M/s.Kadavathur Service Co-op Bank Ltd, Thalassery V. The ITO, Kannur

ITA 258/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81310 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 04-06-2014
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Business income; Question of law; Reasonable cause
• Section: 143(3); 27; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO. 258/COCH/2014 ASSESSMENT YEAR : 2007-08 KADAVATHUR SERVICE CO-OPERATIVE BANK LTD., KADAVATHUR, THALASSERY. KANNUR-670 676 [PAN: AAGFD 3125N] VS. THE INCOME TAX OFFICER, WARD-2, KANNUR. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI T.M. SREEDHARAN, SR. ADV. REVENUE BY SHRI K.K. JOHN, SR.DR DATE OF HEARING 24/07/2014 DATE OF PRONOUNCEMENT 8/08/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THE APPEAL IS DIRECTED AGAINST THE ORDER DATED 02- 12-2013 PASSED BY THE LD. CIT(A)-II, KOCHI FOR THE ASSESSMENT YEAR 2007-0 8. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO-OPERATIVE SOCIETY REGISTERED UNDER THE KERALA CO-OPERATIVE SOCIETIES ACT, 1969 IN THE CLASSIFICATION AS A PRIMARY AGRICULTURAL CREDIT SOCIETY (PACS) B Y THE JOINT REGISTRAR OF CO- OPERATIVE SOCIETIES, KANNUR. THE ASSESSEE FILED RE TURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 02-07-2012 IN RESPONSE T O NOTICE U/S. 148 DECLARING GROSS TOTAL INCOME OF RS.4,77,962/- AND NIL TAXAB LE INCOME RESPECTIVELY BY I.T.A. NO.258 /COCH/2014 2 CLAIMING DEDUCTION U/S. 80P(2)(A)(I). THE AO REJEC TED THE CLAIM FOR EXEMPTION U/S. 80P(2)(A)(I) OF THE ACT AND MADE ASSESSMENT U /S. 143(3) R.W.S. 147 OF THE ACT, BY ORDER DATED 28-01-2013 DETERMINING THE TOTA L INCOME AT RS.16,85,410/-. THE ASSESSING OFFICER ALSO DETERMINED THE BUSINESS INCOME OF RS.5,13,021/- AND MADE ADDITIONS AMOUNTING TO RS. 15,000/- BY WAY OF DISALLOWANCE OF DONATION AND ANOTHER AMOUNT OF RS.11,91,515/-. THE ABOVE SUM CONSIST OF RS.9,00,620/- DISALLOWED BY INVOKING SEC. 40(A)(IA), WHICH IS EQU AL TO 20% OF THE TOTAL INTEREST PAYMENT TO NON-MEMBERS WITHOUT DEDUCTION OF TAX WHI CH IS AN ESTIMATED DISALLOWANCE. 3. THE SECOND ADDITION IS WITH REGARD TO RS.2,90,88 3.- PAID TO APPRAISERS, WHICH WAS ALSO DISALLOWED BY INVOKING SEC. 40(A)(IA ) OF THE ACT. 4. ON APPEAL, THE CIT(A) CONFIRMED THE DENIAL OF EX EMPTION UNDER SECTION 80P OF THE ACT(2)(ASSESSMENT AND DISMISSED THE APPE AL. SIMILARLY, HE CONFIRMED THE DISALLOWANCE OF RS. 2,90,983/- U/S. 40(A)(IA) O F THE ACT. IN ADDITION TO THIS, HE ALSO CONFIRMED THE DISALLOWANCE OF RS. 9,00,620/ - U/S. 40(A)(IA) OF THE ACT WHICH WAS MADE ON AN ESTIMATE BASIS AS PAYMENT OF I NTEREST TO NON-MEMBERS. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4.1 THERE WAS DELAY OF 21 DAYS IN FILING THIS APPEA L AND THE ASSESSEE HAS FILED CONDONATION PETITION EXPLAINING THE REASONS FOR DEL AY IN FILING THE APPEAL. WE I.T.A. NO.258 /COCH/2014 3 FIND THERE IS REASONABLE CAUSE FOR DELAY IN FILING THE APPEAL. ACCORDINGLY, WE CONDONE THE DELAY AND ADMIT THE APPEAL. 5. REGARDING THE DENIAL OF EXEMPTION U/S. 80P(2)(A) (I) OF THE ACT, THE LD. AR SUBMITTED THAT THE ASSESSEE IS A PRIMARY AGRICULTUR AL CREDIT SOCIETY AND NOT A CO- OPERATIVE BANK. A CO-OPERATIVE BANK IS DEFINED IN B ANKING REGULATION ACT AND MEANS A STATE CO-OPERATIVE BANK OR A CENTRAL CO-OP ERATIVE BANK AND MEANS A STATE CO-OPERATIVE BANK OR A CENTRAL CO-OPERATIVE A ND A PRIMARY CO-OPERATIVE BANK. THE ASSESSEE WHICH IS A PACS, IS EXCLUDED F ROM THE PURVIEW OF PRIMARY CO-OPERATIVE BANK. THE LD. AR SUBMITTED THAT IN A SIMILAR CASE MADAI SERVICE CO-OPERATIVE RURAL BANK LTD., THE RESERVE BANK OF I NDIA HAS CLARIFIED THAT THE PACSS ARE NOT ENTITLED FOR OBTAINING A BANKING LICE NCE IN TERMS OF SEC. 3 OF THE BANKING REGULATION ACT WHEREIN IT WAS OBSERVED THAT PRIMARY AGRICULTURAL CREDIT SOCIETIES ARE NOT CO-OPERATIVE BANKS. IN THIS CONNE CTION, IT WAS SUBMITTED THAT THERE WAS A CLEAR DISTINCTION BETWEEN A CO-OPERATIV E BANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY AND THE PROVISIONS OF S EC. 80P(4) ARE APPLICABLE ONLY TO CO-OPERATIVE BANKS. IT WAS FURTHER SUBMITTED TH AT THE COMMERCIAL AND CO- OPERATIVE BANKS HAVE TO OBTAIN LICENCE AS PER SEC. 22 OF THE BANKING REGULATION ACT, 1949. HOWEVER, PACS ARE OUTSIDE THE PURVIEW O F THE BANKING REGULATION ACT BY VIRTUE OF SEC. 3 OF THE SAID ACT WHICH READS AS FOLLOWS: ACT TO APPLY TO CO-OPERATIVE SOCIETIES IN CERTAIN CASES NOTHING IN THIS ACT SHALL APPLY TO: I.T.A. NO.258 /COCH/2014 4 (A) A PRIMARY AGRICULTURAL CREDIT SOCIETY. (B) A CO-OPERATIVE SOCIETY. (C) A CO-OPERATIVE SOCIETY, EXCEPT IN THE MANNER A ND TO THE EXTENT SPECIFIED IN PART V) HOWEVER, URBAN CO-OPERATIVE BANKS AND OTHER CO-OPER ATIVE SOCIETIES CARRYING ON THE BUSINESS OF BANKING ARE NOT SPECIFICALLY EXCLUD ED U/S. 3 OF THE BANKING REGULATION ACT, 1949. 6. THE LD. AR DREW OUR ATTENTION TO THE MEANING OF PACS IN PART V, SEC. 56(CCIV) OF THE BANKING REGULATION ACT, 1949 WHICH READS AS UNDER: PRIMARY AGRICULTURAL CREDIT SOCIETY MEANS A CO- OPERATIVE SOCIETY- (1) THE PRIMARY OBJECT OR PRINCIPAL BUSI NESS OF WHICH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICUL TURAL PURPOSES OR FOR THE PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIE S (INCLUDING THE MARKETING OF CROPS): AND (2) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO- OPERATIVE SOCIETY AS MEMBER: 7. THE DEFINITION OF PACS AS PER SEC. 2(OA) OF THE KERALA CO-OPERATIVE ACT, 1969 IS AS UNDER: PRIMARY AGRICULTURAL CREDIT SOCIETY MEANS A SERVI CE CO-OPERATIVE CREDIT SOCIETY, A SERVICE CO-OPERATIVE BANK, A FARMERS S ERVICE CO-OPERATIVE BANK, A RURAL BANK, THE PRINCIPAL OBJECT O WHICH I S TO UNDERTAKE AGRICULTURAL CREDIT ACTIVITIES (AND ITS AREA OF O PERATION IS CONFINED TO A VILLAGE, PANCHAYAT OR A MUNICIPALITY. I.T.A. NO.258 /COCH/2014 5 8. THE LD. AR SUBMITTED THAT THUS IT CAN BE SEEN FR OM THE TWO DEFINITIONS THAT THEY IDENTICAL AND IT IS BASED ON THIS DEFINIT ION THAT THE ASSESSEE SOCIETY HAS BEEN CATEGORIZED AS PACS. THE LD. AR SUBMITTED THAT STATE GOVERNMENT AND THE RBI DO NOT CONSIDER THE ACTIVITIES OF THE ASSESSEE AS A CO-OPERATIVE BANK. IN SUCH CIRCUMSTANCES, THE DEPARTMENT HAS NO AUTHORITY IN CATEGORIZING THE ASSESSEE AS A CO-OPERATIVE BANK. IN SUCH CIRCUMSTA NCES, THE DEPARTMENT HAS NO AUTHORITY IN CATEGORIZING THE ASSESSEE AS A CO-OPER ATIVE BANK. ACCORDING TO THE LD. AR, THE ACTIVITIES OF THE PRIMARY AGRICULTURAL CREDIT SOCIETY AND THOSE OF CO- OPERATIVE BANKS ARE DISTINCT AND DIFFERENT FOR THE FOLLOWING REASONS: 1. THE PACS CANNOT GIVE LOAN TO NON-MEMBERS. 2. THEY CANNOT OPERATE CURRENT ACCOUNT FOR TRADERS , SERVICE PROVIDERS, MANUFACTURERS AND OTHERS LIKE CO-OPERATIVE BANKS FOR BUSINESS PURPOSES. 3. THEY ARE NOT MEMBERS O CLEARING HOUSE AND THEI R CHEQUES ARE NOT ACCEPTED BY THIRD PARTIES. 4. THE PACS CANNOT ISSUE BANK GUARANTEES ON BEHA LF OF THEIR CUSTOMERS OR OTHERS. 5. THE PACS CANNOT DEAL IN FOREIGN EXCHANGE TRANS ACTIONS OPEN NRE, FCNR OR OTHER FOREIGN CURRENCY DENOMINATED BANK AC COUNTS. 6. THE PACS DO NOT HAVE TO SEND PERIODICAL RETUR NS TO RBI NOR ARE THEY SUBJECT TO AUDIT AND INSPECTION BY THE RBI. 7.. PACS IS NOT REQUIRED TO SEND PERIODICAL RET URNS TO RBI NOR ARE THEY SUBJECT TO AUDIT AND INSPECTION BY THE RBI. F I.T.A. NO.258 /COCH/2014 6 9. THUS THE LD. AR SUBMITTED THAT THE ASSESSING O FFICER WAS WRONG IN CLASSIFYING THE ASSESSEE AS A CO-OPERATIVE BANK AND BRING IT WI THIN THE AMBIT OF SEC. 80P(4) OF THE ACT. 10. THE LD. AR RELIED ON THE DECISIONS OF TRIBUNAL, CHENNAI D BENCH IN THE CASE OF M/S. VEERAKERALAM PRIMARY WARD-II(3) AGRICU LTURAL CO-OPERATIVE CREDIT SOCIETY, COIMBATORE VS. ITO IN I.T.A. NO. 109/MDS/2 013 DATED 11 TH FEBRUARY, AND BANGALORE BENCH IN THE CASE OF M/S. GRAIN MERCHANTS CREDIT WARD-2 COOPERATIVE SOCIETY LTD. VS. ITO IN I.T.A. NO. 1627/BANG/2012 D ATED 6 TH FEBRUARY, 2014. THE LD. AR ALSO RELIED ON THE DECISION OF TRIBUNAL, PAN AJI BENCH IN THE CASE OF DCIT VS. M/S. JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARD A SAHAKARI LTD. THE LD. AR ALSO RELIED ON JUDGMENT OF GUJARAT HIGH COURT IN TH E CASE OF JAFARI MOMIN VIKAS CO-OPERATIVE SOCIETY LTD. VS. CIT IN I.T.A. NOS. 44 2/2013 DATED 15-01-2014. THE LD. AR ALSO RELIED ON THE CBDT CIRCULAR NO. 133/200 7 DATED 09-05-2007 IN SUPPORT OF HIS CONTENTIONS. 11. ON THE OTHER HAND, THE LD DR RELIED ON THE ORDE R OF THE CIT(A). 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE ARE OF THE OPINION THAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THE CO CHIN BENCH OF THE TRIBUNAL ON THE EARLIER OCCASION IN THE CASE OF KUNNAMANGALAM CO-OP ERATIVE BANK IN I.T.A. NO. I.T.A. NO.258 /COCH/2014 7 156/COCH/2014 VIDE ORDER DATED 25/07/2014 WHICH DEC IDED THE ISSUE AGAINST THE ASSESSEE. THE RELEVANT PORTION OF THE SAID ORDER I S AS FOLLOWS: 8.10 WE HAVE GONE THROUGH THE DECISION OF THE HYD ERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF THE CITIZEN C OOPERATIVE SOCIETY VS. ADDL. CIT, 41 305 (HYD). WE NOTICE THAT THIS DECISI ON IS APPLICABLE TO THE FACTS OF THE CASE BEFORE US. IN THAT DECISION, UNDE R PARA 23 THE TRIBUNAL HAS GIVEN A FINDING THAT THE ASSESSEE IS CARRYING O N BANKING BUSINESS AND FOR ALL PRACTICAL PURPOSES IT ACTS LIKE A CO-OP ERATIVE BANK. THE SOCIETY IS GOVERNED BY THE BANKING REGULATIONS ACT. THEREFORE, THE SOCIETY BEING A CO-OPERATIVE BANK PROVIDING BANKING FACILITIES TO MEMBERS IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80P( 2)(A)(I) AFTER THE INTRODUCTION OF SUB-SECTION (4) TO SECTION 80P. IN VIEW OF THIS FINDING, THE ASSESSEE WAS DENIED DEDUCTION U/S 80P(2)(A)(I). WE HAVE ALSO GONE THROUGH THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DIVYAJYOTHI CREDIT CO-OPERATIVE SOCIETY LTD. (SUPRA) IN ITA NO. 72/BANG/2013. IN THIS CASE, WE NOTICE THAT THE HON' BLE TRIBUNAL CONFIRMED THE ORDER OF CIT(A) FOLLOWING THE DECISIO N OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCLE 3(1), BANGALORE VS. M/S. B ANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LTD. IN ITA N O. 1069/BANG/2010 HOLDING THAT SEC. 80P(2)(A)(I) IS APPLICABLE ONLY T O A CO-OPERATIVE BANK AND NOT TO CREDIT CO-OPERATIVE SOCIETY. WITH DUE RE GARDS TO THE BENCH, WE ARE UNABLE TO FIND ANY TERMCREDIT CO-OPERATIVE SOCIETY U/S 80P(2)(A)(I) OR U/S 80P(4), THEREFORE, THIS DECISIO N CANNOT ASSIST US. WE NOTED THAT THE HON'BLE GUJARAT HIGH COURT IN THE CA SE OF CIT VS. JAFARI MOMIN VIKAS CO-OP. CREDIT SOCIETY LTD. IN TAX APPEA LS NO 442 OF 2013, 443 OF 2013 AND 863 OF 2013 (SUPRA) VIDE ORDER DT. 15.1.2014 TOOK THE VIEW THAT SEC. 80P(4) WILL NOT APPLY TO A SOCIETY W HICH IS NOT A CO- OPERATIVE BANK. IN THE CASE OF VYAVASAYA SEVA SAHAK ARA SANGHA VS. STATE OF KARNATAKA &ORS. (SUPRA) WE NOTICE THAT THE ISSUE BEFORE THE HON'BLE HIGH COURT IN THE WRIT PETITION FILED BY TH E PETITIONER RELATED TO THE LEGISLATIVE COMPETENCE OF THE STATE LEGISLATURE FOR ISSUING A CIRCULAR. THE ISSUE DOES NOT RELATE TO THE CLAIM OF DEDUCTION U/S 80P(2)(A)(I). WHILE DEALING WITH THIS ISSUE, THE HON'BLE HIGH COU RT UNDER PARA 12 OBSERVED AS UNDER : 12. IT IS NOT POSSIBLE TO ACCEPT THIS CONTENTION. THE PETITIONERS ARE NOT THE BANKING INSTITUTIONS COMING UNDER THE P URVIEW OF THE BANKING REGULATION ACT. THEY ARE THE CO-OPERATIVE S OCIETIES REGISTERED UNDER THE ACT, AND AS SUCH THEY ARE GOVE RNED BY THE PROVISIONS OF THE ACT PASSED BY THE STATE LEGISLATU RE. CONSEQUENTLY, THE STATE GOVERNMENT HAS CONTROL OVER THEM TO THE EXTENT THE ACT PERMITS. MAJOR ACTIVITIES OF THE PET ITIONERS ARE TO I.T.A. NO.258 /COCH/2014 8 FINANCE ITS MEMBERS. FOR THE PURPOSE OF FINANCING I TS MEMBERS, THEY BORROW MONEY FROM THE FINANCING AGENCIES AND R EPAY THE SAME. MERELY BECAUSE THE PETITIONERS-THE CO-OPERATI VE SOCIETIES IN QUESTION-ARE REQUIRED TO ADVANCE LOANS TO THEIR MEM BERS, THEY DO NOT CEASE TO BE CO-OPERATIVE SOCIETIES GOVERNED BY THE ACT NOR CAN THEY BE TREATED AS BANKING COMPANIES. IT IS ALS O NOT POSSIBLE TO HOLD THAT THESE ACTIVITIES OF THE PETITIONERS AM OUNT TO BANKING AS CONTEMPLATED UNDER THE BANKING REGULAT ION ACT, 1949, INASMUCH AS THESE CO-OPERATIVE SOCIETIES ARE NOT ESTABLISHED FOR THE PURPOSE OF DOING BANKING AS D EFINED IN SECTION 5(B) OF THE BANKING REGULATION ACT, 1949. THIS DECISION, IN OUR OPINION, IS NOT APPLICABLE TO THE CASE BEFORE US BECAUSE THE PROVISIONS OF SEC. 80P(2)(A)(I), AS WE HAVE ALREADY HELD IN THE PRECEDING PARAGRAPHS, ARE APPLICABLE TO A CO-OP ERATIVE SOCIETY WHICH IS ENGAGED IN CARRYING ON BANKING BUSINESS FACILITI ES TO ITS MEMBERS IF IT IS NOT A CO-OPERATIVE BANK. WE HAVE ALSO GONE THROU GH THE DECISION OF THIS BENCH IN THE CASE OF DCIT VS. JAYALAKSHMI MAHI LA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. IN ITA NO. 1 TO 3/PNJ/2012 D T. 30.3.2012 (SUPRA). WHILE DISCUSSING THIS ISSUE, AFTER ANALYS ING THE AIMS AND OBJECTS OF THE CO-OPERATIVE SOCIETY UNDER PARA 12 O F ITS ORDER, THIS TRIBUNAL HAS HELD AS UNDER : 12. FROM THE AFORESAID OBJECTS, IT IS APPARENT THA T NONE OF THE AIMS AND OBJECTS ALLOWS THE ASSESSEE COOPERATIVE SO CIETY TO ACCEPT DEPOSITS OF MONEY FROM PUBLIC FOR THE PURPOSE OF L ENDING OR INVESTMENT. IN OUR OPINION UNTIL AND UNLESS THAT CO NDITION IS SATISFIED, IT CANNOT BE SAID THAT THE PRIME OBJECT OR PRINCIPAL BUSINESS OF THE ASSESSEE IS BANKING BUSINESS. THERE FORE, THE ASSESSEE WILL NOT COMPLY WITH THE FIRST CONDITION A S LAID DOWN IN THE DEFINITION AS GIVEN U/S. 5(CCV) OF THE BANKING REGU LATION ACT, 1959 FOR BECOMING PRIMARY COOPERATIVE BANK. THE ASSESS EE, THEREFORE, CANNOT BE REGARDED TO BE PRIMARY COOPERATIVE BANK A ND IN CONSEQUENCE THEREOF, IT CANNOT BE A CO-OPERATIVE BA NK AS DEFINED UNDER PART V OF THE BANKING REGULATION ACT 1949. AC CORDINGLY, IN OUR OPINION THE PROVISIONS OF SECTION 80P (4) READ WITH EXPLANATION THERE UNDER WILL NOT BE APPLICABLE IN THE CASE OF T HE ASSESSEE. THE ASSESSEE, THEREFORE, IN OUR OPINION WILL BE ENTITLE D FOR THE DEDUCTION U/S 80P(2)(A)(I). WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A) ALLOWING DEDUCTION TO THE ASSESSEE. THE OTHER DECISIONS ALSO RELIED ON ARE NOT APPLICAB LE TO THE FACTS OF THE CASE OF THE ASSESSEE. I.T.A. NO.258 /COCH/2014 9 8.11. IN VIEW OF OUR AFORESAID DISCUSSION, WE HOLD THAT THE ASSESSEE IS A PRIMARY COOPERATIVE BANK AND THEREFORE HIT BY THE P ROVISIONS OF SECTION 80P(4). 9. ON THE OTHER HAND, THE ASSESSEE MADE AN ALTERNA TIVE PLEA THAT THE ASSESSEE IS LENDING MONEY ONLY TO ITS MEMBERS. BEIN G SO, APPLYING THE CONCEPT OF MUTUALITY, THE TOTAL INCOME OF THE ASSES SEE HAS TO BE EXEMPT FROM TAX. HOWEVER, WE FIND THAT THIS ARGUMENT OF T HE ASSESSEE IS ALSO DEVOID OF MERITS. THE HONBLE SUPREME COURT HAD AN OCCASION TO CONSIDER THIS MUTUALITY CONCEPT. SIMILAR ISSUE CAME UP FOR CONSIDERATION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KUMBAK ONAM MUTUAL BENEFIT FUND LTD., 53 ITR 241 (SC) WHEREIN IT WAS HELD THAT IF THE PROFITS ARE DISTRIBUTED TO SHAREHOLDERS AS SHAREHOLDERS, THE PR INCIPLE OF MUTUALITY IS NOT SATISFIED. A SHAREHOLDER IN THE ASSESSEE-COMPA NY IS ENTITLED TO PARTICIPATE IN THE PROFITS WITHOUT CONTRIBUTING TO THE FUNDS OF THE COMPANY BY TAKING LOANS. HE IS ENTITLED TO RECEIVE DIVIDEN D AS LONG AS HE HELD SHARES. HE DID NOT HAVE TO FULFIL ANY OTHER CONDITI ON. HIS POSITION IS IN NO WAY DIFFERENT FROM A SHAREHOLDER IN A BANKING COMPA NY, LIMITED BY SHARES. INDEED, THE POSITION OF THE ASSESSEE IS NO DIFFEREN T FROM AN ORDINARY BANK EXCEPT THAT IT LENDS MONEY AND RECEIVES DIVIDEND FR OM ITS SHAREHOLDERS WHICH DOES NOT BY ITSELF MAKE ITS INCOME ANY THE LE SS INCOME FROM BUSINESS. THE SAME JUDGMENT WAS FOLLOWED IN THE CA SE OF CIT VS. ARCOT DHANASEKHARA NIDHI LTD., 59 ITR 480 (MAD.), CIT VS. DHARMAVARAM MUTUAL BENEFIT PERMANENT FUND LTD., 67 ITR 673 (AP) AND CIT VS. BHAVNAGAR TRUST CORPORATION (P) LTD., 69 ITR 278. FURTHER, THE HONBLE KERALA HIGH COURT IN THE CASE OF KOTTAYAM CO-OPERAT IVE LAND MORTGAGE BANK LTD. VS. CIT, 172 ITR 443(KER.) WHERE IT WAS H ELD AS UNDER: THE INCOME-TAX OFFICER HELD THE VIEW THAT THE ASSE SSEE IS NOT ENTITLED TO CLAIM ANY FURTHER EXEMPTION UNDER CLAUS E (C) AS THE ASSESSEE IS ENTITLED TO EXEMPTION U/S. CLAUSE (A) I N RESPECT OF THE BANKING ACTIVITIES. THE APPELLATE ASSISTANT COMMISS IONER, IN ALLOWING THE ASSESSEES APPEAL, HELD THAT EXEMPTION UNDER CLAUSE (C) IS IN ADDITION TO THE EXEMPTION ALLOWABLE UNDER CLAUSES (A) AND (B) AND DIRECTED THE INCOME-TAX OFFICER TO ALLOW A DEDUCTION OF RS. 20,000 SEPARATELY, TAKING INTO CONSIDERATION THE PR OPERTY INCOME EARNED BY THE ASSESSEE. THE REVENUE CARRIED THE MA TTER IN APPEAL BEFORE THE APPELLATE TRIBUNAL. THE TRIBUNAL HELD T HAT THE RULE OF CONSTRUCTION OF EJUSDEM GENERIS APPLIES TO THE CONS TRUCTION OF CLAUSE (C), WHICH RESULTS IN PROFITS AND GAINS, THA T THE INCOME FROM HOUSE PROPERTY HAS BEEN DEALT WITH IN SECTIONS 22 T O 27 AS INCOME AND NOT AS PROFITS AND GAINS AND THAT THE ASSESSEE IS NOT, THEREFORE, ENTITLED TO ANY EXEMPTION UNDER CLAUSE (C). THE TRI BUNAL DID NOT ACCEPT THE ALTERNATIVE CONTENTION RAISED BY THE ASS ESSEE FOR THE I.T.A. NO.258 /COCH/2014 10 FIRST TIME BEFORE THE TRIBUNAL THAT THE LETTING OUT OF SURPLUS SPACE SHOULD BE TREATED AS A BUSINESS ACTIVITY UNDER CLAU SE (A) OF SUB- SECTION (2) OF SECTION 80P OF THE ACT. THE APPEALS WERE ACCORDINGLY ALLOWED. THE QUESTION OF LAW ARISES OUT OF THE ORD ER OF THE TRIBUNAL. SECTION 80P OF THE INCOME-TAX ACT, 1961, ALLOWS A S TRAIGHT DEDUCTION, IN THE COMPUTATION OF THE TOTAL INCOME OF A CO-OPERATI VE SOCIETY, TO THE EXTENT MENTIONED. CLAUSE(C) OF SECTION 80P(2) PROV IDES THAT IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED IN ACTIVITIES OTH ER THAN THOSE SPECIFIED IN CLAUSE (A) OR CLAUSE (B) EITHER INDEPENDENTLY OF , OR IN ADDITION TO, ALL OR ANY OF THE ACTIVITIES SO SPECIFIED, SO MUCH OF ITS PROFITS AND GAINS ATTRIBUTABLE TO SUCH ACTIVITIES AS DOES NOT EXCEED RS. 20,000 SHALL BE DEDUCTED IN COMPUTING THE TOTAL INCOME. THE CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS FALLS UNDER CLAUSE (A) OF SECTION 80P(2). THE CLAIM FOR EXEMPTION UNDER CLAUSE (C) I S IN ADDITION TO THE EXEMPTION PROVIDED UNDER CLAUSE (A). THE PROVISIONS ARE CUMULATIVE AND MUTUALLY SUPPLEMENTING. THE LIMITS SPECIFIED IN CL AUSE(C) ARE IN RELATION TO THE PROFITS AND GAINS ATTRIBUTABLE TO THE ACTIVITY OTHER THAN THAT SPECIFIED IN CLAUSE (A). IF THE RENTAL INCOME RECEIVED BY TH E SOCIETY IS ATTRIBUTABLE TO ANY ACTIVITY OF THE SOCIETY, CLAUSE (C) WOULD BE ATTRACTED. IT IS THEN NECESSARY THAT THE CO-OPERATIVE SOCIETY MUST PROVE THAT IT HAS ENGAGED ITSELF IN CARRYING ON THE ACTIVITY GIVING RISE TO P ROFITS OR GAINS. SUCH ACTIVITY OF THE ASSESSEE MUST HAVE A DIRECT OR PROX IMATE CONNECTION WITH OR NEXUS TO THE EARNING IN ORDER THAT THE ASSESSEE MAY ENJOY THE EXEMPTION. SECTION 80P(2)(C) OF THE ACT EXEMPTS INCOME OF CO-O PERATIVE SOCIETIES TO THE EXTENT MENTIONED THEREIN IF THE PROFITS OR GAIN S ARE ATTRIBUTABLE TO THE ACTIVITY IN WHICH THE CO-OPERATIVE SOCIETY IS ENGAG ED. THE EXPRESSION ATTRIBUTABLE TO IS MUCH WIDER THAN THE EXPRESSION DERIVED FROM AND IT COVERS RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF THE ASSESSEE. IN THIS VIEW OF THE MATTER, INTER EST EARNED BY A CO- OPERATIVE SOCIETY, WHICH WAS CARRYING ON THE BUSINE SS OF SUPPLYING SURGARCANE ON STATUTORY INVESTMENT IN GOVERNMENT SE CURITIES, WAS HELD PROFIT ATTRIBUTABLE TO THE CARRYING ON OF THE ACTIV ITY OF SUPPLYING SUGARCANE (CIT VS. CO-OPERATIVE CANE DEVELOPMENT UNION LTD. ( 1979) 118 ITR 770 (ALL.) THE PROFITS AND GAINS FROM SUCH INVESTMENTS WERE CONNECTED WITH OR INCIDENTAL TO THE CARRYING ON OF THE ACTUAL BUSINES S. WHERE, HOWEVER, THE ASSESSEE AS OWNER OF CERTAIN PROPERTY LETS OUT THAT PROPERTY AND RECEIVES RENTAL INCOME, THE INCOME THUS RECEIVED CANNOT PART AKE OF THE CHARACTER OF PROFITS AND GAINS ATTRIBUTABLE TO AN ACTIVITY CA RRIED ON BY THE SOCIETY. I.T.A. NO.258 /COCH/2014 11 THE BUILDING LET OUT IS NOT A COMMERCIAL ASSET OR T HE RENT RECEIVED IS NOT PROFIT OR GAIN ARISING FROM THE EXPLOITATION OF A B USINESS ASSET. THE WORD ACTIVITY IS WIDER THAN THE WORD BUSINESS. IT C ONNOTES A SPECIFIED FORM OF SUPERVISED ACTION OR 0FIELD OF ACTION. READ IN THE CONTEXT OF THE PROFIT EARNING ACTIVITY OF A CO-OPERATIVE SOCIETY, IT MEAN S THE CORPORATE ACTIVITY OF THE SOCIETY, THAT IS TO SAY, WHETHER OR NOT THEY AMOUNT TO A BUSINESS, TRADE OR PROFESSION IN THE ORDINARY SENSE. CLAUSE ( C) OF SECTION 80P(2) IS INTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS BUT ATTRIBUTABLE TO AN ACTIVITY WHICH RESULTS IN PROFITS AND GAINS. LETTING OUT OF SURPLUS SPACE IN THE BUILDIN G OWNED AND USED BY THE ASSESSEE IS NOT SUCH AN ACTIVITY FALLING UNDER CLAU SE (C). THE RENT THUS RECEIVED BY THE ASSESSEE IS NOT ELIGIBLE FOR THE EX EMPTION PROVIDED THEREUNDER. IN THIS VIEW, THE APPELLATE TRIBUNAL W AS JUSTIFIED IN REJECTING THE ASSESSEES CLAIM. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE INCLIN ED TO HOLD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80P OF THE ACT ON ANY REASONING. 13. SINCE THE ISSUE IS IDENTICAL IN NATURE AND FACT S SIMILAR TO THAT OF THE ABOVE RECENT ORDER IN THE CASE OF IN THE CASE OF KUNNAMAN GALAM CO-OPERATIVE BANK, WE ARE INCLINED TO DECIDE THIS ISSUE AGAINST THE ASSES SEE. 14. COMING TO THE NEXT GROUND, WHICH RELATES TO DIS ALLOWANCE OF RS. 2,90,883/- BY INVOKING SEC. 194H, THE LD. AR SUBMI TTED THAT THE APPRAISER CHARGES ARE PAID TO THE APPRAISERS WORKING UNDER TH E SOCIETY AND THEY ARE NOT NOTIFIED PROFESSIONALS U/S. 40(AA) OF THE ACT AND T HOUGH, SUCH PAYMENTS ARE WITHOUT DEDUCTION OF TDS , NO DISALLOWANCE IS WARRA NTED. MORE SO, AT THE TIME OF HEARING BEFORE THE ASSESSING OFFICER, THIS WAS NOT POINTED OUT TO THE ASSESSEE, THUS, THE LD. AR SUBMITTED THAT THIS ISSUE MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION. I.T.A. NO.258 /COCH/2014 12 15. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE CIT(A). 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND IT IS FIT AND PROPER TO REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO THE ASSESSEE TO PLACE NECESSARY EVIDEN CE REGARDING THE PAYMENT AND THE REASON FOR NON-DEDUCTION OF TDS. ACCORDINGLY, WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDE RATION. 17. THE NEXT GROUND RELATES TO ADDITION OF RS. 9,06 ,620/- ON PAYMENT OF INTEREST TO NON-MEMBERS AS IT IS NOT SUPPORTED BY M ATERIALS. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS TAKEN 20% OF TOTAL INTEREST PAYMENT RELATING TO NON-MEMBERS WITHOUT DEDUCTION OF TDS FO R DISALLOWANCE AND THIS WAS NOT POINTED OUT BY THE ASSESSING OFFICER TO THE ASS ESSEE AT THE TIME OF HEARING AND THIS IS AN ADHOC DISALLOWANCE. 18. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDER OF THE CIT(A). 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN OUR OPINION THE ASSESSING OFFICER IS REQUIRED TO SPECIFY THE PA YMENT OF INTEREST TO NON- MEMBERS WITHOUT DEDUCTION OF TDS. THE ASSESSING OF FICER CANNOT MAKE DISALLOWANCE ON ADHOC BASIS. ACCORDINGLY, WE REMIT THIS ISSUE ALSO TO THE FILE OF I.T.A. NO.258 /COCH/2014 13 THE ASSESSING OFFICER TO PINPOINT WHETHER THE INTER EST TO NON-MEMBERS WITHOUT DEDUCTION OF TDS WAS MADE BY THE ASSESSEE AND DECID E THE SAME IN ACCORDANCE WITH LAW. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 8TH-08 -2014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 8TH AUGUST, 2014 GJ COPY TO: 1. KADAVATHUR SERVICE CO-OPERATIVE BANK LTD., KADAV ATHUR, THALASSERY. KANNUR-670 676 2. THE INCOME TAX OFFICER, WARD-2,KANNUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T. COCHIN