TaxTMI 
TaxTMI 
2016 (2) TMI 152
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....A) ought to have decided whether the income, which is treated as not assessable under "other sources", was to be assessed under any other head and if so, whether the assessee was entitled to deduction u/s. 80P of the Act. 4. The Ld. CIT(A) ought to have considered that in the assessment order, the Assessing officer has mainly concentrated on the point that most of the loans given by the assessee was for non-agricultural purposes like gold loans, housing loans, trade loans, etc. though the loans are given to the members, the purpose of the loan could not be proved by the assessee. 5. The rate of interest charged by the assessee on gold loan, housing loan, trade-loan, etc., ranged between 12% to 15.5% which itself proved that the loans were not given for agricultural purposes. 6. In such a situation, the Ld. CIT(A) ought to have decided whether the remaining income which is not assessable under the head "other sources" was to be assessed under any other head and if so, whether the assessee's claim u/s. 80P is allowable in view of the facts pointed out by the Assessing officer. For these and other grounds that may be advanced at the time of hear....
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.... the hearing, it is prayed that the order of the Learned Income Tax Officer, Ward-3, Kottayam be set aside and appropriate reliefs may be granted. 4. In the Cross objection, the assessee has raised the following grounds: 1. Deletion of Rs. 2,79,63,652. 1.1 The Learned Commissioner of Income-tax(Appeals) has rightly deleted the addition of Rs. 2,79,63,652/- wrongly added by the appellant as income taxable u/s. 56 of the Act. 1.2 During the F.Y. 2008-09, your respondent has earned a total (gross) amount of Rs. 3,37,04,390/- as interest on loans given to its members. All these are earned during the course of the regular business of your respondent i.e., providing credit facility to its members. (Copy of the audited financial statements are attached as Exhibit No. 1) 1.3 Your respondent's Gross Total Income computed as per the provision of the Income Tax Act, 1961 for that year was only Rs. 55,74,060/-. This fact was totally ignored by the appellant. Your respondent has claimed deduction u/s. 80P amounting to Rs. 55,65,902/- (Copy of the Statement of Income is attached as Exhibit No.2) 1.4 Out of the total (gross) interest income of R....
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..... Therefore, subject to satisfaction of provisions of section 80P(1), if the gross total income includes any income referred in sub-section (2) of section 80P, the assessee shall be eligible only for that income for deduction in computing the total income. As per details filed in respect of different type of loans, it is seen that the minimum rate of interest on loan was from 7% to 15.5%. Though the primary agricultural credit societies are formed for the purpose of providing finance to farmers, there are non-agricultural loans, like gold loans, housing loans and trade loans etc. Though the loans are paid to its members, the purpose of loan could not be proved to be fore agricultural purposes other than the loans such as Kissan Credits, Agricultural Short Term and Biogas loans. In the assessee's case. it is observed that majority of loans given were for non-agricultural activities. On gold-loan, housing loan and ordinary loan etc. the rate of interest was from 12% to 15.5%. Therefore, the loans bearing the lowest interest rate and for agricultural purposes are accepted to be agricultural loans. Out of the total interest received, the interest received on the f....
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....he Profit and Loss account are reproduced hereinbelow for the sake of convenience. "As regards the addition of interest income of Rs. 2,79,63,652/- which has been credited to the P&L account, the A.O. has treated the same as income from other sources. By going through the statement of computation of income as well as P&L account, this view of the A.O. seems to be not relevant. If this income is treated as income from other sources, then the profit, as per P&L account, will become a negative profit to the same extent. Further, the A.O. has wrongly applied the ratio pronounced in the Totgar's case is applicable where the interest income arising to a cooperative society, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members, on the surplus funds, which is not required immediately for business purposes, from investment in short term deposit and securities, has to be taxed as investment in short term deposit and securities, has to be taxed as income from other sources. Here, the A.O. has taken the entire interest income credited to the P&L account as the income earned on the idle and surplus funds whic....
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....AT, Cochin in a bunch of 26 appeals vide its order dated 31-07-2014(supra). It is very relevant to reproduce the said order wherein all the issues have been dealt with in detail herein below for the sake of convenience:- "IN THE INCOME TAX APPELLATE TRIBUNALBENCH, COCHIN I.T.A. Nos. A.Y. Appellant Respondent 1. 123/Coch/2012 2009- 10 PINARAYI SERVICE CO-OPERATIVE BANK LTD PINARAYI, TELLICHERRY, KANNUR-670 741 PAN NO:AAJFP7993E INCOME TAX OFFICER WARD-2, KANNUR 2. 124/Coch/2013 2009- 10 M/s. Punnal Service Cooperative Bank Ltd., P.O. Kurichiyil, Kannur-670 102. [PAN:AAGFP 3042D] The Income Tax Officer, Ward-2, Kannur. 3. 133/Coch/2013 2009- 10 The Madikai Service Cooperative Bank Ltd., Madikai, Kasargod-671 531. [PAN:AAAAT 7221K] The Income Tax Officer, Ward-2, Kasargod. 4. 134/Coch/2013 5.719/Coch/2013 2009- 10 2010- 11 The Kotacherry Service Cooperative Bank Ltd., Kanhangad, Kasargod-671 315. [PAN: AAAAT 3164F] The Income Tax Officer, Ward-2, Kasargod. 6. 135/Coch/2013 7. 720/Coch/2013 2009- 10 2010- 11 The Nileshwar Service Cooperative Bank Ltd., Nileshwar, Kasargod-671 314. [PAN:AAAAT 3163C....
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....ABT2064P Vs INCOME TAX OFFICER WARD-4, KOTTAYAM Appellant Rep by: Shri Prasanth Srinivas, CA Respondent Rep by: Shri K K John, Sr. DR N R S Ganesan, JM & Chandra Poojari, AM Date of Hearing: June 26, 2014 Date of Decision: July 31, 2014 ORDER Per: Chandra Poojari: These cross appeals filed by different assessees and revenue are directed against the orders of the Ld. CIT(A), Kozhikode for different assessment years. 2. The common ground in all these appeals and C.O. No. 05/Coch/2014 is with regard to allowability of deduction u/s. 80P(2) and 80P(2)(d) of the I.T. Act. 2. 1 The brief facts of the cases are that the lower authorities denied the claim of the assessees for deduction u/s. 80P of the Act. The primary object or principal business of the assessee is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities. Since the assesses provided only nominal amount of loan for agricultural purposes; these assessees are not treated as primary agricultural credit societies (PACS). Since the assessee are doing bank....
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.... section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank Explanation. - For the purposes of this subsection,- (a) "co-operative bank" and "primary agricultural credit 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 an rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. 5. The sub clause (i) of clause (a) of sub section 2 of section 80P given above speaks of two incomes i.e., income from banking and income from providing credit facility to members. As per the newly introduced sub section 4, the provision of section 80P shall not apply in relation to any cooperative bank other than a primary agricultural credit society, or a primary co-operative agricultural and rural development bank. Thus the restriction u/s. 80P(4) is applicable only to co-operative banks and wh....
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....that on a perusal of the bye-laws of the society, the primary object of the society is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities (including marketing of crops). It may also please be noted that the society can give membership only to individuals and certain other specified entities like state cooperative banks, district co-operative banks and the Government of Kerala. The bye-laws do not permit admission of any other cooperative society as a member. It is on fulfilling the above two conditions that the society is rightly classified as a primary agricultural credit society by the Registrar of Co-operatives. The authority to assign the status of a society being Registrar of Co-operatives, the contention of the Assessing officer that the society is not a primary agricultural credit society is beyond his powers and is invalid. 10. The principal business of the society is to provide financial accommodation to its members for agricultural purposes and for the purposes connected with agricultural activities. The society is situated in a place/village mostly inhabited by agriculturists. Si....
