ITO, Salem V. M/s. SSA-45 Thalaivasal PACCS Ltd., Salem

ITA 3004/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4557 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 17-02-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 24-10-2016
• Court: TRIBUNAL
• Department Lawyers: K RAVI JT
• Assessee Lawyers: M NARAYANAN RETD
• Keywords: Onus to prove
• Section: 143(3); 56

Judgement Text

, / , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C/SMC, CHENNAI , ! BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER ./ITA NO.3003/MDS/2016 ' # $%# / ASSESSMENT YEAR : 2013-14 INCOME TAX OFFICER, WARD-2(3), SALEM. VS. S-1213 SELLIAMPALAYAM PACCS LTD., SELLIAMPALAYAM POST, ATTUR TALU, SALEM 636 108. [PAN: AACAS 2459Q] ( /APPELLANT ) ( / RESPONDENT ) ./ITA NO.3004/MDS/2016 ' # $%# / ASSESSMENT YEAR : 2013-14 INCOME TAX OFFICER, WARD-2(3), SALEM. VS. SA-45 THALAIVASAL PACCS LTD., THALAIVASAL POST, SALEM 636 112. [PAN: AACAS 2473A] ( /APPELLANT ) ( / RESPONDENT ) &' ( ) / APPELLANT BY : SHRI K.RAVI, JT. CIT *+&' ( ) / RESPONDENT BY : SHRI M.NARAYANAN (RETD. ADDL. CIT) , $ ( - / DATE OF HEARING : 17.02.2017 .% ( - / DATE OF PRONOUNCEMENT : 18.05.2017 /O R D E R PER SANJAY ARORA, AM : THIS IS A SET OF TWO APPEALS BY THE REVENUE QUA TWO ASSESSEES, ARISING OUT OF TWO SEPARATE ORDERS OF EVEN DATE (I.E., 18.08.20 16) BY THE COMMISSIONER OF INCOME TAX (APPEALS), SALEM (CIT(A) FOR SHORT), A LLOWING THE ASSESSEES 2 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. APPEALS CONTESTING THEIR RESPECTIVE ASSESSMENTS U/S . 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR ASSESSMENT YE AR (AY) 2013-14. THE APPEALS RAISING COMMON ISSUES WERE POSTED FOR HEARI NG AND, ACCORDINGLY, HEARD TOGETHER, AND ARE BEING DISPOSED OF BY A COMMON ORD ER. 2. THE ONLY ISSUE ARISING IN THESE APPEALS, RAISING COMMON GROUNDS, IS THE ELIGIBILITY TO, AND WHERE SO, THE EXTENT OF, DEDUCT ION U/S. 80P OF THE ACT, WHICH IN ITS RELEVANT PART READS AS UNDER, CLAIMED BY THE ASSESSEE/S ON ITS ENTIRE PROFITS FOR THE YEAR, RETURNING NIL INCOME: DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOC IETIES. 80P. (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO-O PERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT T O THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB-SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E THE FOLLOWING, NAMELY : ( A ) IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED IN ( I ) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR ( II ) - ( VII ) . (B), (C) ... (D) IN RESPECT OF ANY INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY THE CO-OPERATIVE SOCIETY FROM ITS IN VESTMENTS WITH ANY OTHER COOPERATIVE SOCIETY, THE WHOLE OF SUC H INCOME; (E) & (F).. EXPLANATION. (3) ..... (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIE TY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTION, A) CO-OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDI T SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); B) PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELO PMENT BANK MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFIN ED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE FOR LON G-TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 3 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. 3.1 THE ASSESSING OFFICER (AO) DISALLOWED THE ASSES SEES CLAIM ON THE BASIS THAT THE ASSESSEE/S, A CO-OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS, WAS ENGAGED IN COMMERCIAL BANKING ACTIVITIES AND TRADING IN CIVIL SUPPLY GOODS, AND HAD NOT CARRIED OUT ANY ACTIVITY IN CONNECTION WITH AGRICULTURAL PURPOSES, AS PROVIDED U/S. 80P(4) (REFER PARA 3.1/PG.2 OF THE AS SESSMENT ORDER). TOWARD THIS, THE AO PROFILED THE ASSESSEES LOAN PORTFOLIO, WHIC H REVEALED THE FOLLOWING DATA: ITA NO.3003/MDS/2016 NATURE OF LOAN RATE OF INTEREST AMOUNT OF LOANS CROP LOAN KCC 7% 23,78,000 JLG LOAN 12.50% 15,44,000 JEWEL LOAN AGRI 7% 55,81,000 MEDIUM TERM LOAN 12.50% 2,30,000 JEWEL LOAN 14.25% 20,73,02,800 DEPOSIT LOAN 12.50% 1,93,45,650 KVP LOAN 12.50% 12,25,000 TOTAL LOAN 23,76,06,450 ITA NO.3004/MDS/2016 NATURE OF LOAN RATE OF INTEREST AMOUNT OF LOANS KCC LOAN 13.5% 50,95,000 MT LOAN 13.5% 60,000 JL LOAN (GEN.) 14.5% 16,73,29,100 JL LOAN (AGRI.) 7% 19,72,000 DEPOSIT LOAN 13.5% 1,29,53,000 NON -FORM SECTOR LOAN 13.5% 20,00,000 JLG LOAN/KCC 13.5% 17,20,000 TOTAL LOAN 19,11,29,100 IT WAS THUS APPARENT THAT THE PREDOMINANT LENDING WAS FOR NON-AGRICULTURAL PURPOSES ONLY, CHARGING RATE/S OF INTEREST AT PAR W ITH COMMERCIAL BANKS. TOWARD THIS, HE PERUSED THE LOAN APPLICATIONS FOR JEWEL LO ANS (PARA 3.4). TO SAY, THEREFORE, THAT THE ASSESSEE IS A PRIMARY AGRICULTU RAL CREDIT SOCIETY, I.E., WHOSE PRIMARY OBJECT OR PRINCIPAL BUSINESS IS PROVIDING F INANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL AND RELATED ACTIVITIES, WA S FACTUALLY INCORRECT (PARA 4 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. 3.5). IN FACT, THE JEWEL LOANS WERE GIVEN, IN THE M AIN, TO ASSOCIATE MEMBERS, WHO HAD NO VOTING RIGHTS NOR THE RIGHT TO PARTICIPATE I N MEETINGS, ADMINISTRATION, ETC., BUT HAD, BY PAYING A NOMINAL SUM, BECOME MEMBERS FO R THE LIMITED PURPOSE OF AVAILING A BANK LOAN. FURTHER, EVEN AS EXPLAINED IN CIT V. MADRAS AUTORICKSHAW DRIVERS CO-OPERATIVE LTD. [1983] 143 ITR 981 (MAD), REPRODUCING THERE-FROM (AT PARA 3.6, PG. 5 OF HIS ORDER) THAT THE BENEFIT U/S. 80P IS ASSESSEE SPECIFIC, I.E., EXTENDS TO A CATEGORY OF ASSESSEES. IT IS THEREFOR E RESTRICTED TO AN ASSESSEE ANSWERING THE DESCRIPTION, AND IT IS NOT PERMISSIBL E, FOR APPLYING THE PROVISION, TO BREAK-UP THE INCOME INTO ITS COMPONENTS, AND INV OKE THE SAME SELECTIVELY QUA SOME SUMS, CLAIMING DEDUCTION U/S. 80P THEREON. AS SUCH, WHERE THE QUALIFYING CONDITION OF S. 80P IS NOT MET, NO DEDUC TION U/S. 80P SHALL ENSUE. THE SAID DECISION STANDS SINCE AFFIRMED BY THE HON'BLE APEX COURT PER ITS DECISION REPORTED AT [2001] 249 ITR 330 (SC). IN THE INSTANT CASE, THE ASSESSEE HAD FURTHER PROVIDED LOANS, IN NO SMALL MEASURE, FOR NO N-AGRICULTURAL PURPOSES AND, FURTHER, TO ASSOCIATE MEMBERS. ACCORDINGLY, HE DENI ED THE CLAIM FOR DEDUCTION U/S. 80P. IN APPEAL, THE LD. CIT(A), NOTING THE BASIS ON WHI CH THE CLAIM FOR DEDUCTION STOOD DISALLOWED BY THE AO, DECIDED THE ISSUE IN FA VOUR OF THE ASSESSEE FOLLOWING THE DECISION/S BY THE HON'BLE JURISDICTIO NAL HIGH COURT AS WELL AS BY THE TRIBUNAL, NOTING THE FACTS AND CIRCUMSTANCES TO BE THE SAME. THE OPERATING PART OF HIS ORDER, IDENTICAL IN BOTH APPEALS, READS AS UNDER: 5. I HAVE PERUSED THE ASSESSMENT ORDER AND ORDE RS OF THE HON'BLE ITAT B BENCH, D BENCH, CHENNAI AS REFERRED ABOVE AND ALSO THE LATEST ORDER PASSED BY ITAT 'C' BENCH, CHENNAI DATED 23.09.2015 IN THE CASE OF M/S. S-1308, AMMAPET PRIMARY AGRICULTURAL CO-OPERAT IVE BANK LTD IN ORDER NO.825/MDS/2015. IN ALL THE ABOVE CASES, THE HON'BLE ITAT HAS DECIDED THE ISSUES IN FAVOR OF THE APPELLANT. FURTH ER, THE HON'BLE HIGH COURT OF MADRAS HAS DISMISSED THE DEPARTMENTAL APPE ALS IN THE CASE OF M/S. VEERAKERALAM PACCS LTD IN TAX APPEAL NOS.735,7 55 OF 2014 AND 460 OF 2015. THE FACTS AND CIRCUMSTANCES ARE EXACTL Y THE SAME. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE HON'BLE 'B' BENCH OF ITAT, CHENNAI IN ITS ORDER NO.292/MDS/2014 DATED 17.03.2014, 5 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. HON'BLE 'D' BENCH OF ITAT CHENNAI IN ITS ORDER NOS. 730, 731 AND 732/MDS/2014 DATED 30.06.2014 AND HON'BLE 'C' BENCH OF ITAT CHENNAI IN ITS ORDER NO.825/MDS/2015 DATED 23.09.20 15 AND THE HON'BLE HIGH COURT OF MADRAS, SUPRA, THE CONTENTION S OF THE ASSESSEE ARE ACCEPTED. AGGRIEVED, THE REVENUE IS IN APPEAL/S. 4. BEFORE ME, THE ASSESSEE RELIED ON THE ORDER/S BY THE TRIBUNAL IN THE ASSESSEES OWN CASE (FOR ASSESSMENT YEARS 2007-08 A ND 2008-09), PLACING A COPY OF EACH ON RECORD, BEING ITA NOS. 407 & 408/MD S/2014 DATED 08.05.2014 IN THE CASE OF S-1213 SELLIAMPALAYAM PACCS LTD. A ND IN ITA NOS. 653 & 654/MDS/2014 DATED 20.06.2014 IN THE CASE OF SA-45 THALAIVASAL PACCS LTD.), BESIDES THE DECISION BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V. TIRUCHENGODE AGRICULTURAL PRODUCERS COOP.MARKETING SOCIETY LTD. & ORS (IN TAX CASE (APPEAL) NOS. 484 TO 487 & 490/2016 DATED 02.08.2016) AND CIT V. NILGIRIS CO-OPERATIVE MARKETING SOCIETY LTD . (IN TCA NO.758/2016 DATED 02.11.2016). 5. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD, INCLUDING THE DECISIONS CITED. 5.1 THE ORDER/S BY THE TRIBUNAL IN THE ASSESSEE/SS OWN CASE FOR AY 2007-08 AND 2008-09 IS, AGAIN, BY FOLLOWING THE DECISION BY THE COORDINATE BENCH OF THE TRIBUNAL, CLARIFYING THAT AN ASSOCIATE MEMBER ANSWE RS THE DEFINITION OF A MEMBER U/S. 2(16) OF THE TAMIL NADU COOPERATIVE SOCIETIES ACT, 1983, SO THAT NO DISTINCTION ON THE BASIS OF THE CLASS OF A MEMBER C OULD BE MADE FOR THE PURPOSE OF DEDUCTION U/S. 80P. THE DECISION IN THE CASE OF SL(SPL) 151, KARKUDALPATTY PRIMARY CO-OPERATIVE CREDIT SOCIETY LTD. V. ITO (ITA NO.292/MDS/2014 DATED 17.03.2014) RELIED UPON BY THE ASSESSEE BEFORE THE LD. CIT(A), THE RELEVANT PART OF WHICH STANDS REPRODUCED AT PARA 4 OF HIS ORDER, IS ALSO TO THE EFFECT THAT S. 80P ADMITS OF NO DIFFERENCE BETWEEN DIFFERENT CLASSES O F MEMBERS. THE REVENUE HAS BEFORE ME PLACED NO DECISION BY ANY HIGHER FORUM TA KING A DIFFERENT VIEW IN THE 6 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. MATTER. WHY, THE PROVISO TO SEC. 80-P(2)(A) CLEARLY RESTRICTS ITS APPLICATION WITH REFERENCE TO THE RESTRICTION ON VOTING RIGHTS TO DE FINED CATEGORIES OF MEMBERS, SO THAT THE LAW RECOGNIZES THAT THERE COULD BE DIFFERE NT CLASSES OF MEMBERS, TO SOME OF WHOM VOTING RIGHTS MAY NOT BE EXTENDED. THE OBJE CTION BY THE AO, TO THE EXTENT IT RELATES TO THE LOANS BEING GIVEN TO THE A SSOCIATE MEMBERS, WOULD THEREFORE NOT HOLD, AND THE SAME WOULD STAND TO BE REGARDED AS LOANS BY THE ASSESSEE-SOCIETY TO ITS MEMBERS. 5.2 SECTION 80P OF THE ACT IS IN RESPECT OF DEDUCTI ON ON THE INCOMES SPECIFIED THERE-UNDER OF A CO-OPERATIVE SOCIETY. SUB-SECTION (1) SPELLS OUT THE BROAD CONTOURS OF THE DEDUCTION, I.E., TO AN ASSESSEE, BE ING A CO-OPERATIVE SOCIETY, THE GROSS TOTAL INCOME OF WHICH INCLUDES ANY INCOME REF ERRED TO IN SUB-SECTION (2), ALLOWING DEDUCTION IN ACCORDANCE WITH AND SUBJECT T O THE PROVISIONS OF THE SAID SECTION. WITH REGARD TO A CO-OPERATIVE SOCIETY CARR YING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS (FALLING U/S. 80(2)(A)(I)), IT IS THE WHOLE AMOUNT OF PROFITS OR GAINS OF THE BUSI NESS ATTRIBUTABLE TO SUCH ACTIVITY. SUB-SECTION (4), INSERTED BY FINANCE ACT, 2006, W.E.F. 01.04.2007, PROVIDES THAT THE PROVISIONS OF SEC. 80P SHALL NOT APPLY IN RELATION TO A CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K. WHILE THE FORMER TWO TERMS ARE TO HAVE THE SAME MEANING AS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANK REGULATION ACT, 1949 (BR ACT FOR SHOR T), A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK STANDS DEF INED VIDE EXPLANATION (B) THERETO. SECTION 2(24)(VIIA) IS SIMULTANEOUSLY INSE RTED TO INCLUDE SUCH INCOME, I.E., PROFITS AND GAINS OF ANY BUSINESS OF BANKING OR PROVISION OF CREDIT FACILITIES TO ITS MEMBERS BY A CO-OPERATIVE SOCIETY, AS INCOM E, INCLUSIVELY DEFINED IN SECTION 2(24) OF THE ACT. THIS APPEARS TO BE BY WAY OF AN ABUNDANT CAUTION IN- AS-MUCH AS DEDUCTION WOULD ONLY BE QUA , OR ITSELF IMPLIES, INCOME, SO THAT 7 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. ECONOMIC ACTIVITY BY A CO-OPERATIVE SOCIETY, WHICH IS A SEPARATE AND DISTINCT ENTITY FROM ITS MEMBERS (S. 2(31)), IS AN ASPECT TH AT ADMITS NO DISPUTE. AT THIS STAGE, IT MAY ALSO BE CLARIFIED THAT IN VIEW OF THE BANKING LAWS (APPLICATION TO CO-OPERATIVE SOCIETIES) ACT, 1965, THE BR ACT, TO T HE EXTENT SPECIFIED THERE- UNDER, APPLIES TO CO-OPERATIVE SOCIETIES. SEC. 56 ( FALLING UNDER PART-V) OF THE BR ACT, IS RELEVANT IN THIS REGARD AND IS EXTRACTED AS UNDER IN ITS RELEVANT PART: PART V OF BANKING REGULATION ACT, 1949 : APPLICATION OF THE ACT TO CO-OPERATIVE BANKS ACT TO APPLY TO CO-OPERATIVE SOCIETIES SUBJECT TO M ODIFICATIONS. 56. THE PROVISIONS OF THIS ACT, AS IN FORCE FOR THE TI ME BEING, SHALL APPLY TO, OR IN RELATION TO, CO-OPERATIVE SOCIETIES AS THEY APPLY TO, OR IN RELATION TO, BANKING COMPANIES SUBJECT TO THE FO LLOWING MODIFICATIONS, NAMELY : ( A ) THROUGHOUT THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES, ( I ) REFERENCES TO A BANKING COMPANY OR THE COMPANY OR SUCH COMPANY SHALL BE CONSTRUED AS REFERENCES TO A CO-O PERATIVE BANK, ( II ) REFERENCES TO COMMENCEMENT OF THIS ACT SHALL BE CONSTRUED AS REFERENCES TO COMMENCEMENT OF THE BANKING LAWS (APP LICATION TO COOPERATIVE SOCIETIES) ACT, 1965 (23 OF 1965) ; ( B ) IN SECTION 2, THE WORDS AND FIGURES THE COMPANIE S ACT, 1956 (1 OF 1956), AND SHALL BE OMITTED ; ( C ) IN SECTION 5, ( I ) AFTER CLAUSE ( CC ), THE FOLLOWING CLAUSES SHALL BE INSERTED, NAMELY: - ( CCI ) CO-OPERATIVE BANK MEANS A STATE CO-OPERATIVE BA NK, A CENTRAL COOPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK; ( CCII ) CO-OPERATIVE CREDIT SOCIETY MEANS A CO-OPERATIV E SOCIETY, THE PRIMARY OBJECT OF WHICH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS AND INCLUDES A CO-OPER ATIVE LAND MORTGAGE BANK ; ( CCIIA ) CO-OPERATIVE SOCIETY MEANS A SOCIETY REGISTERED OR DEEMED TO HAVE BEEN REGISTERED UNDER ANY CENTRAL ACT FOR T HE TIME BEING IN FORCE RELATING TO THE MULTI-STATE CO-OPERA TIVE SOCIETIES, OR ANY OTHER CENTRAL OR STATE LAW RELATI NG TO CO- OPERATIVE SOCIETIES FOR THE TIME BEING IN FORCE; ( CCIII ) TO (CCIIB) ( CCIV ) PRIMARY AGRICULTURAL CREDIT SOCIETY MEANS A CO -OPERATIVE SOCIETY, 8 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHI CH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPOSES OR FOR PURPOSES CONNECTED WIT H AGRICULTURAL ACTIVITIES (INCLUDING THE MARKETING OF CROPS); AND (2) THE BYE-LAWS OF WHICH DO NOT PE RMIT ADMISSION OF ANY OTHER CO-OPERATIVE SOCIETY AS A MEMBER : PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO THE ADMISSION OF A CO-OPERATIVE BANK AS A MEMBER BY REASON OF SUCH COOPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH COOPERATIVE SOCIETY OUT OF FU NDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE ; ( CCV ) PRIMARY CO-OPERATIVE BANK MEANS A CO-OPERATIVE SOCIETY, OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY, ( 1 ) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS ; ( 2 ) THE PAID-UP SHARE CAPITAL AND RESERVES OF WHICH A RE NOT LESS THAN ONE LAKH OF RUPEES ; AND ( 3 ) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO-OPERATIVE SOCIETY AS A MEMBER : PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO THE ADMISSION OF A CO-OPERATIVE BANK AS A MEMBER BY REASON OF SUCH COOPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH COOPERATIVE SOCIETY OUT OF FU NDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE; ( CCVI ) PRIMARY CREDIT SOCIETY MEANS A CO-OPERATIVE SOC IETY, OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY, ( 1 ) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS ; ( 2 ) THE PAID-UP SHARE CAPITAL AND RESERVES OF WHICH A RE LESS THAN ONE LAKH OF RUPEES ; AND ( 3 ) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO-OPERATIVE SOCIETY AS A MEMBER : PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO THE ADMISSION OF A CO-OPERATIVE BANK AS A MEMBER BY REA SON OF SUCH COOPERATIVE BANK SUBSCRIBING TO THE SHARE C APITAL OF SUCH COOPERATIVE SOCIETY OUT OF FUNDS PROVIDED B Y THE STATE GOVERNMENT FOR THE PURPOSE. EXPLANATION. IF ANY DISPUTE ARISES AS TO THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF ANY CO-OPERATIVE SO CIETY REFERRED TO IN CLAUSES ( CCIV ), ( CCV ) AND ( CCVI ), A DETERMINATION THEREOF BY THE RESERVE BANK SHALL BE FINAL; ( CCVII ) ; FURTHER, LEST ONE ARGUES THAT A COOPERATIVE SOCIETY , OPERATING ON CO-OPERATIVE PRINCIPLES, CANNOT ON INCOME PER SE, THE TRANSACTIO N IS BEING BETWEEN IT AND ITS 9 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. MEMBERS, REFERENCE WILL BE DRAWN TO S. 2(31), DEFIN ING A PERSON UNDER THE ACT, AS WELL AS SECTION 2(24)(VIIA), INCLUDING THE PROFI TS AND GAINS OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) BY CO-OPERATIVE SOCIETY WITH ITS MEMBERS. 5.3 THE BYE-LAWS OF THE ASSESSEE SOCIETY/S ARE NOT ON RECORD. IT IS ONLY THIS THAT WOULD ENABLE ONE TO DETERMINE IF THE ASSESSEE SOCIE TY IS A CO-OPERATIVE BANK, SATISFYING THE CONDITIONS OF THE DEFINING PROVISION , AND/OR, AS CLAIMED, IS A PRIMARY AGRICULTURAL CREDIT SOCIETY, AGAIN, IN TERM S OF ITS DEFINING PROVISION. WE SAY AND AND OR, AS THE SITUATION IN EITHER CASE IS A PAR. TH E DEFINITION OF A PRIMARY CO-OPERATIVE BANK, ONE OF THE THREE CATEGOR IES OF CO-OPERATIVE BANKS, ITSELF EXCLUDES A PRIMARY AGRICULTURAL CREDIT SOCIE TY (S. 5(CCI) R/W S. 5(CCV) OF THE BR ACT). EVEN OTHERWISE, A PRIMARY CO-OPERATIVE SOC IETY IN THE BUSINESS OF BANKING, SO THAT IT QUALIFIES TO BE REGARDED AS A P RIMARY CO-OPERATIVE BANK, WHERE IT SATISFIES THE CONDITIONS OF S. 5(CCIV) OF THE BR ACT, IS BY DEFINITION A PRIMARY AGRICULTURAL CREDIT SOCIETY, EXCLUDED U/S. 80P(4) INSERTED BY FINANCE ACT, 2006 W.E.F. 01/4/2007, RESTRICTING THE APPLICA TION OF SECTION 80-P(1), IN CASE OF COOPERATIVE SOCIETIES IN THE BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES TO ITS MEMBERS) EXCEPT WHERE THEY FALL U NDER THE TWO EXCEPTED CATEGORIES, I.E., PRIMARY AGRICULTURAL CREDIT SOCI ETY OR PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. REFERENCE IN THIS CONTEXT MAY ALSO BE MADE TO THE BOARD CIRCULAR NO. 14 OF 2006 DATED 28 /12/2006 EXPLAINING THE AMENDMENT BY WAY OF INSERTION OF S. 2(24)(VIIA) AND 80-P(4) BY FINANCE ACT, 2006 W.E.F. 01/4/2007. PER AN EARLIER CIRCULAR (NO. 6/2010), THE BOARD HAD CLARIFIED THAT REGIONAL RURAL BANKS (RRBS) SHALL NO LONGER BE ENTITLED TO DEDUCTION U/S.80-P(1), I.E., DESPITE BEING COOPERAT IVE SOCIETIES. THE LAW IN THE MATTER IS AMPLY CLEAR, WITH THE HONBLE JURISDICTIO NAL HIGH COURT IN CIT V. MADRAS AUTORICKSHAW DRIVERS COOPERATIVE SOCIETY LT D . [1983] 143 ITR 981 10 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. (MAD) (AFFIRMED IN [2001] 249 ITR 330 (SC)), CLARIF YING THAT DEDUCTION U/S. 80- P IS ASSESSEE SPECIFIC, SO THAT THE SAME SHALL EXTE ND TO ELIGIBLE SOCIETIES ONLY. THE WORD PRINCIPAL, OCCURRING IN S. 5(CCIV) R/WW S. 56(C) OF THE BR ACT, IS A WORD OF COMMON USAGE, WELL UNDERSTOOD BOTH IN LAW A ND IN COMMON PARLANCE. ITS USE, IN CONJUNCTION WITH THE WORDS PRIMARY OBJ ECT, AS EXPLAINED IN MADRAS AUTORICKSHAW DRIVERS COOPERATIVE SOCIETY LTD . (SUPRA), IS TO ASCERTAIN THE CHARACTER OF THE BUSINESS BEING ACTUALLY CARRIED OU T BY THE SOCIETY IN TERMS OF ITS OBJECTS . THE LAW BEING CLEAR, THE MATTER IS ESSENTIALLY FA CTUAL. THERE IS NO FINDING BY THE LD. CIT(A) ON THIS ASPECT OF THE MAT TER. IN FACT, HE EVEN DOES NOT CONTRADICT OR REBUT THE FINDING OF FACT BY THE AO T O THE EFFECT THAT THE ASSESSEES PRINCIPAL BUSINESS IS NOT OF EXTENSION OF CREDIT FA CILITIES TO ITS MEMBERS FOR AGRICULTURAL AND RELATED ACTIVITIES SO THAT IT IS NOT, DESPITE ITS NAME SUGGESTING OTHERWISE, A PRIMARY AGRICULTURAL CREDIT SOCIETY, E XCEPTED U/S. 80P(1) R/W S. 80P(4). HIS ORDER, THUS, CANNOT BE UPHELD, EITHER A S SUCH, OR EVEN CONSIDERING, AS AFORE DISCUSSED, ON THE BASIS OF THE DECISIONS RELI ED UPON BY THE ASSESSEE BEFORE ME. THE TERM PRIMARY AGRICULTURAL CREDIT SOCIETY STANDS DEFINED IN TERMS OF ITS CONSTITUENT ELEMENTS. UNLESS, THEREFORE, THE SAME A RE MET, I.E., SHOWN TO BE SO, AT ANY STAGE, COULD THE ASSESSEE CLAIM AN EXEMPT STATU S? THE BURDEN TO PROVE ITS RETURN, AND THE CLAIMS PREFERRED THEREBY, IS ONLY O N THE ASSESSEE ( CIT V. R. VENKATASWAMY NAIDU [1956] 29 ITR 529 (SC); CIT V. CALCUTTA AGENCY LTD . [1951] 19 ITR 191 (SC)), AND WHICH IT HAS SINGULARL Y FAILED TO. WE HAVE ALREADY OBSERVED AN ABSENCE OF ANY FINDING BY THE LD. CIT(A ) IN THIS REGARD, AS WELL AS AN ABSENCE OF ANY MATERIAL ON RECORD, WITH, RATHER, THE CONTRARY FINDINGS BY THE AO BEING NOT CONTROVERTED. I AM CONSCIOUS OF THE AS SESSEE HAVING BEEN HELD AS A PRIMARY AGRICULTURAL CREDIT SOCIETY BY THE TRIBUN AL FOR AYS. 2007-08 AND 2008- 09. THE SAME, AS AFORE- EXPLAINED, IS, AGAIN, ONLY ON THE BASIS OF A DIFFERENCE BETWEEN MEMBERSHIP WITH OR WITHOUT VOTING RIGHTS BE ING NOT ADMISSIBLE, AND 11 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. SANS ANY POSITIVE FINDING AS TO THE ASSESSEE BEING ON THE STRENGTH OF ITS ACTIVITIES (OR OBJECTS), A PRIMARY AGRICULTURAL CRE DIT SOCIETY. 5.4 IT IS THUS ABUNDANTLY CLEAR THAT THE ASSESSEE, INSOFAR AS ITS BUSINESS IS OF BANKING AND/OR PROVIDING GREAT FACILITIES TO ITS ME MBERS, TO BE ELIGIBLE FOR DEDUCTION U/S. 80P (1) R/W. S. 80P (2)(A)(I), WOULD HAVE TO QUALIFY EITHER AS A PRIMARY AGRICULTURAL CREDIT SOCIETY OR AS A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THERE IS, SIMILARLY, A GAIN, AN ABSENCE OF FINDING AS TO IT BEING A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK, QUA WHICH THERE IS, IN FACT, EVEN NO CLAIM. THE MATTER, ACCORDINGLY, WOULD NECESSARILY HAVE TO TRAVEL TO THE FILE OF THE FIRST APPELLATE AUTHORITY FOR A FINDING OF FACT, BASED ON MATERIALS, ONE WAY OR THE OTHER, AFTER HEARING BOTH THE PARTIES BEFORE HIM AND, ACCORDINGLY, ADJUDICATION PER A SPE AKING ORDER. HE MAY, WITHOUT PREJUDICE, SEEK ANY REPORT FROM THE AO. HOW EVER, WHERE ANY MATERIALS, NOT BEFORE THE ASSESSING AUTHORITY, ARE RELIED UPON BY HIM, OPPORTUNITY TO THE AO TO EXAMINE/VERIFY THE SAME, AS WELL AS TO ADDUCE MATERIAL / EVIDENCE IN REBUTTAL, AS PROVIDED BY LAW (R.46A THE INCOME TAX RULES, 1962), SHALL HAVE TO BE OBSERVED. HE SHALL ALSO CONSIDER THE QUANTUM OF DEDUCTION UNDER SECTION 80P(2), INCLUDING U/S. 80-P(2)(D); THE ASSESSEE, IT MAY BE CLARIFIED, ALSO UNDERTAKING TRADING BUSINESS IN CIVIL SUPPLY GOODS. 5.5 BEFORE PARTING, IT IS DEEMED RELEVANT TO CLARIF Y CERTAIN OTHER ASPECTS OF THE MATTER. THE ASSESSEE SOCIETY/S IS WITHOUT DOUBT REG ISTERED UNDER THE TAMIL NADU COOPERATIVE SOCIETIES ACT, 1983. THAT, HOWEVER, ONL Y IMPLIES OF IT AS A SOCIETY REGISTERED WITH THE OBJECT/S OF THE PROMOTION OF TH E ECONOMIC INTERESTS AND GENERAL WELFARE OF ITS MEMBERS IN ACCORDANCE WITH THE COOPERATIVE PRINCIPLES. IT DOES NOT BY ITSELF IMPLY THAT THE CREDIT FACILITIES BY THE ASSESSEE TO ITS MEMBERS ARE PRINCIPALLY FOR AGRICULTURAL OR RELATED ACTIVIT IES , IN WHICH CASE ONLY IT SHALL 12 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. BE A PRIMARY AGRICULTURAL CREDIT SOCIETY, ELIGIBLE FOR A TAX-FREE STATUS U/S. 80P ON ITS RELEVANT (DEFINED) INCOME/S . AS A READING OF SECTION 80-P(2)(A)(I) SHALL CLARIFY, IT IS NOT THE BUSINESS OF BANKING BY A CO- OPERATIVE SOCIETY PER SE THAT OUSTS ITS CASE UNDER SECTION 80-P(1) (R/W S. 80-P( 4)) AND, RATHER, IS REGARDED AT PAR WITH THAT WHERE IT IS CONFINED TO PROVIDING CRE DIT FACILITIES TO ITS MEMBERS (S.2(24) (VIIA)). IT IS ONLY THE INSERTION OF SECTI ON 80-P(4) (W.E.F. AY 2007-08) THAT RESTRICTS THE APPLICATION OF SECTION 80-P(1) O NLY TO THE TWO SPECIFIED CO- OPERATIVE SOCIETIES, I.E., WHERE IT IS ENGAGED IN B USINESS OF BANKING OR PROVISION OF CREDIT FACILITIES TO ITS MEMBERS, WITHIN FACT, T HE ASSESSEE IN THE INSTANT CASE ALSO UNDERTAKING TRADING IN GOODS. THIS IN FACT IS PRECISELY WHAT THE AO IN THE INSTANT CASE/S SEEKS TO BRING FORTH , I.E., OF THE ASSESSEE/S BEING NOT A PRIMARY AGRICULTURAL CREDIT SOCIETY NOR IN FACT CLAIMS TO B E A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. AS EXPLAIN ED IN MADRAS AUTORICKSHAW DRIVERS CO-OPERATIVE LTD. , (SUPRA), THE BENEFIT U/S. 80P IS ASSESSEE-SPECIFI C, I.E., ON THE ASSESSEE SATISFYING THE QUALIFYING CONDITIO N/S OF S.80-P, IN WHICH CASE IT BECOMES A QUESTION OF BEING EXAMINED FOR QUANTUM (O F DEDUCTION) ONLY. CONTINUING FURTHER, IT COULD BE THAT THE ASSESSEE, DESPITE BEING A CO-OPERATIVE SOCIETY, AND AUTHORIZED TO UNDERTAKE BUSINESS OF BA NKING, A TERM DEFINED IN S. 5(B) OF THE BR ACT, AS UNDER, IS YET ENGAGED PRINCIPALLY IN PROVIDING FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL AND A LLIED PURPOSES, COMPRISING ITS PREDOMINANT BUSINESS, IN WHICH CASE IT IS A PRI MARY AGRICULTURAL CREDIT SOCIETY, ELIGIBLE FOR DEDUCTION U/S. 80P(1) TO THE EXTENT SPECIFIED IN SECTION 80- P(2), ON WHICH ASPECT, AGAIN, THERE HAS BEEN NO EXA MINATION BY THE LD. CIT(A): '5(B) 'BANKING' MEANS THE ACCEPTING, FOR THE PURPOS E OF LENDING O R INVESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC, R EPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWABLE BY CHEQUE, DRAFT, OR DER OR OTHERWISE.' TRUE THE AO CLEARLY STATES OF HAVING EXAMINED THE L OAN APPLICATIONS FOR JEWEL LOANS, WHICH CONSTITUTE, BY FAR, THE PRINCIPAL CATE GORY OF LOANS. WHY, JEWEL LOANS (AGRICULTURE) IS A SEPARATE CATEGORY OF LOANS, ENTI TLED TO A CONCESSIONAL RATE OF 13 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. INTEREST, SO THAT THE GENERAL CATEGORY OF JEWEL LOA NS ARE IMPLIEDLY FOR NON- AGRICULTURAL PURPOSES. BE THAT AS IT MAY, THE FINDI NG BY THE AO REMAINS UNADDRESSED, AND SHALL HAVE TO BE EITHER CONFIRMED OR REVERSED OR MODIFIED. THE MATTER IS ACCORDINGLY SET ASIDE FOR FACTUAL DETERMI NATION. FURTHER, I HAVE ALSO PERUSED THE DECISIONS IN NILGIRIS CO-OPERATIVE MARKETING SOCIETY LTD . (SUPRA) AND TIRUCHENGODE AGRICULTURAL PRODUCERS CO- OPERATIVE MARKETING SOCIETY LTD. & ORS (SUPRA), ALSO RELIED UPON BY THE ASSESSEE. THERE IS NOTHING IN THIS ORDER THAT IS IN CONSISTENT OR NOT IN AGREEMENT WITH THE SAID DECISIONS. THE MATTER IS, IN FACT, PRINCIPALLY FACTUAL , WITH THE DECISION IN TIRUCHENGODE AGRICULTURAL PRODUCERS CO-OPERATIVE M ARKETING SOCIETY LTD. & ORS (SUPRA) BEING RENDERED IN THE FACTS AND CIRCUMSTAN CES OF THE CASE. AS OBSERVED, WHILE THE QUESTIONS RAISED BEFOR E THE HONBLE COURT IN THAT CASE RELATED TO DEDUCTION U/S. 80-P(2)(A)(I), THE T RIBUNAL, WHOSE ORDER IT UPHOLDS, HAD HELD THE ASSESSEE TO BE ENTITLED TO DEDUCTION U /S. 80-P(2)(A)(IV). TAXING STATUTES, IT IS WELL SETTLED, ARE TO BE STRICTLY CO NSTRUED (VIZ. UOI VS. BOMBAY ELPHINSTONE SPINNING & WEAVING CO. LTD. & ORS . 2001(1) SC 536;); MORE SO AN EXEMPTION PROVISION, CAST AS IT DOES AN EXCEPTION F ROM THE GENERAL RULE AND NATURAL TENOR OF THE STATUTE ( ORISSA STATE WAREHOUSING CORPN. VS. CIT [1999] 237 ITR 589 (SC); NOVAPAN INDIA LTD. V. CCE 1994 (73) ELT 769 (SC)), AND IS ACCORDINGLY TO BE INTERPRETED ONLY IN TERMS OF THE LANGUAGE USED BY THE STATUE ( BOMBAY ELPHINSTONE SPINNING & WEAVING CO. LTD. (SUPRA); IPCA LABORATORY LTD. V. DY. CIT [2004] 266 ITR 521 (SC)). NOT TO DO SO, I.E., TO T AKE COGNIZANCE OF THE SAME, INTERPRETING IT BY APPLYING THE RECOGN IZED INTERPRETATIVE PROCESSES, AMOUNTS TO LEGISLATING, WHICH THE COURTS OF LAW, CA NNOT, EVEN AS CLARIFIED BY THE APEX COURT TIME AND AGAIN, FURTHER CLARIFYING IN CBI VS. KESHUB MAHINDRA & OTHERS [IN CURATIVE PETITION NOS. 39-42 OF 2010 IN CRIMINA L APPEAL NOS. 1672- 1675 OF 1996] THAT NO COURT, INCLUDING ITSELF, COUL D READ THE LAW IN A MANNER SO AS TO NULLIFY THE EXPRESS PROVISIONS OF AN ACT OR C ODE (PARA 4 OF THE DECISION). 14 ITA NOS.3003 & 3004/MDS/2016 (AY 2013-14) ITO V. S-1213 SELLIAMPALYAM PACCS LTD., & SA-45 THA LAIVASAL PACCS LTD. THERE IS IN FACT NO AMBIGUITY IN LAW (REFER: MADRAS AUTORICKSHAW DRIVERS CO- OPERATIVE LTD. (SUPRA)) OR SCOPE FOR ANY CONTROVERSY INASMUCH AS THE CONDITION OF SECTION 80P(4) SHALL IN ANY CASE HAVE TO BE MET, ON WHICH I, AS AFORE-SAID, OBSERVE NO FINDING BY THE LD.CIT(A); THE TWO EXCEPT ING CATEGORY OF CO-OPERATIVE SOCIETIES BEING CLEARLY DEFINED UNDER THE ACT/BR AC T. 5.6 I DECIDE ACCORDINGLY. 6. IN THE RESULT, THE APPEALS BY THE REVENUE ARE AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON MAY 18, 2017 AT CHENNAI . SD/- ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, / /DATED 18 TH MAY, 2017. EDN 0 ( *'-12 32%- /COPY TO: 1. &' /APPELLANT 2. *+&' /RESPONDENT 3. , 4- ( )/CIT(A) 4. , 4- /CIT 5. 2$56 *'-' /DR 6. 67# 8 /GF