M/s.Navaikulam Service Co-op bank Ltd, Trivandrum V. The ACIT, Trivandrum

CO 29/COCH/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1379 (ITAT-COCHIN)
• Duration Of Justice: 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 01-10-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: S RAJEEV

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NO. 446/COCH/2015 ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE- 2, TRIVANDRUM. VS. M/S. NAVAIKULAM SERVICE CO- OPERATIVE BANK LTD., ETHUKKAD, NAVAIKULAM P.O., THIRUVANANTHAPURAM-695 501. [PAN:AAAAN 6970B] (REVENUE -APPELLANT) (ASSESSEE -RESPONDENT) C.O. NO. 29/COCH/2015 (ARSG. OUT OF I.T.A. NO. 446/COCH/2015) ASSESSMENT YEAR : 2008-09 M/S. NAVAIKULAM SERVICE CO- OPERATIVE BANK LTD., ETHUKKAD, NAVAIKULAM P.O., THIRUVANANTHAPURAM-695 501. [PAN:AAAAN 6970B] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE-2, TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR ASSESSEE BY SHRI S. RAJEEV, ADV. DATE OF HEARING 13/10/2015 DATE OF PRONOUNCEMENT 14/10/2015 O R D E R PER B.P.JAIN, ACCOUNTANT MEMBER: THIS APPEAL BY THE REVENUE AND THE CROSS OBJEC TION BY THE ASSESSEE ARE ARISING OUT OF THE ORDER OF THE LD. CIT(A), KOWDIAR , TRIVANDRUM DATED 08/07/2015 FOR THE ASSESSMENT YEAR 2008-09. I.T.A. NO.446/COCH/2015 & C.O. NO.29/COCH/2015 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ), HAVING CONCLUDED THAT THE ASSESSEE CANNOT BE A PRIMARY AG RICULTURAL CREDIT CO-OPERATIVE SOCIETY OR PRIMARY CO-OPERATIVE AGRICU LTURAL AND RURAL DEVELOPMENT BANK. AND THAT THE ASSESSEE HAS FAILED TO FULFIL THE CONDITIONS CONTEMPLATED UNDER PART V OF THE BANKING REGULATION ACT, 1949 AND THEREBY, THE ASSESSING OFFICER HAS JUSTIFI ED THE REJECTION OF ITS CLAIM, OUGHT TO HAVE REJECTED THE ASSESSEES C LAIM FOR DEDUCTION IN FULL. 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL S) HAS FAILED TO APPRECIATE THAT THE ASSESSEE IS NOT ELIGIBLE FOR DE DUCTION U/S. 80P(2)(A)(I) FOR ANY PART OF ITS INCOME, ONCE THE A SSESSEE FALLS WITHIN THE SCOPE OF SECTION 80P(4). 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADVAN CED AT THE TIME OF HEARING THE ORDER OF THE LEARNED COMMISSIONER OF APPEALS, TRIVANDRUM ON THE ABOVE POINTS MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE BRIEF FACTS OF THE CASE IN THE REVENUES APPEAL ARE THAT THE ASSESSEE COMPANY IS A PRIMARY AGRICULTURAL CREDIT C O-OPERATIVE SOCIETY FUNCTIONING UNDER THE PROVISIONS OF THE KERALA CO-O PERATIVE SOCIETYS ACT. THE PRIMARY ACTIVITY OF THE ASSESSEE-SOCIETY AS CLA IMED IS ACCEPTING DEPOSITS AS WELL AS ADVANCING LOANS TO ITS MEMBERS THE ASSES SEE HAS BEEN ENJOYING THE BENEFIT OF DEDUCTION U/S. 80P(2) UNTIL SUB-SECT ION 4 WAS INSERTED TO SECTION 80P. IN VIEW OF THE AMENDMENT MADE TO SECT ION 80P W.E.F. 01/04/2007, AN ASSESSEE WOULD BE ELIGIBLE FOR DEDUC TION THERE UNDER ONLY IF IT FALLS WITHIN TWO CATEGORIES OF CO-OPERATIVE SOCI ETY AS ALLOWED BY SECTION 80P(4) NAMELY PRIMARY AGRICULTURAL CREDIT CO-OPERAT IVE SOCIETY AND PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K. THE ASSESSING I.T.A. NO.446/COCH/2015 & C.O. NO.29/COCH/2015 3 OFFICER IN THE INSTANT CASE HAS REJECTED THE CLAIM FOR EXEMPTION OF ITS INCOME U/S. 80P(2) HOLDING THAT THE ASSESSEE-SOCIETY WAS E NGAGED MAINLY IN THE FINANCING ACTIVITIES AND HAS BEEN DOING BANKING BUS INESS RATHER THAN GETTING INVOLVED IN AGRICULTURAL ACTIVITIES. 4. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE BASIS ON WHICH THE ASSESSING OFFI CER HAS TREATED THE ASSESSEE-SOCIETY AS AN ENTITY ENGAGED IN THE BANKING BUSINESS AND NOT A PRIMARY AGRICULTURAL CREDIT CO-OPERATIVE SOCIETY TO BE ELIGIBLE FOR DEDUCTION U/S. 80P(2) OF THE ACT. THE ASSESSING OFFICER HAS B ROUGHT TO TAX A SUM OF RS.58,02,040/- REJECTING THE CLAIM OF DEDUCTION MAD E U/S. 80P(2) AS THE SAME IS NOT ALLOWABLE DEDUCTION U/S. 80P(4) OF THE ACT. THE ASSESSEE IS OF THE VIEW THAT SECTION 80P(4) WOULD NOT APPLY TO THE M SINCE THEY ARE NOT CO-OPERATIVE BANK BUT CO-OPERATIVE SOCIETY. THE ASSESSEE-SOCIETY IS ENTITLED FOR DEDUCTION U/S. 80P(2) ONLY WHEN IT IS NOT COVERED BY THE PROVISIONS OF SECTION 80P(4), EITHER THE PRIMARY AG RICULTURAL CREDIT CO- OPERATIVE SOCIETY OR PRIMARY CO-OPERATIVE AGRICULTU RAL AND RURAL DEVELOPMENT BANK ALONE CAN CLAIM EXEMPTION OF ITS I NCOME U/S. 80P(2). UNDER SECTION 80P(4), CO-OPERATIVE BANKS ARE NOT EN TITLED FOR EXEMPTION OF ITS INCOME EARNED FROM LOANS AND ADVANCES GIVEN TO ITS MEMBERS EVEN FOR AGRICULTURAL PURPOSE. AS PER EXPLANATION TO SECTIO N 80P(4), THE TERMS CO- OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDIT CO-O PERATIVE SOCIETY SHALL I.T.A. NO.446/COCH/2015 & C.O. NO.29/COCH/2015 4 HAVE THE MEANING RESPECTIVELY ASSIGNED TO THEM IN P ART V OF THE BANKING REGULATION ACT, 1949. AS PER PART V OF THE BANKING REGULATION ACT, PRIMARY AGRICULTURAL CREDIT CO-OPERATIVE SOCIETY MEANS, A C O-OPERATIVE SOCIETY THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPO SES OR FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES. SIMILARLY, PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK, UNDER EXPL ANATION TO SECTION 80P(4) MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE LONG TE RM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. THE ASSESSEE PRI MA FACIE AS SEEN FROM PARA 8 OF THE ASSESSMENT ORDER CANNOT BE A PRIMARY AGRICULTURAL CREDIT CO- OPERATIVE SOCIETY OR PRIMARY CO-OPERATIVE AGRICULTU RAL AND RURAL DEVELOPMENT BANK FOR A SIMPLE REASON THAT IT WAS EN GAGED IN THE BUSINESS OF PROVIDING CREDIT AND BANKING FACILITIES TO ITS M EMBERS AND NOT ENGAGED FOR THE PURPOSE OF WHICH THE SOCIETY WAS INCORPORAT ED. THUS, THE ASSESSEE HAS FAILED TO FULFILL THE CONDITIONS CONTEMPLATED U NDER PART V OF THE BANKING REGULATION ACT, 1949 AND THEREBY THE AO HAS JUSTIFI ED THE REJECTION OF ITS CLAIM. 5. HOWEVER, THE LD. CIT(A) WAS OF THE VIEW THAT WIT H THE INTRODUCTION OF SECTION 80P(4), AN ENQUIRY HAS TO BE CARRIED OUT TO FIND OUT THE FACTUAL SITUATION WHETHER THE CO-OPERATIVE BANK IS CONDUCTI NG THE BUSINESS AS A I.T.A. NO.446/COCH/2015 & C.O. NO.29/COCH/2015 5 PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO -OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK AND DEPENDING UPON THE TRANS ACTIONS, THE ASSESSING OFFICER HAS TO EXTEND THE BENEFITS AVAILA BLE AND NOT MERELY LOOKING AT THE REGISTRATION CERTIFICATE ISSUED UNDE R THE KERALA CO-OPERATIVE SOCIETIES ACT OR THE NOMENCLATURE. HE RELIED UPON THE DECISION OF THE VARIOUS COURTS OF LAW AND ULTIMATELY, HIS OBSERVATI ONS IN PARA 8 ARE REPRODUCED HEREINBELOW FOR THE SAKE OF CONVENIENCE: IN THE BACKGROUND OF FOREGOING, SINCE THE ASSESSEE CLAIMED TO HAVE GIVEN LOAN OF RS.26,18,72,242/- FOR AGRICULTURAL PU RPOSE WHICH REPRESENTS 81% OF THE TOTAL LOAN GIVEN DURING THE Y EAR, THE ASSESSING OFFICER IS HEREBY DIRECTED TO RESTRICT THE DENIAL O F EXEMPTION ONLY TO THE EXTENT AND INTEREST INCOME EARNED FROM LOANS AND AD VANCES GIVEN FOR NON-AGRICULTURAL PURPOSES. THIS IS TO BE WORKED OU T BY THE ASSESSING OFFICER BASED ON THE INPUT THE ASSESSEE WOULD BE FU RNISHING IN THIS REGARD. 6. THE LD. DR INVITED OUR ATTENTION TO SECTION 8 0P(4) WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED HEREIN BELOW: (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPL Y IN RELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK 6. THE LD. DR ARGUED THAT PROVISIONS OF SECTION 80P(4) WHICH HAS BEEN INTRODUCED BY THE FINANCE ACT, 2006 W.E.F. 01/04/20 07 SHALL NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK AND ESSENTIALLY, THE ASSESSEE IS A CO- OPERATIVE BANK WHICH HAS BEEN HELD BY THE LD. CIT(A ) AS WELL. THERE IS NO PROVISION OF GIVING PARTIAL RELIEF FOR EXEMPTION U/ S. 80P(2)(A)(I) UNDER THE I.T.A. NO.446/COCH/2015 & C.O. NO.29/COCH/2015 6 STATUTE AND THEREFORE, THE LD. DR PRAYED TO REVERSE THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 7. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. UNDISPUTEDLY, THE FACTS IN THE PRESENT CASE ARE THA T THE ASSESSING OFFICER HAS REJECTED THE CLAIM FOR EXEMPTION OF ASSESSEES INCO ME U/S. 80P(4) BY HOLDING THAT THE ASSESSEE-SOCIETY WAS ENGAGED MAINLY IN THE FINANCIAL ACTIVITIES AND HAS BEEN DOING BANKING BUSINESS RATHER THAN GETTING INV OLVED IN AGRICULTURAL ACTIVITIES. ON THE OTHER HAND, THE LD. CIT(A) HAS GIVEN A CLEAR CUT FINDING THAT THE PRIMARY OBJECT OF THE ASSESSEE, AS SEEN FROM P ARA 8 OF THE ASSESSMENT ORDER, CANNOT BE A PRIMARY AGRICULTURAL CREDIT SOCI ETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK FOR THE SIM PLE REASON THAT IT WAS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT AND BA NKING FACILITIES TO ITS MEMBERS AND NOT ENGAGED IN THE PURPOSE FOR WHICH THE ASSESS EE-SOCIETY WAS INCORPORATED. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE FAILED TO FULFIL THE CONDITIONS CONTEMPLATED UNDER PART V OF THE BAN KING REGULATION ACT, 1949 AND THEREBY, THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE CLAIM FOR DEDUCTION U/S. 80P(4) OF THE ACT. I.T.A. NO.446/COCH/2015 & C.O. NO.29/COCH/2015 7 9. HOWEVER, WE DO NOT AGREE WITH THE FINDINGS OF TH E LD. CIT(A) IN PARA 8 ABOVE FOR ALLOWING PART RELIEF IN VIEW OF THE AMEND ED PROVISION BY THE FINANCE ACT, 2006 W.E.F. 01/04/2007 WHEREIN THE PROVISION T O THIS SECTION DOES NOT OFFER ANY RELIEF TO ANY CO-OPERATIVE BANK OTHER THAN PRIM ARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DE VELOPMENT BANK. IN SUCH A CASE, THERE IS NO SCOPE OF GIVING PART RELIEF AS GI VEN BY THE LD. CIT(A). ACCORDINGLY, THE ORDER OF THE LD. CIT(A) IS REVERSE D AND ALL THE GROUNDS OF THE REVENUE ARE ALLOWED. 10. THE CROSS OBJECTION FILED BY THE ASSESSEE IS SU PPORTIVE OF THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY, THE SAME IS DISMISSED. 11. IN THE RESULT , THE APPEAL FILED BY THE REVENUE IN I.T.A. NO.446/COCH/2015 IS ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IN C.O. NO. 29/COCH/2015 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 14-10-2015. SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 14TH OCTOBER, 2015 GJ COPY TO: 1. M/S. NAVAIKULAM SERVICE CO-OPERATIVE BANK LTD., ETHUKKAD, NAVAIKULAM P.O., THIRUVANANTHAPURAM-695 501. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -2(1), RANGE-2, TRIVANDRUM. I.T.A. NO.446/COCH/2015 & C.O. NO.29/COCH/2015 8 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), TRIVAND RUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T.,COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN