ITO, Salem V. M/s. S-1911 AN Pudur PACCS Ltd., Salem

ITA 2608/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7332 (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
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: M NARAYANAN RETD
• Section: 260A

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.2608/MDS/2016 + ,+ /ASSESSMENT YEAR: 2013-14 THE INCOME TAX OFFICER, WARD 2(3), SALEM-7. VS. M/S.S-1911 AN PUDUR PACCS LTD., A.N. MANGALAM PO, KARIPATTI VIA, SALEM 636 108. [PAN: AA EAS 87 11 R ] ( -. /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-7, DATE D 30.06.2016 IN ITA NO.212/2015-16 FOR ASSESSMENT YEAR 2013-14 AND RAIS ED THE FOLLOWING GROUNDS: ITA NO.2608/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 UR BAN CO.OPERATIVE CREDIT SOCIETY LTD. (2014)(45 TAXMANN 14) CLEARLY BROUGHT OUT THE DEFINITION OF BANKING BUSINESS. 3. 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 M ADRAS HIGH COURT. 4. 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, 32, 33, 34, 35, 38, 40, 41, 42, 44, 46, 51, 66, 69, 72, 81 AND 85. IN ALL THESE SECTION THE TERM MEMBER MEANS ONLY SHARE HOLDER-MEMBER. HENCE THE IN TENTION OF THE LEGISLATURE IS THAT ASSOCIATE MEMBER WILL NOT BE TR EATED AS MEMBER. 5. 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 A SSOCIATE MEMBER IN THE REPORT. 6. 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 TAX (APPEALS) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER R ESTORED. 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.92,61,858/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON TOTAL INCOME OF RS.9211 858/-. IN THE ASSESSMENT, THE AO ALLOWED THE DEDUCTION U/S.80P(2) (C) AMOUNTING TO RS.50,000/- AND THE BALANCE AMOUNT BROUGHT TO TAX. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON TWO GROUNDS . FIRSTLY, THE ITA NO.2608/MDS/2016 :- 3 -: ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSES SEE IS ENGAGED IN COMMERCIAL BANKING BUSINESS AS WELL AS TRADING IN C IVIL SUPPLY GOODS. THE ASSESSING OFFICER HAS ALSO NOTICED THAT EVEN TH OUGH THE ASSESSEE IS REGISTERED AS AN AGRICULTURAL CO-OPERATIVE SOCIETY, THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITIES IN CONNECTION WITH THE A GRICULTURE. FURTHER, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS EXT ENDING JEWEL LOANS @ 14.25% THE DEPOSIT LOANS @ 12.5% AND THE OTHER LOANS @ 12.5% INTEREST WHICH IS MORE OR LESS OF COMMERCIAL RATE OF INTERES T RATES AND ARE EQUATED WITH INTEREST RATES CHARGED BY THE COMMERCIAL BANKS . INTEREST ON CROP LOANS WAS CHARGED @7% WHICH IS A MEAGER AMOUNT. TH E ASSESSING OFFICER IN HIS OBSERVATIONS STATED THAT THE ACTIVIT IES OF THE SOCIETY ARE NEVER FOR ANY AGRICULTURAL ACTIVITIES OR PURPOSES. THE AO STATED THAT MERE NAMING THE SOCIETY AS A PRIMARY AGRICULTURAL CO-OP ERATIVE SOCIETY IS NOT SUFFICIENT FOR CLAIMING THE DEDUCTION U/S.80P(2)( A)(I) BUT THE PRINCIPAL OR PREDOMINANT ACTIVITIES OF THE BANK SHOULD BE IN CON NECTION WITH AGRICULTURAL PURPOSES OR PURPOSES CONNECTED WITH AG RICULTURAL ACTIVITIES. AS THE ASSESSEE IS NOT CARRYING ON THE ABOVE ACTIVI TIES, THE ASSESSING OFFICER DISALLOWED THE DEDUCTION U/S 80P(2)(A)(I) A ND HELD FROM THE DETAILS OF INTEREST INCOME THAT THE MAJOR PORTION OF INTERE ST RECEIVED WAS ON ACCOUNT OF JEWEL LOANS. IT IS GATHERED THAT THE JE WEL LOANS ARE ISSUED TO ASSOCIATE MEMBERS WHO ARE ADMITTED AS ASSOCIATE MEM BERS FOR THE LIMITED PURPOSE OF AVAILING LOANS ONLY AND THE INTEREST CHA RGED ON JEWEL LOAN WAS 14.25% WHICH IS NOT IN CONSONANCE WITH AGRICULTURAL ACTIVITIES OF THE SOCIETY. THE ASSESSING OFFICER WAS OF THE VIEW THA T THE INTEREST RATE OF ITA NO.2608/MDS/2016 :- 4 -: 14.25% IS NOTHING BUT COMMERCIAL RATE OF INTEREST A ND AT PAR WITH NATIONALIZED BANKS AND OTHER CO-OPERATIVE BANKS. T HEREFORE, THE ASSESSING OFFICER HELD THAT SINCE THE SOCIETY IS EN GAGED IN COMMERCIAL BANKING ACTIVITIES AND PROVIDED LOANS TO ASSOCIATE MEMBERS, HENCE THE SOCIETY IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S .80P(2)(A)(I) ALSO AND ACCORDINGLY DENIED THE DEDUCTION. 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, M/S. SL(SPL ) 151 KARKUDALPATTY PACCS LTD. (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.2608/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 ITA NO.2608/MDS/2016 :- 6 -: 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 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.2608/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