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.... the status assigned to it by the Reg. of Co-operatives. That is why the assessee society is capable of engaging in trading activity which is not allowed to a banking company as per Banking Regulation Act. Banking license refused by RBI 13. According to the Ld. AR, the Madai Co-operative Rural Bank Ltd., The Kadirur Service Co-operative Bank Ltd. Etc. which are co-operative Banks functioning at par with the assessee and having much higher volume of business had applied to the Reserve Bank of India for banking license. But the license was denied to them as according to the Reserve Bank of India the applicants are Primary Agricultural Credit Society. Thus according to the Reserve Bank of India also the assessee is a Primary Agricultural Credit Society. As per explanation below section 56 of Banking Regulation Act, if any dispute arises as to the primary object or principal business of any co-operative society a determination there of by the Reserve Bank of India shall be final. As the RBI has recognized the assessee as a Primary Agricultural Credit Society, the Assessing authority is bound to accept it. 14. According to the Ld. AR, the assessee is not a co-....
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....g Regulation Act is that "the primary object or the principal business of it should be transaction of banking business." Primary Object 18. The objects of the society are prescribed in the bye laws. Banking business is not an object of the society. The object clause in the bye laws clearly indicates that the society is formed mainly for providing credit facility to the members for carrying out their agricultural activities and also to promote other agro based activities. Principal business 19. As per the second part of sub clause (1) of clause (ccv) quoted above, in order to become a Co-operative society a bank, its principal business should be transaction of banking business. The principal business of the assessee is not doing banking business for the following reasons: The assessee does not have a banking license from the RBI. 20. The first and foremost requisite in India to do the business of banking is to obtain a license from RBI. Without a valid license from the RBI nobody can do the business of banking. In this regard it may please be noted that the mere activity of collecting deposits and lending it will not constitute b....
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....hdrawal slips. 24. The Ld. AR drew our attention to s. 43D and submitted that the assessee is not eligible to the benefits of s. 43D as per which scheduled banks, financial institutions etc. need not account interest non performing assets on accrual basis Interest on NPA is accounted for banks on receipt basis. But the assessee not being a bank is not eligible for the benefits of sec. 43D. 25. The Ld. AR submitted that such banks are not allowed to do trading. As per sec. 8 of the Banking Regulation Act, a banking company may engage only in any one or more of the business as specified in clause 6 Part II of the Banking Regulation Act, 1949 which does not include trading activity. Thus the Ld. AR contended that it is clear that out of the three conditions prescribed for a Primary Co-operative Bank as defined under section 5 clauses (ccv) of Banking Regulation Act, 1949, the most important clause no. 1 is not being applicable to the assessee. Hence the assessee does not fall under the definition of cooperative bank as defined in Part V of the Banking Regulation Act, 1949 and therefore, sub-section 4 of section 80P of the Act is not applicable to it. ....
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....43D must definitely be because of the exemption that they enjoy u/s. 80P. According to the Ld. AR, now if these banks are not allowed the benefit of section 43D, it will be a great injustice to them. Those banks will be liable to pay tax even on interest charged on non-performing assets. 29.1 The Ld. AR also made a comparative study of the net profit, income assessed and tax liability of the assessees to show that the tax liability assessed is much more than the net profit. Such a situation could not be the consequence of the implementation of any prudent law as survival of the entity is at stake in the long run. 30. The Ld. AR drew our attention to the sub-section 80P(4) of the Act which is reproduced below: "(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank." The Ld. AR submitted that even on a simple reading of sub-section, the usage of the words "other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank" implies that statute intends to ex....
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....(2)(a)(i) i.e., carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended u/s. 80P(1) to such society." (iii) The Hon'ble Gujarat High Court in the cases of(a) Surat Vankar Sahakari Sangh Ltd. and (b) Jafari Momin vikas Co-op Credit Society Ltd. has held as under: "From the above classification, it can be gathered that subsection (4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Coop Urban Thrift & Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a co-operative, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue contention that section 80P(4) would exclude not only the cooperative banks other than those fulfilling the description contained therein but also credit societies, which are not cooperative banks. In the present case, respondent assessee is admittedly not a credit co-operative bank but a credit cooperative society. Exclusion clause of sub-section(4) of section 80P, therefore w....
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....sessees nature for their income from the activity of providing credit facility to members. 32. On the other hand, the Ld. DR submitted that deduction u/s. 80(P) of the I.T Act was denied to the above societies since it was found that the Societies were not fulfilling their primary object or principal business of providing financial accommodation to its members for agricultural purposes. The assessee societies were providing only meager percentage of their total loans disbursed towards agricultural purposes. 33. The Ld. DR submitted that apart from this, it was found that the principal business of the above societies was banking business. Hence the assessee societies/bank were treated as Co-operative banks. Since after the insertion of section 80P(4) w.e.f. 1-4-2007, co-operative banks are not eligible for any deduction u/s. 80P of the I.T. Act, 1961, deduction u/s. 80P was denied to them on this ground also. 34. The Ld. DR submitted that the orders of the respective Assessing officers denying deduction u/s. 80P for the service co-operative banks was upheld by the CIT(A), Calicut . While upholding the orders of the Assessing officers, the CIT(A), Calicut r....
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....petitioners to opt to produce the relevant records before the income tax authorities as well, to establish their status and credentials, that there is no lapse in fulfilling the objective as Primary Agricultural Credit Societies so as to absolve from further proceedings at the hands of the income tax Department. He submitted that the Hon'ble High Court of Kerala in I.T.A. No. 4 of 2014 dated 31- 01-2014 in the case of Perinthamanna Service Co-operative Bank has observed as under: "The revisional authority was justified in saying, with the introduction of section 80P(4), necessarily, an enquiry has to be conducted into the factual situation whether co-operative bank is conducting the business as Primary Agricultural Credit Society or a primary co-operative agricultural and rural development bank and depending upon the transactions, the Assessing officer has to extend the benefits available and not merely looking at the registration certificate by the Kerala Co-operative Societies Act or the nomenclauture." 38. The Ld. DR further submitted that it is pertinent to note that the President of The Kizhathadiyoor Service Co-op Bank has vide letter dated 13-11-2010 wr....
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.... not a cooperative 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 Petition 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). While dealing with this issue, the Hon'ble High Court 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, 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 its 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 cease to be co-operative societ....
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....0P(4). 9. On the other hand, the assessee made an alternative plea that the assessee is lending money only to its members. Being 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 Hon'ble Supreme Court had an occasion to consider 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 shareholders as shareholders, the principle of mutuality is not satisfied. A shareholder 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 shares. He did not have to fulfil any other condition. 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 an ordinary bank except that it lends money and receives dividend from its shareholders which does not by itsel....
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....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) is in addition to the exemption provided under clause (a). The provisions are cumulative and mutually supplementing. The limits specified in clause(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 the society is attributable to any activity of the society, clause (c) would be attracted. It is then necessary that the cooperative society must prove that it has engaged itself in carrying on the activity giving rise to profits or gains. Such activity of the assessee 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-operative societies to the extent mentioned therein if the profits or gains are attributable to the activity in which the co-operative society is engaged. The expression "attributable to" is much wider than the expression "derived from" and it covers receipts from sources other than the actual cond....
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....u/s. 80P of the Act. Hence the ground in revenue appeal is also dismissed and also CO No.05/Coch/2014 is dismissed as infructuous. 41. Next ground in I.T.A. Nos. 135/Coch/2013, 720/Coch/2013, 134/Coch/2013, 719/Coch/2013, 660/Coch/2013,745/Coch/2013,746/Coch/2013, 747/Coch/2013, 800/Coch/2013,133/Coch/2013,124/Coch/2013,123/Coch/2013, 683/Coch/2013, 684/Coch/2013,685/Coch/2013,739/Coch/2013, 740/Coch/2013, 741/Coch/2013, 743/Coch/2013 & 744/Coch/2013 is with regard to deduction of 7.5% provision for bad and doubtful debts u/s. 36(1)(viia) of the Act. 41.1 After hearing both the parties, we are of the opinion that similar issue came up for consideration in the case of Kannur Co-operative Bank Ltd. in I.T.A. Nos. 182&183/Coch/2014 dated 27/06/2014 wherein the Tribunal held as under: "3. The assessee raised the ground in both the appeals that the Ld. CIT(A) erred in holding that the assessee was not entitled 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 opinion that an identical issue was considered by the Hon'ble Jurisdictional ....
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....ore 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". "Co-operative bank", primary agricultural credit society" and "primary cooperative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of Section 80P. "Scheduled bank" means a bank for the time being included in the Second Schedule to the Reserve Bank of India Act." In order to understand what is a banking company, one 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. Cooperative 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 Regulation Act, entire ....
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....7, there was no need to make any provision for bad and doubtful debts under this clause so far as co-operative 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 year in question appellants/assessees have created provision for bad and doubtful debts in the books of accounts. So far as this issue is concerned, opinion of the assessing officer and two appellate authorities is justified and we need not interfere with the opinion of the authorities in restricting deductions only to 7.5% of the total income as provided under sub-clause (viia) of Section 36(1). 10. Then coming to the other controversial issue whether a cooperative bank, irrespective of having rural branch as explained under Explanation, is entitled to have the benefit of second part of Section 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 convince the court that adjective of rural would mean in relat....
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....t one, we feel the scope of "place" as referred to in the Census Report produced could be adopted for the purpose of this case. What is written in the Census Report 2001 is as follows: "The basic unit for rural areas is the revenue village with definite surveyed boundaries. The rural area is, however, taken as the residual portion excluding the urban area and for that no strict 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 assessee's 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 in 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 only branches of the bank located in rural areas are covered. When the Legislature adopts population as the basis for classification of rural branches, that too, with reference to the last Census Report, we feel the basic unit as....
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.... by virtue of Explanation (1) under this clause scheduled bank is excluded. So far as subclause(a) of clause (viia) to Section 36(1), two types of deductions are provided to non-scheduled bank, a scheduled bank and a co-operative bank other than a primary agricultural credit 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 certain number of population. It refers to branch of a scheduled bank or a non-scheduled bank. Apparently, we do not find the term cooperative 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 non-scheduled bank. Reading of definition of non-schedule bank along with meaning of rural branch under Explanation to Section 36(1) of the Act, clearly indicate that cooperative bank also falls under the category of non-schedul....
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....is case, it appears that the taxpayer was accepting deposits and maintaining savings bank account and current bank account. The taxpayer is providing cheque facilities to its customers. Apart from this, the taxpayer is engaged in the business of purchase and sale of cement, hardware, medicine and home appliances. The loan appears to have been given on pledging of gold jewellery and mortgage of land. In view of the admitted fact that the taxpayer is maintaining savings account, current account and providing cheque facility to its customers, it is obvious that the taxpayer is engaged itself in the business of banking apart from other trading activities. Exemption u/s. 194A(3)(viia) is applicable only in respect of agricultural cooperative societies. The agricultural cooperative banks are bound to deduct tax. In this case, admittedly, the tax payer is engaged in the banking activity and maintaining savings bank account, current account and providing cheque facility to its customers. Therefore, the taxpayer is bound to deduct tax in respect of interest on the deposits. Therefore, this Tribunal is of the considered opinion that the decision in the case of Kadachira Service Cooperative B....
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....rlier Bench of the ITAT, Cochin vide its order in the case of Kunnamangalam Co-operative Bank vs. ITO in I.T.A. No. 156/Coch/2014 dated 25/07/2014. It is very relevant to reproduce the said order of the earlier Bench of ITAT, Cochin wherein the all the issues have been dealt with in detail hereinbelow for the sake of convenience: "IN THE INCOME TAX APPELLATE TRIBUNAL BENCH, COCHIN ITA No. 156/Coch/2014 Assessment Year: 2009-10 KUNNAMANGALAM CO-OPERATIVE BANK KUNNAMANGALAM, KOZHIKODE PAN NO:AAAJT1353R VS INCOME TAX OFFICER WARD-2(3), KOZHIKODE N R S Ganesan, JM & Chandra Poojari, AM Date of Hearing: July 2, 2014 Date of Decision: July 25, 2014 Appellant Rep by: Shri C B M Warrier, CA Respondent Rep by: Shri K K John, Sr. DR ORDER Per: Chandra Poojari: This appeal by the assessee is directed against the order dated 04-02-2014 passed by the CIT(A), Kozhikode for the assessment year 2009-10. 2. The assessee has raised the following grounds: 2. The assessee has raised the following grounds: 1. The assessee is Kunnamangalam Co-operative Bank, Kunnamangalam, ....
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.... the claim of deduction u/s. 80P of the Act, and completed the assessment determining the total income at Rs. 68,71,578/-. On appeal, the CIT(A) confirmed the disallowance made by the Assessing officer by observing as under: "I have gone through the assessment order and also the submission and case laws relied by the assessee. As regards the first ground of appeal against the disallowance of deduction claimed u/s. 80P of the Income Tax Act, 1961, the Assessing officer after analyzing the activities of the assessee-society came to the conclusion that since the assessee has not fulfilled its main object of providing financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities, it is not eligible for deduction u/s. 80P of the Act. During remand proceedings, the Assessing officer again verified the claim of the assessee that most of the loans given during the year are for agricultural purposes, and found the claim of the assessee was not true. Further, it was held by the Hon'ble High Court of Kerala in WP(C) No. 14226 of 2012(C) dated 14th September, 2012 in the case of M/s. Thathamangalam Service Co-operative Bank....
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.....T.A. No. 245/KNR/CLT/2011-12 dated 21-09-2012 in the case of Karivellur Service Co-operative Bank Ltd. for A.Y. 2009-10, I uphold the decision of the Assessing officer". 5. Against this, the assessee is in appeal before us. The Ld. AR relied on the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op Credit Society Ltd. in I.T.A. Nos. 442, 443 & 863/2013 dated 15/01/2014 wherein it was held as under: "7. From the above clarification, it can be gathered that sub-section(4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Co-op Urban Thrift and Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a co-operative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue's contention that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained therein but also credit societies, which are not co-operative banks. In the present case, respondent assessee is admittedly not a credit co-operative bank but....
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....hall be the following, namely :- (a) in the case of a co-operative society engaged in- (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 activities. "80P(4)The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. Explanation.-For the purposes of this sub-section,- (a) "co-operative bank" and "primary agricultural credit 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 development bank" means a society having its area of operation confined to a taluk and the principal 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 eligible for deduct....
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....r:- "(CCV)" primary co-operative bank" means a co-operative society, other than a primary agricultural credit society- (1) The primary object or principal business of which is 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 of any other cooperative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such cooperative 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 that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transacted by it is a banking business, secondly, the paid up share capital and reserve of which are 1 lakh or more and thirdly, by laws of the cooperative society do not permit admission of any other co-operative society as a member, it will be regarded to be primary co-operative bank. If co-operative society do....
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....eme for purchasing household articles, machinery, jeep, autorikshaw, car etc. 14) To accept deposits from primary non-agricultural cooperative 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 the 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 for agricultural purposes or for the purposes connected with agricultural activities. 8.7 On the basis of these objects whether it can be said that the primary object or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner : "banking" means the accepting, for the purpose of lending or in vestment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise." From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwise and withdrawal of these deposits by che....
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....iety for lending or investment. This fact has not been denied. 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 Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right. So far as the second condition is concerned, 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 second condition. 8.9 Thus, we notice that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with. 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 case before us. In that decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a cooperative ....
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....e petitioners-the co-operative societies in question-are required to advance loans to their members, they do not cease to be co-operative societies governed by the Act nor can they be treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to "banking" as contemplated under the Banking Regulation Act, 1949, inasmuch as these co-operative societies are not established for the purpose of doing "banking" as defined 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 society 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 in the case of DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari 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 under para 12 of its order, this Tribunal has held as under : ....
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....the assessee is no different from an ordinary bank except that it lends money and receives dividend from its shareholders 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 Permanent Fund Ltd., 67 ITR 673 (AP) and CIT vs. Bhavnagar Trust Corporation (P) Ltd., 69 ITR 278. Further, the Hon'ble Kerala High Court in the case of Kottayam 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 assessee 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 assessee's appeal, held that exemption under clause (c) is in addition to the exemption allowable under clauses (a) and (b) and directed the Income-tax Officer to allow a deduction of Rs. 20,000 separately, taking into consideration the property income earned by the assessee. The Revenue carried the matter in appeal befor....
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....d. 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, interest earned by a cooperative society, which was carrying on the business of supplying surgarcane 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 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 business. Where, however, the assessee as owner of certain property lets out that property and receives rental income, the income thus received cannot partake of the character of profits and gains attributable 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 the word "business". It connotes a specified form of supervised action or 0field of action. Read in the context of the profit e....