ITO, Salem V. M/s. S-K.K. Pottaneri PACCS Ltd., Salem

ITA 3000/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8109 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2017
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 16-01-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 24-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R. DURAI PANDIAN
• Assessee Lawyers: M.BALU; IT.PRACTITONER
• 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; 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO.3257 /MDS./2016 / ASSESSMENT YEAR : 2013-2014 THE INCOME TAX OFFICER, WARD-5, NAMAKKAL. VS. M/S.S.4091 MALLASAMUDRAM PACCS LTD., MALLASAMUDRAM-PO, TIRUCHANGODE TALUK, NAMAKKAL DT. 637 503. [PAN AABAN 1134 E ] ( '( / APPELLANT) ( )*'( /RESPONDENT) ./ I.T.A.NO.3002/MDS./2016 / ASSESSMENT YEAR : 2013-2014 THE INCOME TAX OFFICER, WARD-2(3), SALEM. VS. M/S.S - 1694 SATHYAMANGALAM PACB LTD., KULLAMPATTI POST, SALEM 636 103. [PAN AAWFS 1926 K ] ( '( / APPELLANT) ( )*'( /RESPONDENT) ./ I.T.A.NO.3000/MDS./2016 / ASSESSMENT YEAR : 2013-2014 THE INCOME TAX OFFICER, WARD-2(4), SALEM. VS. M/S.K.K.POTTANERI PACCS LTD ., POTTANERI POST, METTUR TALUK, SALEM 636 453. [PAN AABAK 0355 J ] ( '( / APPELLANT) ( )*'( /RESPONDENT) ITA NOS.3000,3002 & 3257/16 :- 2 -: / APPELLANT BY : MR.R.DURAI PANDIAN, JCIT,D.R /RESPONDENT BY : MR.M.BALU, IT.PRACTITONER / DATE OF HEARING : 16 - 0 1 - 201 7 / DATE OF PRONOUNCEMENT : 30 - 01 - 201 7 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS ARE FILED BY THE REVENUE, AGGRIEVED B Y THE DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX(A) PERTAINING TO ASSESSMENT YEAR 2013-14. 2. THE GRIEVANCE OF THE REVENUE IS WITH REGARD TO GRANTING OF DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. 3. FOR THE CONVENIENCE, WE CONSIDER THE FACTS AS N ARRATED BY LD.CIT(A) IN ITA NO.3000/MDS./2016 3.1 THE FACTS OF THE CASE ARE THAT THE ASSESSEE CL AIMED DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. THE SAME WA S DISALLOWED BY THE AO ON THE REASON THAT THE ASSESSEE SOCIETY H AS INVOLVED IN COMMERCIAL ACTIVITIES OF BANKING AND TRADING AND NO T INVOLVED IN CONNECTION WITH AGRICULTURAL PURPOSE OR FOR THE PUR POSES CONNECTED WITH AGRICULTURAL ACTIVITIES. DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2013-14, THE ASSESSEE HAS LENT LOANS, WHICH INCLUDED JEWEL LOANS, CONSUMER LOANS, DEPOSIT ITA NOS.3000,3002 & 3257/16 :- 3 -: LOANS, SHORT TERM LOANS, ETC. FOR AGRICULTURAL ACT IVITY SOCIETY HAS TO CHARGE INTEREST @ 7% ONLY WHICH IS PREVAILING RATE OF INTEREST FOR ISSUING AGRICULTURAL LOAN. BUT THE ASSESSEE SOCIETY ISSUED LOANS @ 14% APPROXIMATELY. BESIDES THIS, THE ASSESSEE SOCI ETY LENT JEWEL LOANS TO ASSOCIATE MEMBERS, WHO ARE NOT ENTITLED TO RECEIVED ANY DIVIDEND AND ALSO NOT HAVING ANY VOTING RIGHT. ACC ORDING TO AO, THEY ARE ADMITTED FOR AVAILING LOAN ONLY AND THAT S UBSEQUENTLY ON DISCHARGING THEIR LOAN LIABILITY, THEY DO NOT HAVE ANY ROLE TO PLAY IN THE SOCIETY. HOWEVER, ON APPEAL, THE LD.CIT(A) FOL LOWING THE ORDER OF THE CHENNAI TRIBUNAL IN ITA NO.292/MDS./20 14 IN THE CASE OF M/S.SL(SPL) 151, KARKUKALPATTY PRIMARY AGRI CULTURAL CO.OPERATIVE CREDIT SOCIETY LTD. VS. ITO DATED 17.0 3.2014, GRANTED THE DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. LD.D.R SUBMITTED THAT THE ASSESSEE IS CARRYING ON BANKING ACTIVITIES, AS SUCH PROVISIONS OF THE SECTION 80P(2 )(A)(I) OF THE ACT IS NOT APPLICABLE. AS SUCH, THE ASSESSEE IS NOT ENT ITLED TO CLAIM DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. 5. ON THE OTHER HAND, LD.A.R SUBMITTED THAT THE ASSESSEE IS LENDING MONEY TO VARIOUS MEMBERS WHO IS HAVING VOTI NG RIGHTS AND NON-VOTING MEMBERS, HENCE DEDUCTION U/S.80P(2) (A)(I) OF THE ITA NOS.3000,3002 & 3257/16 :- 4 -: ACT TO BE ALLOWED. LD.A.R RELIED ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS TIRUCHENGODE AGRICULTURAL PRODUCERS COOPERATIVE MARKETING SOCIETY LTD AND IN S-1308 AMMAPET PRIMARY AGRICULTURAL COOPERATIVE BANK LTD I N TAX CASE APPEAL NO. 259OF 2016, DATED 10.8.2016. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMEN T OF MADRAS HIGH COURT CITED BY THE LD.A.R. THE JURISDICTIONAL HIGH COURT IN THE CASE OF ABOVE JUDGMENT HELD THAT:- 9. IN THE INSTANT CASE, WHILE ALLOWING THE APPEAL S FILED BY THE ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS), HAD RELIED UPON, THE FOLLOWING 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 CRE DIT AND VARIOUS OTHER 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 REPAYAB LE INSTEAD OF A CLASS MEMBERS WHO HAVE VOTING RIGHTS AND DIVIDEND CLAIM, AND ALSO THAT THE LATTER MEMBERS AR E JOINTLY AND SEVERELY LIABLE. IN THIS BACKDROP, WHE N WE PERUSE THE RELEVANT PROVISIONS OF THE STATE CO-OPER ATIVE ITA NOS.3000,3002 & 3257/16 :- 5 -: SOCIETIES ACT, 1983, GOVERNING THE ASSESSEE-SOCIET Y IT IS EVIDENT FROM THE DEFINITION OF MEMBER U/S 2(16) THAT THE SAME INCLUDES AN ASSOCIATE MEMBER RECOGNITION AS PER THE ACT. THE NET RESULT IS THAT ONCE THE NOMI NAL MEMBERS ALSO ENJOY STATUARY CONDITION IMPOSED BY TH E LEGISLATURE U/S 90P(2)(A)(I). WE MAKE IT CLEAR TH AT WE ARE DEALING WITH THE DEDUCTION PROVISION TO BE INTERPRETED LIBERALLY. IN OUR CONSIDERED OPINION, THE OBJECTIONS OF THE REVENUE THAT THE MEMBERS DEFINE D IN SUB CLAUSE(I) OF SECTION 80P SHOULD ONLY INCLUDE VO TING MEMBERS WOULD AMOUNT TO A CLASSIFICATION WITHIN CLASSIFICATION WHICH IS BEYOND THE PURVIEW OF TAX S TATUTE; UNLESS PROVIDED SPECIFICALLY BY THE LEGISLATURE. M OREOVER, WE FIND THAT THE CASE LAW OF HON'BLE PUNJAB AND HAR YANA HIGH COURT (SUPRA) ALSO SUPPORTS THE ASSESSEES CA SE WHEREIN IT HAS BEEN HELD UNDER THE VERY PROVISION T HAT FOR THE PURPOSE OF IMPUGNED DEDUCTION, IT IS IRRELE VANT SO FAR AS CLASSIFICATION 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 INCOM E TAX APPELLATE TRIBUNAL, HAS PASSED 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 N OT CO- OPERATIVE BANK AND THAT THEIR ACTIVITIES IN THE NAT URE ACCEPTING DEPOSITS, ADVANCING LOANS ETC., CARRIED O N BY THE ASSESSEES ARE CONFINED TO ITS MEMBERS ONLY AND THAT TOO IN A PARTICULAR GEOGRAPHICAL AREA. THEREFORE, THE RES PONDENT SOCIETIES ARE ELIGIBLE FOR DEDUCTION UNDER SECTION ITA NOS.3000,3002 & 3257/16 :- 6 -: 80P(2)(A)(I) OF THE ACT. THE CONTENTION OF THE APP ELLANTS 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 ASSOC IATE MEMBERS FOR AVAILING LOAN ONLY AND WAS ALSO CHARGIN G 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 T HE PRESENT FACTS OF THE 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 VIEW THAT THE SUBSTANTIAL QUESTIONS OF LAW RAISED IN THE INSTANT APPEALS ARE ANSWERED A GAINST THE REVENUE. 6. IN THE PRESENT CASE, THERE IS NO ALLEGATION BY THE AO IN THESE ASSESSMENT ORDERS THAT THE ASSESSEE IS CARRYI NG ON BANKING ACTIVITIES. IF THE ASSESSEE IS NOT CARRYING ON BANKING BUSINESS, THE ASSESSEE WOULD BE ENTITLED FOR DEDUCT ION U/S.80P(2)(A)(I) OF THE ACT. ACCORDINGLY, IF THE AS SESSEE IS CARRYING ON ANY BANKING ACTIVITIES BY ACCEPTING THE DEPOSITS AND PERMITTING THE MEMBERS TO WITHDRAW BY WAY OF CHEQUE AND PROVID ING ANY BANKING ACTIVITIES TO ITS MEMBERS, THEN IT IS TO BE CONSIDERED AS BANKING ACTIVITIES AND PROVISIONS 80P(4) OF THE ACT IS APPLICABLE. IN ITA NOS.3000,3002 & 3257/16 :- 7 -: SUCH CASES, IT IS TO BE CALLED AS CO-OPERATIVE BANK AND IT IS NOT ENTITLED FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. IN THE PRESENT CASE, THE REASON FOR DISALLOWING THE DEDUCTION U/S. 80P(A)(I) WAS THAT THE ASSESSEE HAS LENT MONEY AT HIGHER RATE OF INTEREST. AS HELD BY JURISDICTIONAL HIGH COURT, THIS CANNOT BE R EASON FOR DISALLOWING DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. ACCORDINGLY, WE DIRECT AO TO ALLOW DEDUCTION U/S.80P(2)(A)(I) OF TH E ACT. 7. IN THE RESULT, THE APPEALS OF REVENUE ARE DISMI SSED. ORDER PRONOUNCED ON 30 TH JANUARY, 2017, AT CHENNAI. SD/ - SD/ - ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER '# /CHENNAI $% /DATED: 30 TH JANUARY, 2017 . K S SUNDARAM %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 4. ' + / CIT 2. / RESPONDENT 5. ),-' . / DR 3. ' +'/! / CIT(A) 6. -0'1 / GF