgment dated 16th February, 2016 in ITA No.197 of 2015.

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Officer issued a notice under section 142(1) of the Act. Since there

was no compliance with such notice also, proceedings were initiated

for a best judgment assessment under section 144 of the Act.

Assessee eventually filed a return on 25.03.2013, wherein it claimed

deduction under section u/s.80P(2)(a) (i) of the Act in respect of its

income from banking. However, this return was considered by the ld.

Assessing Officer as an invalid one, having been filed beyond the time

prescribed under section 139 and section 142(1) of the Act. Claim of

the assessee that it was only a primary agricultural credit society and

income earned by it from providing credit facilities to its members was

exempt under section 80P(2) (a)(i) of the Act was declined by the ld.

Assessing Officer, relying on sub section (4) of Sec. 80P of the Act and

also citing a reason that the return filed was belated and hit by Section

80A(5) of the Act. As per ld. Assessing Officer assessee could only be

deemed as a co-operative bank and was not eligible for such claim.

Further, according to ld. Assessing Officer assessee having filed the

return late claim under section 80P(2) of the Act could not be

considered at all. Ld. Assessing Officer also made a disallowance

under section 36(1) (iv) and 36(1)(v) of the Act for contribution to

unapproved superannuation and gratuity funds for employees. 3. Assessee’s appeal before ld. Commissioner of Income Tax

(Appeals), was limited to disallowance of the claim under section

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80P(2) of the Act, but did not meet with any success. This persuaded

assessee’s to move this Tribunal. This Tribunal vide its order dated 31st July, 2014 confirmed the orders of the lower authorities.

Thereupon assessee’s moved in further appeal before Hon’ble

Jurisdictional High Court and Hon’ble Jurisdictional High Court through

its judgment dated 15.04.2016 following its own judgment in the case

of Chirakkal Service Co-operative Bank Ltd vs. CIT 384 ITR 490 held

that the assessee was not hit by sub section (4) of Sec. 80P of the

Act, since it was classified as a primary agricultural credit society by

the competent authority under the State Law relating to Co-operative

Societies. Hon’ble Jurisdictional High Court also held that late filing of

return of income was not fatal. What was held by the Hon’ble

Lordship in the case of Chirakkal Service Co-operative Bank Ltd (supra)

at paragraphs 9 to 21 is apposite and this is reproduced hereunder:-

‘’9. Section 80P of the Income-tax Act deals with deduction in respect of income of co-operative societies. Sub-section (1) of that section provides that where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub- section (2) of that section, there shall be deducted, in accordance with and subject to the provisions of section 80P, the sums specified in sub-section (2) thereof, in computing the total income of the assessee. Sub-section (4) of section 80P provides that the provisions of section 80P 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. This provision in sub-section (4) of section 80P means that the provisions of section 80P shall not apply to a primary agricultural credit society. Hence, the levy of

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tax in terms of the provisions of section 80P does not apply to a primary agricultural credit society. 10. The terms "co-operative bank" and "primary agricultural credit society" for the purpose of sub-section (4) of section 80P of the Income-tax Act, shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 ; for short ; BR Act, going by Explanation (a) occurring after section 80P(4) of the Income-tax Act. For the purpose of that sub-section, "primary co- operative agricultural and rural development bank" is defined to mean what is stated in Explanation (b) to section 80P(4) of the Income-tax Act. 11. Part V of the Banking Regulation Act carries section 56 of that Act, which prescribes modifications to the provisions of the Banking Regulation Act in their application and in relation to co-operative societies. 12. "Co-operative bank" is a term defined in section 5(cci) of the Banking Regulation Act to mean, inter alia, a primary co-operative bank. A primary co-operative bank is a co-operative society other than a primary agricultural credit society, going by clause (ccv) of section 5 of the Banking Regulation Act. Therefore, a primary agricultural credit society is not to be treated as a primary co- operative bank and therefore, not to be reckoned as a co- operative bank. We state this here and now to point out that the appellants which are primary agricultural credit societies are not of such type that they would fall for consideration as a co-operative bank for the purpose of sub-section (4) of section 80P of the Income-tax Act. Resultantly, the consequential legal implication is that a primary agricultural credit society is one among the two types of institutions which gain the benefit of sub-section (4) of section 80P to ease themselves out from the coverage of section 80P. The argument advanced on behalf of the Revenue, to the contrary is repelled." 13. Reverting to section 5(cciv) of the Banking Regulation Act ; "primary agricultural credit society" means a co-operative society, the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected withagricultural activities including the marketing of crops ; and the bye-laws of which do not permit admission of any other co-operative society as member. However, the provisions in sub-clause (2) of section 5(cciv) shall not apply to the admission of a co-operative bank as a member by reason of such co-

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operative bank subscribing to the share capital of such co- operative society out of funds provided by the State Government for the purpose. This is the effect of the proviso occurring after sub-clause (2) of section 5(cciv) which is referred to herein only for continuity, though we are not really concerned with the effect of that proviso. Keeping in mind that "primary agricultural credit society" is defined with reference to the term "co-operative society" ; reverting to section 5(cciia) of the Banking Regulation Act, it can be seen that for the purpose of that Act, "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 co- operative societies for the time being in force. 14. In all the clauses referred to above, the legislative tool used is "means" ; and not "includes". Therefore, when the term "co-operative society" is defined to mean, inter alia, a society registered under any State law relating to co-operative societies for the time being in force ; one such is a co-operative society for the purposes of the Banking Regulation Act and if that co- operative society satisfies the definition of "primary agricultural credit society", it would be one to which the exemption as per sub-section (4) of section 80P of the Income-tax Act would apply. 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. Parliament, having defined the term "co-operative society" for the purposes of the Banking Regulation Act with reference to, among other things, the 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 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

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societies by the competent authority under the Kerala Co- operative Societies 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 Kerala Co- operative Societies Act 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 Kerala Co-operative Societies Act. The authorities under the Income-tax 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 Banking Regulation 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 Banking Regulation 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 Kerala Co-operative Societies Act is anything different from what we have stated hereinabove. For this reason, it cannot but be held that the appellants are entitled to exemption from the provisions of section 80P of the Income-tax Act by virtue of sub-section (4) of that section. In this view of the matter, the appeals succeed’’.

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139(1) or section 139(4), as the case may be, as well as section 142(1) or section 148, as the case may be. There are no cases among these appeals where returns were not filed. There are cases where claims have been made along with the returns and the returns were filed within time. Still further, there are cases where returns were filed belatedly, that is to say, beyond the period stipulated under sub-section (1) or (4) of section 139 ; and, there are also returns filed after the period with reference to sections 142(1) and 148 of the Income-tax Act. 19. Section 80A(5) provides that where the assessee fails to make a claim in his return of income for any deduction, inter alia, under any provision of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder. Therefore, in cases where no returns have been filed for a particular assessment year, no deductions shall be allowed. This embargo in section 80A(5) would apply, though section 80P is not included in section 80AC. This is so because, the inhibition against allowing deduction is worded in quite similar terms in sections 80A(5) and 80AC, of which section 80A(5) is a provision inserted through the Finance Act 33 of 2009 with effect from April 1, 2013, after the insertion of section 80AC as per the Finance Act of 2006 with effect from April 1, 2006. This clearly evidences the legislative intendment that the inhibition contained in sub-section (5) of section 80A would operate by itself. In cases where returns have been filed, the question of exemptions or deductions referable to section 80P would definitely have to be considered and granted if eligible.

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escaped assessment referable to section 148 of the Income-tax Act. This position notwithstanding, when an assessment is subjected to first appeal or further appeals under the Income-tax Act or all questions germane for concluding the assessment would be relevant and claims which may result in modification of the returns already filed could also be entertained, particularly when it relates to claims for exemptions. This is so because the finality of assessment would not be achieved in all such cases, until the termination of all such appellate remedies. Under such circumstances, the Tribunal was not justified in denying exemption under section 80P of the Income-tax Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the Income-tax Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the Income-tax Act. We thus answer substantial questions of law B and C formulated and enumerated above.

Hon’ble Jurisdictional High Court had thus remitted this appeal back to

the Tribunal for consideration afresh with the following directions.

‘’ With the aforesaid, we remit all these matters for reconsideration by the Income Tax Appellate Tribunal in the light of the answers rendered herein on substantial questions of law (A), (B) and (C). The Tribunal will thereupon consider the issues relating to the bad and doubtful debts and the claim of the assessee in that regard by treating that in all cases where exemptions are claimed under section 80P and such matters were pending before the assessing authority or before the appellate authority, including in these appeals, the question of exemption available under section 80P was still available for decision’’. 4. Now before us, ld. Counsel for the assessee, placing a copy

of a certificate dated 01.10.2016 issued by Joint Registrar of Co-

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operative Societies (General), Kozhikode, submitted that assessee was

a primary agricultural credit society as defined in Section 2(oa) of

Kerala Co-operative Societies Act, 1969. Further, according to him,

assessee had made the claim u/s.80P of the Act in the return of

income filed, though belatedly and therefore was eligible for such

deduction. Ld. Counsel submitted that he was not pressing any of the

other grounds, except those relating to disallowance of the claim under

section 80P(2) of the Act.

supporting the orders of the authorities below submitted that this

Tribunal had in a number of cases held similar societies engaged in

the business of banking as not eligible for deduction claimed u/s.80P

(2) of the Act.

orders of the authorities below. Assessee has produced certificate from

the competent authority under Kerala Co-operative Societies Act, 1969

which certify that it is a primary agricultural credit society. Their

lordship in the case of Chirakkal Service Co-operative Bank Ltd (supra),

pertinent part of which has been reproduced in the earlier part of our

order, has clearly held that once an assessee was classified as a

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primary agricultural credit society by the competent authority under

Kerala Co-operative Societies Act, it necessarily had to be considered

as a society having as its principle object providing agricultural credit

activities and providing loan and advances for agricultural purposes.

Their lordship had taken this view considering definition of clause in

Sec. 2(oa) of Kerala Co-operative Societies Act. Their lordship also held

that belated filing of return would not deprive an assessee, the

benefit under section 80P(2) of the Act, as long as such claim was

made though such return. However, in the case before us, we find that

the certificate from competent authority reflecting its nature as a

primary agricultural credit society was not produced by the assessee

before the lower authorities. The certificate is dated 01.10.2016

whereas ld. Commissioner of Income Tax (Appeals) had passed the

order on 23.07.2014. In the circumstances, we are of the opinion that

the certificate produced by the assessee requires to be verified by the

lower authorities. If the said certificate is found to be genuine, the ld.

Assessing Officer has to grant the deduction claimed under section

80P(2) of the Act. We therefore, set aside the orders of the lower

authorities and remit the issue regarding claim of the assessee under

section 80P(2) of the Act back to the file of Assessing Officer for the

limited purpose verification of the certificate produced by the

asssessee. Related grounds are allowed for statistical purposes. Other

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grounds are dismissed as not pressed.

Order pronounced in the open court on 15-03-2017.

Sd/- Sd/- (ABRAHAM P. GEORGE) (GEORGE GEORGE. K) लेखा सदःय सदःय/ACCOUNTANT MEMBER लेखा लेखा लेखा सदःय सदःय �याियक सदःय सदःय/JUDICIAL MEMBER �याियक �याियक �याियक सदःय सदःय

Cochin �दनांक/Dated:15th March, 2017

KV आदेश क� ूितिल�प अमे�षत/Copy to: 1 .M/s. Kodiyathur Service Co-Operative Bank, Pannikode, P.O. Kozhikode. 2. The Income Tax Officer, Ward 2(3), Kozhikode. 3. The Commissioner of Income Tax (Appeals), Kozhikode. 4. The Principal Commissioner of Income Tax (Appeals) v Kozhikode. 5. D.R. I.T.A.T., Cochin Bench, Cochin. 6. Guard File By Order .

(ASSISTANT REGISTRAR I.T.A.T., Cochin.