S-1293 Thammampatti PACB Limited, Salem V. ITO, Salem

ITA 920/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77309 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 26-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-05-2013
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: M NARAYANAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHE NNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 920 & 921/MDS/2013 ASSESSMENT YEARS : 2007-08 & 2009-10 S-1293, THAMMAMPATTI PACB LIMITED, THAMMAMPATTI, GANGAVALLI TALUK, SALEM DIST 636 107 [PAN: AABAS 5018 G] ( !% /APPELLANT) VS INCOME TAX OFFICER, WARD-II(3), SALEM ( &'!% /RESPONDENT) / APPELLANT BY : SHRI M. NARAYANAN, / RESPONDENT BY : SHRI ANIRUDH RAI, CIT-DR / DATE OF HEARING : 26-03-2014 / DATE OF PRONOUNCEMENT : 23-05-2014 #( / O R D E R PER VIKAS AWASTHY, J.M: THE TWO APPEALS I.E., ITA NOS.920/MDS/2013, FOR THE ASSESSMENT YEAR (AY) 2007-08 & 921/MDS/2013 FOR AY. 2009-10 HAVE BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS)-SALEM, DATED 28 -02-2013 FOR THE RESPECTIVE AYS. SINCE IN BOTH THE APPEALS, COMMON ISSUE IS INVOLVED, THE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION. ITA. NOS. 920 & 921/MDS/2013 2 2. THE ASSESSEE IS A PRIMARY AGRICULTURE CREDIT CO- OPERATIVE SOCIETY REGISTERED UNDER THE TAMIL NADU CO-OPERATIV E SOCIETIES ACT, 1983 (HEREIN AFTER REFERRED TO AS THE SOCIETI ES ACT). THE SOCIETY FOR THE AYS UNDER CONSIDERATION IN ITS RETU RN OF INCOME CLAIMED DEDUCTION U/S.80P(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). THE ASSESSING OFFI CER IN SCRUTINY ASSESSMENT PROCEEDINGS HELD THAT THE ASSESSEE IS RE GISTERED UNDER THE SOCIETIES ACT AS CO-OPERATIVE BANK AND IS ENGAGED IN THE ACTIVITIES AKIN TO COMMERCIAL BANKING AND HAS E ARNED INCOME AT PAR WITH OTHER COMMERCIAL BANKS. THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTIO N U/S.80P OF THE ACT. AGGRIEVED AGAINST THE ASSESSMENT ORDER FOR THE RESP ECTIVE AYS, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT( APPEALS). THE CIT(APPEALS) VIDE IMPUGNED ORDERS HELD THAT THE EXEMPTION U/S.80P IS AVAILABLE TO CO-OPERATIVE SOCIETIES ENGA GED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. BUT THE ASSESSEE IS PROVIDING CREDIT FACILITIES TO NON-MEMB ERS I.E., CLASS B MEMBERS OR ASSOCIATE MEMBERS WHO ARE NOT RECOGN IZED AS MEMBERS OF THE SOCIETY. THEREFORE, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. THE CIT(APP EALS) FURTHER OBSERVED THAT THE PROFIT MOTIVE CANNOT BE DENIED CO NSIDERING THE ITA. NOS. 920 & 921/MDS/2013 3 BUSINESS ACTIVITIES OF THE ASSESSEE. THE CIT(APPEA LS) DISMISSED THE APPEALS OF THE ASSESSEE FOR BOTH THE AYS. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE AS SESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAI LING THE FINDINGS OF THE CIT(APPEALS). 3. SHRI M.NARAYANAN, APPEARING ON BEHALF OF THE AS SESSEE SUBMITTED THAT, THE CIT(APPEALS) HAS DIS-ALLOWED DE DUCTION U/S.80P(2)(A)(I) ON THE GROUND THAT THE ASSESSEE HA S EXTENDED CREDIT FACILITIES TO ASSOCIATE MEMBERS I.E., CLASS- B MEMBERS AND THE INCOME EARNED FROM THEM IS NOT ELIGIBLE FOR DED UCTION. THE LD.AR CONTENDED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE AS SESSEE HAS TWO TYPES OF MEMBERS CLASS-A AND CLASS-B. THE CLASS- A MEMBERS OR NORMAL MEMBERS THEY ENJOY CERTAIN PRIVILEGES SUC H AS VOTING RIGHTS ETC. THE OTHER MEMBERS ARE CLASSIFIED AS CL ASS-B MEMBERS OR ASSOCIATE MEMBERS. BOTH CLASS-A AND CLASS-B MEMB ERS ARE SHAREHOLDERS OF THE SOCIETY. SECTION 2(16) OF THE TAMIL NADU CO- OPERATIVE SOCIETIES ACT, 1983 DEFINES MEMBER WHIC H INCLUDES ASSOCIATE MEMBER. THE LD.AR FURTHER SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.292/MDS/2014 IN THE CASE ITA. NOS. 920 & 921/MDS/2013 4 OF M/S.SL(SPL) 151, KARKUDALPATTY PRIMARY AGRICULTURAL CO- OPERATIVE CREDIT SOCIETY LTD., VS. ITO DECIDED ON 17-03-2014. IN THE SAID CASE, THE TRIBUNAL HAS HELD THAT FOR AVAIL ING DEDUCTION U/S.80P, CLASSIFICATION OF MEMBERS IN A AND B I S IRRELEVANT. THE LD.AR ALSO PLACED ON RECORD A COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO.197/MDS/2013 IN THE CASE OF ITO VS. M/S.VEERAKERALAM PRIMARY AGRICULTURAL CO-OPERATIVE CREDIT SOCIETY DECIDED ON 11-02-2014, WHEREIN THE TRIBUNAL HAD HELD THAT THE ACTIVITIES O F PRIMARY AGRICULTURAL CO-OPERATIVE CREDIT SOCIETIES ARE NOT AT PAR WITH CO-OPERATIVE BANKS. 4. ON THE OTHER HAND, SHRI ANIRUDH RAI, APPEARING O N BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE IMPUGNED ORDER S AND PRAYED FOR THE DISMISSAL OF THE APPEALS OF THE ASSE SSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS OF T HE CO-ORDINATE BENCH OF THE TRIBUNAL RELIED UPON BY THE LD.AR OF T HE ASSESSEE. IN BOTH THE APPEALS, THE ASSESSEE HAS IMPUGNED THE FIN DINGS OF THE CIT(APPEALS) FOR REJECTING THE CLAIM OF DEDUCTION U /S.80P(2)(A)(I) TO THE ASSESSEE. THE CIT(APPEALS) IN HIS ORDER HAS HE LD THAT THE ASSESSEE-SOCIETY IS NOT A CO-OPERATIVE BANK, THEREF ORE, THE ITA. NOS. 920 & 921/MDS/2013 5 PROVISIONS OF SECTION 80(P)(4) ARE NOT ATTRACTED. HOWEVER, THE CIT(APPEALS) HAS DENIED THE DEDUCTION ON THE GROUND THAT THE ASSESSEE HAS EXTENDED CREDIT FACILITIES TO CLASS-B MEMBERS, WHO ARE NOT REGULAR MEMBERS OF THE SOCIETY AND THUS THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S.80P(2)(A)(I ) AND (IV). 6. SECTION 2(16) OF THE SOCIETIES ACT, 1983 DEFINES MEMBER AS UNDER: MEMBER MEANS A PERSON JOINING IN THE APPLICATION F OR THE REGISTRATION OF SOCIETY AND A PERSON ADMITTED TO ME MBERSHIP AFTER REGISTRATION IN ACCORDANCE WITH THE PROVISION S OF THIS ACT, THE RULES AND BYLAWS AND INCLUDES AN ASSOCIATE MEMB ER. A PERUSAL OF DEFINITION OF THE TERM MEMBER CLEARL Y SHOWS THAT MEMBER INCLUDES ASSOCIATE MEMBER. THE REFERENC E OF CLASS B MEMBERS BY CIT(APPEALS) IS WITH RESPECT TO ASSOCIAT E MEMBERS. THE CIT(APPEALS) HAS DENIED DEDUCTION TO THE ASSESS EE ONLY FOR THE REASON, THAT CREDIT FACILITIES HAVE BEEN EXTEND ED TO A PARTICULAR CLASS OF MEMBERS, WHO ARE NOT NORMAL MEMBERS OF THE SOCIETY. WE DO NOT AGREE WITH THE CIT(APPEALS) ON THE ISSUE. THE AUTHORITIES UNDER THE ACT CANNOT GO BEYOND THEIR JU RISDICTION AND MAKE CLASSIFICATION WITHIN A CLASSIFICATION OF MEMB ERS TO DENY THE BENEFIT OF DEDUCTION. THE CO-ORDINATE BENCH OF TRI BUNAL IN THE CASE OF M/S.SL(SPL) 151, KARKUDALPATTY PRIMARY AGRICULTURAL CO- ITA. NOS. 920 & 921/MDS/2013 6 OPERATIVE CREDIT SOCIETY LTD., VS. ITO (SUPRA) HAS DEALT WITH THIS ISSUE. THE FINDINGS OF THE TRIBUNAL ARE AS UNDER: 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CASE FILE. AS STATED IN THE PRECEDING PARAGRAPHS, THE CI T(A) HAS PROCEEDED TO ENHANCE THE ASSESSMENT(SUPRA) ONLY ON THE GROUND THAT THE ASSESSEES CREDIT AND VARIOUS OTHER LOAN FACILITIES HAVE BEEN ALLOWED TO BE AVAILED BY B C LASS NOMINAL MEMBERS WHOSE LIABILITY IS LIMITED, AT THE BEST; TO THE EXTENT OF LOAN REPAYABLE INSTEAD OF A CLASS MEMBERS WHO HAV E VOTING RIGHTS AND DIVIDEND CLAIM, AND ALSO THAT THE LATTER MEMBERS ARE JOINTLY AND SEVERELY LIABLE. IN THIS BACKDROP, WHEN WE PERUSE THE RELEVANT PROVISIONS OF THE STATE CO-OPERATIVE S OCIETIES ACT, 1983, GOVERNING THE ASSESSEE-SOCIETY, IT IS EV IDENT FROM THE DEFINITION OF MEMBER U/S 2(16) THAT THE SAME INCLUDES AN ASSOCIATE MEMBER U/S 2(6) APPENDED THEREIN. IN OT HER WORDS, THE NOMINAL MEMBERS ALSO ENJOY STATUTORY RECOGNIT ION AS PER THE ACT. THE NET RESULT IS THAT ONCE THE NOMINAL MEMBERS OR NON-VOTING MEMBERS ARE THEMSELVES INCLUDED IN THE D EFINITION OF MEMBERS, THEY SATISFY THE RELEVANT CONDITION I MPOSED BY THE LEGISLATURE U/S 80P(2)(A)(I). WE MAKE IT CLEAR THAT WE ARE DEALING WITH A DEDUCTION PROVISION TO BE INTERPRETE D LIBERALLY. IN OUR CONSIDERED OPINION, THE OBJECTIONS OF THE REVEN UE THAT THE MEMBERS DEFINED IN SUB-CLAUSE(I) OF SECTION 80P(2 ) SHOULD ONLY INCLUDE VOTING MEMBERS WOULD AMOUNT TO A CLASS IFICATION WITHIN CLASSIFICATION WHICH IS BEYOND THE PURVIEW O F TAX STATUTE; UNLESS PROVIDED SPECIFICALLY BY THE LEGISLATURE. MO REOVER, WE FIND THAT THE CASE LAW OF HON'BLE PUNJAB & HARYANA HIGH COURT (SUPRA) ALSO SUPPORTS THE ASSESSEES CASE WHEREIN I T HAS BEEN HELD UNDER THE VERY PROVISION THAT FOR THE PURPOSE OF IMPUGNED DEDUCTION, IT IS IRRELEVANT SO FAR AS CLASSIFICATIO N OF THE ITA. NOS. 920 & 921/MDS/2013 7 MEMBERS IN A OR B CATEGORY IS CONCERNED. WE FOL LOW THE SAME AND ACCEPT CONTENTIONS OF THE ASSESSEE. 7. SIMILAR ISSUE HAD COME UP BEFORE THE HONBLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. PUNJAB STATE CO- OPERATIVE BANK LTD., REPORTED AS 300 ITR 24, WHEREIN THE HONBLE HIGH COURT HAD DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE. THE LD.DR HAS NOT BEEN ABLE TO CONTROVERT THE CONTENTIO NS OF THE AR. 8. THE ISSUE IN APPEAL IS SIMILAR TO THE ONE ADJUDI CATED BY THE CO-ORDINATE BENCH IN THE CASE OF M/S.SL(SPL) 151, KARKUDALPATTY PRIMARY AGRICULTURAL CO-OPERATIVE CREDIT SOCIETY LT D., VS. ITO (SUPRA). ACCORDINGLY, WE HOLD THAT THE ASSESSEE I S ELIGIBLE TO CLAIM BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) & (IV) OF THE ACT. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALL OWED. ORDER PRONOUNCED ON FRIDAY, THE 23 RD MAY, 2014 AT CHENNAI. SD/- SD/- ( . . . ) ( ! ) (DR. O.K. NARAYANAN) (VIKAS AWAS THY) / VICE PRESIDENT ! '# / JUDICIAL MEMBER $ /CHENNAI, %'& /DATED: 23 RD MAY, 2014 TNMM ''(!)*+* /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ' ' ,-. /CIT(A) 4. ' ' , /CIT 5. */0!!12 /DR 6. 0345 /GF