ITO Ward 3, Namakkal V. S 1286 R.Pudupalayam PACCS Ltd., Namakkal

ITA 2369/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5615 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 26-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Keywords: Search and seizure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A (SMC) BENCH : CHENNAI . , ! [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMB ER ] ./I.T.A. NO. 2369/MDS/2017 / ASSESSMENT YEAR : 2014-2015 THE INCOME TAX OFFICER, WARD 3 NAMAKKAL VS. M/S. S- 1286, R. PUDUPALAYAM PACCS LTD, R. PUDUPALAYAM P.O. RASIPURAM TK, NAMAKKAL 637 408. [PAN AAFAS 8931C] ( '# / APPELLANT) ( $%'# /RESPONDENT) / APPELLANT BY : SHRI. B. SAGADEVAN, IRS, JCIT. /RESPONDENT BY : NONE /DATE OF HEARING : 12-12-2017 ! /DATE OF PRONOUNCEMENT : 19-12-2017 & / O R D E R IN THIS APPEAL FILED BY THE REVENUE, WHICH IS DIR ECTED AGAINST AN ORDER DATED 31.07.2017 OF LD. COMMISSION ER OF INCOME TAX (APPEALS), SALEM, IT IS AGGRIEVED THAT THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) HELD ASSESSEE TO BE ELIGIBLE FOR CLA IMING DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. ITA NO. 2369/MDS/2017 :- 2 -: 2. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSE SSEE WAS RECEIVING INTEREST FROM VARIOUS CLASSES OF MEMB ERS, WHICH INCLUDED RESIDENT MEMBERS AND NOMINAL MEMBERS. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, TERM MEMBER INCLUD ED ONLY A SHARE HOLDING MEMBER AS PER THE TAMIL NADU CO-OPERATIVE S OCIETIES ACT, 1983. SUBMISSION OF THE LD. DEPARTMENTAL REPRESENTA TIVE WAS THAT AUDITOR OF THE ASSESSEE SOCIETY DISCLOSED ONLY SUCH SHARE HOLDING MEMBERS AS MEMBERS OF THE ASSESSEE SOCIETY. AS PE R THE LD. DEPARTMENTAL REPRESENTATIVE ASSOCIATE MEMBER COULD NOT BE CONSIDERED AS A MEMBER. ACCORDING TO THE LD. DEPAR TMENTAL REPRESENTATIVE, ASSOCIATE MEMBERS WERE NOT ENTITLED TO RECEIVE DIVIDEND NOR ENTITLED TO PARTICIPATE IN THE GENERAL ADMINISTRATION OF THE SOCIETY. FURTHER, AS PER THE LD. DEPARTMENTAL REP RESENTATIVE SUCH MEMBERS WERE NOT HAVING ANY VOTING RIGHT AND THEY W ERE ADMITTED ONLY FOR AVAILING LOAN FACILITY FROM THE ASSESSEE SOCIETY. THUS, ACCORDING TO HIM, INTEREST EARNED ON LOANS GIVEN B Y THE ASSESSEE WERE NOT BE ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. RELIANCE WAS PLACED ON THE JUDGMENT OF APEX COURT IN THE C ASE OF THE CITIZEN CO-OPERATIVE SOCIETY LTD VS. ACIT, (CIVIL APPEAL N O.10245 OF 2017, DATED 8.8.2017 ). 3. NONE APPEARED ON BEHALF OF THE ASSESSEE. ITA NO. 2369/MDS/2017 :- 3 -: 4. I HAVE PERUSED THE ORDERS AND HEARD THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE. LD. COMMISSIONER O F INCOME 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, KARKUDALPATTY PRIMARY AGRICULTURAL CO-OPERATIVE CREDIT SOCIETY LTD VS. IT O (ITA NO.292/MDS/2014, DATED 17.03.2014 ). HOWEVER, SUBSEQUENT TO THE PRONOUNCEMENT OF THE SAID ORDER, HONBLE APEX COURT IN THE CASE OF THE CITIZEN CO-OPERATIVE SOCIETY LTD (SUPRA), WHERE 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 PARLIA MENT IN ORDER TO ENCOURAGE AND PROMOTE GROWTH OF CO-OPERATI VE SECTOR IN THE ECONOMIC LIFE OF THE COUNTRY. IT WAS DONE PU RSUANT TO DECLARED POLICY OF THE GOVERNMENT. THEREFORE, SUCH A PROVISION HAS TO BE READ LIBERALLY, REASONABLY AND IN FAVOR O F THE ASSESSEE (SEE BAJAJ TEMPO LIMITED, BOMBAY V. COMMISSIONER OF INCOME TAX, BOMBAY CITY-III, BOMBAY3). IT IS ALSO T RITE THAT SUCH A PROVISION HAS TO BE CONSTRUED AS TO EFFECTUATE TH E OBJECT OF THE LEGISLATURE AND NOT TO DEFEAT IT (SEE COMMISS IONER OF INCOME TAX, BOMBAY & ORS. V. MAHINDRA AND MAHINDRA LIMITED & ORS.4). THEREFORE, IT HARDLY NEEDS TO BE EMPHASIZ ED THAT ALL THOSE CO-OPERATIVE SOCIETIES WHICH FALL WITHIN THE PURVIEW OF ITA NO. 2369/MDS/2017 :- 4 -: 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 WHOLE OF THE AMO UNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANYON E 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-OPERATIVE 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 BANKING AND PROVIDING CREDIT FACILITIES TO ITS MEMB ERS; XX XX XX 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 COUN TRY AND IN PURSUANCE OF THE DECLARED POLICY OF THE GOVERNMENT. THE CORRECT WAY OF READING THE DIFFEREN T HEADS OF EXEMPTION ENUMERATED IN THE SECTION WOULD BE TO TREAT EACH AS A SEPARATE AND DISTINCT HEAD OF EXEMPTION. WHENEVER A QUESTION ARISES AS TO WHETHER ANY PARTICULAR CATEGORY OF AN INCOME OF A COOPERATI VE SOCIETY IS EXEMPT FROM TAX WHAT HAS TO BE SEEN IS WHETHER INCOME FELL WITHIN ANY OF THE SEVERAL HEADS OF EXEMPTION. IF IT FELL WITHIN ANY ONE HEAD OF EXEMPT ION, IT WOULD BE FREE FROM TAX NOTWITHSTANDING THAT THE CONDITIONS OF ANOTHER HEAD OF EXEMPTION ARE NOT SATISFIED AND SUCH INCOME IS NOT FREE FROM TAX UNDE R 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 AN IDEN TICAL ISSUE, THE HIGH COURT OF PUNJAB AND HARYANA HELD AS FOLLOW S: 8. THE PROVISIONS OF SECTION 80P WERE INTRODUCED W ITH A VIEW TO ENCOURAGING AND PROMOTING THE GROWTH OF T HE CO-OPERATIVE SECTOR IN THE ECONOMIC LIFE OF THE COU NTRY AND IN PURSUANCE OF THE DECLARED POLICY OF THE GOVERNMENT. THE DIFFERENT HEADS OF EXEMPTION ENUMERATED IN THE SECTION ARE SEPARATE AND DISTINCT HEADS OF EXEMPTION AND ARE TO BE TREATED AS SUCH. ITA NO. 2369/MDS/2017 :- 5 -: WHENEVER A QUESTION ARISES AS TO WHETHER ANY PARTICULAR CATEGORY OF AN INCOME OF A CO-OPERATIVE SOCIETY IS EXEMPT FROM TAX, THEN IT HAS TO BE SEEN WHETHER SUCH INCOME FELL WITHIN ANY OF THE SEVERAL HEADS OF EXEMPTION. IF IT FELL WITHIN ANY ONE HEAD OF EXEMPTION,.... IT MEANS THAT A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING AND A CO-OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS WILL BE ENTITLED FOR EXEMPTION UNDER THIS S UB- CLAUSE. THE CARRYING ON THE BUSINESS OF BANKING BY A COOPERATIVE SOCIETY OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS ARE TWO DIFFERENT TYPES OF ACTIVITIES WHICH ARE COVERED UNDER THIS SUB-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 FROM TAX NOTWITHSTANDING THAT THE CONDITIO N OF OTHER HEADS OF EXEMPTION ARE NOT SATISFIED. A READI NG OF THE PROVISIONS OF SECTION 80P OF THE ACT WOULD INDI CATE THE MANNER IN WHICH THE EXEMPTION UNDER THE SAID PROVISIONS IS SOUGHT TO BE EXTENDED. WHENEVER THE LEGISLATURE WANTED TO RESTRICT 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 THE 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 AND IT IS IN TUNE WITH THE JUDGMENT OF THIS COURT IN KERALA STATE 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 COV ERED THEREBY. ITA NO. 2369/MDS/2017 :- 6 -: IT IS ALSO A MATTER OF COMMON KNOWLEDGE THAT IN ORD ER TO DO THE BUSINESS OF A CO-OPERATIVE BANK, IT IS IMPERATIVE T O HAVE A LICENSE FROM THE RESERVE BANK OF INDIA, WHICH THE A PPELLANT DOES NOT POSSESS. NOT ONLY THIS, AS NOTICED ABOVE, THE RESERVE BANK OF INDIA HAS ITSELF CLARIFIED THAT THE BUSINES S OF THE APPELLANT DOES NOT AMOUNT TO THAT OF A CO-OPERATIVE BANK. THE APPELLANT, THEREFORE, WOULD NOT COME WITHIN THE MIS CHIEF OF SUB- SECTION (4) OF SECTION 80P. 25) SO FAR SO GOOD. HOWEVER, IT IS SIGNIFICANT TO P OINT OUT THAT THE MAIN REASON FOR DIS ENTITLING THE APPELLANT FROM GE TTING 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 VIOLATI ONS OF THE PROVISIONS OF THE MACSA UNDER WHICH IT IS FORMED. I T IS POINTED OUT BY THE ASSESSING OFFICER THAT THE ASSESSEE IS C ATERING TO TWO DISTINCT CATEGORIES OF PEOPLE. THE FIRST CATEGORY I S THAT OF RESIDENT MEMBERS OR ORDINARY MEMBERS. THERE MAY NOT BE ANY DIFFICULTY AS FAR AS THIS CATEGORY IS CONCERNED. HO WEVER, THE ASSESSEE HAD CARVED OUT ANOTHER CATEGORY OF NOMINA L MEMBERS. THESE ARE THOSE MEMBERS WHO ARE MAKING DE POSITS WITH THE ASSESSEE FOR THE PURPOSE OF OBTAINING LOAN S, ETC. AND, IN FACT, THEY ARE NOT MEMBERS IN REAL SENSE. MOST O F THE BUSINESS OF THE APPELLANT WAS WITH THIS SECOND CATE GORY OF PERSONS WHO HAVE BEEN GIVING DEPOSITS WHICH ARE KEP T IN FIXED DEPOSITS WITH A MOTIVE TO EARN MAXIMUM RETURNS. A P ORTION OF THESE DEPOSITS IS UTILIZED TO ADVANCE GOLD LOANS, E TC. TO THE MEMBERS OF THE FIRST CATEGORY. IT IS FOUND, AS A MA TTER OF FACT, THAT HE DEPOSITORS AND BORROWERS ARE QUIET DISTINCT . IN REALITY, SUCH ACTIVITY OF THE APPELLANT IS THAT OF FINANCE B USINESS AND CANNOT BE TERMED AS CO-OPERATIVE SOCIETY. IT IS ALS O FOUND THAT THE APPELLANT IS ENGAGED IN THE ACTIVITY OF GRANTIN G LOANS TO GENERAL PUBLIC AS WELL. ALL THIS IS DONE WITHOUT AN Y APPROVAL FROM THE REGISTRAR OF THE SOCIETIES. WITH INDULGENCE IN SUCH KIND OF ACTIVITY BY THE APPELLANT, IT IS REMARKED BY THE AS SESSING OFFICER THAT THE ACTIVITY OF THE APPELLANT IS IN VIOLATION OF THE CO- OPERATIVE SOCIETIES ACT. MOREOVER, IT IS A CO-OPERA TIVE CREDIT SOCIETY WHICH IS NOT ENTITLED TO DEDUCTION UNDER SE CTION 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 I NSTANT CASE. THOUGH THERE IS A DETAILED DISCUSSION IN THIS BEHAL F IN THE ORDER OF THE ASSESSING OFFICER, OUR PURPOSE WOULD BE SERV ED BY TAKING NOTE OF THE FOLLOWING PORTION OF THE DISCUSSION: ITA NO. 2369/MDS/2017 :- 7 -: AS VARIOUS COURTS HAVE OBSERVED THAT THE FOLLOWING THREE CONDITIONS MUST EXIST BEFORE AN ACTIVITY COUL D BE BROUGHT 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 INTEREST HAS BEEN EARNED ON SUCH INVESTMENT FOR EXAMPLE, ING MUTUAL FUND [AS SAID BY THE MD VIDE HI S STATEMENT DATED 20.12.2010]. [THOUGH THE BANK FORME D THE THIRD PARTY VIS-A-VIS THE ASSESSEE ENTITLED BET WEEN CONTRIBUTOR AND RECIPIENT IS LOST IN SUCH CASE. THE OTHER INGREDIENTS OF MUTUALITY ARE ALSO FOUND TO BE MISSI NG AS DISCUSSED IN FURTHER PARAGRAPHS]. IN THE PRESENT CASE BOTH THE PARTIES TO THE TRANSAC TION ARE THE CONTRIBUTORS TOWARDS SURPLUS, HOWEVER, THER E ARE NO PARTICIPATORS IN THE SURPLUSES. THERE IS NO COMM ON CONSENT OF WHATSOEVER FOR PARTICIPATORS AS THEIR ID ENTITY IS NOT ESTABLISHED. HENCE, THE ASSESSEE FAILS TO SA TISFY THE TEST OF MUTUALITY AT THE TIME OF MAKING THE PAY MENTS THE NUMBER IN REFERRED AS MEMBERS MAY NOT BE THE MEMBER OF THE SOCIETY AS SUCH THE AOP BODY BY THE SOCIETY IS NOT COVERED BY CONCEPT OF MUTUALITY AT A LL. 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 FACILITIE S TO ITS MEMBERS. WE ARE AFRAID SUCH A SOCIETY CANNOT CLAIM 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 HAVE 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.80P(2)(A)( I) OF THE ACT REQUIRES ITA NO. 2369/MDS/2017 :- 8 -: A FRESH LOOK BY THE LD. ASSESSING OFFICER. I SET AS IDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE QUESTION REGARDING ELIGIBILITY FOR 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. 5. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON TUESDAY, THE 19TH DAY OF DEC EMBER, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 19TH DECEMBER, 2017 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF