M/s.Kodencherry Co-op Bank Ltd, Calicut V. The ITO, Calicut

ITA 731/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81374 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-11-2013
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: C B M WARRIER
• Keywords: Bad and doubtful debts
• Section: 27; 6; 56; 28

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. 731/COCH/2013 ASSESSMENT YEAR : 2009-10 M/S. KODENCHERY CO-OPERATIVE BANK LTD., KODENCHERY, KOZHIKODE. [PAN: AAAJK 0495R] VS. THE INCOME TAX OFFICER, WARD- 2(3), KOZHIKODE. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY .SHRI C.B.M. WARRIER, CA REVENUE BY SHRI K.K.JOHN, SR. DR ) DATE OF HEARING 20/10/2014 DATE OF PRONOUNCEMENT 14/11/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 07-08-2013 PASSED BY THE CIT(A), KOZHIKODE FO R THE ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE OF DEDUCTION U/S. 80P OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSI NG OFFICER AFTER ANALYZING THE ACTIVITIES OF THE ASSESSEE-SOCIETY CA ME TO THE CONCLUSION I.T.A. NO.731/COCH/2013 2 THAT SINCE THE ASSESSEE HAS NOT FULFILLED ITS MAIN OBJECT OF PROVIDING FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULT URAL PURPOSES OR FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES, IT IS NOT ELIGIBLE FOR DEDUCTION U/S. 80P OF THE ACT. 4. ON APPEAL, THE CIT(A) RELIED ON THE JUDGMENT OF THE KERALA HIGH COURT IN WP(C) NO. 14226 OF 2012(C) DATED 14 TH SEPTEMBER, 2012 IN THE CASE OF M/S. THATHAMANGALAM SERVICE CO-OPERATIVE BA NK LTD. WHEREIN IT WAS HELD AS UNDER: 16. TRUE, SOME OF THE PETITIONERS HAVE OBTAINED A CERTIFICATE AS TO THE CLASSIFICATION/REGISTRATION AS PRIMARY AGRI CULTURAL CREDIT SOCIETIES. BUT, BY VIRTUE OF THE AMENDMENT TO SEC TION 2(OA) OF THE KERALA CO-OPERATIVE SOCIETIES ACT, IF THE SOCI ETY DOES NOT CONTINUE TO FULFIL THE OBLIGATION, IT WILL LOSE TH E COLOUR AND CHARACTERISTICS OF A PRIMARY AGRICULTURAL CREDIT S OCIETY, EXCEPT FOR THE PURPOSE OF STAFF STRENGTH. THUS, IT IS VERY M UCH OBLIGATORY FOR THE PETITIONERS SOCIETIES, WHO CLAIM THE STATUS AN D THE BENEFITS OF PRIMARY AGRICULTURAL CREDIT SOCIETIES TO SUBSTANTI ATE THAT THEIR MAIN OBJECT OF INCORPORATION IS BEING CONTINUED TO BE FULFILLED AS WELL.. 17. AS HELD ALREADY, IT IS FOR THE PETITIONERS TO E STABLISH THEIR STATUS AS PRIMARY AGRICULTURAL CREDIT SOCIETIES BY OBTAINING AND PRODUCING THE RELEVANT CERTIFICATE FROM THE COMPETE NT AUTHORITY AS MENTIONED HEREINBEFORE. IT IS ALSO OPEN FOR THE PE TITIONERS TO OPT TO PRODUCE THE RELEVANT RECORDS BEFORE THE INCOME T AX AUTHORITIES AS WELL, TO ESTABLISH THEIR STATUS AND CREDENTIALS THAT THERE IS NO LAPSE IN FULFILLING THE OBJECTIVE AS PR IMARY AGRICULTURAL CREDIT SOCIETIES SO AS TO ABSOLVE FROM FURTHER PROC EEDINGS AT THE HANDS OF THE INCOME TAX DEPARTMENT. I.T.A. NO.731/COCH/2013 3 4.1 THE CIT(A) ALSO OBSERVED THAT THE ASSESSEE HAS BEEN MORE IN THE FIELD OF BANKING INSTEAD OF ITS PRINCIPAL OBJECT OF EXTENDING CREDIT FACILITY TO ITS MEMBERS FOR AGRICULTURAL PURPOSES. THE CIT(A ) FURTHER OBSERVED THAT AT NO POINT OF TIME EITHER BEFORE THE ASSESSIN G OFFICER OR DURING THE APPELLATE PROCEEDINGS, THEE ASSESSEE HAS PRODUCED A NY EVIDENCE TO CONTROVERT THE BUSINESS ACTIVITIES TABULATED BY THE ASSESSING OFFICER AS UNDER: YEAR TOTAL ADVANCES/LOAN AGRICULTURAL LOAN/KCC/IRDP ETC. % NON AGRICULTURAL LOAN % 2006-07 163674944.65 7164616 4.38% 156510328.65 95.62% 2007-08 189644993.50 5268180 2.78% 184376813.50 97.22% 2008-09 249486359.90 15212348 6.10% 234274011.9 93.90% ACCORDING TO THE CIT(A) , IT IS CLEAR FROM THE ABO VE THAT HARDLY 6.10% OF THE TOTAL LOAN ADVANCED WAS FOR THE PURPOSE OF A GRICULTURAL ACTIVITIES. BEING SO, THE CIT(A) CONFIRMED THE DECISION OF THE ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A PRIM ARY AGRICULTURAL SOCIETY AS REGISTERED AND CERTIFIED BY THE CO-OPERA TIVE AUTHORITIES ACCORDING TO THE LD. AR, THE CO-OPERATIVE BANK AND PRIMARY CREDIT AGRICULTURAL SOCIETY ARE DEFINED IN PART V OF THE B ANKING REGULATION ACT, 1949 SECTION 56 (CCIV) OF THE ACT ACCORDING TO WHIC H PRIMARY OBJECT OR PRINCIPAL BUSINESS IS TO PROVED FINANCIAL ACCOMMODA TION TO ITS MEMBERS I.T.A. NO.731/COCH/2013 4 FOR AGRICULTURAL PURPOSES OR FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES (INCLUDING THE MARKETING OF CROPS) AND T HE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER CO-OPERATIVE S OCIETY AS A MEMBER. 5.1 THE LD. AR SUBMITTED THAT THE LOANS ARE GIVEN T O MEMBERS WHO ARE BORROWING MONEY FOR AGRICULTURAL PURPOSES BY PR OVIDING VARIOUS TYPES OF SECURITIES. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER WAS WRONG IN HOLDING THAT THE LOANS GIVEN TO THE MEMBER S ON GOLD SECURITY ARE NON-AGRICULTURAL LOANS FOR THE REASON THAT THE SECURITY OBTAINED IS GOLD. ACCORDING TO THE LD. AR, GOLD SECURITY IS PR OVIDED BY AGRICULTURISTS AS SECURITY AND LOANS PROVIDED, WHICH SHOULD BE CON SIDERED AS AGRICULTURAL LOAN, FOR THE REASON THAT THE OBJECT A ND PURPOSE OF TAKING THE LOAN IS FOR AGRICULTURAL ACTIVITIES. 5.2 WITH REGARD TO RATE OF INTEREST, THE LD. AR SUB MITTED THAT IN THE CASE OF AGRICULTURAL LOANS WHICH ARE GIVEN OUT OF F UNDS RECEIVED FROM NABARD, IT IS GIVEN TO MEMBERS AT 7% AS STIPULATED BY NABARD, BUT IN RESPECT OF LOANS GIVEN TO MEMBERS WHICH ARE GIVEN O UT OF THE FUNDS COLLECTED BY DEPOSITS, THE RATE OF INTEREST IS CHAN GED FROM TIME TO TIME DEPENDING ON THE INTEREST RATE ON DEPOSITS PROVIDED TO THE MEMBERS. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER WAS WRONG IN ASSUMING THAT ALL THE LOANS GIVEN @ 12% ARE NON-AGRICULTURAL LOANS WHICH IS NOT CORRECT. I.T.A. NO.731/COCH/2013 5 5.3 ACCORDING TO THE LD. AR, THE EXEMPTION PROVIDED UNDER THE ACT IS FOR THE PRIMARY AGRICULTURAL CREDIT SOCIETY AND THE RATE OF INTEREST ON THE LOAN IS NOT MENTIONED IN THE INCOME TAX ACT OR IN T HE DEFINITION OF BANKING REGULATION ACT. THEREFORE, IT WAS SUBMITTED THAT THE ASSESSEE IS ENTITLED FOR THE BENEFIT U/S. 80P OF THE ACT. 6. THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTH ORITIES AND ALSO ON THE ORDER OF THE TRIBUNAL IN I.T.A NO. 123/COCH/201 2 & OTHERS DATED 31-07- 2014. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. WE ARE OF THE OPINION THAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THE COCHIN BENCH OF THE TRIBUNAL ON THE EARLIER OCCASIO N IN THE CASE OF KUNNAMANGALAM CO-OPERATIVE BANK IN I.T.A. NO. 156/C OCH/2014 VIDE ORDER DATED 25/07/2014 WHICH DECIDED THE ISSUE AGAI NST THE ASSESSEE. THE RELEVANT PORTION OF THE SAID ORDER IS AS FOLLOW S: 8.10 WE HAVE GONE THROUGH THE DECISION OF THE HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF THE CITIZEN COOPERATIVE SOCIETY VS. ADDL. CIT, 41 305 (HYD). WE NOTICE THAT THIS DECISION IS APPLICABLE TO THE FACTS OF THE CAS E BEFORE US. IN THAT DECISION, UNDER PARA 23 THE TRIBUNAL HAS GIVEN A FINDING THAT THE ASSESSEE IS CARRYING ON BANKING BUSINESS AND FO R ALL PRACTICAL PURPOSES IT ACTS LIKE A CO-OPERATIVE BANK. THE SOCI ETY IS GOVERNED BY THE BANKING REGULATIONS ACT. THEREFORE, THE SOCI ETY BEING A CO-OPERATIVE BANK PROVIDING BANKING FACILITIES TO M EMBERS IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80P(2)(A)(I) AFTER THE INTRODUCTION I.T.A. NO.731/COCH/2013 6 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 GONE THROUGH THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DIVYAJYOTHI CREDIT CO-OPERAT IVE SOCIETY LTD. (SUPRA) IN ITA NO. 72/BANG/2013. IN THIS CASE, WE N OTICE THAT THE HON'BLE TRIBUNAL CONFIRMED THE ORDER OF CIT(A) FOLL OWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCL E 3(1), BANGALORE VS. M/S. BANGALORE COMMERCIAL TRANSPORT C REDIT CO- OPERATIVE SOCIETY LTD. IN ITA NO. 1069/BANG/2010 HO LDING THAT SEC. 80P(2)(A)(I) IS APPLICABLE ONLY TO A CO-OPERAT IVE BANK AND NOT TO CREDIT CO-OPERATIVE SOCIETY. WITH DUE REGARDS TO THE BENCH, WE ARE UNABLE TO FIND ANY TERMCREDIT CO-OPERATIVE SOC IETY 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 CIT VS. JAFARI MOMIN VIKAS CO-OP. CREDIT SOCIETY LT D. IN TAX APPEALS NO 442 OF 2013, 443 OF 2013 AND 863 OF 2013 (SUPRA) VIDE ORDER DT. 15.1.2014 TOOK THE VIEW THAT SEC. 80 P(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 KARNATA KA &ORS. (SUPRA) WE NOTICE THAT THE ISSUE BEFORE THE HON'BLE HIGH COURT IN THE WRIT PETITION FILED BY THE PETITIONER RELATED T O THE LEGISLATIVE COMPETENCE OF THE STATE LEGISLATURE FOR ISSUING A C IRCULAR. THE ISSUE DOES NOT RELATE TO THE CLAIM OF DEDUCTION U/S 80P(2)(A)(I). 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. THE PETITIONERS ARE NOT THE BANKING INSTITUTIONS COMING UNDER THE PURVIEW OF THE BANKING REGULATION ACT. THEY ARE THE CO-OPERATIVE SOCIETIES REGISTERED UNDER THE ACT, AN D 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 ITS MEMBERS, THEY BORROW MONEY FROM THE FINANCING AGENCIES AND REPAY THE SAME. MERELY BECAUSE THE PETITIONERS-THE CO-OPERATI VE SOCIETIES IN QUESTION-ARE REQUIRED TO ADVANCE LOANS TO THEIR MEMBERS, THEY DO NOT CEASE TO BE CO-OPERATIVE SOCIE TIES GOVERNED BY THE ACT NOR CAN THEY BE TREATED AS BANK ING COMPANIES. IT IS ALSO NOT POSSIBLE TO HOLD THAT THE SE ACTIVITIES OF THE PETITIONERS AMOUNT TO BANKING A S CONTEMPLATED UNDER THE BANKING REGULATION ACT, 1949 , INASMUCH AS THESE CO-OPERATIVE SOCIETIES ARE NOT I.T.A. NO.731/COCH/2013 7 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 APPLI CABLE TO A CO- OPERATIVE SOCIETY WHICH IS ENGAGED IN CARRYING ON B ANKING BUSINESS FACILITIES TO ITS MEMBERS IF IT IS NOT A C O-OPERATIVE BANK. WE HAVE ALSO GONE THROUGH THE DECISION OF THIS BENC H IN THE CASE OF DCIT VS. JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUH ARDA SAHAKARI LTD. IN ITA NO. 1 TO 3/PNJ/2012 DT. 30.3.2 012 (SUPRA). WHILE DISCUSSING THIS ISSUE, AFTER ANALYSING THE AI MS AND OBJECTS OF THE CO-OPERATIVE SOCIETY UNDER PARA 12 OF ITS OR DER, THIS TRIBUNAL HAS HELD AS UNDER : 12. FROM THE AFORESAID OBJECTS, IT IS APPARENT THA T NONE OF THE AIMS AND OBJECTS ALLOWS THE ASSESSEE COOPERATIV E SOCIETY TO ACCEPT DEPOSITS OF MONEY FROM PUBLIC FO R THE PURPOSE OF LENDING OR INVESTMENT. IN OUR OPINION UN TIL AND UNLESS THAT CONDITION IS SATISFIED, IT CANNOT BE SA ID THAT THE PRIME OBJECT OR PRINCIPAL BUSINESS OF THE ASSESSEE IS BANKING BUSINESS. THEREFORE, THE ASSESSEE WILL NOT COMPLY WITH THE FIRST CONDITION AS LAID DOWN IN THE DEFINI TION AS GIVEN U/S. 5(CCV) OF THE BANKING REGULATION ACT, 19 59 FOR BECOMING PRIMARY COOPERATIVE BANK. THE ASSESSEE, THEREFORE, CANNOT BE REGARDED TO BE PRIMARY COOPERA TIVE BANK AND IN CONSEQUENCE THEREOF, IT CANNOT BE A CO- OPERATIVE BANK AS DEFINED UNDER PART V OF THE BANKI NG REGULATION ACT 1949. ACCORDINGLY, IN OUR OPINION TH E PROVISIONS OF SECTION 80P (4) READ WITH EXPLANATION THERE UNDER WILL NOT BE APPLICABLE IN THE CASE OF THE ASS ESSEE. THE ASSESSEE, THEREFORE, IN OUR OPINION WILL BE ENT ITLED FOR THE DEDUCTION U/S 80P(2)(A)(I). WE ACCORDINGLY CONF IRM THE ORDER OF CIT(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 THEREFO RE HIT BY THE PROVISIONS 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 MEMB ERS. BEING SO, I.T.A. NO.731/COCH/2013 8 APPLYING THE CONCEPT OF MUTUALITY, THE TOTAL INCOME OF THE ASSESSEE HAS TO BE EXEMPT FROM TAX. HOWEVER, WE FI ND THAT THIS ARGUMENT OF THE ASSESSEE IS ALSO DEVOID OF MERITS. THE HONBLE SUPREME COURT HAD AN OCCASION TO CONSIDER THIS MUTU ALITY CONCEPT. SIMILAR ISSUE CAME UP FOR CONSIDERATION O F THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KUMBAKONAM MUT UAL BENEFIT FUND LTD., 53 ITR 241 (SC) WHEREIN IT WAS H ELD THAT IF THE PROFITS ARE DISTRIBUTED TO SHAREHOLDERS AS SHAREHOL DERS, THE PRINCIPLE OF MUTUALITY IS NOT SATISFIED. A SHAREHO LDER IN THE ASSESSEE-COMPANY IS ENTITLED TO PARTICIPATE IN THE PROFITS WITHOUT CONTRIBUTING TO THE FUNDS OF THE COMPANY BY TAKING LOANS. HE IS ENTITLED TO RECEIVE DIVIDEND AS LONG AS HE HELD SHA RES. HE DID NOT HAVE TO FULFIL ANY OTHER CONDITION. HIS POSITION I S IN NO WAY DIFFERENT FROM A SHAREHOLDER IN A BANKING COMPANY, LIMITED BY SHARES. INDEED, THE POSITION OF THE ASSESSEE IS NO DIFFERENT FROM AN ORDINARY BANK EXCEPT THAT IT LENDS MONEY AND REC EIVES DIVIDEND FROM ITS SHAREHOLDERS WHICH DOES NOT BY IT SELF MAKE ITS INCOME ANY THE LESS INCOME FROM BUSINESS. THE SAME JUDGMENT WAS FOLLOWED IN THE CASE OF CIT VS. ARCOT DHANASEKH ARA NIDHI LTD., 59 ITR 480 (MAD.), CIT VS. DHARMAVARAM MUTUAL BENEFIT PERMANENT FUND LTD., 67 ITR 673 (AP) AND CIT VS. B HAVNAGAR TRUST CORPORATION (P) LTD., 69 ITR 278. FURTHER, T HE HONBLE KERALA HIGH COURT IN THE CASE OF KOTTAYAM CO-OPERAT IVE 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 C LAUSE (C) AS THE ASSESSEE IS ENTITLED TO EXEMPTION U/S. C LAUSE (A) IN RESPECT OF THE BANKING ACTIVITIES. THE APPELLATE ASSISTANT COMMISSIONER, IN ALLOWING THE ASSESSEES APPEAL, HE LD THAT EXEMPTION UNDER CLAUSE (C) IS IN ADDITION TO THE EX EMPTION ALLOWABLE UNDER CLAUSES (A) AND (B) AND DIRECTED TH E INCOME-TAX OFFICER TO ALLOW A DEDUCTION OF RS. 20,0 00 SEPARATELY, TAKING INTO CONSIDERATION THE PROPERTY INCOME EARNED BY THE ASSESSEE. THE REVENUE CARRIED THE MA TTER IN APPEAL BEFORE THE APPELLATE TRIBUNAL. THE TRIBU NAL HELD THAT THE RULE OF CONSTRUCTION OF EJUSDEM GENERIS AP PLIES TO THE CONSTRUCTION OF CLAUSE (C), WHICH RESULTS IN PR OFITS AND GAINS, THAT THE INCOME FROM HOUSE PROPERTY HAS BEEN DEALT WITH IN SECTIONS 22 TO 27 AS INCOME AND NOT AS PROF ITS AND GAINS AND THAT THE ASSESSEE IS NOT, THEREFORE, ENTI TLED TO ANY EXEMPTION UNDER CLAUSE (C). THE TRIBUNAL DID NO T ACCEPT THE ALTERNATIVE CONTENTION RAISED BY THE ASS ESSEE I.T.A. NO.731/COCH/2013 9 FOR THE FIRST TIME BEFORE THE TRIBUNAL THAT THE LET TING OUT OF SURPLUS SPACE SHOULD BE TREATED AS A BUSINESS ACTIV ITY UNDER CLAUSE (A) OF SUB-SECTION (2) OF SECTION 80P OF THE ACT. THE APPEALS WERE ACCORDINGLY ALLOWED. THE QUE STION OF LAW ARISES OUT 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 O F A CO- OPERATIVE SOCIETY, TO THE EXTENT MENTIONED. CLAUSE (C) OF SECTION 80P(2) PROVIDES THAT IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED IN ACTIVITIES OTHER 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 MEMBE RS FALLS UNDER CLAUSE (A) OF SECTION 80P(2). THE CLAIM FOR EXEMPT ION UNDER CLAUSE (C) IS IN ADDITION TO THE EXEMPTION PROVIDED UNDER CLAUSE (A). THE PROVISIONS ARE CUMULATIVE AND MUTUALLY SUP PLEMENTING. THE LIMITS SPECIFIED IN CLAUSE(C) ARE IN RELATION T O THE PROFITS AND GAINS ATTRIBUTABLE TO THE ACTIVITY OTHER THAN THAT SPECIFIED IN CLAUSE (A). IF THE RENTAL INCOME RECEIVED BY THE S OCIETY IS ATTRIBUTABLE TO ANY ACTIVITY OF THE SOCIETY, CLAUSE (C) WOULD BE ATTRACTED. IT IS THEN NECESSARY THAT THE CO-OPERAT IVE SOCIETY MUST PROVE THAT IT HAS ENGAGED ITSELF IN CARRYING ON THE ACTIVITY GIVING RISE TO PROFITS OR GAINS. SUCH ACTIVITY OF THE ASS ESSEE MUST HAVE A DIRECT OR PROXIMATE 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 PR OFITS OR GAINS ARE ATTRIBUTABLE TO THE ACTIVITY IN WHICH THE CO-OP ERATIVE SOCIETY IS ENGAGED. THE EXPRESSION ATTRIBUTABLE TO IS MUCH WIDER THAN THE EXPRESSION DERIVED FROM AND IT COVERS RECEIPTS FR OM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF TH E ASSESSEE. IN THIS VIEW OF THE MATTER, INTEREST EARNED BY A CO-OP ERATIVE SOCIETY, WHICH WAS CARRYING ON THE BUSINESS OF SUPPLYING SUR GARCANE ON STATUTORY INVESTMENT IN GOVERNMENT SECURITIES, WAS HELD PROFIT ATTRIBUTABLE TO THE CARRYING ON OF THE ACTIVITY OF SUPPLYING SUGARCANE (CIT VS. CO-OPERATIVE CANE DEVELOPMENT UN ION LTD. (1979) 118 ITR 770 (ALL.) THE PROFITS AND GAINS FRO M SUCH INVESTMENTS WERE CONNECTED WITH OR INCIDENTAL TO TH E CARRYING ON I.T.A. NO.731/COCH/2013 10 OF THE ACTUAL BUSINESS. WHERE, HOWEVER, THE ASSES SEE AS OWNER OF CERTAIN PROPERTY LETS OUT THAT PROPERTY AND RECE IVES RENTAL INCOME, THE INCOME THUS RECEIVED CANNOT PARTAKE OF THE CHARACTER OF PROFITS AND GAINS ATTRIBUTABLE TO AN ACTIVITY CA RRIED 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 EXP LOITATION OF A BUSINESS ASSET. THE WORD ACTIVITY IS WIDER THAN T HE WORD BUSINESS. IT CONNOTES A SPECIFIED FORM OF SUPERV ISED ACTION OR 0FIELD OF ACTION. READ IN THE CONTEXT OF THE PROFI T EARNING ACTIVITY OF A CO-OPERATIVE SOCIETY, IT MEANS THE CORPORATE A CTIVITY OF THE SOCIETY, THAT IS TO SAY, WHETHER OR NOT THEY AMOUNT TO A BUSINESS, TRADE OR PROFESSION IN THE ORDINARY SENSE. CLAUSE ( C) OF SECTION 80P(2) IS INTENDED TO COVER RECEIPTS FROM SOURCES O THER THAN THE ACTUAL CONDUCT OF THE BUSINESS BUT ATTRIBUTABLE TO AN ACTIVITY WHICH RESULTS IN PROFITS AND GAINS. LETTING 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 R ECEIVED BY THE ASSESSEE IS NOT ELIGIBLE FOR THE EXEMPTION PROVIDED THEREUNDER. IN THIS VIEW, THE APPELLATE TRIBUNAL WAS JUSTIFIED IN REJECTING THE ASSESSEES CLAIM. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE INCLIN ED TO HOLD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S . 80P OF THE ACT ON ANY REASONING. 8. SINCE THE ISSUE IS IDENTICAL IN NATURE AND FACTS SIMILAR TO THAT OF THE ABOVE RECENT ORDER IN THE CASE OF IN THE CASE OF KU NNAMANGALAM CO- OPERATIVE BANK, WE ARE INCLINED TO DECIDE THIS ISSU E AGAINST THE ASSESSEE. 9. THE LD. AR ALSO SUBMITTED THAT THE ASSESSING OFF ICER WAS WRONG IN NOT GIVING THE ALLOWANCE @ 10% OF THE AGGREGATE ADV ANCES U/S. 36(1)(VIIA) OF THE ACT. THE ASSESSEE RECEIVED DEPOSITS FROM ME MBERS AND THE LOANS ARE GIVEN ONLY TO THE MEMBERS AND THE FINANCING ACT IVITIES OF THE ASSESSEE I.T.A. NO.731/COCH/2013 11 SHOULD BE CONSIDERED AS FOR MUTUAL BENEFIT OF THE M EMBERS AND SHOULD BE EXEMPTED FROM TAX ON ACCOUNT OF MUTUALITY. 9.1 THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS NOT ALLOWED THE INTEREST REBATE AND WAIVER OF LOAN TO THE EXTENT OF RS. 13,73,224/- AS DEDUCTION FROM TOTAL INCOME. THE LD. AR GAVE THE D ETAILS OF LOANS AND ADVANCES MADE TO THE MEMBERS AS ON 31-03-2009 AS UN DER: 1. AGRICULTURAL ST RS. 1,29,22,723.50 2. AGRICULTURAL MT RS. 13,58,387.00 3. AGRICULTURAL GOLD LOAN RS .6,14,62,304.00 4. ORDINARY AGRICULTURAL LOAN RS. 5 ,21,17,876.00 5. ORDINARY NON-AGRICULTURAL LOAN RS. 3,22 ,62,363.00 TOTAL : RS.16,01,23,653.50 ACCORDING TO THE LD. AR THE SECURITIES ARE RECEIVED FROM THE MEMBERS AGAINST THE LOANS AS PER THE TYPE OF SECURITY AVAIL ABLE WITH THEM. 10. THE LD. DR RELIED ON THE ORDER OF THE LOWER AUT HORITIES AND ALSO ON THE ORDER OF THE TRIBUNAL IN I.T.A NO. 123/COCH/201 2 & OTHERS DATED 31-07- 2014. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION IN THE CASE OF KANNUR CO- I.T.A. NO.731/COCH/2013 12 OPERATIVE BANK LTD. IN I.T.A. NOS. 182&183/COCH/201 4 DATED 27/06/2014 WHEREIN THE TRIBUNAL HELD AS UNDER: 3. THE ASSESSEE RAISED THE GROUND IN BOTH THE APPE ALS THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS NOT E NTITLED TO DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY ITS RURAL BRANCHES U/S. 36(1)(VIIA) OF THE I.T. ACT. 4. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OP INION THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE HONBLE JURIS DICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE IN I.T.A. NOS. 179 /2012, 33,37,238,241,243,254&258 OF 2013 VIDE ITS JUDGMENT DATED 3 RD APRIL, 2014. THE HONBLE JURISDICTIONAL HIGH COURT HELD AS UNDER: 8. SECTION 36 OF THE ACT DEALS WITH VARIOUS DEDUCT IONS THAT COULD BE ALLOWED IN COMPUTING THE INCOME REFERRED TO IN SECT ION 28 OF THE ACT. SECTION 36 HAS VARIOUS CLAUSES AND EACH CLAUSE REFE RS TO DEDUCTION ALLOWABLE TO A PARTICULAR ASSESSEE LIKE AMOUNT OF P REMIUM PAID IN RESPECT OF INSURANCE AGAINST RISK OF DAMAGES, FEDER AL MILK CO- OPERATIVE SOCIETY, GENERAL INSURANCE ETC. WE ARE CO NCERNED WITH SUB- CLAUSE (A) OF CLAUSE (VIIA) TO SECTION 36(1). THIS CLAUSE MAKES PROVISION FOR BAD AND DOUBTFUL DEBTS. IN OTHER WORD S, DEDUCTION COULD BE CLAIMED BY BANKS REFERRED TO IN CLAUSE (VIIA) IN RESPECT OF BAD AND DOUBTFUL DEBTS. IT PROVIDES CERTAIN TERMS AND C ONDITIONS UNDER WHICH SUCH DEDUCTIONS COULD BE CLAIMED BY A PARTICU LAR BANK. SECTION 36(1)(VIIA) COMMENCES WITH FOLLOWING WORDS IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBT MADE BY AN D SUB-CLAUSE (A) READS AS UNDER: A SCHEDULED BANK NOT BEING A BANK APPROVED BY CENT RAL GOVERNMENT FOR THE PURPOSES OF CLAUSE (VIIIA) OR A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTS IDE INDIA OR A NON-SCHEDULED BANK OR A CO-OPERATIVE BANK OTHER THA N A BANK OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTUR AL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PERCENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVA NCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. UNDER EXPLANATION TO SECTION 36 FOR BETTER UNDERSTA NDING OF CERTAIN TERMS USED IN SUB-CLAUSE (A) OF CLAUSE (VIIA) DEFIN ITIONS ARE PROVIDED. I.T.A. NO.731/COCH/2013 13 FOR THE PURPOSE OF THE ABOVE APPEALS, WE NEED TO KN OW WHAT EXACTLY NON-SCHEDULED BANK, RURAL BRANCH CO-OPERATIVE BANK AND SCHEDULED BANK MEAN AS PER THE EXPLANATION WHICH READ AS UNDE R: NON-SCHEDULED BANK MEANS A BANKING COMPANY AS DEF INED UNDER CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION A CT, 1949, WHICH IS NOT A SCHEDULED BANK. . RURAL BRANCH MEANS A BRANCH OF A SCHEDULED BANK O R A NON- SCHEDULED BANK SITUATED IN A PLACE WHICH HAS A POPU LATION OF NOR MORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING C ENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIR ST DAY OF THE PREVIOUS YEAR. CO-OPERATIVE BANK, PRIMARY AGRICULTURAL CREDIT SO CIETY AND PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE EXPLA NATION TO SUB- SECTION (4) OF SECTION 80P. SCHEDULED BANK MEANS A BANK FOR THE TIME BEING IN CLUDED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA ACT. IN ORDER TO UNDERSTAND WHAT IS A BANKING COMPANY, O NE HAS TO REFER TO BANKING REGULATION ACT AND TO UNDERSTAND WHETHER A PARTICULAR BANK IS A SCHEDULED BANK, ONE HAS TO SEE WHETHER SUCH BANK FINDS A PLACE IN THE SECOND SCHEDULE TO RESERVE BANK OF INDIA ACT. C OOPERATIVE BANK MEANS A BANK AS EXPLAINED UNDER SUB-SECTION (4) OF SECTION 80P OF THE ACT. SECTION 5(C) OF BANKING REGULATION ACT DEFINES BANKING COMPANY AS UNDER: BANKING COMPANY MEANS ANY COMPANY WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA. U/S. 80P, IT AGAIN REFERS TO SECTION 56 OF BANKING REGULATION ACT. U/S. 56, FALLING UNDER CHAPTER V OF BANKING REGULAT ION ACT, ENTIRE PROVISIONS DEAL WITH CO-OPERATIVE SOCIETIES. SECTIO N 56 SAYS, AFTER CLAUSE (CC) CLAUSE (CCI), DEFINITION OF CO-OPERATIVE BANK, IS TO BE INCLUDED. SECTION 56(C) OF BANKING REGULATION ACT SAYS: IN SECTION 5:- (I) AFTER CLAUSE (CC), THE FOLLOWING CLAUSE SHALL B E INSERTED, NAMELY:- (CCI) CO-OPERATIVE BANK MEANS A STATE CO-OPERATIV E BANK, A CENTRAL CO- OPERATIVE BANK AND A PRIMARY COOPERATIVE BANK. I.T.A. NO.731/COCH/2013 14 MEANING OF DIFFERENT TERMS USEFUL FOR THE PURPOSE O F DECIDING THE CONTROVERSY, ONE HAS TO SEE HOW PRESENCE OF A PARTI CULAR TERM IN A PARTICULAR PROVISION AND SIMULTANEOUSLY BEING ABSEN T IN THE EXPLANATION TO THE SAID PROVISION WOULD CHANGE THE POSITION OF THE APPELLATE BANKS WITH REFERENCE TO THE CONTEXT. 9. ADMITTEDLY, APPELLANTS/ASSESSEES ARE CO-OPERATIV E BANKS. WITH INTRODUCTION OF FINANCE ACT OF 2007, COMING INTO EF FECT FROM 01.04.2007, ONE HAS TO UNDERSTAND WHAT WAS THE POSITION PRIOR T O 01.04.2007 AND AFTER 01.04.2007, THEY WERE ENJOYING THE BENEFITS P ROVIDED U/S. 80P. WITH THE INTRODUCTION OF FINANCE ACT 2007 WITH EFFECT FR OM 01.04.2007, THEY COULD CLAIM DEDUCTIONS AS PROVIDED U/S. 36(1) OF TH E ACT. WE ARE CONCERNED WITH SUB-CLAUSE(A) OF CLAUSE (VIIA) TO SE CTION 36(1). PRIOR TO FINANCE ACT OF 2007, CO-OPERATIVE BANK WAS NOT INCL UDED IN SUBCLAUSE (A) SO FAR AS PROVISIONS FOR BAD AND DOUBTFUL DEBTS . WITH EFFECT FROM 01.04.2007, CO-OPERATIVE BANK WAS INCLUDED UNDER SU B-CLAUSE (A) OF CLAUSE (VIIA) OF SECTION 36(1). IT IS FURTHER CLARI FIED THAT ONLY SUCH CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURE CRE DIT SOCIETY, ETC. IS INCLUDED IN SUB-CLAUSE (A) OF CLAUSE (VIIA). THE PR OVISION IS A BENEFICIAL ONE. NO DOUBT, PLAIN READING OF MAIN SECTION 36(1) (VIIA)(A) AND EXPLANATION UNDER SAID SECTION PRESENT CERTAIN DIFF ICULTIES, BUT SITUATION IS NOT WITHOUT POSSIBILITIES. THE OBJECT AND INTENTION OF THE LEGISLATURE IS TO BE UNDERSTOOD BY HARMONIOUS CONSTRUCTION OF THE PRO VISIONS. THE POLICY WAS TO INCLUDE CO-OPERATIVE BANKS AS WELL, AS THEY COULD NOT TAKE SHELTER U/S. 80P OF THE INCOME TAX ACT ANY MORE. BY RESTRIC TING THE SCOPE OF THE PROVISIONS, THE VERY PURPOSE OF INCLUSION OF CO-OPE RATIVE BANK WOULD BE LOST. SUB-CLAUSE (A) CONSISTS OF TWO TYPES OF DEDUCTIONS. ONE REFERS TO DEDUCTION OF AN AMOUNT NOT EXCEEDING 7.5% OF THE TO TAL INCOME. ONLY CONDITION IS, THERE SHOULD BE A PROVISION FOR BAD A ND DOUBTFUL DEBTS. TILL 01.04.2007, THERE WAS NO NEED TO MAKE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER THIS CLAUSE SO FAR AS CO-OPERA TIVE BANK AND THEY WERE CLAIMING BENEFITS APPLICABLE TO THEM U/S. 80P. DURING THE ASSESSMENT YEAR IN QUESTION THEY CLAIMED DEDUCTIONS U/S. 36(1)(VIIA)(A) OF THE ACT. ONLY WITH REFERENCE TO THE ASSESSMENT Y EAR IN QUESTION APPELLANTS/ASSESSEES HAVE CREATED PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNTS. SO FAR AS THIS ISSUE IS C ONCERNED, OPINION OF THE ASSESSING OFFICER AND TWO APPELLATE AUTHORITIES IS JUSTIFIED AND WE NEED NOT INTERFERE WITH THE OPINION OF THE AUTHORITIES I N RESTRICTING DEDUCTIONS ONLY TO 7.5% OF THE TOTAL INCOME AS PROVIDED UNDER SUB-CLAUSE (VIIA) OF SECTION 36(1). I.T.A. NO.731/COCH/2013 15 10. THEN COMING TO THE OTHER CONTROVERSIAL ISSUE WH ETHER A COOPERATIVE BANK, IRRESPECTIVE OF HAVING RURAL BRANCH AS EXPLAI NED UNDER EXPLANATION, IS ENTITLED TO HAVE THE BENEFIT OF SECOND PART OF S ECTION 36(1)(VIIA)(A), WE HAVE TO SEE, IN THE ABSENCE OF COOPERATIVE BANK IN THE DEFINITION OF RURAL BRANCH UNDER EXPLANATION TO SECTION 36(1) WOULD IT MAKE ANY DIFFERENCE. LEARNED COUNSEL APPEARING FOR APPELLANTS TRIED TO C ONVINCE THE COURT THAT ADJECTIVE OF RURAL WOULD MEAN IN RELATION TO OR CHA RACTERISTIC OF THE COUNTRYSIDE RATHER THAN THE TOWN; REMOTE RURAL AREA S. URBAN, NO DOUBT, IS OPPOSITE TO RURAL. URBAN IS IN RELATION TO OR CHARA CTERISTIC OF A TOWN OR CITY. 11. ACCORDING TO US, THERE IS NO NECESSITY TO FIND OUT THE GENERIC MEANING OF EITHER URBAN OR RURAL FOR THE SIMPLE REASON THAT EXPLANATION UNDER SECTION 36(1) ITSELF DEFINES WHAT COULD BE CONSIDER ED AS A RURAL BRANCH SO FAR AS SECTION 36(1) OF THE ACT. IN THE LIGHT OF GIVING A PARTICULAR DEFINITION FOR THE PURPOSE OF UNDERSTANDING RURAL B RANCH WITH REFERENCE TO SUB-CLAUSE (A) OF CLAUSE (VIIA) TO SECTION 36(1) ON E NEED NOT TO GO IN SEARCH OF THE MEANING OF RURAL OR WHAT EXACTLY WOUL D CONSTITUTE RURAL BRANCH. THIS COURT HAD AN OCCASION TO DECIDE THE SA ID CONTROVERSY PERTAINING TO BAD AND DOUBTFUL DEBTS OF A RURAL BRA NCH. WHILE EXPLAINING THE MEANING OF PLACE IN EXPLANATION (IA) TO SECTI ON 36(1)(VIIA), THEIR LORDSHIPS OPINED AS UNDER: NEXT QUESTION RAISED PERTAINS TO THE ASSESSEES CL AIM FOR DEDUCTION OF PROVISION FOR BAD DEBTS IN TERMS OF SECTION 36(1) ( VIIA) OF THE INCOME-TAX ACT. HERE THE ONLY QUESTION RAISED IS AS TO BASIS O F CLASSIFYING BRANCHES OF THE BANK AS RURAL BRANCHES AND OTHER BRANCHES. R URAL BRANCH IS DEFINED UNDER EXPLANATION (IA) TO SECTION 36(1)(VII A) AS FOLLOWS: RURAL BRANCH MEANS A BRANCH OF A SCHEDULED BANK O R A NON- SCHEDULES BANK SITUATED IN A PLACE WHICH HAS A POPULATION OF NOR MORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR.. WHAT IS CLEAR FROM THE ABOVE IS THAT THE CLASSIFICA TION BETWEEN RURAL AND OTHER BRANCHES OF A BANK IS MADE BASED ON THE POPUL ATION IN THE PLACE WHERE THE CONCERNED BRANCH IS LOCATED. WHILE THE AS SESSEES CASE THAT FOUND ACCEPTANCE WITH THE TRIBUNAL IS THAT PLACE REFERRED TO IN THE ABOVE DEFINITION CLAUSE IS THE WARD OF A PANCHAYAT OR MUNICIPALITY, THE ASSESSING OFFICER TOOK THE VIEW THAT PLACE CONTAI NED IN THE DEFINITION CLAUSE SHOULD MEAN A REVENUE VILLAGE. NO DOUBT, AS SUCH IS NOT DEFINED IN THE DEFINITION CLAUSES AND SO MUCH SO, WE HAVE T O FIND OUT THE SCOPE AND MEANING OF PLACE REFERRED TO IN THE SECTION. STANDING COUNSEL FOR THE DEPARTMENT PRODUCED BEFORE US LAST PUBLISHED CE NSUS REPORT OF 2001. EVEN THOUGH THE PREVIOUS CENSUS REPORT MAY BE THE RELEVANT ONE, WE FEEL THE SCOPE OF PLACE AS REFERRED TO IN THE CENSUS REPORT I.T.A. NO.731/COCH/2013 16 PRODUCED COULD BE ADOPTED FOR THE PURPOSE OF THIS C ASE. WHAT IS WRITTEN IN THE CENSUS REPORT 2001 IS AS FOLLOWS: THE BASIC UNIT FOR RURAL AREAS IS THE REVENUE VILL AGE WITH DEFINITE SURVEYED BOUNDARIES. THE RURAL AREA IS, HOWEVER, TA KEN AS THE RESIDUAL PORTION EXCLUDING THE URBAN AREA AND FOR THAT NO ST RICT DEFINITION IS FOLLOWED. IN OUR VIEW, THE DEFINITION CLAUSE DOES NOT EXCLUDE THE LITERAL MEANING OF RURAL BRANCH WHICH NECESSARILY EXCLUDES URBAN AREAS . IF THE ASSESSEES CASE ACCEPTED BY THE TRIBUNAL THAT POPULATION IN A WARD HAS TO BE RECKONED FOR DECIDING AS TO WHETHER THE LOCATION OF A PANCHAYAT IS IN A RURAL AREA OR NOT IS ACCEPTED, THEN PROBABLY EVEN I N MUNICIPAL AREAS THERE MAY BE WARDS WITH LESS THAN 10000 POPULATION THEREBY ANSWERING THE BRANCH LOCATED IN SUCH MUNICIPAL AREA ALSO AS A RURAL BRANCH. GOING BY THE ORDINARY MEANING OF RURAL BRANCH, WE FEEL ON LY BRANCHES OF THE BANK LOCATED IN RURAL AREAS ARE COVERED. WHEN THE L EGISLATURE ADOPTS POPULATION AS THE BASIS FOR CLASSIFICATION OF RURAL BRANCHES, THAT TOO, WITH REFERENCE TO THE LAST CENSUS REPORT, WE FEEL THE BA SIC UNIT AS AVAILABLE FOR IDENTIFICATION OF RURAL AREA IN THE CENSUS REPO RT CAN BE LEGITIMATELY ADOPTED. SO MUCH SO, WE FEEL THE ABOVE MEANING OF R URAL AREA CONTAINED IN THE CENSUS REPORT WHEREIN REVENUE VILLAGE IS TRE ATED AS A UNIT OF RURAL AREA, CAN BE RIGHTLY ADOPTED. SO MUCH SO, PLACE R EFERRED TO IN THE ABOVE DEFINITION CLAUSE FOR THE PURPOSE OF IDENTIFY ING THE BRANCH OF A BANK AS A RURAL BRANCH WITH REFERENCE TO ITS LOCATI ON IS THE REVENUE VILLAGE. THEREFORE, IN OUR VIEW, THE FINDING OF THE TRIBUNAL THAT PLACE REFERRED TO IN THE DEFINITION IS THE WARD OF A LOCA L AUTHORITY LIKE PANCHAYAT OR MUNICIPALITY IS INCORRECT AND, IN OUR VIEW, A RU RAL BRANCH HAS TO BE ALWAYS IN RURAL AREAS AND THE PLACE REFERRED CAN EA SILY BE TAKEN AS A VILLAGE. SEVERAL WARDS MAY COME WITHIN A VILLAGE, W HETHER IT BE IN CORPORATION, MUNICIPALITY OR PANCHAYATS. THERE CAN BE NO VILLAGE IN A MUNICIPAL OR CORPORATION AREA WHERE THE POPULATION IS LESS THAN 10000. SO MUCH SO, RURAL BRANCHES ARE SUCH OF THE BRANCHES LOCATED IN A VILLAGE WHERE THE POPULATION IN THE VILLAGE AS A UNIT IS LE SS THAN 10000. IT IS CLEAR FROM THE ABOVE JUDGMENT THAT THIS COURT HAD ALREADY AN OCCASION TO CONSIDER THE MEANING OF PLACE WITH REFE RENCE TO ABOVE SECTION. THEREFORE, RURAL BRANCH IS A BRANCH WHICH FALLS UNDER EXPLANATION (IA) TO SECTION 36(1) (VIIA). TRIBUNAL HAD TO REVER SE THE JUDGMENT OF CIT(APPEALS) IN THE LIGHT OF THE DECISION IN LORD K RISHNA BANKS CASE (SUPRA). 12. THEN COMING TO THE CONTROVERSY WHETHER CO-OPERA TIVE BANK COULD CLAIM DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADV ANCES WHILE COMPUTING THE INCOME IRRESPECTIVE OF FALLING UNDER RURAL BRANCH AS PER EXPLANATION, IN ORDER TO CONSIDER A COMPANY AS A BA NKING COMPANY IT I.T.A. NO.731/COCH/2013 17 MUST TRANSACT BUSINESS OF BANKING IN INDIA AS DEFIN ED U/S. 5(C) OF BANKING REGULATION ACT. EXPLANATION TO SECTION 5(C) CLEARLY INDICATES WHICH ARE THE TRANSACTIONS WHICH WOULD NOT COME WIT HIN THE MEANING OF BANKING BUSINESS. NON-SCHEDULE BANK MEANS A BANKING COMPANY AS DEFINED U/S. 5(C) WHICH IS NOT A SCHEDULED BANK. AS ALREADY STATED ABOVE, CO-OPERATIVE BANK CANNOT BE CONSIDERED AS A SCHEDUL ED BANK AS SECOND SCHEDULE TO RESERVE BANK OF INDIA ACT DOES NOT INCL UDE ANY OF THE CO- OPERATIVE BANKS. READING OF SECTION 5(C) ALONG WITH EXPLANATION, CLEARLY INDICATES THOUGH ANY COMPANY WHICH TRANSACTS BUSINE SS OF BANKING IN INDIA WOULD COME WITHIN THE MEANING OF NON-SCHEDULE D BANK, BY VIRTUE OF EXPLANATION (1) UNDER THIS CLAUSE SCHEDULED BANK IS EXCLUDED. SO FAR AS SUB-CLAUSE(A) OF CLAUSE (VIIA) TO SECTION 36(1), TW O TYPES OF DEDUCTIONS ARE PROVIDED TO NON-SCHEDULED BANK, A SCHEDULED BAN K AND A CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY, ETC. IT IS TO BE NOTED THAT APPELLANTS/ASSESSEES ARE NOT PRIMARY AGRICULTURAL CREDIT COOPERATIVE SOCIETY OR OTHER KIND OF BANK SO AS TO GO OUT OF THE DEFINITION OF CO-OPERATIVE BANK UNDER SUB-CLAUSE (A) TO CLAUSE (VIIA) OF SECTION 36(1). NO DOUBT, EXPLANATION (IA) TO SECTION 36(1)( VIIA) DEFINES WHAT IS A RURAL BRANCH. IT IS WITH REFERENCE TO A PLACE AND C ERTAIN NUMBER OF POPULATION. IT REFERS TO BRANCH OF A SCHEDULED BANK OR A NON-SCHEDULED BANK. APPARENTLY, WE DO NOT FIND THE TERM CO-OPERAT IVE BANK. SECTION 5(CCI) OF BANKING REGULATION ACT THOUGH HAS BROUGHT IN DEFINITION OF CO- OPERATIVE BANK, VIRTUALLY EVERY BANK WHICH IS NOT A SCHEDULED BANK WOULD FALL UNDER THE DEFINITION OF NONSCHEDULED BANK. REA DING OF DEFINITION OF NON-SCHEDULE BANK ALONG WITH MEANING OF RURAL BRANC H UNDER EXPLANATION TO SECTION 36(1) OF THE ACT, CLEARLY IN DICATE THAT CO-OPERATIVE BANK ALSO FALLS UNDER THE CATEGORY OF NON-SCHEDULE BANK FOR THE PURPOSE OF THIS SECTION. THEREFORE, READING OF ENTIRE SECTI ON 36(1)(VIIA)(A) ALONG WITH EXPLANATION WOULD MEAN TWO KINDS OF DEDUCTIONS REFERRED TO IN THE SECTION WILL BE ALLOWED TO ALL THOSE BANKS ONLY IF THEY SATISFY THE TERMS AND CONDITIONS REFERRED TO IN THE PROVISION. 13. THEREFORE, WE ARE OF THE OPINION, AUTHORITIES B ELOW WERE JUSTIFIED IN OPINING THAT BENEFIT OF DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADVANCES IS APPLICABLE TO CO-OPERATIVE BANK ALSO PR OVIDED THEIR RURAL BRANCHES HAVE ADVANCED SUCH AMOUNTS. SUCH RURAL BRA NCH MEANS A BRANCH AS EXPLAINED UNDER EXPLANATION (IA), AS OPIN ED IN THE DECISION OF LORD KRISHNA BANKS CASE (SUPRA). IN THE LIGHT OF ABOVE OBSERVATIONS AND REASONING, NONE OF THE CONTENTIONS RAISED BY APPELLANTS ARE SUSTAINABLE. H ENCE, THESE APPEALS ARE DISMISSED ANSWERING SUBSTANTIAL QUESTIO NS OF LAW IN FAVOUR OF REVENUE. I.T.A. NO.731/COCH/2013 18 12. IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL, W E ARE INCLINED TO DECIDE THE ISSUE AGAINST THE ASSESSEE. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 13. THE LD. AR ALSO SUBMITTED THAT DEDUCTION U/S. 8 0P FOR THE ASSESSMENT YEAR 2007-08 WAS GIVEN TO THE ASSESSEE A ND THERE IS NO REASON WHY THE DEDUCTION WAS DENIED FOR THIS ASSESSMENT YE AR. HOWEVER, WE FIND THAT THERE IS AMENDMENT TO SECTION 80P WITH EFFECT FROM 10-04-2007. BEING SO, THE LOWER AUTHORITIES ARE JUSTIFIED IN NOT GRAN TING DEDUCTION U/S. 80P OF THE ACT FOR THIS ASSESSMENT YEA. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 14-11-2014 SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 14 TH NOVEMBER, 2014 GJ COPY TO: 1. M/S. KODENCHERY CO-OPERATIVE BANK LTD., KODENCHE RY, KOZHIKODE. 2. THE INCOME TAX OFFICER, WARD-2(3), KOZHIKODE. 3. THE COMMISSIONER OF INCOME-TAX(APEALS), KOZHIKOD E. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN