The ITO, Patan V. The Agriculture Development Co-op. Credit Society Ltd., Sidhpur

ITA 1956/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94541 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA SINGH
• Assessee Lawyers: A C SHAH
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, & MANISH BORAD, AM. ITA NO.1956/AHD/2011 ASST. YEAR: 2008-09 . INCOME-TAX OFFICER, WARD-2, PATAN VS THE AGRICULTURE DEV. COP.OP. CREDIT SOCIETY LTD., ZAPALI POLE, SIDHPUR. (APPELLANT) (RESPONDENT) PA NO.AAAAA 1055C APPELLANT BY SHRI RAJENDRA SINGH, SR. DR RESPONDENT BY SHRI A. C. SHAH, AR DATE OF HEARING: 12/10/2015 DATE OF PRONOUNCEMENT: 14/10/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), GANDHINAGAR, AHMEDABAD, DATED 24.5.2011. AS SESSMENT ORDER FOR ASST. YEAR 2008-09 WAS FRAMED BY ITO, WD- 2, PATAN, U/S 143(3) OF THE I.T. ACT, 1961 (IN SHORT THE ACT), ON 24.12.2010. REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.26,38,833/- MADE ON ACCOUNT OF DISAL LOWANCE OF DEDUCTION U/S 80P OF THE I.T. ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA NO.1956/AHD/2011 ASST. YEAR 2008-09 2 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED TO THE ABOVE E XTENT. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A REGISTERED PRIMARILY AGRICULTURAL CREDIT CO-OP. SOC IETY. IT HAS FILED ITS RETURN OF INCOME ON 22.9.2008 DECLARING TOTAL INCOM E OF RS.73,170/- AFTER CLAIMING DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT, AT RS.26,38,833/-. ASSESSMENT PROCEEDINGS WERE COMPLET ED UNDER SECTION 143(3) OF THE ACT ON 24/12/2010, WHEREIN AS SESSING OFFICER DISALLOWED THE DEDUCTION UNDER SECTION 80P OF THE A CT AT RS.26,38,833/-. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE THE CI T(A) WHO DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER AND ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL. THE LD. DR REFERRED TO THE MAIN OBJECTS OF THE ASSESSEE SOCIETY WHEREIN IT IS MENTIONED THAT LOAN UPTO 75% OF THE FIXED DEPOSI T CAN BE GIVEN TO ITS MEMBER OR NON-MEMBERS HOLDING FIXED DEPOSIT WIT H SOCIETY. RATE OF INTEREST WILL BE DECIDED BY BOARD OF DIRECTORS F OR TIME BEING MANAGER CAN SANCTION SUCH LOANS & BORROWER HAS TO P ROVIDE SUCH DOCUMENTS AND AGREEMENTS AS SOCIETY DECIDE. THE LD. DR INFERRED FROM THIS CLAUSE THAT ASSESSEE SOCIETY IS PROVIDING CREDIT FACILITIES TO NON-MEMBERS ALSO AND ASSESSEE SOCIETY HAS ALSO SHOW N INTEREST INCOME ON LOAN FOR BUSINESS AT RS.11,64,287/- IN IT S PROFITS AND LOSS ITA NO.1956/AHD/2011 ASST. YEAR 2008-09 3 ACCOUNT AND, THEREFORE, THE SOCIETY IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I). 5. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SU BMITTED THAT THE PRIMARY BUSINESS OF THE ASSESSEE SOCIETY IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPO SES WHEREAS THE MAIN REASON FOR DISALLOWANCE MADE BY ASSESSING OFFI CER U/S 80P(2)(A)(I) IS THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE ASSESSEE SOCIETY AS PRIMARY AGRICULTURAL CREDIT CO- OP. SOCIETY. THE LD. AR FURTHER REFERRED TO THE PROVISIONS OF SECTION 80 P(4) WHICH READS AS BELOW :- THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPM ENT BANK. EXPLANATION TO SECTION 80P(4) PROVIDE AS UNDER FOR THE PURPOSE OF THIS SUB-SECTION CO-OPERATIVE B ANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY SHALL HAVE THE MEANING S RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATIO N ACT, 1949. THE LD. AR FURTHER STATED THAT IN PART V OF BANKING REGULATING ACT, PRIMARY AGRICULTURAL CREDIT SOCIETY IS DEFINED AS U NDER PRIMARY AGRICULTURAL CREDIT SOCIETY MEANS A CO-OP ERATIVE SOCIETY (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHI CH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULT URAL PURPOSES OR FOR PURPOSES CONNECTED WITH AGRICULTURA L ACTIVITIES (INCLUDING THE MARKETING OF CROPS). AND ITA NO.1956/AHD/2011 ASST. YEAR 2008-09 4 (2) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION O F ANY OTHER CO- OPERATIVE SOCIETY AS A MEMBER: PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO TH E ADMISSION OF A CO-OPERATIVE BANK AS A MEMBER BY REASON OF SUCH C O- OPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO- OPERATIVE SOCIETY OUT OF FUNDS PROVIDED THE STATE G OVERNMENT FOR THE PURPOSE; AS PER ABOVE DEFINITION OF PAC, THE WORDS TO BE NOT ED ARE PRIMARY OBJET OR PRINCIPAL BUSINESS. THE CONDITION OF PRIM ARY OBJECT OR PRINCIPAL BUSINESS MAY BE OF ALTERNATIVES. IF THE C ONDITION OF PRINCIPAL BUSINESS IS SATISFIED, CONDITION OF PRIMARY OBJECT NEED NOT BE FULFILLED. III. APPELLANT FURTHER SUBMITS THAT THE MAIN ACTIVI TY OF THE SOCIETY IS TO GIVE LOAN TO FARMERS ONLY. THE ADVANCES WERE GIV EN FOR BUSINESS PURPOSES TO MEMBER FARMERS RESIDING IN RURAL AREA O NLY. INTEREST INCOME FROM AGRICULTURAL LOANS IS OF RS.67.40 LACS AS AGAINST THE INTEREST INCOME FROM LOANS OTHER THAN AGRICULTURAL LOAN IS OF RS.11.34 LACS. APPELLANT HAD EARNED INTEREST INCOME OF RS.34.62 LA CS FROM DEPOSIT WITH BANKS BY INVESTING SURPLUS FUNDS RESULTING FRO M THE ACTIVITIES OF CREDIT FACILITIES TO MEMBER FARMERS. SUCH INCOME IS INCIDENTAL TO INCOME FROM PRIMARY ACTIVITY. SO SUCH INCIDENTAL IN COME DOES NOT ALTER OUR STATUS. THUS, INTEREST FROM AGRICULTURE CREDIT IS MORE THAN 50% OF THE TOTAL REVENUE EARNED FROM LOAN TO MEMBERS AND INTEREST EA RNED FROM ACTIVITY OF COMMERCIAL LOAN IS QUITE LESS AS COMPAR ED TO INTEREST INCOME FROM AGRICULTURAL CREDIT AND HENCE THE PRINC IPAL BUSINESS OF THE SOCIETY IS TO PROVIDE FINANCIAL ACCOMMODATION T O ITS MEMBERS FOR AGRICULTURAL PURPOSE AND THEREFORE, IT IS PRIMARY A GRICULTURAL CREDIT SOCIETY AS PER THE DEFINITION IN PART (V) OF BANKIN G REGULATION ACT. INTEREST INCOME OF LOAN AGAINST DEPOSITS WAS OF RS. 52.445/- APPELLANT HAD NOT GIVEN ANY SUCH LOAN TO NON MEMBERS. THE LIS T OF SUCH BORROWERS ALONE WITH THEIR MEMBERSHIP NUMBER IS SUB MITTED IN PAPER BOOK. SO THERE IS NO LOAN TO NON MEMBERS. SO IT FUL FILLS THIS CONDITION ITA NO.1956/AHD/2011 ASST. YEAR 2008-09 5 AS PER THE DEFINITION OF PRIMARY AGRICULTURE CREDIT SOCIETY AS DEFINED IN PART (V) OF BANKING REGULATION ACT. AS PER THE BYELAWS OF THE APPELLANT, ONLY INDIVIDUA LS CAN BECOME MEMBERS SO ANY CO OPERATIVE SOCIETY CANNOT BECOME M EMBER OF THE APPELLANT. SO IT FULFILLS THIS CONDITION OR PER THE DEFINITION OF PRIMARY AGRICULTURE CREDIT SOCIETY AS DEFINED IN PART (V) O F BANKING REGULATION ACT. AS PER OBJECT CLAUSE AND THE LOAN CLAUSE OF THE BYE LAWS OF THE SOCIETY THE PRIMARY OBJECT OF THE APPELLANT IS TO P ROVIDE FINANCIAL ACCOMMODATION TO MEMBERS FOR AGRICULTURAL OPERATION . SO IT IS PAC AS DEFINED IN PART (V) OF BANKING REGULATION ACT. IV. ON REFERRING ABOVE, LEGAL PROVISIONS, OBJECT CL AUSE AND FACTS OF THE ACTIVITY AND CONSIDERING CERTIFICATE FROM RBI F OR CERTIFYING APPELLANT AS PRIMARY AGRICULTURE CREDIT SOCIETY AND AGRICULTURAL BUSINESS OF FINANCE ACCOMMODATION TO MEMBERS FOR AG RICULTURAL PURPOSE, APPELLANT IS A PRIMARY AGRICULTURE CREDIT SOCIETY AS PER EXPLANATION OF SUBSECTION (4) OF SECTION 80P OF THE INCOME-TAX ACT, 1961 READ WITH PART (V) OF BANKING REGULATION ACT. DEDUCTION U/S 80P OF THE ACT IS NOT ALLOWABLE TO THE CO-OPERATIVE BAN K OTHER THAN PRIMARY AGRICULTURE CREDIT SOCIETY. SO IT IMPLIES T HAT DEDUCTION U/S 80P(2)(A)(I) IS ALLOWABLE TO PRIMARY AGRICULTURE CR EDIT SOCIETY. AS APPELLANT IS A PRIMARY AGRICULTURE CREDIT SOCIETY, ITS PROFIT FROM PROVIDING CREDIT FACILITIES TO MEMBERS IS FULLY ALL OWABLE DEDUCTION. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO PERUSED THE MATERIAL ON RECORD. FROM THE AVAILABLE RECORDS, IT IS NOTICED T HAT THERE IS NO CONTRARY VIEW TO THE FACT THAT ASSESSEE SOCIETY IS A PRIMARY AGRICULTURE CREDIT SOCIETY AND NOT A CO-OPERATIVE BANK. NOR THE REVENUE HAS BROUGHT ANY CONTRARY VIEW TO THIS. THEREFORE, THE A SSESSEE IS ENTITLED TO DEDUCTION OF THE INCOME FROM PROVIDING CREDIT FA CILITIES TO ITS MEMBERS UNDER SECTION 80P(2)(A)(I) OF THE ACT. BUT AS REFERRED BY LD. ITA NO.1956/AHD/2011 ASST. YEAR 2008-09 6 DR TO THE OBJECT OF THE ASSESSEE SOCIETY AS WELL AS INTEREST INCOME ON LOANS FOR BUSINESS SHOWN IN THE AUDITED PROFIT A ND LOSS ACCOUNT ONE CANNOT DENY THE ELEMENT OF SOME PORTION OF INCO ME WHICH THE ASSESSEE SOCIETY HAS EARNED FROM NON-MEMBERS ALSO. ON GOING THROUGH THE ORDER OF CIT(A) DATED 17.03.2015 FOR AY 2009-10 (COPY PLACED ON RECORD) IN THE CASE OF ASSESSEES OWN CAS E, WE FIND THAT HE HAS DISCUSSED THIS ISSUE RELATED TO INCOME FROM LOA N TO MEMBERS AND NON-MEMBERS AND THE SAME IS REPRODUCED BELOW :- 4.2 I HAVE CONSIDERED THE ASSESSMENT ORDER, REMAND REPORT AND THE SUBMISSIONS MADE BY THE APPELLANT. THE AO HAS EXAMI NED THE CLAUSE 37 AND 41 OF THE BY LAWS. THE AO HAS ALSO EXAMINED THE LO AN TO MEMBERS AND NON MEMBERS TO ASCERTAIN WHETHER LOAN HAS BEEN GIVEN TO NONMEMBERS, IN VIEW OF CLAUSE 41 AND SUBMITTED THAT NO LOAN HAS BEEN GIVE N TO NON MEMBERS. IN VIEW OF THE ABOVE FACTS, IT IS EVIDENT THAT THOUGH THERE IS A PROVISION UNDER CLAUSE 41 OF BY LAW TO GIVE LOAN TO NONMEMBERS UPTO 70% OF AM OUNT INVESTED IN FIXED DEPOSITED BUT ACTUALLY NO LOAN HAS BEEN GIVEN TO NO N MEMBERS. AS CIT(A) IN ORIGINAL ORDER HAS NOTED THAT THE RBI HAS CERTIFIED THAT THE APPELLANT IS A PRIMARY AGRICULTURE CREDIT SOCIETY, THE APPELLANT IS ELIGIB LE FOR BENEFIT FOR DEDUCTION U/S 80P(2)(A)(I), AS IT IS SPECIFICALLY EXCLUDED FROM T HE EXCEPTION IN SECTION 80O(4). HOWEVER, NOT THE ENTIRE INCOME IS EXEMPTED, AND IT IS TO BE EXAMINED WHETHER THERE WAS ANY INTEREST INCOME ON THE SHORT TERM BAN K DEPOSITS AND SECURITIES INCLUDED IN THE TOTAL INCOME OF THIS SOCIETY WHICH HAS BEEN CLAIMED BY THEM AS EXEMPT TO THE EXTENT OF RS.6,44,090/- BY TREATING T HE INCOME FROM INTEREST ON BANK DEPOSIT AS TAXABLE U/S 56 OF THE ACT. THIS ISS UE HAS BEEN DECIDED BY HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD. VS. ITO 188 TAXMAN 282 (2010). THE HONBLE SUPREME COURT HA S HELD THAT INTEREST INCOME ON THE SHORT TERM BANK TERM DEPOSIT AND SECU RITY WOULD FALL IN THE CATEGORY OF OTHER INCOME TO BE TAXED U/S 56 OF THE I.T. ACT. IN VIEW OF THE ABOVE, THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S 80P (2)(A)(I) IN RESPECT OF INCOME FROM OTHER SOURCES OF RS.6,44,090/- AS WORKED OUT U NDER :- WORKING OF INTEREST INCOME FROM BANK DEPOSIT CUT O F INTEREST FREE FUND- 1. DETAILS OF INTEREST FREE FUNDS RS. SHARE CAPITAL 2873160 RESERVE FUND 5651147 ITA NO.1956/AHD/2011 ASST. YEAR 2008-09 7 OTHER FUNDS 16107712 24632019 2. DETAILS OF INVESTMENT IN NON CO OP BANK DEPOSIT A DEVELOPMENT CREDIT BANK RS.2,10,00,000 3. DETAILS OF INVESTMENT IN CO OP BANK DEPOSIT AND LOANS TO MEMBERS RS. MDC CO OP BANK DEPOSIT 16700000 MDC CO OP BANK DEPOSIT IN PF A/C 1378644 LOANS TO MEMBERS 48861394 66940038 4. TOTAL INTEREST YIELDING INVESTMENT IS RS. (2,10, 00,000 + 6,69,40,038) I.E. RS.8,79,40,038 5. THE PROPORTION OF OWN AND INTEREST FUND INVESTED IN NON CO OP BANK DEPOSIT BY ASSUMING MIXED USE OF THE FUND IS INTEREST FREE FUND/OWN FUND X DEPOSITS WITH OTHER T HAN COOP BANK TOTAL INTEREST YIELDING INVESTMENT 2,46,32,0191 X 2,10,00,000 8,79,40,038 6. INTEREST AT 10.95% ON RS.52,82,103 IS OF RS.6, 44,090/- I HAVE GONE THROUGH THE ABOVE WORKING AND FIND IT R EASONABLE AND CORRECT ON THE FACTS OF THE CASE. THEREFORE, THE INTEREST INCOME W HICH IS TAXABLE U/S 56 AND NOT EXEMPT WOULD BE RS.6,44,090. THE GROUND OF APPEAL I S DECIDED ACCORDINGLY. SIMILAR SITUATION IS THERE IN THE YEAR UNDER APPEAL I.E. AY 2008-09 WHEREIN THIS ELEMENT OF INCOME FROM NON MEMBERS IS ARISING AND THERE WAS NO OBJECTION FROM BOTH THE SIDES THAT MAT TER OF THE APPEAL BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER F OR WORKING OUT THE INCOME FROM OTHER SOURCES I.E. INCOME FROM NON MEMB ERS AND OTHER SOURCES TO BE CALCULATED ON THE SAME PATTERN AS HAS BEEN MENTIONED ABOVE IN THE CIT(A)S ORDER FOR AY 2009-10. ACCORDI NGLY, WE REMIT ITA NO.1956/AHD/2011 ASST. YEAR 2008-09 8 BACK THE MATTER TO THE FILE OF ASSESSING OFFICER FO R FRESH CALCULATION OF INCOME ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) OF TH E ACT. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 7. OTHER GROUNDS ARE OF GENERAL NATURE, WHICH DO NO T REQUIRE ADJUDICATION. 8. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14/10/2015 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 14/10/2015 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASSTT. REGISTRAR, ITAT, AHMEDABAD ITA NO.1956/AHD/2011 ASST. YEAR 2008-09 9 1. DATE OF DICTATION: 12/10/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 13/10/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 14/10/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: