ITO, Salem V. M/s. S-1289, Mahalakshmi PACCS Ltd., Salem

ITA 2606/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7335 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 16-03-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 07-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 80P

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , ! '#.. $ %!& , ( )* BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ! ./ ITA NO.2606/MDS/2016 + ,+ /ASSESSMENT YEAR: 2013-14 THE INCOME TAX OFFICER, WARD 2(3), SALEM-7. VS. M/S.S-1289 MAHALAKSHMI PACCS LTD., GANGAVALLI POST & TALUK, SALEM 636 108. [PAN: AAAAM 4723 B ] ( -. /APPELLANT) ( /0-. /RESPONDENT) -. 1 2 / APPELLANT BY : MR.SUPRIYO PAL, JCIT /0-. 1 2 /RESPONDENT BY : MR.M.NARAYANAN, (RETD.ADDL.CIT) $ 1 3( /DATE OF HEARING : 16.03.2017 45, 1 3 ( /DATE OF PRONOUNCEMENT : 27.03.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS), SALEM, DATED 30.06.2016 IN ITA NO.211/2015-16 FOR ASSESSMENT YEAR 2013-14 AND RAIS ED THE FOLLOWING GROUNDS: ITA NO.2606/MDS/2016 :- 2 -: 1. THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) I S CONTRARY TO LAW AND AGAINST THE FACTS AND THE CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO H AVE CONSIDERED THAT THE HOBBLE ITAT, PANAJI BENCH IN SHRI CHANDRAPRABHU URBAN CO.O PERATIVE 3. CREDIT SOCIETY LTD. (2014)(45 TAXMANN 14) CLEARLY B ROUGHT OUT THE DEFINITION OF BANKING BUSINESS. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO H AVE CONSIDERED THAT THE HOBBLE ITAT B BENCH, CHENNAI IN THE CASE OF M/S. SL(SPL) 151 KARKUDALPATTY PACCS LTD. VS ITO WHICH HAS BEEN RELIED UPON BY HIM HAS NOT BECOME FINAL AS AN APPEAL HAS BEEN FILED U/S.260A BEFORE THE HONBLE MADRAS HIGH COURT . 5. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO H AVE CONSIDERED THAT IN THE TAMILNADU CO-OPERATIVE SOCIETIES ACT, 1983 THE TERM MEMBER IS DEALT IN SECTIONS 4,5,6,8,13,14,15,20,21,23,24,25,26,27,28,29,30,31,3 2,33,34,35,38,40,41,42,44,46,5 1,66,69,72,81 AND 85. IN ALL THESE SECTIONS, THE TE RM MEMBER MEANS ONLY SHARE HOLDER-MEMBER. HENCE, THE INTENTION OF THE LEGISLATU RE IS THAT ASSOCIATE MEMBER WILL NOT BE TREATED AS MEMBER. 6. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO H AVE CONSIDERED THAT THE STATUTORY AUDITOR FOR CO-OPERATIVE SOCIETY, IN HIS REPORT, DISCLOSES ONLY SHARE HOLDER MEMBERS AS MEMBERS AND DID NOT INCLUDE THE ASSOCIAT E MEMBER IN THE REPORT. 7. FOR THE ABOVE REASONS AND ANY OTHER REASONS THAT MA Y BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE COMMISS IONER OF INCOME 8. TAX (APPEALS) MAY BE CANCELLED AND THAT OF THE ASSE SSING OFFICER RESTORED. 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE DEDUC TION CLAIMED BY THE ASSESSEE U/S.80P(2)(A)(I) OF INCOME-TAX ACT, 1961 ( IN SHORT THE ACT). 3. THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN EXTENDING CREDIT FACILITIES TO ITS MEMBERS. FOR THE ASSESSMENT YEAR 2013-14, THE ASSESSEE FILED ITS RETURN OF INCOME ADMITTING TOTAL INCOME OF RS.NIL AND CLAIMED THE DEDUCTION U/S.80P TO THE TUNE OF RS.93,08,898/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON TOTAL INCOME OF RS.53,3 0,360/-. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE U/S.80P(2)(A)( I) OF INCOME-TAX ACT AND ALLOWED DEDUCTION U/S.80P(2)(D) AMOUNTING TO RS .39,28,538/- AND THE DEDUCTION U/S.80P(2)(C) AMOUNTING TO RS.50,000/- AN D TAXED THE BALANCE ITA NO.2606/MDS/2016 :- 3 -: AMOUNT. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON TWO GROUNDS. FIRSTLY, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE IS ENGAGED IN THE COMMERCIAL BANKING BUSIN ESS AS WELL AS TRADING IN CIVIL SUPPLY GOODS. THE ASSESSING OFFICER HAS A LSO NOTICED THAT EVEN THOUGH THE ASSESSEE IS REGISTERED AS AN AGRICULTURA L CO-OPERATIVE SOCIETY, THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITIES IN CONNECTION WITH THE AGRICULTURE. FURTHER, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS EXTENDING JEWEL LOANS @ 14.25% MEDIUM TERM LOANS AND THE DEPOSIT LOANS @ 12.5% INTEREST WHICH IS MORE OR LESS OF COM MERCIAL RATE OF INTEREST RATES AND ARE EQUATED WITH INTEREST RATES CHARGED BY THE COMMERCIAL BANKS. ONLY ON CROP LOANS INTEREST WAS C HARGED @7% WHICH IS A MEAGER AMOUNT. THE ASSESSING OFFICER IN HIS OBSE RVATIONS STATED THAT THE ACTIVITIES OF THE SOCIETY ARE NEVER FOR ANY AGR ICULTURAL ACTIVITIES OR PURPOSES. THE AO STATED THAT MERE NAMING THE SOCIE TY AS A PRIMARY AGRICULTURAL CO-OPERATIVE SOCIETY IS NOT SUFFICIENT FOR CLAIMING THE DEDUCTION U/S.80P(2)(I) BUT THE PRINCIPAL OR PREDO MINANT ACTIVITIES OF THE BANK SHOULD BE IN CONNECTION WITH AGRICULTURAL PURP OSES OR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES. AS THE ASS ESSEE IS NOT CARRYING ON THE ABOVE ACTIVITIES, THE ASSESSING OFFICER DISALLO WED THE DEDUCTION U/S.80P(2)(A)(I) AND OBSERVED FROM THE DETAILS OF I NTEREST INCOME THAT THE MAJOR PORTION OF INTEREST RECEIVED WAS ON ACCOUNT O F JEWEL LOANS. IT IS GATHERED THAT THE JEWEL LOANS ARE ISSUED TO ASSOCIA TE MEMBERS WHO ARE ADMITTED AS ASSOCIATE MEMBERS FOR THE LIMITED PURPO SE OF AVAILING LOANS ONLY AND THE INTEREST CHARGED ON JEWEL LOAN WAS 14. 25% WHICH IS NOT IN ITA NO.2606/MDS/2016 :- 4 -: CONSONANCE WITH AGRICULTURAL ACTIVITIES OF THE SOCI ETY. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INTEREST RATE OF 1 4.25% IS NOTHING BUT COMMERCIAL RATE OF INTEREST AND AT PAR WITH NATIONA LIZED BANKS AND OTHER CO-OPERATIVE BANKS. THEREFORE, THE ASSESSING OFFIC ER HELD THAT THE SOCIETY IS ENGAGED IN COMMERCIAL BANKING ACTIVITIES AND PRO VIDED LOANS TO ASSOCIATE MEMBERS, HENCE THE SOCIETY IS NOT ELIGIBL E FOR CLAIMING DEDUCTION U/S.80P(2)(A)(I) AND ACCORDINGLY DENIED THE DEDUC TION. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T IN APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE RELYING ON THE DECISIONS OF ITAT, CHENNAI IN THE FOLLOWING CASES: (I) I.T.A.NO.825/MDS/2015 DATED 23.9.2015 IN THE CASE OF M/S S-1308, AMMAPET PRIMARY AGRICULTURAL CO-OPERATIVE BANK LTD. (II) I.T.A.NO. 292/MDS/2014 DATED 17.3.2014 (III) I.T.A.NOS.730, 731 AND 732/MDS/2014 DATED 30.6.2014 5. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OF FICER. 6. ON THE OTHER HAND, THE LD. AR ARGUED THAT THE ASSE SSING OFFICER HAS MISTAKEN THAT THE SOCIETY IS A BANK BUT IT IS A PRI MARY AGRICULTURAL CO- OPERATIVE SOCIETY WHICH IS ENGAGED IN THE AGRICULTU RAL ACTIVITIES TO ITS MEMBERS. THE LD.AR VEHEMENTLY OPPOSED THE ASSESSIN G OFFICERS OBSERVATIONS AND HOLDING THAT THE ASSESSEE IS ENGAG ED IN THE BANKING BUSINESS. THE LD.AR FURTHER SUBMITTED THAT THE ASS ESSEE ADVANCE LOANS TO ITS ASSOCIATE MEMBERS FOR AGRICULTURAL PURPOSES. T HE JEWEL LOANS WERE ITA NO.2606/MDS/2016 :- 5 -: ALSO GIVEN FOR AGRICULTURAL PURPOSES AS STATED BY T HE LD.AR. THE LD.AR FURTHER STATED THAT THE ASSESSEE HAS NEVER FLOATED THE BYLAWS OF THE SOCIETY ON EXTERNAL FACILITIES IN THE CAPACITY OF P RIMARY CO-OPERATIVE BANK TO ITS MEMBERS. THEREFORE, THE LD.AR CONTENDED THA T THE CIT(A) HAS RIGHTLY ALLOWED THE ASSESSEES APPEAL AND THE CIT( A)S ORDER SHOULD BE CONFIRMED. HE HAS PLACED RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS. TIRUCHENGODE AGRICULTURAL P RODUCERS COOPERATIVE MARKETING SOCIETY LTD. AND IN S-1308 AMMAPET PRIMAR Y AGRICULTURAL COOPERATIVE BANK LTD IN TAX CASE APPEAL NOS.484 TO 487 AND 490 OF 2016, DATED 2.8.2016, WHEREIN THE HIGH COURT AS HEL D AS UNDER: 9. IN THE INSTANT CASE, WHILE ALLOWING THE APPEALS FILED BY THE ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS), HAD RELIED UPON, THE FOLLO WING PORTION OF THE DECISION OF THE TRIBUNAL ARRIVED IN I.T.A.NO. 292/CHNY/2014: 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH TH E CASE FILE. AS STATED IN THE PRECEDING PARAGRAPHS, THE CIT(A) HAS PROCEEDED TO ENHANCE THE ASSESSMENT (SUPRA) ONLY ON THE GROUND THAT THE ASSESSEES CREDIT AND VARIOUS OTHE R LOAN FACILITIES HAVE BEEN ALLOWED TO BE AVAILED BY B CLASS NOMINAL MEMBERS WHOSE LIABILI TY IS LIMITED, AT THE BEST, TO THE EXTENT OF LOAN REPAYABLE INSTEAD OF A CLASS MEMBERS WHO HAV E VOTING RIGHTS AND DIVIDEND CLAIM, AND ALSO THAT THE LATTER MEMBERS ARE JOINTLY AND SEVERE LY LIABLE. IN THIS BACKDROP, WHEN WE PERUSE THE RELEVANT PROVISIONS OF THE STATE CO-OPER ATIVE SOCIETIES ACT, 1983, GOVERNING THE ASSESSEE-SOCIETY IT IS EVIDENT FROM THE DEFINITION OF MEMBER U/S 2(16) THAT THE SAME INCLUDES AN ASSOCIATE MEMBER RECOGNITION AS PER T HE ACT. THE NET RESULT IS THAT ONCE THE NOMINAL MEMBERS ALSO ENJOY STATUARY CONDITION IMP OSED BY THE LEGISLATURE U/S 90P(2)(A)(I). WE MAKE IT CLEAR THAT WE ARE DEALING WITH THE DEDUCTION PROVISION TO BE INTERPRETED LIBERALLY. IN OUR CONSIDERED OPINION, THE OBJECTIONS OF THE REVENUE THAT THE MEMBERS DEFINED IN SUB CLAUSE(I) OF SECTION 80P S HOULD ONLY INCLUDE VOTING MEMBERS WOULD AMOUNT TO A CLASSIFICATION WITHIN CLASSIFICAT ION WHICH IS BEYOND THE PURVIEW OF TAX STATUTE; UNLESS PROVIDED SPECIFICALLY BY THE LEGISL ATURE. MOREOVER, WE FIND THAT THE CASE LAW OF HON'BLE PUNJAB AND HARYANA HIGH COURT (SUPRA) AL SO SUPPORTS THE ASSESSEES CASE WHEREIN IT HAS BEEN HELD UNDER THE VERY PROVISION T HAT FOR THE PURPOSE OF IMPUGNED DEDUCTION, IT IS IRRELEVANT SO FAR AS CLASSIFICATIO N OF THE MEMBERS IN A OR B CATEGORY IS CONCERNED. FOLLOWING THE DECISION OF THE PUNJAB AND HARYANA HI GH COURT, THE APPELLATE AUTHORITY AS WELL AS THE INCOME TAX APPELLATE TRIBUNAL, HAS PASS ED THE ORDER IMPUGNED. 10. THE APPELLATE AUTHORITY, NAMELY, THE COMMISSIO NER OF INCOME TAX (APPEALS) AND THE INCOME TAX APPELLATE TRIBUNAL HAS CLEARLY HELD THAT THE ASSESSEES ARE NOT CO-OPERATIVE BANK AND THAT THEIR ACTIVITIES IN THE NATURE ACCEPT ING DEPOSITS, ADVANCING LOANS ETC., CARRIED ON BY THE ASSESSEES ARE CONFINED TO ITS MEMBERS ON LY AND THAT TOO IN A PARTICULAR GEOGRAPHICAL AREA. THEREFORE, THE RESPONDENT SOCIE TIES ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE CONTENTION OF THE APPELLANTS THAT THE MEMBERS OF THE ITA NO.2606/MDS/2016 :- 6 -: ASSESSEE SOCIETIES ARE NOT ENTITLED TO RECEIVE ANY DIVIDEND OR HAVING ANY VOTING RIGHT OR NO RIGHT TO PARTICIPATE IN THE GENERAL ADMINISTRATION OR TO ATTEND ANY MEETING ETC. BECAUSE THEY ARE ADMITTED AS ASSOCIATE MEMBERS FOR AVAILING LOAN ONLY AND WAS ALSO CHARGING A HIGHER RATE OF INTEREST AT THE RATE OF 14%, IS NOT A GROUND TO DENY THE EXEMPTION GRANTED UNDER SECTION 80P (2)(A) (I) OF THE ACT. 11. THE DECISION RENDERED BY THIS COURT IN TCA 735, 755 OF AND 460 OF 2015 DATED 05.07.2016, SQUARELY COVERS THE PRESENT FACTS OF TH E CASE, SO FAR AS IT RELATES TO THE INELIGIBILITY OF THE RESPONDENT SOCIETIES, UNDER SE CTION 80P (2)(A)(I). IN THE LIGHT OF THE ABOVE DISCUSSION AND THE DECISIONS, WE ARE OF THE V IEW THAT THE SUBSTANTIAL QUESTIONS OF LAW RAISED IN THE INSTANT APPEALS ARE ANSWERED AGAINST THE REVENUE. THE LD.AR ALSO RELIED ON THE DECISION OF THIS TRIB UNAL IN THE CASE OF M/S.S-39 GAJALNAICKENPATTY PACCS LTD., IN ITA NO.10 79/MDS/2016 DATED 30.09.2016 FOR THE AY 2012-13. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED ON RECORD. THE CIT(A) ALLOWED THE CLAIM OF THE ASSES SEE FOLLOWING THE DECISIONS OF THE ITAT, CHENNAI, CITED SUPRA. WE HA VE ALSO GONE THROUGH THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN TH E CASE OF S-1308 AMMAPET PRIMARY AGRICULTURAL COOPERATIVE BANK LTD.( CITED SUPRA) AND IT IS SQUARELY APPLICABLE TO THE ASSESSEES CASE. THE LD. DR DID NOT PLACE ANY MATERIAL CONTROVERTING THE DECISIONS RELIED UP ON B Y THE LD.CIT(A) IN HIS ORDER AND THE HONBLE MADRAS HIGH COURT JUDGMENT CI TED SUPRA. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A) AND THE SAME IS UPHELD. ITA NO.2606/MDS/2016 :- 7 -: 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( '# . . $ %!& ) (D.S.SUNDER SINGH) ( /ACCOUNTANT MEMBER /CHENNAI, 6! /DATED: 27 TH MARCH, 2017. TLN 1 /3%7 87,3 /COPY TO: 1. -. /APPELLANT 4. $ 93 /CIT 2. /0-. /RESPONDENT 5. 7 : /3 /DR 3. $ 93 ( ) /CIT(A) 6. #+ = /GF