The ITO, Wd-5, Palakkad V. M/s.Vadakkancherry Co-op Service Bank Ltd, Palakkad

ITA 469/COCH/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1349 (ITAT-COCHIN)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 11-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: AMALJIT P
• Keywords: Question of law; Competent authority
• Section: 143(3); 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI CHANDRA POOJAR I, AM & SHRI GEORGE GEORGE K, JM ITA NO. 467 /COCH/201 8 : ASST.YEAR 201 3 - 201 4 THE INCOME TAX OFFICER WARD 5 PALAKKAD . VS. M/S. KUTHANNUR SERVICE CO - OPERATIVE BANK LIMITED, KUTHANNUR P.O. PALAKKAD 678 721. PAN : AAAAK1516G . (APPELLANT) (RESPONDENT) CO NO. 77 /COCH/201 8 : ASST.YEAR 2013 - 2014 M/S.KUTHANNUR SERVICE CO - OPERATIVE BANK LIMITED, KUTHANNUR P.O. PALAKKAD 678 721. VS. THE INCOME TAX OFFICER WARD 5 PALAKKAD. ( CROSS OBJECTOR ) (RESPONDENT) ITA NO. 468 /COCH/201 8 : ASST.YEAR 2013 - 2014 THE INCOME TAX OFFICER WARD 5 PALAKKAD. VS. M/S.PERINGOTUKKURISSI SERVICE CO - OPERATIVE BANK LIMITED, NO.P.519 PARUTHIPULLY P.O. PALAKKAD 678 573. PAN : AADAT9601J. (APPELLANT) (RESPONDENT) CO NO. 80 /COCH/201 8 : ASST.YEAR 2013 - 2014 M/S.PERINGOTUKKURISSI SERVICE CO - OPERATIVE BANK LIMITED, NO.P.519 PARUTHIPULLY P.O. PALAKKAD 678 573. VS. THE INCOME TAX OFFICER WARD 5 PALAKKAD. ( CROSS OBJECTOR ) (RESPONDENT) ITA NO. 469 /COCH/201 8 : ASST.YEAR 2010 - 2011 ITA NO. 470 /COCH/201 8 : ASST.YEAR 2013 - 2014 THE INCOME TAX OFFICER WARD 5 PALAKKAD. VS. M/S.VADAKK E NCHERY SERVICE CO - OPERATIVE BANK LIMITED, NO.F.1219 VADAKKENCHERY P.O. PALAKKAD 679 552. PAN : AAEFV0382N. (APPELLANT) (RESPONDENT) ITA NO. 467 / COCH /201 8 & ORS. M/S. KUTHANNUR SERVICE CO - OP BANK LTD & ORS. 2 CO NO. 7 8 /COCH/201 8 : ASST.YEAR 201 0 - 201 1 CO NO. 79 /COCH/201 8 : ASST.YEAR 2013 - 2014 M/S.VADAKK E NCHERY SERVICE CO - OPERATIVE BANK LIMITED, NO.F.1219 VADAKKENCHERY P.O. PALAKKAD 679 552. VS. THE INCOME TAX OFFICER WARD 5 PALAKKAD. ( CROSS OBJECTOR ) (RESPONDENT) REVENUE BY : SMT.A.S.BINDHU, SR.DR RESPONDENT BY : SRI. AMALJIT P. DATE OF HEARING : 2 8 .11.2018 DATE OF PRONOUNCEMENT : 29 .11.2018 O R D E R PER BENCH : THE S E APPEAL S AT THE INSTANCE OF THE REVENUE AND THE CROSS OBJECTIONS PREFERRED BY DIFFERENT ASSESSEES ARE DIRECTED AGAINST THREE SEPARATE ORDERS OF THE CIT(A) . SIN C E COMMON ISSUES ARE RAISED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND DISPOSED OFF BY A CONSOLIDATED ORDER. 2. THE ISSUE S RAISED IN THE S E APPEAL S ARE AS FOLLOWS: - (I) W HETHER THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80P(2)( A ) (I) OF THE I.T.ACT? (II) WHETHER INTEREST EXPENDITURE IS LIABLE FOR DISALLOWANCE U/S 40(A)(IA) OF THE I.T.ACT ? 3. BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE S ARE PRIMARY AGRICULTURAL CREDIT SOCIETIES REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969. FOR THE ASSESSMENT YEAR S UNDER CONSIDERATION , THE ASSESSEE S HAD FILED RETURN S OF INC OME AFTER CLAIMING DEDUCTION U/S. 80P OF THE I. T. ACT. THE ASSESSMENT S U/S. 143(3) OF THE ACT WERE ITA NO. 467 / COCH /201 8 & ORS. M/S. KUTHANNUR SERVICE CO - OP BANK LTD & ORS. 3 COMPLETED BY DENYING THE DEDUCTION U/S. 80P OF THE I. T. ACT. THE REASONING OF THE ASSESSING OFFICER FOR DENYING THE CLAIM OF DEDUCTION U/S. 80P OF THE ACT WAS THAT THE ASSESSEE S WERE PRIMARILY ENGAGED IN THE BUSINESS OF BANKING AND THEREFORE, IN VIEW OF THE PROVISIONS OF SECTION 80P(4) OF THE I. T. ACT WHICH WAS INSERTED WITH EFFECT FROM 0 1 .0 4 . 2007, THE ASSESSEE S ARE NOT ENTITLED TO DEDUCTION U/S. 80P OF THE I.T. ACT. THE A.O. ALSO DISALLOWED INTEREST EXPENDITURE U/S 40(A)(IA) OF THE I.T.ACT, SINCE ASSESSEES DID NOT DEDUCT TAX AT SOURCE U/S 194A OF THE I.T.ACT. 4. AGGRIEVED BY THE ORDER S OF THE ASSESSMENT S , THE ASSESSEE S PREFERRED APPEAL BEFORE THE FIRST APPE LLATE AUTHORITY. THE CIT(A), FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. (384 ITR 490) HELD THAT THE ASSESSEE S ARE ENTITLED TO DEDUCTION U/S. 80P(2) OF THE I.T. ACT AND DIRECTED THE ASSESS ING OFFICER TO ALLOW DEDUCTION U/ S. 80P OF THE ACT. AS REGARDS THE DISALLOWANCE OF INTEREST EXPENDITURE U/S 40(A)(IA) OF THE I.T.ACT, THE CIT(A) FOLLOWED THE ORDER OF THE ITAT IN THE CASE OF KADACHIRA SERVICE CO - OP. BANK LTD. V. ITO [(2013) 141 ITD 270 (COCHIN - TRIB.)] AND HELD THAT THE ASSESSEES BEING PRIMARY AGRICULTURAL CREDIT SOCIETIES, WERE NOT LIABLE FOR TDS U/S 194A OF THE I.T.ACT , HENCE INTEREST EXPENDITURE CANNOT BE DISALLOWED U/S 40(A)(IA) OF THE I.T.ACT. 5. AGGR IEVED BY THE ORDER OF THE CI T(A ), THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE GROUNDS RAISED. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , SUBMITTED THAT ITA NO. 467 / COCH /201 8 & ORS. M/S. KUTHANNUR SERVICE CO - OP BANK LTD & ORS. 4 THE ISSUE IN QUESTION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HON'BLE HIGH COURT OF KERALA IN THE CASE OF CHIRAKKAL SERVICE CO - OP BANK LTD. REPORTED IN 384 ITR 490. AS REGARDS DISALLOWANCE OF INTEREST EXPENDITURE IS CONCERNED, THE LEARNED AR SUBMITTED THAT THE ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE BY THE ORDER OF THE TIRBUNAL IN THE CASE OF KADACHIRA SERVICE CO - OP BANK LTD. (SUPRA) . 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THE ASSESSEE S ARE PRIMARY AGRICULTURAL CREDIT SOCIET IES REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969. THE HON'BLE HIGH COURT OF KERALA IN THE CASE OF CHIRAKKAL SERVICE CO - OP BANK LTD. (SUPRA) HAD HELD THAT A PRIMARY AGRICULTURAL CREDIT SOCIETY, REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES AC T, 1969 IS ENTITLED TO THE BENEFIT OF DEDUCTION U/ S. 80P(2). THE HON'BLE HIGH COURT WAS CONSIDERING THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION, THE TRIBUNAL IS CORRECT IN LA W IN DECIDING AGAINST THE ASSESSEE, THE ISSUE REGARDING ENTITLEMENT FOR EXEMPTION UNDER SECTION 80P, IGNORING THE FACT THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY? 6.1 IN CONSIDERING THE ABOVE QUESTION OF LAW, THE HON'BLE HIGH COURT RENDERED THE FOLLOWING FINDINGS: '15. APPELLANTS IN THESE DIFFERENT APPEALS ARE INDISPUTABLY SOCIETIES REGISTERED UNDER THE KERALA CO - OPERATIVE SOCIETIES ACT 1969, FOR SHORT KCS ACT, AND TH E BYE - LAWS OF EACH OF THEM, AS MADE AVAILABLE TO THIS COURT AS PART OF THE PAPER BOOKS, CLEARLY SHOW THAT THEY HAVE BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CREDIT SOCIETIES BY THE COMPETENT AUTHORITY UNDER THE PROVISIONS OF THAT ACT THE PARLIAMENT HAVING D EFINED THE TERM 'CO - OPERATIVE SOCIETY' FOR THE PURPOSES OF THE BR ACT WITH REFERENCE TO, AMONG OTHER THINGS, THE REGISTRATION OF A SOCIETY UNDER ANY STATE LAW RELATING TO CO - OPERATIVE SOCIETIES FOR THE ITA NO. 467 / COCH /201 8 & ORS. M/S. KUTHANNUR SERVICE CO - OP BANK LTD & ORS. 5 TIME BEING; IT CANNOT BUT BE TAKEN THAT THE PURPOSE OF THE SOCIETIES SO REGISTERED UNDER THE STATE LAW AND ITS OBJECTS HAVE TO BE UNDERSTOOD AS THOSE WHICH HAVE BEEN APPROVED BY THE COMPETENT AUTHORITY UNDER SUCH STATE LAW. THIS, WE VISUALISE AS DUE RECIPROCATIVE LEGISLATIVE EXERCISE BY THE PARLIAMENT RECOGNI SING THE PREDOMINANCE OF DECISIONS RENDERED UNDER THE RELEVANT STATE LAW. IN THIS VIEW OF THE MATTER. ALL THE APPELLANTS HAVING BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CREDIT SOCIETIES BY THE COMPETENT AUTHORITY UNDER THE KCS ACT IT HAS NECESSARILY TO BE H ELD THAT THE PRINCIPAL OBJECT OF SUCH SOCIETIES IS TO UNDERTAKE AGRICULTURAL CREDIT ACTIVITIES AND TO PROVIDE LOANS AND ADVANCES FOR AGRICULTURAL PURPOSES, THE RATE 'OF INTEREST ON SUCH LOANS AND ADVANCES TO BE AT THE RATE FIXED BY THE REGISTRAR OF CO - OPER ATIVE SOCIETIES UNDER THE KCS AD AND HAVING ITS AREA OF OPERATION CONFINED TO A VILLAGE, PANCHAYAT OR A MUNICIPALITY. THIS IS THE CONSEQUENCE OF THE DEFINITION CLAUSE IN SECTION 2(OAA) OF THE KCS ACT THE AUTHORITIES UNDER THE IT ACT CANNOT PROBE INTO ANY I SSUE OR SUCH MATTER RELATING TO SUCH APPLICANTS. 16. THE POSITION OF LAW BEING AS ABOVE WITH REFERENCE TO THE STATUTORY PROVISIONS, THE APPELLANTS HAD SHOWN TO THE AUTHORITIES AND THE TRIBUNAL THAT THEY ARE PRIMARY AGRICULTURAL CREDIT SOCIETIES IN TERMS O F CLAUSE (CCIV) OF SECTION 5 OF THE BR ACT HAVING REGARD TO THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF EACH OF THE APPELLANTS. IT IS ALSO CLEAR FROM THE MATERIALS ON RECORD THAT THE BYE - LAWS OF EACH OF THE APPELLANTS DO NOT PERMIT ADMISSION OF ANY OTHER C O - OPERATIVE SOCIETY AS MEMBER, EXCEPT MAY BE, IN ACCORDANCE WITH THE PROVISO TO SUB - CLAUSE 2 OF SECTION 5(CCIV) OF THE BR ACT. THE DIFFERENT ORDERS OF THE TRIBUNAL WHICH ARE IMPEACHED IN THESE APPEALS DO NOT CONTAIN ANY FINDING OF FACT TO THE EFFECT THAT T HE BYE - LAWS OF ANY OF THE APPELLANT OR ITS CLASSIFICATION BY THE COMPETENT AUTHORITY UNDER THE KCS ACT IS ANYTHING DIFFERENT FROM WHAT WE HAVE STATED HEREIN ABOVE. FOR THIS REASON, IT CANNOT BUT BE HELD THAT THE APPELLANTS ARE ENTITLED TO EXEMPTION FROM THE PROVISIONS OF SECTION 80P OF THE IT ACT BY VIRTUE OF SUB - SECTION 4 OF THAT SECT; ON. IN THIS VIEW OF THE MATTER, THE APPEALS SUCCEED. 17. IN THE LIGHT OF THE AFORESAID, WE ANSWER SUBSTANTIAL QUESTION A IN FAVOUR OF THE APPELLANTS AND HOLD THAT THE TRIBUNAL ERRED IN LAW IN DECIDING THE ISSUE REGARDING THE ENTITLEMENT OF EXEMPTION UNDER SECTION 80P AGAINST THE APPELLANTS. WE HOLD THAT THE PRIMARY AGRICULTURAL CREDIT SOCIETIES, REGISTERED AS SUCH UNDER THE KCS ACT AND CLASSIFIED SO, UNDER THAT ACT INCL UDING THE APPELLANTS ARE ENTITLED TO SUCH EXEMPTION. ITA NO. 467 / COCH /201 8 & ORS. M/S. KUTHANNUR SERVICE CO - OP BANK LTD & ORS. 6 6.2 IN VIEW OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OP BANK LTD. (SUPRA), WE HOLD THAT THE ASSESSEE - SOCIET IES ARE ENTITLE D TO THE BENEFIT OF DEDUCTION U/ S. 80P OF THE ACT. IT IS ORDERED ACCORDINGLY. 7. AS REGARDS THE ISSUE OF DISALLOWANCE OF INTEREST U/S 40(A)(IA) OF THE I.T.ACT, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ITAT ORDER IN CASE OF KADACHIRA SERVICE CO - OP B ANK LTD. (SUPRA) . THE RELEVANT FINDING OF THE ITAT READS AS FOLLOWS: - 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE MAIN CONTENTION OF THE TAXPAYERS IS THAT THE TAXPAYER WAS REGISTERED AS CO - OPERATIVE SOCIETIES UNDER THE KERALA CO - OPERATIVE SOCIETIES' ACT AND CLASSIFIED AS PRIMARY AGRICULTURAL CO - OPERATIVE SOCIETIES. WE FIND THAT THIS ISSUE WAS CONSIDERED BY THE KERALA HIGH COURT IN THE CASE OF MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES 'CO - OPERATIVE BANK LTD., IN RE [1999] 238 ITR 630 / 106 TAXMAN 242 (KER). THE KERALA HIGH COURT, AFTER CONSIDERING THE PROVISIONS OF SECTION 194A OF THE INCOME - TAX ACT FOUND THAT FOR THE PURPOSE OF UNDERSTANDING THE COOPERATIVE SOCIETY, THE MEANING THAT IS GIVEN IN SECTION 2(19) OF THE INCOME - TAX ACT HAS TO BE CONSIDERED AND NOT OTHERWISE. THE CO - OPERATIVE SOCIETIES ARE NOT CONTROLLED AND GOVERNED BY RBI AND THEY ARE REGISTERED UNDER THE PROVISIONS OF THE STATE CO - OPERATIVE SOCIETIES ACT. TH ERE - FORE, THE KERALA HIGH COURT FOUND THAT THE CO - OPERATIVE SOCIETIES ARE EXEMPT FROM PROVISIONS OF SECTION 194A OF THE ACT. A SIMILAR VIEW WAS TAKEN BY THE KERALA HIGH COURT IN THE CASE OF ITO V. THODUPUZHA URBAN CO - OPERATIVE BANK LTD [2003] 264 ITR 36 /132 TAXMAN 284 (KER.). IN THIS CASE BEFORE US ALSO, ADMITTEDLY, THE TAXPAYERS ARE REGISTERED UNDER THE KERALA STATE CO - OPERATIVE SOCIETIES' ACT AND NO APPROVAL WAS OBTAINED FROM THE ITA NO. 467 / COCH /201 8 & ORS. M/S. KUTHANNUR SERVICE CO - OP BANK LTD & ORS. 7 RBI FOR CARRYING OUT THE BANKING ACTIVITIES. THEREFORE, FOR ALL PRACTICAL PURPOSES, THE TAXPAYERS HAVE TO BE TREATED AS PRIMARY AGRICULTURAL COOPERATIVE SOCIETIES WITHIN THE MEANING OF SECTION 2(19) OF THE INCOME - TAX ACT. IN VIEW OF THE ABOVE, AS FOUND BY THE JURISDICTIONAL HIGH COURT, T HE TAXPAYERS ARE EXEMPT FROM DEDUCTION OF TAX AT SOURCE U/S 194A OF THE ACT. ACCORDINGLY, WE ARE UNABLE TO UPHOLD THE ORDERS OF LOWER AUTHORITIES. HENCE, THE ORDERS OF LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION U/S 40(A)(IA) IS DELETED. 7.1 FURTHER, THE COCHIN BENCH OF THE TRIBUNAL IN A RECENT ORDER, IN THE CASE OF ACIT V. KODUNGALLUR TOWN CO - OPERATIVE BANK LTD. [ITA NOS.527 - 529 & 526/COCH/2017 ORDER DATED 31.05.2018] HELD THAT THE ASSESSEES ARE NOT LIABLE TO DEDUCT TDS U/S 194A OF THE I.T. ACT ON THE INTEREST PAID TO ITS OWN MEMBERS. THE RELEVANT FINDING OF THE TRIBUNAL READS AS FOLLOW: - 6.6 THE LD. AR PLACED HEAVY RELIANCE ON THE JUDGMENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASES OF MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES COOPERATI VE BANK LTD. & OTHERS (SUPRA) AND THODUPUZHA URBAN CO - OPERATIVE BANK LTD. AND ANOTHER (SUPRA). IN THESE CASES, IT WAS AN ADMITTED FACT THAT THE ASSESSES ARE CO - OPERATIVE SOCIETIES. HENCE, THE JURISDICTIONAL HIGH COURT CAME TO THE CONCLUSION THAT SUB - CLAUSE (A) OF CLAUSE (VIIA) OF SUB - SECTION (3) OF SECTION 194A WAS APPLICABLE. BUT IN THE PRESENT CASE, THE ASSESSEES ARE NOT COOPERATIVE SOCIETY BUT CO - OPERATIVE BANK CARRYING ON BANKING BUSINESS WITH THE APPROVAL OF THE RESERVE BANK OF INDIA AND AS SUCH, THE AS SESSEES ARE NOT LIABLE TO DEDUCT TDS UNDER SECTION 194A OF THE I.T. ACT ON THE INTEREST PAID TO ITS OWN MEMBERS. ON THE OTHER HAND, THE PRESENT ASSESSEES ARE LIABLE TO DEDUCT TDS ON THE INTEREST PAYMENTS TO ITS NON MEMBERS ONLY. THIS GROUND OF THE APPEALS OF THE REVENUE IS PARTLY ALLOWED. 8. IN VIEW OF THE ORDERS OF THE TRIBUNAL IN CASE OF KADACHIRA SERVICE CO - OP. BANK LTD. AND KODUNGALLUR TOWN CO - OPERATIVE ITA NO. 467 / COCH /201 8 & ORS. M/S. KUTHANNUR SERVICE CO - OP BANK LTD & ORS. 8 BANK LTD. (SUPRA) , WHICH ARE SIMILAR TO THAT OF THE ISSUE UNDER CONSIDERATION, WE HOLD THAT THE ASS ESSEES ARE NOT LIABLE TO DEDUCT TDS U/S 194A OF THE I.T.ACT ON THE INTEREST PAID TO ITS OWN MEMBERS. IT IS ORDERED ACCORDINGLY. 9. THE CROSS OBJECTIONS FILED BY THE ASSESSEES ARE ONLY SUPPORTING THE CIT(A)S ORDERS. SINCE WE HAVE DISPOSED OFF THE REVENUES APPEALS, THE COS ARE DISMISSED AS INFRUCTUOUS. 10 . IN THE RESULT, THE APPEAL S FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 29 TH DAY OF NOVEMBER, 2018 . SD/ - SD/ - ( CHANDRA POOJARI ) ( GEORGE GEORGE K. ) ACCOUNTANT MEMBER JUDICIA L MEMBER COCHIN ; DATED : 29 TH NOVEMBER, 2018 . DEVDAS* COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, COCHIN 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (APPEALS) - THRISSUR . 4. THE PR.CIT THRISSUR. 5. DR, ITAT, COCHIN 6 . GUARD FILE.