The Nileshwar Service Co-op Bank Ltd, Kasargode V. ITO, Kasargode

ITA 135/COCH/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7294 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2013
• Court: TRIBUNAL
• Department Lawyers: DHANRAJ SR
• Keywords: Bad and doubtful debts; Competent authority; Provision of bad debts
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : COCHIN [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMB ER AND SHRI GEORGE GEORGE. K. JUDICIAL MEMBER] ./I.T.A. NOS.135 & 720/COCH/2013 / ASSESSMENT YEARS : 2009-10 & 2010-2011. THE NILESHWAR SERVICE CO- OPERATIVE BANK LTD, NILESHWAR, KASARAGOD 671 314. [ PAN AAAAT 3163C ] VS. THE INCOME TAX OFFICER, WARD -2, KASARGOD. ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI. MATHEW JOSEPH, C.A. /RESPONDENT BY : SHRI. DHANRAJ, SR. AR. /DATE OF HEARING : 13 - 03 - 201 7 /DATE OF PRONOUNCEMENT : 14 - 03 - 201 7 !' !' !' !' / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER BOTH THESE APPEALS WERE REMITTED BACK TO THIS TRI BUNAL BY HONBLE JURISDICTIONAL HIGH COURT THROUGH ITS JUDGM ENT DATED 16 TH FEBRUARY, 2016 IN ITA NOS.85/2015 AND 14/2014. 2. ASSESSEE IN ITS RETURNS FILED FOR THE IMPUGNED ASSE SSMENT YEARS HAD CLAIMED DEDUCTION U/S.80P(2)(A) (I) OF TH E INCOME TAX ACT, 1961 (IN SHORT THE ACT) IN RESPECT OF THEIR INCO ME FROM BANKING. CLAIM OF THE ASSESSEE WAS THAT IT WAS ONLY A PRIMARY AGRI CULTURAL CREDIT ITA NOS.135 & 720/COCH/2013 :- 2 -: SOCIETY AND SUCH INCOME WAS EARNED BY IT WERE FROM CREDIT FACILITIES PROVIDED TO ITS MEMBERS. HOWEVER, LD. AO HAD DENIE D THE CLAIM OF THE ASSESSEES, RELYING ON SUB SECTION (4) OF SEC. 80P OF THE ACT. AS PER LD. ASSESSING OFFICER ASSESSEE COULD ONLY BE CONSID ERED AS A CO- OPERATIVE BANK AND HENCE WAS NOT ELIGIBLE FOR SUCH CLAIM. LD. ASSESSING OFFICER ALSO RESTRICTED THE CLAIM MADE BY THE ASSESSEES FOR PROVISION MADE ON BAD DEBTS RELYING ON SECTION 36(1 )(VIIA) OF THE ACT, OBSERVING THAT MAXIMUM DEDUCTION AVAILABLE HAD TO B E RESTRICTED TO 7.5% OF GROSS TOTAL INCOME AND 10% OF AGGREGATE AVE RAGE ADVANCE MADE BY RURAL BRANCHES. ASSESSEES APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) DID NOT MEET WITH ANY SUCCE SS. THIS PERSUADED ASSESSEES TO MOVE THIS TRIBUNAL. THIS TRIBUNAL VIDE ITS ORDER DATED 31 ST JULY, 2014 CONFIRMED THE ORDERS OF THE LOWER AUTHORITIES. THEREUPON ASSESSEES MOVED IN FURTHER APPEAL BEFORE HONBLE JURISDICTIONAL HIGH COURT AND HONBLE JURIS DICTIONAL 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 SECTI ON (4) OF SEC. 80P OF THE ACT, SINCE IT WAS CLASSIFIED AS A PRIMARY AG RICULTURAL CREDIT SOCIETY BY THE COMPETENT AUTHORITY UNDER THE STATE LAW RELA TING TO CO- OPERATIVE SOCIETIES. WHAT WAS HELD BY THE HONBLE L ORDSHIP IN THE CASE ITA NOS.135 & 720/COCH/2013 :- 3 -: OF CHIRAKKAL SERVICE CO-OPERATIVE BANK LTD (SUPRA) AT PARAGRAPHS 9 TO 16 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 SOCI ETIES. SUB-SECTION (1) OF THAT SECTION PROVIDES THAT WHERE , IN THE CASE OF AN ASSESSEE BEING A CO-OPERATIVE SOCIETY, T HE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB- SECTION (2) OF THAT SECTION, THERE SHALL BE DEDUCTE D, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SE CTION 80P, THE SUMS SPECIFIED IN SUB-SECTION (2) THEREOF, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. SUB-SEC TION (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 DEVELOP MENT 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, TH E LEVY OF 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 HAV E 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) O F THE INCOME-TAX ACT. FOR THE PURPOSE OF THAT SUB-SECTION , 'PRIMARY CO- OPERATIVE AGRICULTURAL AND RURAL DEVEL OPMENT BANK' IS DEFINED TO MEAN WHAT IS STATED IN EXPLANAT ION (B) TO SECTION 80P(4) OF THE INCOME-TAX ACT. 11. PART V OF THE BANKING REGULATION ACT CARRIES SE CTION 56 OF THAT ACT, WHICH PRESCRIBES MODIFICATIONS TO T HE PROVISIONS OF THE BANKING REGULATION ACT IN THEIR APPLICATION AND IN RELATION TO CO-OPERATIVE SOCIETI ES. 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 B ANK IS A CO-OPERATIVE SOCIETY OTHER THAN A PRIMARY AGRI CULTURAL CREDIT SOCIETY, GOING BY CLAUSE (CCV) OF SECTION 5 OF THE BANKING REGULATION ACT. THEREFORE, A PRIMARY AGRICU LTURAL 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 ITA NOS.135 & 720/COCH/2013 :- 4 -: SOCIETIES ARE NOT OF SUCH TYPE THAT THEY WOULD FALL FOR CONSIDERATION AS A CO-OPERATIVE BANK FOR THE PURPOS E OF SUB-SECTION (4) OF SECTION 80P OF THE INCOME-TAX AC T. RESULTANTLY, THE CONSEQUENTIAL LEGAL IMPLICATION IS THAT A PRIMARY AGRICULTURAL CREDIT SOCIETY IS ONE AMONG TH E 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 SOCIE TY' MEANS A CO-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 WITHAGRICULTURAL ACTIVITI ES INCLUDING THE MARKETING OF CROPS ; AND THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO-OPERA TIVE SOCIETY AS MEMBER. HOWEVER, THE PROVISIONS IN SUB-C LAUSE (2) OF SECTION 5(CCIV) SHALL NOT APPLY TO THE ADMIS SION OF A CO-OPERATIVE BANK AS A MEMBER BY REASON OF SUCH CO- OPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO- OPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STAT E GOVERNMENT FOR THE PURPOSE. THIS IS THE EFFECT OF T HE PROVISO OCCURRING AFTER SUB-CLAUSE (2) OF SECTION 5 (CCIV) WHICH IS REFERRED TO HEREIN ONLY FOR CONTINUITY, TH OUGH WE ARE NOT REALLY CONCERNED WITH THE EFFECT OF THAT PR OVISO. KEEPING IN MIND THAT 'PRIMARY AGRICULTURAL CREDIT S OCIETY' IS DEFINED WITH REFERENCE TO THE TERM 'CO-OPERATIVE SOCIETY' ; REVERTING TO SECTION 5(CCIIA) OF THE BAN KING REGULATION ACT, IT CAN BE SEEN THAT FOR THE PURPOSE OF THAT ACT, 'CO-OPERATIVE SOCIETY' MEANS A SOCIETY REGISTE RED 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 L AW RELATING TO CO- OPERATIVE SOCIETIES FOR THE TIME BE ING IN FORCE. 14. IN ALL THE CLAUSES REFERRED TO ABOVE, THE LEGIS LATIVE TOOL USED IS 'MEANS' ; AND NOT 'INCLUDES'. THEREFOR E, WHEN THE TERM 'CO-OPERATIVE SOCIETY' IS DEFINED TO MEAN, INTER ALIA, A SOCIETY REGISTERED UNDER ANY STATE LA W RELATING TO CO-OPERATIVE SOCIETIES FOR THE TIME BEI NG IN FORCE ; ONE SUCH IS A CO-OPERATIVE SOCIETY FOR THE PURPOSES OF THE BANKING REGULATION ACT AND IF THAT CO- OPERA TIVE SOCIETY SATISFIES THE DEFINITION OF 'PRIMARY AGRICU LTURAL CREDIT SOCIETY', IT WOULD BE ONE TO WHICH THE EXEMP TION AS PER SUB-SECTION (4) OF SECTION 80P OF THE INCOME-TA X ACT WOULD APPLY. ITA NOS.135 & 720/COCH/2013 :- 5 -: 15. APPELLANTS IN THESE DIFFERENT APPEALS ARE INDIS PUTABLY 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 AC T. PARLIAMENT, HAVING DEFINED THE TERM 'CO-OPERATIVE SOCIETY' FOR THE PURPOSES OF THE BANKING REGULATION ACT WITH REFERENCE TO, AMONG OTHER THINGS, THE REGISTRA TION OF A SOCIETY UNDER ANY STATE LAW RELATING TO CO-OPERAT IVE SOCIETIES FOR THE TIME BEING ; IT CANNOT BUT BE TAK EN THAT THE PURPOSE OF THE SOCIETIES SO REGISTERED UNDER TH E 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 RECIPROCA TIVE LEGISLATIVE EXERCISE BY PARLIAMENT RECOGNISING THE PREDOMINANCE OF DECISIONS RENDERED UNDER THE RELEVA NT STATE LAW. IN THIS VIEW OF THE MATTER, ALL THE APPE LLANTS HAVING BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CRED IT SOCIETIES BY THE COMPETENT AUTHORITY UNDER THE KERA LA CO- OPERATIVE SOCIETIES ACT, IT HAS NECESSARILY TO BE H ELD THAT THE PRINCIPAL OBJECT OF SUCH SOCIETIES IS TO UNDERT AKE AGRICULTURAL CREDIT ACTIVITIES AND TO PROVIDE LOANS AND ADVANCES FOR AGRICULTURAL PURPOSES, THE RATE OF INT EREST 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 OPER ATION 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 AUTHOR ITIES UNDER THE INCOME-TAX ACT CANNOT PROBE INTO ANY ISSU E OR SUCH MATTER RELATING TO SUCH APPLICANTS. 16. THE POSITION OF LAW BEING AS ABOVE WITH REFEREN CE 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 (C CIV) OF SECTION 5 OF THE BANKING REGULATION ACT, HAVING REG ARD 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 MEMB ER, EXCEPT MAY BE, IN ACCORDANCE WITH THE PROVISO TO SU B- CLAUSE (2) OF SECTION 5(CCIV) OF THE BANKING REGULA TION ACT. THE DIFFERENT ORDERS OF THE TRIBUNAL WHICH ARE IMPEACHED IN THESE APPEALS DO NOT CONTAIN ANY FINDI NG OF FACT TO THE EFFECT THAT THE BYE-LAWS OF ANY OF THE APPELLANT OR ITS CLASSIFICATION BY THE COMPETENT AUTHORITY UN DER THE KERALA CO-OPERATIVE SOCIETIES ACT IS ANYTHING DIFFE RENT ITA NOS.135 & 720/COCH/2013 :- 6 -: FROM WHAT WE HAVE STATED HEREINABOVE. FOR THIS REAS ON, 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 SU CCEED. HONBLE JURISDICTIONAL HIGH COURT HAD THUS REMITTED THESE APPEALS BACK TO THE TRIBUNAL FOR CONSIDERATION AFRESH WITH THE F OLLOWING DIRECTIONS. WITH THE AFORESAID, WE REMIT ALL THESE MATTERS F OR RECONSIDERATION BY THE INCOME TAX APPELLATE TRIBUNA L 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 T HE CLAIM OF THE ASSESSEE IN THAT REGARD BY TREATING THAT IN AL L CASES WHERE EXEMPTIONS ARE CLAIMED UNDER SECTION 80P AND SUCH M ATTERS WERE PENDING BEFORE THE ASSESSING AUTHORITY OR BEFO RE THE APPELLATE AUTHORITY, INCLUDING IN THESE APPEALS, TH E QUESTION OF EXEMPTION AVAILABLE UNDER SECTION 80P WAS STILL AVA ILABLE FOR DECISION. 3. NOW BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT LD. ASSESSING OFFICER HIMSELF HAD ACKNOWLEDGED CERT IFICATE PRODUCED BY THE ASSESSEE WHICH PROVED IT TO BE A PRIMARY AGRIC ULTURAL CREDIT SOCIETY AS DEFINED IN SECTION 2(OA) OF KERALA CO-OPERATIVE SOCIETIES ACT, 1969. FURTHER, ACCORDING TO HIM, ASSESSEE HAD MADE THE CL AIM U/S.80P OF THE ACT IN THE REGULAR RETURN OF INCOME FILED AND THERE FORE WAS ELIGIBLE FOR SUCH DEDUCTION. IN SO FAR AS ISSUE OF PROVISION OF BAD DEBTS WAS CONCERNED, LD. AUTHORISED REPRESENTATIVE SUBMITTE D THAT HE WAS NOT PRESSING THE RELATED GROUNDS. 4. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBM ITTED THAT THIS ITA NOS.135 & 720/COCH/2013 :- 7 -: TRIBUNAL HAD IN A NUMBER OF CASES HELD SIMILAR SOC IETIES ENGAGED IN THE BUSINESS OF BANKING AS NOT ELIGIBLE FOR DEDUCT ION CLAIMED U/S.80P (2) OF THE ACT. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. ASSESSMENT ORDERS FOR THE IMPUGNED ASSESSMENT YEARS CLEARLY STATE AT PARAGRAPH NO.5, T HAT THE ASSESSEE HAD PRODUCED CERTIFICATE FROM THE COMPETENT AUTHORI TY UNDER KERALA CO-OPERATIVE SOCIETIES ACT, 1969 WHICH CERTIFIED T HAT IT AS 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 PRIMARY AGRI CULTURAL CREDIT SOCIETY BY THE COMPETENT AUTHORITY UNDER KERALA CO- OPERATIVE SOCIETIES ACT, IT NECESSARILY HAD TO BE CONSIDERED AS A SOCI ETY HAVING AS ITS PRINCIPLE OBJECT PROVIDING AGRICULTURAL CREDIT ACTI VITIES 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. ASSESSEE HAVING PRODUCED THE CERTIFICATE FROM COMPETENT AUTHORITY REFLECTING ITS NATURE AS A PRIMARY AGRICULTURAL CREDIT SOCIETY, WE ARE OF THE OPINION THAT IT WAS E LIGIBLE FOR DEDUCTION CLAIMED U/S.80P(2) OF THE ACT. EX-CONSEQUENTI, WE DIRECT THE LD. ASSESSING OFFICER TO GRANT THE DEDUCTION CLAIMED BY THE ASSESSEE ITA NOS.135 & 720/COCH/2013 :- 8 -: UNDER SUCH SECTION. GROUNDS 1 & 2 ARE ALLOWED. GROU NDS 3 & 4 WHICH ARE ON PROVISION OF BAD DEBTS, ARE DISMISSED AS N OT PRESSED. 6. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR BOT H THE YEARS ARE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14-03-2017. SD/ - (GEORGE GEORGE.K) $ $ $ $ !% !% !% !% / JUDICIAL MEMBER SD/ - (ABRAHAM P. GEORGE) !% !% !% !% / ACCOUNTANT MEMBER COCHIN &! / DATED:14 TH MARCH, 2017 KV !' ' (' / COPY TO: 1 THE NILESHWAR SERVICE CO-OPERATIVE BANK LTD, NIL ESHWAR, KASARAGOD 671 314. 2. THE INCOME TAX OFFICER, WARD -2, KASARGOD. 3. THE COMMISSIONER OF INCOME TAX (APPEALS), KOZHI KODE 4. THE PRINCIPAL COMMISSIONER OF INCOME TAX (APPEAL S) KOZHIKODE. 5. D.R. I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR I.T.A.T., COCHIN.