S-39 Gajjalnaickenpatty PACCS Ltd., Salem V. ITO Ward 2(1), Salem

CO 189/CHNY/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3663 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 22-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A R V SREENIVASAN IRS
• Assessee Lawyers: M NARAYANAN CITRETD
• Keywords: Search and seizure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] C.O.NO.189/CHNY/2017 ./I.T.A. NO. 2367/CHNY/2017 / ASSESSMENT YEAR : 2014-2015 M/S. S- 39, GAJJALNAICKENPATTY PACCS LTD, GAJJALNAICKENPATTY P.O. SALEM 636 201. VS. THE INCOME TAX OFFICER, WARD 2(1) NAMAKKAL [PAN AAAJG 0828Q] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI. M. NARAYANAN, ADDL. CIT (RETD) /RESPONDENT BY : SHRI. ARV. SREENIVASAN, IRS, JCIT. /DATE OF HEARING : 13-03-2018 ! /DATE OF PRONOUNCEMENT : 05-04-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS IS A CROSS OBJECTION FILED BY THE ASSESSEE D IRECTED AGAINST AN ORDER DATED 31.07.2017 OF LD. COMMISSIONER OF INCO ME TAX (APPEALS), SALEM. -2- C.O.NO.189/CHNY/17 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE APP EAL FILED BY THE DEPARTMENT NUMBERED AS ITA NO.2367/MDS/2017, FOR T HE IMPUGNED ASSESSMENT YEAR WAS DISPOSED OFF BY THE TRIBUNAL TH ROUGH AN ORDER DATED 19.12.2017. AS PER THE LD. AUTHORISED REPRESENTATIV E, THIS TRIBUNAL HAD SET ASIDE THE ISSUE REGARDING CLAIM FOR DEDUCTION U/S.80P(2) (A) (I) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) BACK TO THE LD. ASSESS ING OFFICER FOR CONSIDERATION AFRESH AFTER CONSIDERING THE JUDGMENT OF APEX COURT IN THE CASE OF THE CITIZEN CO-OPERATIVE SOCIETY LTD VS. ACIT, (CIVIL APPEAL N O.10245 OF 2017, DATED 8.8.2017 ). AS PER THE LD. AUTHORISED REPRESENTATIVE, PLEADI NG OF THE ASSESSEE IN THE CROSS OBJECTION IS THAT THE SAID JUDGMENT WAS N OT APPLICABLE TO IT. 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STATED THAT THE MATTER HAVING BEEN REMITTED BACK TO THE LD. ASSESSING OFFI CER, THERE COULD BE NO GRIEVANCE FOR THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IN THE DEPARTMENT APPEAL IN ITA NO.2367/MDS/2017 (SUPRA ) WHAT WAS HELD BY THE TRIBUNAL AT PARA 4 IS REPROD UCED HEREUNDER:- 4. I HAVE PERUSED THE ORDERS AND HEARD THE CONTENTIO N OF THE LD. DEPARTMENTAL REPRESENTATIVE. LD. COMMISSIONER OF IN COME TAX (APPEALS) HAD HELD ASSESSEE TO BE ELIGIBLE FOR DEDU CTION U/S.80P(2)(A)(I) OF THE ACT RELYING ON THE DECISIO N OF CO-ORDINATE BENCH IN THE CASE OF M/S. SL(SPL) 151, KARKUDALPA TTY PRIMARY -3- C.O.NO.189/CHNY/17 AGRICULTURAL CO-OPERATIVE CREDIT SOCIETY LTD VS. IT O (ITA NO.292/MDS/2014, DATED 17.03.2014). HOWEVER, SUBSEQ UENT TO THE PRONOUNCEMENT OF THE SAID ORDER, HONBLE APEX COURT IN THE CASE OF THE CITIZEN CO-OPERATIVE SOCIETY LTD (SUPRA), WHER E THE SOCIETY WAS ONE REGISTERED U/S.5 OF ANDHRA PRADESH MUTUALLY AI DED CO-OPERATIVE SOCIETIES ACT, 1995, HAD CONSIDERED THE ISSUE WHE THER CO-OPERATIVE SOCIETIES, HAVING TRANSACTIONS WITH NOMINAL MEMBER S, WOULD BE ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 80P(2 )(A) (I) OF THE ACT. THEIR LORDSHIP HAD HELD AS UNDER AT PARAS 17 TO 27 OF THE JUDGMENT. 17) WE HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL FOR THE PARTIES WITH REFERENCE TO THE RECORD OF THIS CASE. 18) WE MAY MENTION AT THE OUTSET THAT THERE CANNOT BE ANY DISPUTE TO THE PROPOSITION THAT SECTION 80P OF THE ACT IS A BENEVOLENT PROVISION WHICH IS ENACTED BY THE PARLIAMENT IN ORD ER TO ENCOURAGE AND PROMOTE GROWTH OF CO-OPERATIVE SECTOR IN THE EC ONOMIC LIFE OF THE COUNTRY. IT WAS DONE PURSUANT TO DECLARED POLIC Y OF THE GOVERNMENT. THEREFORE, SUCH A PROVISION HAS TO BE R EAD LIBERALLY, REASONABLY AND IN FAVOR OF THE ASSESSEE (SEE BAJA J TEMPO LIMITED, BOMBAY V. COMMISSIONER OF INCOME TAX, BOMB AY CITY-III, BOMBAY3). IT IS ALSO TRITE THAT SUCH A PROVISION HA S TO BE CONSTRUED AS TO EFFECTUATE THE OBJECT OF THE LEGISLATURE AND NOT TO DEFEAT IT (SEE COMMISSIONER OF INCOME TAX, BOMBAY & ORS. V. MAHINDRA AND MAHINDRA LIMITED & ORS.4). THEREFORE, IT HARDLY NEEDS TO BE EMPHASIZED THAT ALL THOSE CO-OPERATIVE SOCIETIES WH ICH FALL WITHIN THE PURVIEW OF SECTION 80P OF THE ACT ARE ENTITLED TO DEDUCTION IN RESPECT OF ANY INCOME REFERRED TO IN SUB-SECTION (2 ) THEREOF. CLAUSE (A) OF SUB-SECTION (2) GIVES EXEMPTION OF WH OLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABL E TO ANYONE OR MORE OF SUCH ACTIVITIES WHICH ARE MENTIONED IN SUB- SECTION (2). 19) SINCE WE ARE CONCERNED HERE WITH SUB-SECTION (I ) OF CLAUSE (A) OF SUB-SECTION (2), IT RECOGNIZES TWO KINDS OF CO-O PERATIVE SOCIETIES, NAMELY: (I) THOSE CARRYING ON THE BUSINE SS OF BANKING AND; (II) THOSE PROVIDING CREDIT FACILITIES TO ITS MEMBERS. 20) IN THE CASE OF KERALA STATE COOPERATIVE MARKET ING FEDERATION LIMITED & ORS. V. COMMISSIONER OF INCOME TAX5, THIS COURT, WHILE DEALING WITH CLASSES OF SOCIETIES COVERED BY SECTION 80P OF THE ACT, HELD AS FOLLOWS: 6. THE CLASSES OF SOCIETIES COVERED BY SECTION 80- P OF THE ACT ARE AS FOLLOWS: (A) ENGAGED IN BUSINESS OF BANK ING AND PROVIDING CREDIT FACILITIES TO ITS MEMBERS; XX XX X X -4- C.O.NO.189/CHNY/17 7. WE MAY NOTICE THAT THE PROVISION IS INTRODUCED W ITH A VIEW TO ENCOURAGING AND PROMOTING GROWTH OF COOPERATIVE SECTOR IN THE ECONOMIC LIFE OF THE COUNTRY AND IN PURSUANC E OF THE DECLARED POLICY OF THE GOVERNMENT. THE CORRECT WAY OF READING THE DIFFERENT HEADS OF EXEMPTION ENUMERATED IN THE SECTION WOULD BE TO TREAT EACH AS A SEPARATE AND DI STINCT HEAD OF EXEMPTION. WHENEVER A QUESTION ARISES AS TO WHETHER ANY PARTICULAR CATEGORY OF AN INCOME OF A COOPERATIVE SOCIETY IS EXEMPT FROM TAX WHAT HAS TO BE SEEN IS WHETHER INCOME FELL WITHIN ANY OF THE SEVERAL HE ADS OF EXEMPTION. IF IT FELL WITHIN ANY ONE HEAD OF EXEMPT ION, IT WOULD BE FREE FROM TAX NOTWITHSTANDING THAT THE CON DITIONS OF ANOTHER HEAD OF EXEMPTION ARE NOT SATISFIED AND SUC H INCOME IS NOT FREE FROM TAX UNDER THAT HEAD OF EXEMPTION.. . 21) IN THE CASE OF COMMISSIONER OF INCOME TAX V. PU NJAB STATE CO-OPERATIVE BANK LTD.6, WHILE DEALING WITH A N IDENTICAL ISSUE, THE HIGH COURT OF PUNJAB AND HARYANA HELD AS FOLLOWS: 8. THE PROVISIONS OF SECTION 80P WERE INTRODUCED W ITH A VIEW TO ENCOURAGING AND PROMOTING THE GROWTH OF THE CO-O PERATIVE SECTOR IN THE ECONOMIC LIFE OF THE COUNTRY AND IN P URSUANCE OF THE DECLARED POLICY OF THE GOVERNMENT. THE DIFFEREN T HEADS OF EXEMPTION ENUMERATED IN THE SECTION ARE SEPARATE AND DISTINCT HEADS OF EXEMPTION AND ARE TO BE TREATED A S SUCH. WHENEVER A QUESTION ARISES AS TO WHETHER ANY PARTIC ULAR CATEGORY OF AN INCOME OF A CO-OPERATIVE SOCIETY IS EXEMPT FROM TAX, THEN IT HAS TO BE SEEN WHETHER SUCH INCOM E FELL WITHIN ANY OF THE SEVERAL HEADS OF EXEMPTION. IF IT FELL WITHIN ANY ONE HEAD OF EXEMPTION,.... IT MEANS THAT A CO-O PERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANK ING AND A CO-OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS WILL BE ENTITLED FOR EXEMPTION UNDER THIS SUB-CLAUS E. THE CARRYING ON THE BUSINESS OF BANKING BY A COOPERATIV E SOCIETY OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS ARE T WO DIFFERENT TYPES OF ACTIVITIES WHICH ARE COVERED UNDER THIS SU B-CLAUSE. XX XX XX 13. SO, IN OUR VIEW, IF THE INCOME OF A SOCIETY IS FALLING WITHIN ANY ONE HEAD OF EXEMPTION, IT HAS TO BE EXEMPTED FR OM TAX -5- C.O.NO.189/CHNY/17 NOTWITHSTANDING THAT THE CONDITION OF OTHER HEADS O F EXEMPTION ARE NOT SATISFIED. A READING OF THE PROVI SIONS OF SECTION 80P OF THE ACT WOULD INDICATE THE MANNER IN WHICH THE EXEMPTION UNDER THE SAID PROVISIONS IS SOUGHT T O BE EXTENDED. WHENEVER THE LEGISLATURE WANTED TO RESTRI CT THE EXEMPTION TO A PRIMARY CO-OPERATIVE SOCIETY, IT WAS SO MADE CLEAR AS IS EVIDENT FROM CLAUSE (F) WITH REFERENCE TO A MILK CO- OPERATIVE SOCIETY THAT A PRIMARY SOCIETY ENGAGED IN SUPPLYING MILK IS ENTITLED TO SUCH EXEMPTION WHILE DENYING TH E SAME TO A FEDERAL MILK CO-OPERATIVE SOCIETY. 22) THE AFORESAID JUDGMENT OF THE HIGH COURT CORREC TLY ANALYSES THE PROVISIONS OF SECTION 80P OF THE ACT A ND IT IS IN TUNE WITH THE JUDGMENT OF THIS COURT IN KERALA STAT E COOPERATIVE MARKETING FEDERATION LIMITED (SUPRA). 23) WITH THE INSERTION OF SUB-SECTION (4) BY THE F INANCE ACT, 2006, WHICH IS IN THE NATURE OF A PROVISO TO THE AF ORESAID PROVISION, IT IS MADE CLEAR THAT SUCH A DEDUCTION S HALL NOT BE ADMISSIBLE TO A CO-OPERATIVE BANK. HOWEVER, IF IT I S A PRIMARY AGRICULTURE CREDIT SOCIETY OR A PRIMARY CO-OPERATIV E AGRICULTURE AND RURAL DEVELOPMENT BANK, THE DEDUCTION WOULD STI LL BE PROVIDED. THUS, CO-OPERATIVE BANKS ARE NOW SPECIFIC ALLY EXCLUDED FROM THE AMBIT OF SECTION 80P OF THE ACT. 24) UNDOUBTEDLY, IF ONE HAS TO GO BY THE AFORESAID DEFINITION OF CO-OPERATIVE BANK, THE APPELLANT DOES NOT GET COVERED THEREBY. IT IS ALSO A MATTER OF COMMON KNOWLEDGE TH AT IN ORDER TO DO THE BUSINESS OF A CO-OPERATIVE BANK, IT IS IMPERATIVE TO HAVE A LICENSE FROM THE RESERVE BANK OF INDIA, WHICH THE APPELLANT DOES NOT POSSESS. NOT ONLY THIS , AS NOTICED ABOVE, THE RESERVE BANK OF INDIA HAS ITSELF CLARIFIED THAT THE BUSINESS OF THE APPELLANT DOES NOT AMOUNT TO THAT OF A CO-OPERATIVE BANK. THE APPELLANT, THEREFORE, WOUL D NOT COME WITHIN THE MISCHIEF OF SUB-SECTION (4) OF SECT ION 80P. 25) SO FAR SO GOOD. HOWEVER, IT IS SIGNIFICANT TO P OINT OUT THAT THE MAIN REASON FOR DIS ENTITLING THE APPELLANT FRO M GETTING THE DEDUCTION PROVIDED UNDER SECTION 80P OF THE ACT IS NOT SUB- SECTION (4) THEREOF. WHAT HAS BEEN NOTICED BY THE A SSESSING OFFICER, AFTER DISCUSSING IN DETAIL THE ACTIVITIES OF THE APPELLANT, IS THAT THE ACTIVITIES OF THE APPELLANT ARE IN VIOLATIONS OF THE PROVISIONS OF THE MACSA UNDER WHI CH IT IS -6- C.O.NO.189/CHNY/17 FORMED. IT IS POINTED OUT BY THE ASSESSING OFFICER THAT THE ASSESSEE IS CATERING TO TWO DISTINCT CATEGORIES OF PEOPLE. THE FIRST CATEGORY IS THAT OF RESIDENT MEMBERS OR ORDIN ARY MEMBERS. THERE MAY NOT BE ANY DIFFICULTY AS FAR AS THIS CATEGORY IS CONCERNED. HOWEVER, THE ASSESSEE HAD CA RVED OUT ANOTHER CATEGORY OF NOMINAL MEMBERS. THESE AR E THOSE MEMBERS WHO ARE MAKING DEPOSITS WITH THE ASSESSEE F OR THE PURPOSE OF OBTAINING LOANS, ETC. AND, IN FACT, THEY ARE NOT MEMBERS IN REAL SENSE. MOST OF THE BUSINESS OF THE APPELLANT WAS WITH THIS SECOND CATEGORY OF PERSONS WHO HAVE B EEN GIVING DEPOSITS WHICH ARE KEPT IN FIXED DEPOSITS WI TH A MOTIVE TO EARN MAXIMUM RETURNS. A PORTION OF THESE DEPOSITS IS UTILIZED TO ADVANCE GOLD LOANS, ETC. TO THE MEMB ERS OF THE FIRST CATEGORY. IT IS FOUND, AS A MATTER OF FACT, T HAT HE DEPOSITORS AND BORROWERS ARE QUIET DISTINCT. IN REA LITY, SUCH ACTIVITY OF THE APPELLANT IS THAT OF FINANCE BUSINE SS AND CANNOT BE TERMED AS CO-OPERATIVE SOCIETY. IT IS ALS O FOUND THAT THE APPELLANT IS ENGAGED IN THE ACTIVITY OF GR ANTING LOANS TO GENERAL PUBLIC AS WELL. ALL THIS IS DONE WITHOUT ANY APPROVAL FROM THE REGISTRAR OF THE SOCIETIES. WITH INDULGENC E IN SUCH KIND OF ACTIVITY BY THE APPELLANT, IT IS REMARKED B Y THE ASSESSING OFFICER THAT THE ACTIVITY OF THE APPELLAN T IS IN VIOLATION OF THE CO-OPERATIVE SOCIETIES ACT. MOREOV ER, IT IS A CO-OPERATIVE CREDIT SOCIETY WHICH IS NOT ENTITLED T O DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. 26) IT IS IN THIS BACKGROUND, A SPECIFIC FINDING I S ALSO RENDERED THAT THE PRINCIPLE OF MUTUALITY IS MISSING IN THE INSTANT CASE. THOUGH THERE IS A DETAILED DISCUSSION IN THIS BEHALF IN THE ORDER OF THE ASSESSING OFFICER, OUR P URPOSE WOULD BE SERVED BY TAKING NOTE OF THE FOLLOWING POR TION OF THE DISCUSSION: AS VARIOUS COURTS HAVE OBSERVED THAT THE FOLLOWING THREE CONDITIONS MUST EXIST BEFORE AN ACTIVITY COULD BE B ROUGHT UNDER THE CONCEPT OF MUTUALITY; THAT NO PERSON CAN EARN FROM HIM; THAT THERE A PROFIT MOTIVATION; AND THAT THERE IS NO SHARING OF PROFIT. IT IS NOTICED THAT THE FUND INVESTED WITH BANK WHIC H ARE NOT MEMBER OF ASSOCIATION WELFARE FUND, AND THE INTERES T HAS BEEN EARNED ON SUCH INVESTMENT FOR EXAMPLE, ING MUT UAL -7- C.O.NO.189/CHNY/17 FUND [AS SAID BY THE MD VIDE HIS STATEMENT DATED 20.12.2010]. [THOUGH THE BANK FORMED THE THIRD PART Y VIS-A- VIS THE ASSESSEE ENTITLED BETWEEN CONTRIBUTOR AND R ECIPIENT IS LOST IN SUCH CASE. THE OTHER INGREDIENTS OF MUTUALI TY ARE ALSO FOUND TO BE MISSING AS DISCUSSED IN FURTHER PARAGRA PHS]. IN THE PRESENT CASE BOTH THE PARTIES TO THE TRANSAC TION ARE THE CONTRIBUTORS TOWARDS SURPLUS, HOWEVER, THERE ARE NO PARTICIPATORS IN THE SURPLUSES. THERE IS NO COMMON CONSENT OF WHATSOEVER FOR PARTICIPATORS AS THEIR IDENTITY I S NOT ESTABLISHED. HENCE, THE ASSESSEE FAILS TO SATISFY T HE TEST OF MUTUALITY AT THE TIME OF MAKING THE PAYMENTS THE NU MBER IN REFERRED AS MEMBERS MAY NOT BE THE MEMBER OF THE SO CIETY AS SUCH THE AOP BODY BY THE SOCIETY IS NOT COVERED BY CONCEPT OF MUTUALITY AT ALL. 27) THESE ARE THE FINDINGS OF FACT WHICH HAVE REMAI NED UNSHAKEN TILL THE STAGE OF THE HIGH COURT. ONCE WE KEEP THE AFORESAID ASPECTS IN MIND, THE CONCLUSION IS OBVIOU S, NAMELY, THE APPELLANT CANNOT BE TREATED AS A CO-OPERATIVE S OCIETY MEANT ONLY FOR ITS MEMBERS AND PROVIDING CREDIT FAC ILITIES TO ITS MEMBERS. WE ARE AFRAID SUCH A SOCIETY CANNOT CL AIM THE BENEFIT OF SECTION 80P OF THE ACT. BOTH THE LD. ASSESSING OFFICER AS WELL AS THE LD. C OMMISSIONER OF INCOME TAX (APPEALS), WHILE DECIDING THE QUESTION OF DEDUCTION UNDER SECTION 80P(2)(A) (I) OF THE ACT DID NOT HAV E THE BENEFIT OF THE JUDGMENT OF HONBLE APEX COURT MENTIONED SUPRA AN D THE RATIO LAID DOWN BY THE APEX COURT IN THE SAID CASE. IN THE FA CTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE OPINION THA T THE ISSUE WHETHER ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S.80 P(2)(A)(I) OF THE ACT REQUIRES A FRESH LOOK BY THE LD. ASSESSING OFFI CER. I SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE QUEST ION REGARDING DEDUCTION U/S.80P(2)(A)(I) OF THE ACT BACK TO THE F ILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCOR DANCE WITH LAW. THE TRIBUNAL HAD DIRECTED THE ISSUE REGARDING ELIGI BILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S.80P(2)(A)(I) OF THE ACT TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN THE LIGHT OF THE JUDGMENT O F APEX COURT IN THE CASE OF THE -8- C.O.NO.189/CHNY/17 CITIZEN CO-OPERATIVE SOCIETY LTD (SUPRA). ASSESSEE CAN TAKE ALL ITS PLEADINGS AND SUBMISSION BEFORE THE LD. ASSESSING OFFICER, SINCE LD. ASSESSING OFFICER NEEDS TO GIVE AN OPPORTUNITY BEFORE HE DECIDES THE MATTER A FRESH. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT CROSS OBJ ECTION OF THE ASSESSEE IS INFRUCTUOUS. 5. IN THE RESULT, THE CROSS OBJECTION FILED BY THE AS SESSEE IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 5TH DAY OF APR IL, 2018, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 5 TH APRIL, 2018 KV &' ()*) / COPY TO: 1. / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF