ACIT, Circle-1, Palakkad V. Palakkad Service Co-op Bank Ltd, Palakkad

ITA 569/COCH/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6885 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-02-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 12-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: A KUMAR
• Keywords: Competent authority; TDS; Set aside
• Section: 40(a)(ia); 80P; 201; 264; 69; 10; 2; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFOR E S/ SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., J M I .T . A. NO S . 5 69 - 5 71 / COCH/ 201 8 ASSESSMENT YEAR S : 2 0 1 0 - 11 TO 2012 - 13 THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 1, PALAKKAD. VS. PALAKKAD SERVICE CO - OPERATIVE BANK LTD., G.B. ROAD, PALAKKAD - 678 001. [P AN: AAAAP 5210A] (REVENUE - APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY SMT. A.S. BINDHU, SR. DR ASSESSEE BY SHRI A. KUMAR, ADV. D ATE OF HEARING 2 1 / 0 2/ 201 9 DATE OF PRONOUNCEMENT 01 / 0 3 /201 9 O R D E R PER CHANDRA POOJARI, AM: ALL THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE CIT(A), THRISSUR DATED 2 5 /09/2018. THE RELEVANT ASSESSMENT YEARS ARE 20 1 0 - 11, 2011 - 12 AND 2012 - 13. 2. COMMON ISSUE S ARE RAISED IN T HESE APPEALS . HENCE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. THE FIRST ISSUE RAISED IN THESE APPEALS IS WITH REGARD TO GRANTING OF DEDUCTION U/S 8 OP (2) OF THE INCOME - TAX ACT, 1961. I.T.A. NO S . 588 - 591 /COCH/ 201 8 2 4. THE FACTS OF THE CASE AR E THAT THE ASSESSEE FILED ITS RETURN OF INCOME AND CLAIMED DEDUCTION U/S. 80P OF THE I.T. ACT. IT FILED ITS RETURNS OF INCOME AS PER THE FOLLOWING DETAILS: ASST. YEAR DATE OF FILING OF RETURN INCOME RETURNED DEDUCTION CLAIMED U/S. 80P 20 10 - 11 2 9.0 4 .2015 RS.61,49,042/ - RS. 6 1, 49,042/ - 20 11 - 12 29.04.2015 RS.98,59,349/ - RS. 98,59,349/ - 201 2 - 1 3 29/04/2015 1,05,24,757/ - RS. 1,05,24,757/ - DURING THE AS SESSMENT S , THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF BANKING AND THE PERCENTAGE OF LAONS FOR AGRICULTURAL PURPOSES CONSTITUTE SMALL PERCENTAGE OF TOTAL ADVANCES. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT THE ASSESSEE WAS FULFILLING ALL THE CONDITIONS PRIMARY CO - OPERATIVE BANK UNDER THE BANKING REGULATIONS ACT. T HEREFORE, THE ASSESSEE WAS HELD AS CO - OPERATIVE BANK THEREBY DENYING THE DEDUCTION U/S. 80P TO THE ASSESSEE. 5. ON APPEAL, THE CIT(A) ALLOWED THE DEDUCTION U/S 8 0 P OF THE ACT BY PLACING RELIANCE ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CAS E OF CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. AND OTHERS VS. CIT ( 384 ITR 490 ). 6 . AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. I.T.A. NO S . 588 - 591 /COCH/ 201 8 3 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, SIMILAR IS SUE WAS CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. (2016) VS. C IT ( 384 ITR 490 ) WHEREIN IT WAS HELD AS UNDER : 15. APPELLANTS IN THESE DIFFERENT APPEALS ARE INDISPUTABLY SOCIETIES REGISTERED UNDER T HE KERALA CO - OPERATIVE SOCIETIES ACT, 1969, FOR S H ORT, KCS ACT AND THE 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 COMPETE NT AUTHORITY UNDER THE PROVISIONS OF THAT ACT. THE PARLIAMENT, HAVING DEFINED THE TERM 'CO - OPERATI VE SOCIETY' FOR THE PURPOSES OF THE BR ACT WI TH REFERENCE TO, AMONG OTHER THINGS, THE REGISTRATION OF A SOCIETY U N DER ANY STATE LAW RELA TING TO CO - OPERATIVE S OCIETIES FOR THE 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 VISUAL ISE AS DUE RECIPROCATIVE LEGISLATIVE EXERCISE BY THE PARLIAMENT RECOGN I SING THE PREDOMINANCE OF DECISIONS RENDERED UNDER THE RELEVANT STATE LAW. IN TH I S VIEW OF THE MATTER, ALL THE APPELLANTS HAV I NG BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CRED I T SOC I ET I ES B Y THE COMPETENT AUTHOR I TY UNDE R TH E KCS ACT , I T HAS NECESSAR IL Y TO BE HELD THAT THE PRINCIPAL OBJECT OF SUCH SOCIETIES IS TO UNDERTAKE AGR I CULTURAL CREDIT ACTIVITIES AND TO PROVIDE LOANS AND ADVANCES FOR AGRICULTURAL PURPOSES , THE RATE ' OF INTEREST ON S UCH LOANS AND ADVANCES TO BE AT THE RATE FIXED BY THE REGISTRAR OF CO - OPERATIVE SOCIETIES UNDER THE KCS ACT AND HAV I NG I TS 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 ISSUE OR SUCH MATTER RELATING TO SUCH APPLICANTS. 16. THE POSITION OF L AW BEING AS ABOVE WITH REFERENCE TO THE STATUTORY PROVISIONS, THE APPELLANTS HAD SHOWN TO THE AUTHORITIES AN D THE TRIBUNAL THAT THEY ARE PRIMARY AGRICULTURA L CREDIT SOCIETIES IN TERMS OF 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 CO - 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 IMPE ACHED IN THESE APPEALS DO NOT CONTAIN ANY FINDING I.T.A. NO S . 588 - 591 /COCH/ 201 8 4 OF FACT TO THE EFFECT THAT THE BYE - L AWS OF ANY OF THE APPELLANT OR ITS CLASS I FICATION BY THE COMPETENT AUTHORITY UNDER THE KCS ACT IS ANYTHING DIFFERENT FROM WHAT WE HAVE STATED HEREIN ABOVE. FOR THIS REASO N, 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 SECTION. IN THIS VIEW OF THE MATTER, THE APPEALS SUCCEED. 17. . IN THE LIGHT OF THE AFORESAID, WE AN SWER SUBSTANTIA 1 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, INCLUDING THE APPELLANTS ARE ENTITLED TO SUCH EXEMPTION. 8. IN OUR OPINION, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY EH THE ABOVE JUDGMENT OF THE JURISDICTIO NAL HIGH COURT CITED SUPRA . ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND CONFIRM THE SAME. THIS GROUND OF APPEAL OF THE REVENUE FOR ALL THE ASSESSMENT YEARS IS DISMISSED. 9. THE NEXT ISSUE IN ALL THESE APPEALS IS WITH REGARD TO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE ON THE INTEREST PAYMENT . 10. THE FACTS OF THE CASE ARE THAT THE A SSESSING OFFICER MADE DISALLOWANCE U/S. 40(A)(IA) IN ALL THE THREE YEARS BY OBSERVING THAT NO TAX HAS BEEN D EDUCTED FROM THE INTEREST PAYMENTS MADE TO THE DEPOSITORS. THE ASSESSING OFFICER FURTHER OBSERVED THAT DESPITE GIVING OPPORTUNITIES, NO DETAILS HAVE BEEN FURNISHED AS REGARDS THE DEPOSITORS. THEREFORE, THE ASSESSING OFFICER MADE DISALLOWANCE U/S. I.T.A. NO S . 588 - 591 /COCH/ 201 8 5 40(A)(IA ) OF THE I.T. ACT. THE ASSESSING OFFICER ALSO ADDED PROVISIONS AND RESERVES CREDITED TO THE P&L ACCOUNT TO THE INCOME OF THE ASSESSEE. 11. ON APPEAL, THE CIT(A) OBSERVED THAT ONCE IT IS HELD THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL SOCIETY, THE P ROVISIONS OF SECTION 194A(3)(VIIIA) ARE SQUARELY APPLICABLE AND AS PER THE SECTION, NO DEDUCTION OF TAX AT SOURCE IS REQUIRED TO BE MADE ON THE INTEREST PAYMENT TO DEPOSITORS HELD WITH PRIMARY AGRICULTURAL CREDIT SOCIETY. THEREFORE, THE CIT(A) DELETED THE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT MADE BY THE ASSESSING OFFICER. 12. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THIS TRIBUNAL IN THE CASE OF ITO VS. KUTHANNUR SERVICE CO - OPERATIVE BANK LTD. & ORS. IN ITA NO. 467/COCH/2018 & ORS. DATED 29/11/2018 WHEREIN IT WAS HELD AS UNDER: 7. AS REGARDS THE ISSUE OF DISALLOWANCE OF INTEREST U/S 40(A)(IA) OF THE L.T. ACT, WE F IND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ITAT ORDER IN CASE OF KADACHIRA SERVICE CO - OP BANK LTD. (SUPRA). THE RELEVANT FINDING OF THE ITAT READS AS FOLLOWS: - '33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUS ED THE MATERIAL AVAILABLE ON RECORD. THE MAIN CONTENTION OF THE TAXPAYERS IS THAT THE TAXPAYER WAS REGISTERED AS CO - OPERATIVE SOCIETIES UNDER THE KERA L A CO - OPERA TIVE SOCIETIES ACT AND CLASSIFIED AS PRIMARY AGRICULTURAL CO - OPERATIVE SOCIETIES. WE FIND THAT THIS ISSUE WAS CONSIDERED BY THE KERA L A HIGH COURT IN THE CASE OF MOOLAMATT OM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD ., IN [1999] 238 ITR 630/ 106 TAXMAN I.T.A. NO S . 588 - 591 /COCH/ 201 8 6 242 (KER). THE KERA L A HIGH COURT, AFTER CONSIDERING THE PROVISIONS OF SECTION 194A OF THE INC OME - 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 RBL AND THEY ARE REGISTERED UNDER THE PROVISIONS OF THE STATE CO - OPERATIVE SOCIETIES ACT. THERE - FORE, THE KERA L A 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 KERA L A HIGH COU RT IN THE CASE OF I TO 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 KERA L A S T ATE CO - OPERA TIVE SOCIETIES A CT AND NO APPROVAL WAS OBTAINED F ROM THE R BI 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 F OUND BY THE JURISDICTIONAL HIGH COURT, THE 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 T O DEDUCT T DS U/S 194A OF THE IT ACT ON THE INTEREST PAID TO ITS OWN MEMBERS. THE RELEVANT FINDING OF THE TRIBUNAL READS AS FOLLOW S . - '6.6 THE LD. AR PLACED HEAVY RELIANCE ON THE JUDGMENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASES OF MOOLAMATTOM ELECT RICITY BOARD EMPLOYEES COOPERATIVE 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 T O THE CONCLUSION THAT SUB - CLAUSE(A) OF CLAUSE (VI I A) OF SUB - SECTION (3) OF SECTION 1 94A 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 B ANK OF INDIA AND AS SUCH, THE ASSESSEES 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 T HE INTEREST PAYMENTS TO ITS NON MEMBERS O NLY. THIS GROUND OF THE APPEALS OF THE REVENUE IS PARTLY ALLOWED.' I.T.A. NO S . 588 - 591 /COCH/ 201 8 7 8. IN VIEW OF THE ORDERS OF THE TRIBUNAL IN CASE OF KADACH I RA SERVICE CO - OP. BANK LTD. AND KODUNGALLUR TOWN CO - OPERATIVE BANK LTD. (SUPRA), WHICH ARE SIMILAR TO THAT OF THE ISSUE UNDER CONSIDERATION, WE HOLD THAT THE ASSESSEES ARE NOT LIABLE TO DEDUCT TDS U/S 194A OF THE IT ACT ON THE INTEREST PAID TO ITS OWN MEMBERS. IT IS ORDERED ACCORDINGLY. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO CONFIRM THE ORDER OF THE CI T(A) ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF APPEALS OF THE REVENUE IS ALSO DISMISSED. 9. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AR E DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 01 ST MARCH, 2019 SD/ - SD/ - (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER P LACE: KOCHI DATED: 01 ST MARCH, 2019 GJ COP Y TO: 1 . PALAKKAD SERVICE CO - OPERATIVE BANK LTD., G.B. ROAD, PALAKKAD - 678 001. 2 . THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 1, PALAKKAD. 3 . THE COMMISSIONER OF INCOME - TAX (AP P EALS) , THRISSUR. 4 . THE PR. COMMISSIONER OF INCOME - TAX, THRISSUR 5. D.R. I.T.A.T., COCHIN BENCH, COCHIN. 6 . GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN BENCH