Ita/103/2011 Of Kerala State Co-Op.agrl.& Rural Developm v. The Commissioner Of Income Tax, Tvm

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR. JUSTICE BABU MATHEW P.JOSEPH THURSDAY, THE 26TH DAY OF NOVEMBER 2015/5TH AGRAHAYANA, 1937 ITA.No. 103 of 2011 ( ) ------------------------ ITA 506/COCH/2010 of I.T.A.TRIBUNAL,COCHIN BENCH ---------------- APPELLANT : ------------------ KERALA STATE CO-OERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD., KASCARDB BUILDINGS, POST BOX NO.56, STATUE JUNCTION THIRUVANANTHAPURAM-695001.REPRESENTED BY IT MG.DIRECTOR(I/C) SMT. K.USHA DEVI. BY ADVS.SRI.GEORGE POONTHOTTAM SRI.GEORGE POONTHOTTAM,SC,KSCOARDBANK L SRI.ANIL D. NAIR RESPONDENTS : ---------------------- 1. THE COMMISSIONER OF INCOME TAX, TRIVANDRUM-695001. TRIVANDRUM-695001. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), TRIVANDRUM-695001. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 23/9/2015, THE COURT ON 26-11-2015 DELIVERED THE FOLLOWING: bp ITA.No. 103 of 2011 ( ) APPENDIX PETITIONER'S ANNEXURES : ANNEXURE A:COPY F THE ASSESSMENT ORDER DT 22/12/2009. ANNEXURE B:COPY OF THE APPELLATE ORDER BY THE COMMISSIONER OF INCOME-TAX(APPEALS), TRIVANDRUM DT 30/7/2010.ANNEXURE C:COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DT 23/2/2011. ANNEXURE D:COPY OF THE NOTICE NO. AAAAK4391F/CIRCLE1(2)TVM/2011-12 DT 31/3/2012. ANNEXURE E:COPY OF THE NOTICE NO. AAAAK391F/CIRCLE 1(2)/TVM/2012-13 DT 7/6/2012. RESPONDENT'S ANNEXURES : NIL. //TRUE COPY// P.A.TO JUDGE bp Thottathil B.Radhakrishnan & Babu Mathew P. Joseph, JJ. = = = = = = = = = = = = = = = = = = = = = = = =I.T.A.No.103 of 2011 = = = = = = = = = = = = = = = = = = = = = = = = Dated this the 26[th] day of November, 2015 Judgment Thottathil B.Radhakrishnan, J. 1.Having heard the learned counsel appearing forthe appellant and the learned senior advocate forthe Revenue, we encapsulate the question fordecision in this appeal under Section 260A of theIncome Tax Act, 1961, “IT Act”, for brevity, asfollows: Are the provisions of Section 80P of ITAct excluded in terms of Sub-section 4of that Section; from application inrelation to the Kerala State Co-operativeAgriculturalandRuralDevelopment Bank Limited; governed by ITA103/11 -: 2 :- the provisions of the Kerala State Co-operative (Agricultural and RuralDevelopmentBanks)Act,1984;hereinafter, the 'CARDB Act'?operative (Agricultural and RuralDevelopmentBanks)Act,1984;hereinafter, the 'CARDB Act'? 2.We are dealing with the assessment year 2007-2008or thereafter, and are therefore concerned with-or thereafter, and are therefore concerned with-the impact of the insertion of Subsection 4 ofSection 80P in the IT Act with effect from1.4.2007. We proceed accordingly.Section 80P in the IT Act with effect from1.4.2007. We proceed accordingly. ITA103/11 -: 2 :- the provisions of the Kerala State Co-operative (Agricultural and RuralDevelopmentBanks)Act,1984;hereinafter, the 'CARDB Act'?operative (Agricultural and RuralDevelopmentBanks)Act,1984;hereinafter, the 'CARDB Act'? 2.We are dealing with the assessment year 2007-2008or thereafter, and are therefore concerned with-or thereafter, and are therefore concerned with-the impact of the insertion of Subsection 4 ofSection 80P in the IT Act with effect from1.4.2007. We proceed accordingly.Section 80P in the IT Act with effect from1.4.2007. We proceed accordingly. 3.In this appeal we do not propose to considerwhether the appellant would be entitled todifferent deductions with respect to Sub-sections1 and 2 of Section 80P of the IT Act as may beclaimed by it; even if it does not escape fromthe application of Section 80P by recourse toSub-section 4 of that Section. We do so becauseno such issue appears to have been pointedlyaddressed by the Appellate Tribunal, which couldbe decided by us in this appeal; withoutprejudicing the contentions of the appellant andthe department in another appeal; namely, ITA.whether the appellant would be entitled todifferent deductions with respect to Sub-sections1 and 2 of Section 80P of the IT Act as may beclaimed by it; even if it does not escape fromthe application of Section 80P by recourse toSub-section 4 of that Section. We do so becauseno such issue appears to have been pointedlyaddressed by the Appellate Tribunal, which couldbe decided by us in this appeal; withoutprejudicing the contentions of the appellant andthe department in another appeal; namely, ITA. No.137 of 2011 filed by the department. 4.The learned counsel appearing for the appellantargued that the provisions of the CARDB Act andthe legislations which preceded it unequivocallyshow that the provisions of Section 80P of the ITAct do not apply to the appellant in view of Sub-section 4 of that Section. It is pointedly arguedthat the appellant is a co-operative bank, otherthan a 'primary agricultural credit society' or a'primary co-operative agricultural and ruraldevelopment bank' and therefore, Section 80P ofthe IT Act does not apply to it in view of Sub-section 4 thereof.argued that the provisions of the CARDB Act andthe legislations which preceded it unequivocallyshow that the provisions of Section 80P of the ITAct do not apply to the appellant in view of Sub-section 4 of that Section. It is pointedly arguedthat the appellant is a co-operative bank, otherthan a 'primary agricultural credit society' or a'primary co-operative agricultural and ruraldevelopment bank' and therefore, Section 80P ofthe IT Act does not apply to it in view of Sub-section 4 thereof. 5.Per contra, the learned senior advocate appearingfor the Revenue argued that the view taken by theTribunal does not warrant interference at thehands of this Court and that those findings ofthe Tribunal are in accordance with the relevantstatutory provisions which govern the situationin hand.for the Revenue argued that the view taken by theTribunal does not warrant interference at thehands of this Court and that those findings ofthe Tribunal are in accordance with the relevantstatutory provisions which govern the situationin hand. 6.Before further proceeding, we may acknowledgethat the learned counsel for the appellant andthe learned senior advocate for the Revenue madecopious reference to the relevant provisions ofthe aforenoted legislations and the BankingRegulation Act, 1949, 'BR Act', for short; aswell as the National Bank for Agricultural andRural Development Act, 1981, 'NABARD Act', forshort; and the provisions of the Kerala Co-operative Societies Act, 1969, hereinafterreferred to as 'KCS Act'. Certain provisions ofthe Reserve Bank of India Act, 1934, 'RB Act',for short, were also referred to. 6.Before further proceeding, we may acknowledgethat the learned counsel for the appellant andthe learned senior advocate for the Revenue madecopious reference to the relevant provisions ofthe aforenoted legislations and the BankingRegulation Act, 1949, 'BR Act', for short; aswell as the National Bank for Agricultural andRural Development Act, 1981, 'NABARD Act', forshort; and the provisions of the Kerala Co-operative Societies Act, 1969, hereinafterreferred to as 'KCS Act'. Certain provisions ofthe Reserve Bank of India Act, 1934, 'RB Act',for short, were also referred to. 7.Sub-section 1 of Section 80P of the IT Actauthorises deductions in respect of co-operativesocieties; in terms of Sub-section 2 of Section80P. That is a provision made in the case of anassessee being a co-operative society. Sub-section 4 of Section 80P provides that theprovisions of Section 80P shall not apply in ITA103/11 relation to any 'co-operative bank' other than a'primary agricultural credit society' or a'primary co-operative agricultural and ruraldevelopment bank'. Therefore, the exclusionprovided through Section 80P(4) applies only whenthe assessee is a co-operative bank, which iseither a primary agricultural credit society or aprimary co-operative agricultural and ruraldevelopment bank. 8.For the purpose of Section 80P(4), the term'primary co-operative agricultural and ruraldevelopment bank' is defined in Clause (b) in theExplanation thereto. Apart from its principalobject and activities, an assessee can fall underthat Explanation only if it is a society havingits area of operation confined to a taluk. Theappellant does not have a case that its area ofoperation is confined to a taluk. Therefore, theappellant does not belong to that category. 9.The question, therefore, would be as to whether the appellant is a 'co-operative bank' which is a'primaryagriculturalcreditsociety'.Hereinafter, we proceed to decide that issue. 10.To define the terms 'co-operative bank' and'primary agricultural credit society' for thepurpose of Section 80P of the IT Act; theParliament, through the Explanation to Sub-section 4 of Section 80P of that Act; hasincorporated by reference, the definitions ofthose terms in Part V of the BR Act. Reverting tothe BR Act, it can be seen that what has beendone through Part V of that Act is to prescribethe modifications regarding the application ofthat Part to co-operative societies. By theeffect of Section 56 among Part V of the BR Act,among other things; Section 5 of the BR Act,which is the interpretation clause of thatstatute, got modified by incorporation ofdifferent definitions, including the terms 'co-operative bank' and 'primary agricultural creditsociety'. Those terms stood thus incorporated at ITA103/11 -: 7 :- sequences (cci) and (cciv) respectively inSection 5 of the BR Act. We may here and now notethat both those definition clauses open using theterm 'means'. 11.Clause (cci) of Section 5 of the BR Act,incorporated as aforenoted, provides that: “Co-operative bank” meansa stateco-operative bank, a central co-operative bank and a primary co-operative bank. 12.As per Clause (ccvii) of Section 5 read withSection 56 of the BR Act, “central co-operativebank” and “state co-operative bank” shall havethe meaning respectively assigned to them in theNABARD Act. Those terms are defined in Clauses(d) and (u) of Section 2 of the NABARD Act to,respectively, meanthe principal co-operativesociety in a district, or, in a State; theprimary object of which is the financing of otherco-operative societies in the district and State respectively. 11.Clause (cci) of Section 5 of the BR Act,incorporated as aforenoted, provides that: “Co-operative bank” meansa stateco-operative bank, a central co-operative bank and a primary co-operative bank. 12.As per Clause (ccvii) of Section 5 read withSection 56 of the BR Act, “central co-operativebank” and “state co-operative bank” shall havethe meaning respectively assigned to them in theNABARD Act. Those terms are defined in Clauses(d) and (u) of Section 2 of the NABARD Act to,respectively, meanthe principal co-operativesociety in a district, or, in a State; theprimary object of which is the financing of otherco-operative societies in the district and State respectively. 13.The primary element required to be satisfied tofall under either of the definitions in Clause(d) or Clause (u) of Section 2 of the NABARD Actis that it should be a “co-operative society”;which term is defined in Section 2(f) of theNABARD Act to mean a society registered, ordeemed to be registered, under the Co-operativeSocieties Act, 1912 (Central Act), or any otherlaw relating to co-operative societies for thetime being in force in any State. The appellantis not a society registered either under theCentral Act or under the provisions of the KCSAct. Section 2(a) of the CARDB Act defines the“Agricultural and Rural Development Bank” as theone registered under Section 10 of theTravancore-Cochin Co-operative Societies Act,1951 and it is that entity which, in turn; underSection 2(a) of the CARDB Act, is to bethereafter known as the “Kerala State Co-operative Agricultural and Rural Development Bank ITA103/11 Limited.” Obviously therefore, while the affairsof that institution, namely, the Kerala State Co-operative Agricultural and Rural Development BankLimited, fall to be regulated by the provisionsof the Kerala State Co-operative (Agriculturaland Rural Development Banks) Act, 1984;nonetheless, it continues to be a societyregistered under the provisions of theTravancore-Cochin Co-operative Societies Act,1951. That Act was repealed as per Section 110 ofthe KCS Act, however with a saving clause in Sub-section 2 of Section 110 of the KCS Act, whereby,among other things, any society existing in theState on the date of commencement of the KCS Act,which has been registered or deemed to beregistered under the provisions of any of theenactments repealed through Section 110 of theKCS Act shall be deemed to be registered underthe KCS Act, and the bye-laws of such societyshall, so far as they are not inconsistent withthe provisions of the KCS Act, continue in forceuntil altered or rescinded. Therefore, the appellant, Kerala State Co-operative Agriculturaland Rural Development Bank Limited is a societywhich is deemed to be one registered under theKCS Act. So much so, it is a society registeredunder the law relating to co-operative societiesfor the time being in force in the State ofKerala and is a co-operative society as definedin Section 2(f) of the NABARD Act. 14.As per Section 47 of the CARDB Act, there is anentire transition of the assets and liabilitiesof the Kerala Co-operative Central Land MortgageBank and primary land mortgage banks whereby theystand transferred and vested in the Agriculturaland Rural Development Bank and its primary banks.The Central Land Mortgage Bank and the primaryland mortgage banks referred to in Section 47 ofthat Act are respectively the Central MortgageBank and the primary mortgage banks which stoodgoverned by the provisions of the Kerala Co-operative Land Mortgage Banks Act, 1960 whichenactment stood repealed as per Section 52(1) of ITA103/11 14.As per Section 47 of the CARDB Act, there is anentire transition of the assets and liabilitiesof the Kerala Co-operative Central Land MortgageBank and primary land mortgage banks whereby theystand transferred and vested in the Agriculturaland Rural Development Bank and its primary banks.The Central Land Mortgage Bank and the primaryland mortgage banks referred to in Section 47 ofthat Act are respectively the Central MortgageBank and the primary mortgage banks which stoodgoverned by the provisions of the Kerala Co-operative Land Mortgage Banks Act, 1960 whichenactment stood repealed as per Section 52(1) of ITA103/11 CARDB Act with saving clauses relating to allmatters including the relationship between theCentral Land Mortgage Bank and the primary banksand also the bye-laws, unless inconsistent withthe provisions of the CARDB Act. Carrying forwardthe structuring and operations provided for bythe Kerala Co-operative Land Mortgage Banks Act,1960, the CARDB Act provides for the Kerala StateCo-operative Agricultural and Rural DevelopmentBank Limited (appellant) as the principal co-operative society in the State for the purpose ofagricultural credit facility. The provisions ofthe CARDB Act provide an operational mechanismthrough the primary banks and primaryagricultural credit societies as defined inClauses (g) and (h) of Section 2 of the CARDBAct. These provisions would show that theappellant falls within the term “co-operativebank” in Clause (cci) of Section 5 of the BR Actand thereby is a co-operative bank for thepurpose of Section 80P of the IT Act. ITA103/11 -: 12 :- 15.Having held as aforesaid, the question forfurther consideration is as to whether theappellant is also a primary agricultural creditsociety. We proceed to decide that issue. 16.In terms of Clause (a) of the Explanation toSection 80P(4), “primary agricultural creditsociety” takes the meaning assigned to it in PartV of the BR Act. Clause (cciv) of Section 5 of BRAct defines the term 'primary agricultural creditsociety'. It reads as follows: (cciv) “primary agricultural creditsociety”meansaco-operativesociety,- (1) the primary object or principal business of which is toprovide financial accommodation toits members for agricultural purposesor for purposes connected withagricultural activities (includingthe marketing of crops); and (2) the bye-laws of which do notpermit admission of any other co- operative society as member: Provided that this sub-clauseshall not apply to the admission of aco-operative bank as a member byreason of such co-operative banksubscribing to the share capital ofsuch co-operative society out offunds provided bytheStategovernment for the purpose. To fall under the aforesaid definition of“primary agricultural credit society”, anassessee has to satisfy the two conditions underSub-clauses (1) and (2) of that Clause; which areconjunctive, and, not alternative. 17.The condition in Sub-clause (2) of Clause (cciv)of Section 5 of the BR Act is to the effect thata primary co-operative society should not be onewhich permits admission of any other co-operativesociety as member, to be a 'primary agriculturalcredit society'. The provisions of the Kerala Co-operative Land Mortgage Banks Act, 1960 and ofthe CARDB Act show that the appellant Kerala ITA103/11 State Co-operative Agricultural and RuralDevelopment Bank Limited may admit a primary bankas its member. 'Primary bank' as defined inSection 2(h) of the CARDB Act means, among otherthings, a co-operative society. Therefore, theappellant does not satisfy the conditionprescribed in Sub-clause (2) of Clause (cciv) ofSection 5 of the BR Act and hence, it is not aco-operative bank which is a primary agriculturalcredit society. ITA103/11 State Co-operative Agricultural and RuralDevelopment Bank Limited may admit a primary bankas its member. 'Primary bank' as defined inSection 2(h) of the CARDB Act means, among otherthings, a co-operative society. Therefore, theappellant does not satisfy the conditionprescribed in Sub-clause (2) of Clause (cciv) ofSection 5 of the BR Act and hence, it is not aco-operative bank which is a primary agriculturalcredit society. 18.The learned counsel for the appellant drew ourattention to the judgments of the Karnataka HighCourt in ITA.No.598 of 2013 and ITA.No.5006 of2013. We have examined those judgments. They dealwith credit co-operative societies engaged inproviding credit facilities to their members.Those decisions have no application to the casein hand. We say so because, in terms of thedefinition clauses of the BR Act which apply tothe interpretation of the terms in Section 80P(4)of the IT Act in view of the Explanation to that ITA103/11 -: 15 :- sub-section as enunciated above, an assessee co-operative society which has other co-operativesocieties as members is not eligible to theexemption and the appellant is not a primaryagricultural credit society as found above. 19.In view of the aforesaid conclusion, we answerthe question formulated above holding that theassessee does not fall within Sub-section 4 ofSection 80P of the IT Act for the assessment yearin question. Hence, the impugned decision of theTribunal does not warrant interference and thisappeal by the assessee fails. In the result, this appeal is dismissed. Nocosts. Sd/- Thottathil B. Radhakrishnan Judge Sd/- Babu Mathew P. Joseph Judge Sha/ -true copy- PS to Judge