Kadakkarappally Service Co-op Bank Ltd, Alappuzha V. The ITO, Alappuzha

ITA 339/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81411 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 01-12-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 15-07-2014
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Keywords: Question of law
• Section: 43B; 143(3); 27; 6

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. 339 /COCH/2014 ASSESSMENT YEAR : 2010-11 KADAKKARAPPALLY SERVICE CO- OPERATIVE BANK LTD., KADAKKARAPPALLY P.O., CHERTHALA, ALAPPUZHA-688 529. [PAN:AAIFK 7914P] VS. THE INCOME TAX OFFIICER, WARD-2, ALAPPUZHA. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI KRISHNA KUMAR, CA REVENUE BY SHRI K.K. JOHN, SR. DR DATE OF HEARING 01/12/2014 DATE OF PRONOUNCEMENT 05/12/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED23-04-2014 PASSED BY THE CIT(A)-IV, KOCHI FOR THE ASSESSMENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO-OPERATIVE SOCIETY REGISTERED UNDER THE CO-OPERATIVE SOCIETIES ACT AND ALSO A PRIMARY AGRICULTURAL CREDIT SOCIETY UNDER RULE 15(1 )(A)(3)(A) OF THE KERALA CO-OPERATIVE SOCIETIES ACT AS RECOGNIZED BY THE ASSISTANT REGISTRAR (GENERAL OF CO-OPERATIVE SOCIETIES, CHERT HALA. THE RETURN OF I.T.A. NO.339/COCH/2014 2 INCOME WAS FILED ON 10-12-2010 DECLARING A GROSS TO TAL INCOME OF RS.16,48,086/- AND TOTAL INCOME AS NIL CLAIMING BEN EFIT OF SEC. 80P IN RESPECT OF ITS INCOME FROM THE ACTIVITY OF RUNNING A CO-OPERATIVE SOCIETY. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT BY ORDER DATED 07-03-2013. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS CARRYING ON BUSINESS IN CO-OPERATIVE BANKING AND PR OVIDING CREDIT FACILITIES TO ITS MEMBERS FOR AGRICULTURAL AND NON- AGRICULTURAL ACTIVITIES AND TRADING IN COIR PRODUCTS. AFTER ANALYZING THE A CTIVITIES OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THE ASSE SSEE HAS BEEN DOING BANKING BUSINESS AND THE FOLLOWING ACTIVITIES: I) PURCHASE AND SALE OF COIR PRODUCTS. II)PROVIDING GOLD LOANS, MORTGAGE LOANS, MEMBERS H OUSING LOANS. III)ACCEPTING FIXED DEPOSITS FROM MEMBERS AND NON- MEMBERS. IV) MAINTAINING SAVINGS BANK A/C, CURRENT A/C, DAI LY DEPOSIT ETC. V) PROVIDING CHEQUES FACILITY. VI) PROVIDING LOCKER FACILITY. VII) CONDUCTING CHITTY FUND AND MONTHLY DEPOSIT SC HEME. WHILE SCRUTINIZING THE PROFIT AND LOSS ACCOUNT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD EARNED RS.94,12,640/- A S INTEREST INCOME FROM DIFFERENT LOANS AND MISCELLANEOUS INCOME OF RS . 21,40,172/-. THROUGH VERIFYING BALANCE SHEET AS ON 31-03-2010, T HE ASSESSING OFFICER I.T.A. NO.339/COCH/2014 3 NOTED THAT THE ASSESSEE HAD OUTSTANDING BALANCE OF LOAN ADVANCED RS.8,13,37,442/- AND ALSO MENTIONED THE SPLIT-UP OF ADVANCES AS ON DATE. IN ADDITION TO THE ABOVE, THE ASSESSING OFFI CER ALSO NOTICED THAT THE ASSESSEE HAS DONE BUSINESS IN COIR PRODUCTS. TH US, ON VERIFICATION OF THE TRANSACTIONS, THE AO CONCLUDED THAT THE ASSESSE E DOES NOT FALL IN THE AMBIT OF DEFINITION OF PRIMARY AGRICULTURAL CREDIT SOCIETY AS PER THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER ALSO H ELD THAT THE ASSESSEE DOES NOT FALL WITHIN THE CATEGORY OF PRIMARY AGRICU LTURAL CREDIT SOCIETY SO AS TO BE ELIGIBLE FOR DEDUCTION U/S. 80P OF THE INC OME TAX ACT, 1961. THE ASSESSING OFFICER ALSO MADE REFERENCE TO KERALA CO-OPERATIVE SOCIETIES ACT (SECTION 2(OA) REGARDING REQUIREMENTS SO AS TO MAINTAIN THE STATUS OF PRIMARY AGRICULTURAL CREDIT SOCIETY. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE I S NOT ELIGIBLE FOR DEDUCTION U/S. 80P AND ACCORDINGLY REJECTED THE CLA IM OF DEDUCTION OF RS.16,48,086/- MADE U/S. 80P(2) (A) (I) AND 80P(2)( D) OF THE INCOME TAX ACT BY THE ASSESSEE. 3. ON VERIFICATION OF THE ACCOUNTS, THE ASSESSING O FFICER DISALLOWED RESERVE FOR INTEREST ARREARS OF RS.9,06,589/-, PROV ISION FOR BONUS, RS.30,000/- AND RESERVE FOR LEAVE SURRENDER RS.84,5 04/- ON THE GROUND THAT ANY PROVISION MADE BY THE ASSESSEE IS NOT AN A LLOWABLE EXPENDITURE FOR COMPUTATION OF INCOME UNDER THE INCOME TAX ACT. I.T.A. NO.339/COCH/2014 4 4. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE OF CLAIM OF DEDUCTION U/S. 80P(2) MADE BY THE ASSESSING OFFICER AND OTHER DISALLOWANCES. AGAINST THIS, THE ASSESSEE IS IN APP EAL BEFORE US. 5. THE LD. AR SUBMITTED THAT AS PER SEC. 80P(2)(A)( I) OF THE ACT, A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUS INESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, DEDUCTI ON U/S. 80P IS AVAILABLE. THE LD. AR SUBMITTED THAT THE LOWER AUTHORITIES HAV E NOT BEEN ABLE TO PROVE THAT THE STATUS OF THE SOCIETY IS A CO-OPER ATIVE BANK WHILE REJECTING THE CLAIM OF THE ASSESSEE AS PACS. ACCOR DING TO THE LD. AR, THE DEDUCTION IS NEGATED ONLY TO A CO-OPERATIVE BAN K CARRYING ON BANKING AND FINANCE AND THE PACS AND PCARD WILL CON TINUE TO ENJOY THE DEDUCTION. 6. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS THE P RIMARY OBJECT OF PROVIDING FINANCIAL ACCOMMODATION TO ITS MEMBERS AN D HENCE IT FALLS UNDER CO-OPERATIVE CREDIT SOCIETY AS DEFINED IN SEC . 5(CCII) OF THE BANKING REGULATION ACT ACCORDING TO WHICH A CO-OPE RATIVE CREDIT SOCIETY MEANS A CO-OPERATIVE SOCIETY, THE PRIMARY OBJECT OF WHICH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS AND INCLUDES A CO- OPERATIVE LAND MORTGAGE BANK. ACCORDING TO THE LD . AR, THE TERM CO- I.T.A. NO.339/COCH/2014 5 OPERATIVE SOCIETY AS USED IN SECTION 22 WOULD INCLU DE ALL TYPES OF CO- OPERATIVE SOCIETIES. BY VIRTUE OF SEC. 5(CCVII), TH E TERM STATE CO- OPERATIVE BANK IS TO BE UNDERSTOOD AS A STATE CO-O PERATIVE BANK OR A CENTRAL CO-OPERATIVE BANK OR PRIMARY CO-OPERATIVE BANK AS DEFINED UNDER THE NABARD ACT. 7. THE LD. A SUBMITTED THAT THE ASSESSEE DOES NOT F ALL WITHIN THE MEANING OF CO-OPERATIVE BANK AS DEFINED IN SEC. 5(C CI) OF THE BR ACT AND DOES NOT HOLD A LICENSE ISSUED IN THAT BEHALF BY TH E RBI. HENCE, THE ASSESSEE CANNOT BE DENIED DEDUCTION U/S. 80P OF THE I.T. ACT BY INVOKING SUB-SECTION (4). HE RELIED ON THE DECISION OF MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF APEX URBAN CO-OPERATIVE BAN K OF MAHARASHTRA & GOA VS. ITO (2011) 16 TAXMANN.COM 302/(2012) 134 IT D 118 (MUM.). 8. THE LD. AR SUBMITTED THAT THE SOCIETY HAS TO NEC ESSARILY PROVIDE FOR INTEREST IN THE MERCANTILE SYSTEM OF ACCOUNTING AND RESERVE FOR INTEREST IS THE INTEREST PAYABLE BY THE SOCIETY TO IS DEPOSITORS ON ACCRUAL BASIS. ACCORDING TO THE LD. AR, SUCH EXPENDITURE IS ALLOWABLE EXPENDITURE. ACCORDING TO THE LD. AR, BOTH THE CIT (A) AND THE ASSESSING OFFICER DISALLOWED THE SAME BY QUOTING SE C. 43B OF THE I.T. ACT I.T.A. NO.339/COCH/2014 6 HOWEVER, SEC. 43B DOES NOT DEAL WITH INTEREST EXPEN DITURE ON ITS DEPOSITS FORM DEPOSITORS. THIS SECTION DEAL WITH: I) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON A NY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT IN ACC ORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUC H LOAN OR BORROWING (43B(D) OR II) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR ADVANCES FROM A SCHEDULED BANK IN ACCORDANCE WITH T HE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR ADVANCES, ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN (43B(E)). HENCE RESERVE FOR INTEREST ARREARS IS AN ALLOWABLE EXPENDITURE. 9. ACCORDING TO THE LD. AR, THE PROVISION FOR BONU S AND RESERVE FOR LEAVE SURRENDER ARE THE VALUE OF PERQUISITES TO EMP LOYEES THAT HAS BEEN PROVIDED IN THE BOOKS OF ACCOUNTS AS PER THE MERCAN TILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AND H ENCE IT IS ALSO AN ALLOWABLE EXPENDITURE. IN VIEW OF THE ABOVE, THE L D. AR SUBMITTED THAT THE CLAIM OF THE ASSESSEE U/S. 80P MAY BE ALLOWED A ND OTHER ADDITIONS MAY BE DELETED. 10. THE LD. DR RELIED ON THE ORDER OF THE LOWER AUT HORITIES. 11. 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- I.T.A. NO.339/COCH/2014 7 OPERATIVE BANK IN I.T.A. NO. 156/COCH/2014 VIDE ORD ER DATED 25/07/2014 WHICH DECIDED THE ISSUE AGAINST THE ASSESSEE. THE RELEVA NT PORTION OF THE SAID ORDER IS AS FOLLOWS: 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEES CONTENTION IS THAT IT IS LENDING MONEY PRIMARILY FOR THE PURPOSE OF AGRICULTURAL ACTIVITIES AND ITS MEMBER AGRICULTURISTS. BEING SO, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/ S. 80P OF THE ACT. WE HAVE CAREFULLY GONE THROUGH THE BUSINESS CARRIED ON BY THE ASSESSEE. THE ASSESSING OFFICER HAS CLEARLY BROUGHT ON RECORD THA T THE ASSESSEE HAS LENT ONLY 3.56% OF TOTAL LOANS ADVANCED DURING THE YEAR UNDER CONSIDERATION FOR THE PURPOSE OF AGRICULTURAL ACTIVITIES. THE ASSESS EE WAS UNABLE TO POINT OUT THAT HOW WITH THIS MEAGRE 3.56% OF THE LOANS ADVANC ED FOR THE PURPOSE OF AGRICULTURAL ACTIVITIES; THE ASSESSEE IS ENTITLED F OR DEDUCTION U/S. 80P OF THE I.T. ACT. THE QUESTION BEFORE US IS WHETHER THE ASS ESSEE IS ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I) AND WHETHER THE ASSESSEE IS HIT BY THE PROVISIONS OF SEC. 80P(4) WHICH WAS INTRODUCED IN THE STATUTE BY THE FINANCE ACT, 2006 W.E.F. 1.4.2007. THE RELEVANT PROVISIONS OF BOTH TH E SECTIONS ARE RE- PRODUCED FOR OUR READY REFERENCE AS UNDER : 80P.(1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO-OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AN D SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN S UB-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 I N (I)CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR...............THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH AC TIVITIES. 80P(4)THE PROVISIONS OF THIS SECTION SHALL NOT APP LY IN RELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, (A)'CO-OPERATIVE BANK' AND 'PRIMARY AGRICULTURAL CR EDIT 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 DEV ELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL I.T.A. NO.339/COCH/2014 8 OBJECT OF WHICH IS TO PROVIDE FOR LONG-TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 8.1 IN OUR OPINION, SEC. 80P(2)(A)(I) PROVIDES TWO TYPES OF ACTIVITIES IN WHICH THE CO-OPERATIVE SOCIETY MUST BE ENGAGED TO BE ELIG IBLE FOR DEDUCTION UNDER SUB-CLAUSE (I). THESE TWO ACTIVITIES ARE NOT ALTERN ATE ONES BECAUSE THE SECTION ALLOWS DEDUCTION TO THE CO-OPERATIVE SOCIETY ON THE WHOLE OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES. THIS PRE- SUPPOSES THAT ELIGIBLE CO-OPERATIVE SOCIETY CAN CAR RY ON EITHER ONE OF THESE TWO BUSINESSES OR CAN CARRY BOTH THESE BUSINESSES F OR THE MEMBERS. IF THE ASSESSEE CO-OPERATIVE SOCIETY CARRIES ON ONE OR BOT H OF THE ACTIVITIES, IT WILL BE ELIGIBLE FOR DEDUCTION. THESE TWO ACTIVITIES ARE (A) CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING FACILITI ES TO ITS MEMBERS OR (B) CO- OPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACIL ITIES TO ITS MEMBERS. BOTH THE ACTIVITIES MUST BE CARRIED ON BY THE CO-OPERATI VE SOCIETY FOR ITS MEMBERS. IF A CO-OPERATIVE SOCIETY IS ENGAGED IN CARRYING ON THESE ACTIVITIES/FACILITIES FOR THE PERSONS OTHER THAN ITS MEMBERS, THE CO-OPERATIV E SOCIETY, IN OUR OPINION, WILL NOT BE ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) ON THE INCOME WHICH IT DERIVES FROM CARRYING ON THE ACTIVITIES NOT RELATIN G TO ITS MEMBERS. THEREFORE, WHERE A CO-OPERATIVE SOCIETY IS ENGAGED IN CARRYING ON BUSINESS OF BANKING FACILITIES TO ITS MEMBERS AND TO THE PUBLIC OR PROV IDING CREDIT FACILITIES TO ITS MEMBERS OR TO THE PUBLIC, THE INCOME WHICH RELATES TO THE BUSINESS OF BANKING FACILITIES TO ITS MEMBERS OR PROVIDING CRED IT FACILITIES TO ITS MEMBERS WILL ONLY BE ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I ). THERE IS NO PROHIBITION U/S 80P NOT TO ALLOW DEDUCTION TO SUCH CO-OPERATIVE SOC IETIES IN RESPECT OF BUSINESS RELATING TO ITS MEMBERS. 8.2 NOW, THE QUESTION BEFORE US IS WHETHER THE ASS ESSEE IS A CO-OPERATIVE BANK OR NOT. CO-OPERATIVE BANK AS DEFINED IN PART V OF THE BANKING REGULATIONS ACT, 1949 IS AS UNDER : CO-OPERATIVE BANK MEANS A STATE CO-OPERATIVE BANK , A CENTRAL CO- OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK: 8.3 FROM THE DEFINITION OF CO-OPERATIVE BANK IT I S APPARENT THAT CO-OPERATIVE BANK MEANS STATE CO-OPERATIVE BANK, A CENTRAL CO-OP ERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. IT IS NOT THE CASE OF TH E REVENUE THAT THE ASSESSEE IS A STATE CO-OPERATIVE BANK OR CENTRAL CO -OPERATIVE BANK. WE HAVE THEREFORE TO FIND WHETHER THE ASSESSEE IS A PRIMARY CO-OPERATIVE BANK. 8.4 THE PRIMARY CO-OPERATIVE BANK IS DEFINED UNDE R SECTION 5 CLAUSE (CCV) OF BANKING REGULATION ACT 1949 AS UNDER:- I.T.A. NO.339/COCH/2014 9 (CCV) PRIMARY CO-OPERATIVE BANK MEANS A CO-OPERATIVE SOCIETY, OTHER THAN A PRIMARY AGRICULT URAL CREDIT SOCIETY- (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH I S TRANSACTION OF BANKING BUSINESS: (2) THE PAID-UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN ONE LAKH OF RUPEES: AND (3) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION O F ANY OTHER CO- OPERATIVE SOCIETY AS A MEMBER: PROVIDED THAT THIS S UB-CLAUSE SHALL NOT APPLY TO THE ADMISSION OF A CO-OPERATIVE BANK AS A MEMBER BY REASON OF SUCH CO- OPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO-OPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE 8.5 FROM THE AFORESAID DEFINITION, IT IS APPARENT T HAT IF THE CO-OPERATIVE SOCIETY COMPLIED WITH ALL THE THREE CONDITIONS; FIRSTLY THA T THE PRIMARY OBJECT OR PRINCIPLE BUSINESS TRANSACTED BY IT IS A BANKING BUSINESS, SE CONDLY, THE PAID UP SHARE CAPITAL AND RESERVE OF WHICH ARE 1 LAKH OR MORE AND THIRDLY, BY LAWS OF THE CO- OPERATIVE SOCIETY DO NOT PERMIT ADMISSION OF ANY OT HER CO-OPERATIVE SOCIETY AS A MEMBER, IT WILL BE REGARDED TO BE PRIMARY CO-OPERAT IVE BANK. IF CO-OPERATIVE SOCIETY DOES NOT FULFILL ANY OF THE CONDITIONS, IT CANNOT BE REGARDED TO BE A PRIMARY CO-OPERATIVE BANK. THEREFORE, IN THE CASE O F THE ASSESSEE WE HAVE TO EXAMINE ON THE BASIS OF THE FACTS AND MATERIALS ON RECORD WHETHER THE ASSESSEE CO-OPERATIVE SOCIETY COMPLIES WITH ALL THE THREE CO NDITIONS. IN CASE, IT DOES NOT COMPLY WITH ALL THE THREE CONDITIONS, IT CANNOT BE REGARDED TO BE A CO-OPERATIVE BANK AND THE PROVISIONS OF SEC. 80P(4), IN OUR OPIN ION, WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. ONCE, THE ASSESSEE WILL N OT FALL WITHIN THE PROVISIONS OF SEC. 80P(4), THE ASSESSEE, IN OUR OPINION, WILL BE ELIGIBLE TO GET DEDUCTION U/S 80P(2)(A)(I) IN RESPECT OF WHOLE OF THE INCOME WHIC H THE ASSESSEE DERIVES FROM CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CR EDIT FACILITIES TO ITS MEMBERS. 8.6 WHETHER CONDITION NO. 1 IS APPLICABLE IN THE CA SE OF THE ASSESSEE, FOR THIS WE HAVE TO LOOK INTO THE BYE-LAWS OF THE ASSESSEE. THE OBJECTS OF THE ASSESSEE IN THIS CASE ARE ENUMERATED AS UNDER : 1) TO PROVIDE SHORT TERMS, MEDIUM TERM AND LONG TE RM LOANS TO ITS MEMBERS. 2) TO PROVIDE OVER DRAFT FACILITIES TO MEMBERS WHO ARE TRADERS AND KISAN CREDIT CARD LOAN TO MEMBERS WHO ARE FARMERS; 3) TO INVENT AND EXECUTE DIFFERENT SCHEMES FOR THE NON AGRICULTURAL PURPOSE OF THE MEMBERS; I.T.A. NO.339/COCH/2014 10 4) TO PROCURE AND DISTRIBUTE FERTILIZERS, PESTICIDE S AND EQUIPMENTS FOR AGRICULTURAL PURPOSES AND DIFFERENT ARTICLES FOR HO USE-HOLD NEEDS OF THE MEMBERS; 5) TO DEVISE DIFFERENT SCHEMES FOR COLLECTION, PROC ESSING AND THE MARKETING OF AGRICULTURAL PRODUCE OF THE MEMBERS; 6) IN ORDER TO LEND MONEY TO MEMBERS, TAKE LOANS FR OM GOVERNMENT AND OTHER CO-OPERATIVE INSTITUTIONS; 7) TO PROVIDE BANKING FACILITIES TO MEMBERS INCLUDI NG ENCASHMENT OF CHEQUE, DRAFTS, BILLS ETC.; 8) TO ACQUIRE MOVABLE AND IMMOVABLE ASSETS FOR THE FUNCTIONING OF THE BANK; 9) TO COLLECT DEPOSITS FROM MEMBERS AND CUSTOMERS U NDER DIFFERENT DEPOSIT SCHEMES; 10)MARKETING OF THE AGRICULTURAL PRODUCE OF THE ME MBERS, CO- OPERATING WITH GOVERNMENT AND QUASI GOVERNMENT AGE NCIES; 11) TO START BRANCHES AND EXTENSION COUNTERS WITHI N ITS AREA OF OPERATION IF NECESSARY FOR THE DEVELOPMENT OF THE BANK; 12) TO ACQUIRE AND MARKET INDUSTRIAL PRODUCTS FOR T HE BENEFIT OF THE MEMBERS; 13) TO ISSUE LOANS TO MEMBERS UNDER HIRE PURCHASE SCHEME FOR PURCHASING HOUSEHOLD ARTICLES, MACHINERY, JEEP, AUT ORIKSHAW, CAR ETC. 14) TO ACCEPT DEPOSITS FROM PRIMARY NON-AGRICULTUR AL CO-OPERATIVE SOCIETIES. OUT OF THESE, ONLY FOUR OBJECTS (I.E. CLAUSE NO. 2, 4,5 AND 10) ARE RELATED TO AGRICULTURE OR AGRICULTURAL OPERATIONS. SO FROM TH E BYE-LAWS OF THE BANK IT CANNOT BE AID THAT THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF THE BANK IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS F OR AGRICULTURAL PURPOSES OR FOR THE PURPOSES CONNECTED WITH AGRICUL TURAL ACTIVITIES . 8.7 ON THE BASIS OF THESE OBJECTS WHETHER IT CAN B E SAID THAT THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF THE ASSESSEE IS TRANSACTIO N OF BANKING BUSINESS? BANKING I.T.A. NO.339/COCH/2014 11 BUSINESS HAS BEEN DEFINED U/S 5(B) OF THE BANKING R EGULATION ACT IN THE FOLLOWING MANNER : ' BANKING' MEANS THE ACCEPTING, FOR THE PURPOSE OF LENDING OR IN VESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC, REP AYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWABLE BY CHEQUE, DRAFT, ORDER OR OTHERWISE. FROM THE SAID DEFINITION IT IS CLEAR THAT BANKING M EANS ACCEPTING DEPOSIT OF MONEY FROM THE PUBLIC WHICH IS REPAYABLE ON DEMAND OR OTHERWISE AND WITHDRAWAL OF THESE DEPOSITS BY CHEQUE, DRAFT, ORDE R OR OTHERWISE AND THESE DEPOSITS ARE ACCEPTED FOR THE PURPOSE OF LENDING OR INVESTMENT. THESE DEPOSITS MUST BE ACCEPTED FROM THE PUBLIC, NOT ONLY FROM THE MEMBERS. THESE DEPOSITS MUST BE REPAYABLE ON DEMAND OR OTHERWISE AND COULD BE WITHDRAWN BY THE DEPOSITOR BY CHEQUE, DRAFT OR OTHERWISE. WE NOTICE THAT THE CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAS CARRIED O N BANKING ACTIVITIES ON THE BASIS OF FINDINGS IN THE ASSESSMENT ORDER. THE RELE VANT PORTION OF THE ASSESSMENT ORDER IS AS UNDER : 16. THIS SHOWS THAT MORE THAN 95% PERCENTAGE OF TH E LOANS ADVANCE FOR NON-AGRICULTURAL PURPOSES (NORMAL BANKING BUSINESS ACTIVITIES LIKE ANY OTHER COMMERCIAL BANK). THE PERCENTAGE OF LOANS IS SUED FOR AGRICULTURAL PURPOSES IS ONLY 3.56%. IN SHORT, IT CANNOT BE SAI D THAT THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF THE BANK IS TO PROV IDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPO SES OR FOR THE PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES. 17. THE ASSESSEE BANK IS HAVING FOUR TYPES OF SHARE HOLDINGS. (A) CLASS EQUITY SHARES OF RS. 5/- EACH WITH VOTING RIGHTS. IT IS EXPLAINED THAT THESE SHARES ARE ISSUED TO INDIVIDUALS. (B) CLASS EQUITY SHARES OF RS.250/- EACH. IT IS SUBMITTED THAT PRESENTLY KERALA GOVERNMENT IS HOLDING THREE SHARES. (C) CLASS EQUITY SHARES OF RS. 5/- EACH WITHOUT VOT ING RIGHTS. THESE SHARES ARE ISSUED TO INDIVIDUALS. (D) CLASS EQUITY SHARES OF RS. 25/- EACH WITHOUT VOTING RIGHTS. THESE SHARES ARE ALSO ISSUED TO INDIVIDUALS. AS PER THE BYE-LAWS OF THE BANKS, (B) CLASS SHARES CAN BE ISSUED TO STATE GOVERNMENT, STATE CO-OPERATIVE BANK, DISTRICT CO-OP ERATIVE BANK, KERALA COCONUT FARMERS CO-OPERATIVE FEDERATION, LOCAL BOD IES AND TRUST FALLING UNDER THE AREA OF OPERATION OF THE BANK. THERE IS NO SPECIFIC CLAUSE IN THE BYE-LAWS OF THE BANK WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO- OPERATIVE SOCIETY AS A MEMBER. 18. THE ASSESSEE CO-OPERATIVE BANK IS REGISTERED AS A PRIMARY AGRICULTURAL CREDIT SOCIETY, BUT AS NARRATED ABOVE, IT DOES NOT SATISFY THE CRITERIA OR CONDITIONS STIPULATED IN THE BANKING RE GULATION ACT, 1949. SO IT SQUARELY FALLS UNDER THE OPERATION OF SUB-SECTION ( 4) OF SECTION 80P OF I.T.A. NO.339/COCH/2014 12 INCOME TAX ACT, 1961. AS SUCH THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80P OF THE INCOME TAX ACT, 1961. 8.8 THE DEPOSITS ACCEPTED ARE USED BY THE ASSESSE E CO-OPERATIVE SOCIETY FOR LENDING OR INVESTMENT. THIS FACT HAS NOT BEEN DENIE D. EVEN OUT OF THE DEPOSITS SO RECEIVED, THE LOANS HAVE BEEN GIVEN TO THE MEMBERS OF THE SOCIETY IN ACCORDANCE WITH THE OBJECTS AS ENUMERATED ABOVE. THUS, IN OUR OPINION, CONDITION NO. 1 STANDS SATISFIED AND IT CANNOT BE SAID THAT THE ASS ESSEE SOCIETY WAS NOT CARRYING ON BANKING BUSINESS AS IT WAS ACCEPTING DEPOSITS FR OM THE PERSONS WHO HAVE NO VOTING RIGHT. SO FAR AS THE SECOND CONDITION IS CON CERNED, THERE IS NO DISPUTE THAT THE PAID UP SHARE CAPITAL AND RESERVES IN THE CASE OF THE ASSESSEE IS MORE THAN RS. 1 LAC. THEREFORE, THE ASSESSEE SATISFIES THE SE COND CONDITION. 8.9 THUS, WE NOTICE THAT ALL THE THREE CONDITIONS IN THE CASE OF THE ASSESSEE FOR BECOMING PRIMARY COOPERATIVE BANK STAND COMPLIED WI TH. 8.10 WE HAVE GONE THROUGH THE DECISION OF THE HYDER ABAD BENCH OF THIS TRIBUNAL IN THE CASE OF THE CITIZEN COOPERATIVE SOC IETY VS. ADDL. CIT, 41 305 (HYD). WE NOTICE THAT THIS DECISION IS APPLICABLE T O THE FACTS OF THE CASE BEFORE US. IN THAT DECISION, UNDER PARA 23 THE TRIBUNAL HA S GIVEN A FINDING THAT THE ASSESSEE IS CARRYING ON BANKING BUSINESS AND FOR AL L PRACTICAL PURPOSES IT ACTS LIKE A CO-OPERATIVE BANK. THE SOCIETY IS GOVERNED BY THE BANKING REGULATIONS ACT. THEREFORE, THE SOCIETY BEING A CO-OPERATIVE BANK PR OVIDING 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 GON E 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/2 013. IN THIS CASE, WE NOTICE THAT THE HON'BLE TRIBUNAL CONFIRMED THE ORDER OF CI T(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCLE 3(1), BANG ALORE VS. M/S. BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LT D. IN ITA NO. 1069/BANG/2010 HOLDING THAT SEC. 80P(2)(A)(I) IS AP PLICABLE ONLY TO A CO- OPERATIVE BANK AND NOT TO CREDIT CO-OPERATIVE SOCIE TY. WITH DUE REGARDS TO THE BENCH, WE ARE UNABLE TO FIND ANY TERMCREDIT CO-OPE RATIVE 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 CASE OF CITVS. JAFARI MOMIN VIKAS CO- OP. CREDIT SOCIETY LTD. IN TAX APPEALS NO 442 OF 20 13, 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 WHICH IS NOT A CO-OPERATIVE BANK . IN THE CASE OF VYAVASAYA SEVA SAHAKARA SANGHA VS. STATE OF KARNATAKA &ORS. ( SUPRA) WE NOTICE THAT THE ISSUE BEFORE THE HON'BLE HIGH COURT IN THE WRIT PET ITION FILED BY THE 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). I.T.A. NO.339/COCH/2014 13 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. T HE PETITIONERS ARE NOT THE BANKING INSTITUTIONS COMING UNDER THE PURVIEW OF TH E BANKING REGULATION ACT. THEY ARE THE CO-OPERATIVE SOCIETIES REGISTERED UNDER THE ACT, AND AS SUCH THEY ARE GOVERNED BY THE PROVISIONS OF THE ACT PASSED BY THE STATE LEGISLATURE. CONSEQUENTLY, THE STATE GOVERNMENT HAS CONTROL OVER THEM TO THE EXTENT THE ACT PERMITS. MAJOR ACTIVITIES OF THE PETITIONERS ARE TO FINANCE ITS MEMBERS. FOR THE PURPOSE OF FINANCING I TS MEMBERS, THEY BORROW MONEY FROM THE FINANCING AGENCIES AND REPAY THE SAME. MERELY BECAUSE THE PETITIONERS-THE CO-OPERATIVE SOCIETIES IN QUESTION-ARE REQUIRED TO ADVANCE LOANS TO THEIR MEMBERS, THEY DO NOT CEAS E TO BE CO-OPERATIVE SOCIETIES GOVERNED BY THE ACT NOR CAN THEY BE TREAT ED AS BANKING COMPANIES. IT IS ALSO NOT POSSIBLE TO HOLD THAT THE SE ACTIVITIES OF THE PETITIONERS AMOUNT TO BANKING AS CONTEMPLATED UND ER THE BANKING REGULATION ACT, 1949, INASMUCH AS THESE CO-OPERATIV E 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-OPERATIVE SOCIET Y WHICH IS ENGAGED IN CARRYING ON BANKING BUSINESS FACILITIES TO ITS MEMBERS IF IT IS NOT A CO-OPERATIVE BANK. WE HAVE ALSO GONE THROUGH THE DECISION OF THIS BENCH I N THE CASE OF DCIT VS. JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKAR I LTD. IN ITA NO. 1 TO 3/PNJ/2012 DT. 30.3.2012 (SUPRA). WHILE DISCUSSING THIS ISSUE, AFTER ANALYSING THE AIMS AND OBJECTS OF THE CO-OPERATIVE SOCIETY UN DER PARA 12 OF ITS ORDER, THIS TRIBUNAL HAS HELD AS UNDER : 12.FROM THE AFORESAID OBJECTS, IT IS APPARENT THAT NONE OF THE AIMS AND OBJECTS ALLOWS THE ASSESSEE COOPERATIVE SOCIETY TO ACCEPT DEPOSITS OF MONEY FROM PUBLIC FOR THE PURPOSE OF LENDING OR IN VESTMENT. IN OUR OPINION UNTIL AND UNLESS THAT CONDITION IS SATISFIE D, IT CANNOT BE SAID THAT THE PRIME OBJECT OR PRINCIPAL BUSINESS OF THE ASSES SEE IS BANKING BUSINESS. THEREFORE, THE ASSESSEE WILL NOT COMPLY WITH THE FI RST CONDITION AS LAID DOWN IN THE DEFINITION AS GIVEN U/S. 5(CCV) OF THE BANKING REGULATION ACT, 1959 FOR BECOMING PRIMARY COOPERATIVE BANK. THE A SSESSEE, THEREFORE, CANNOT BE REGARDED TO BE PRIMARY COOPERATIVE BANK A ND IN CONSEQUENCE THEREOF, IT CANNOT BE A CO-OPERATIVE BANK AS DEFINE D UNDER PART V OF THE BANKING REGULATION ACT 1949. ACCORDINGLY, IN OUR OP INION THE PROVISIONS OF SECTION 80P (4) READ WITH EXPLANATION THERE UNDER W ILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. THE I.T.A. NO.339/COCH/2014 14 ASSESSEE, THEREFORE, IN OUR OPINION WILL BE ENTITLE D FOR THE DEDUCTION U/S 80P(2)(A)(I). WE ACCORDINGLY CONFIRM THE ORDER OF C IT(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. 8.11. IN VIEW OF OUR AFORESAID DISCUSSION, WE HOLD THAT THE ASSESSEE IS A PRIMARY COOPERATIVE BANK AND THEREFORE HIT BY THE PROVISION S 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 ASSESSEE HAS TO BE EXEMPT FROM TAX. HOWEVER, WE FIND THAT THIS ARGUMENT OF THE ASSESSEE IS ALSO DEVOID OF MERITS. THE HONBLE SUPREME COURT HAD AN OCCASION TO CONSID ER THIS MUTUALITY CONCEPT. SIMILAR ISSUE CAME UP FOR CONSIDERATION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. KUMBAKONAM MUTUAL BENEFIT FUND LTD., 53 ITR 241 (SC) WHEREIN IT WAS HELD THAT IF THE PROFITS ARE DISTRIBUTED TO SHA REHOLDERS AS SHAREHOLDERS, THE PRINCIPLE OF MUTUALITY IS NOT SATISFIED. A SHAREHO LDER IN THE ASSESSEE-COMPANY IS ENTITLED TO PARTICIPATE IN THE PROFITS WITHOUT CONT RIBUTING TO THE FUNDS OF THE COMPANY BY TAKING LOANS. HE IS ENTITLED TO RECEIVE DIVIDEND 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 COMPANY, LIMITED BY SHARES. INDEED, THE POSITION OF THE ASSESSEE IS NO DIFFERENT FROM A N ORDINARY BANK EXCEPT THAT IT LENDS MONEY AND RECEIVES DIVIDEND FROM ITS SHAREHOL DERS WHICH DOES NOT BY ITSELF MAKE ITS INCOME ANY THE LESS INCOME FROM BUSINESS. THE SAME JUDGMENT WAS FOLLOWED IN THE CASE OF CIT VS. ARCOT DHANASEKHARA NIDHI LTD., 59 ITR 480 (MAD.), CIT VS. DHARMAVARAM MUTUAL BENEFIT PERMANEN T FUND LTD., 67 ITR 673 (AP) AND CIT VS. BHAVNAGAR TRUST CORPORATION (P) L TD., 69 ITR 278. FURTHER, THE HONBLE KERALA HIGH COURT IN THE CASE OF KOTTAY AM CO-OPERATIVE LAND MORTGAGE BANK LTD. VS. CIT, 172 ITR 443(KER.) WHERE IT WAS HELD AS UNDER: THE INCOME-TAX OFFICER HELD THE VIEW THAT THE ASSE SSEE IS NOT ENTITLED TO CLAIM ANY FURTHER EXEMPTION UNDER CLAUSE (C) AS THE ASSESSEE IS ENTITLED TO EXEMPTION U/S. CLAUSE (A) IN RESPECT OF THE BANKING ACTIVITIES. THE APPELLATE ASSISTANT COMMISSIONER, IN ALLOWING THE A SSESSEES APPEAL, HELD THAT EXEMPTION UNDER CLAUSE (C) IS IN ADDITION TO T HE EXEMPTION ALLOWABLE UNDER CLAUSES (A) AND (B) AND DIRECTED THE INCOME-T AX OFFICER TO ALLOW A DEDUCTION OF RS. 20,000 SEPARATELY, TAKING INTO CON SIDERATION THE PROPERTY INCOME EARNED BY THE ASSESSEE. THE REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE APPELLATE TRIBUNAL. THE TRIBUNAL HELD THAT THE RULE OF CONSTRUCTION OF EJUSDEM GENERIS APPLIES TO THE CONSTRUCTION OF CLAUSE (C), WHICH RESULTS IN PROFITS AND GAINS, THAT THE INCOME FROM HOUSE PROPERTY HAS BEEN DEALT WITH IN SECTIONS 22 TO 27 AS INCOME AND NOT AS PROFITS AND I.T.A. NO.339/COCH/2014 15 GAINS AND THAT THE ASSESSEE IS NOT, THEREFORE, ENTI TLED TO ANY EXEMPTION UNDER CLAUSE (C). THE TRIBUNAL DID NOT ACCEPT THE A LTERNATIVE CONTENTION RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFORE TH E TRIBUNAL THAT THE LETTING OUT OF SURPLUS SPACE SHOULD BE TREATED AS A BUSINESS ACTIVITY UNDER CLAUSE (A) OF SUB-SECTION (2) OF SECTION 80P OF THE ACT. THE APPEALS WERE ACCORDINGLY ALLOWED. THE QUESTION OF LAW ARISES OU T OF THE ORDER 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 PR OPERTY LETS OUT THAT I.T.A. NO.339/COCH/2014 16 PROPERTY AND RECEIVES RENTAL INCOME, THE INCOME THU S RECEIVED CANNOT PARTAKE OF THE CHARACTER OF PROFITS AND GAINS ATTRI BUTABLE TO AN ACTIVITY CARRIED ON BY THE SOCIETY. THE BUILDING LET OUT IS NOT A COMMERCIAL ASSET OR THE RENT RECEIVED IS NOT PROFIT OR GAIN ARISING FROM THE EXPLOITATION OF A BUSINESS ASSET. THE WORD ACTIVITY IS WIDER THAN T HE WORD BUSINESS. IT CONNOTES A SPECIFIED FORM OF SUPERVISED ACTION OR 0 FIELD OF ACTION. READ IN THE CONTEXT OF THE PROFIT EARNING ACTIVITY OF A CO- OPERATIVE SOCIETY, IT MEANS THE CORPORATE ACTIVITY OF THE SOCIETY, THAT I S TO SAY, WHETHER OR NOT THEY AMOUNT TO A BUSINESS, TRADE OR PROFESSION IN T HE ORDINARY SENSE. CLAUSE (C) OF SECTION 80P(2) IS INTENDED TO COVER R ECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS BUT A TTRIBUTABLE TO AN ACTIVITY WHICH RESULTS IN PROFITS AND GAINS. LETTI NG OUT OF SURPLUS SPACE IN THE BUILDING OWNED AND USED BY THE ASSESSEE IS NOT SUCH AN ACTIVITY FALLING UNDER CLAUSE (C). THE RENT THUS RECEIVED BY THE AS SESSEE IS NOT ELIGIBLE FOR THE EXEMPTION PROVIDED THEREUNDER. IN THIS VIEW, T HE APPELLATE TRIBUNAL WAS JUSTIFIED IN REJECTING THE ASSESSEES CLAIM. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE INCLI NED TO HOLD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80P OF THE ACT O N ANY REASONING. 8. IN VIEW OF THE ABOVE TRIBUNAL ORDER, WE ARE INCL INED TO DISMISS THIS GROUND OF THE ASSESSEE. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 5-12-2014 SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 5TH DECEMBER, 2014 GJ COPY TO: 1. KADAKKARAPPALLY SERVICE CO-OPERATIVE BANK LTD., KADAKKARAPPALLY P.O., CHERTHALA, ALAPPUZHA-688 529. 2. THE INCOME TAX OFFICER, WARD-2, ALAPPUZHA. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV,KOCHI . I.T.A. NO.339/COCH/2014 17 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN