The Commissioner Of Income Tax v. M/S. Veerakeralam Primary Agricultural Co-Operative Credit Societyno

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM : THE HONOURABLE MR. JUSTICE S.MANIKUMARandTHE HONOURABLE MR. JUSTICE D.KRISHNAKUMAR Tax Case Appeal Nos.735, 755 of 2014 and 460 of 2015 The Commissioner of Income Tax,63, Race Course RoadCoimbatore....Appellant in all the above appeals Vs M/s. Veerakeralam Primary Agricultural Co-operative Credit SocietyNo.17, Peria Thottam ColonyVeerakeralamCoimbatore – 641 007. ...Respondent in all the above appeals Prayer: Appeals filed under Section 260A of Income Tax Act,1961 against the orders of the Income Tax Appellate TribunalMadras 'D' Bench dated 11.02.2014 in I.T.A.No.197/Mds/2013,'C' Bench dated 21.03.2014 in I.T.A.No.2287/Mds/2013 and 'A'Bench dated 30.01.2015 in I.T.A. No. 2102/Mds/2014, andagainst the Order of the Commissioner of Income Tax(Appeals)-I, Coimbatore, dated 01.11.2012 made in P.A.No./GIR.No.AAAAV3131G and against the Income Tax Officer, Ward II(3),Coimbatore, dated 27.12.2011 made in PAN.No. ,Assessment Year 2009-10. (In TCA.735 of 2014), and against theOrder of the Commissioner of Income Tax(Appeals)-I, Coimbatoredated 30.10.2013 made in P.A.No./GIR.No.AAAAV3131G, andagainst the Order of the Income Tax Officer, Ward II(3),Coimbatore, dated 06.03.2013 made in PAN.No. ,Assessment Year 2008-09. (In TCA.755 of 2014), and against theOrder of the commissioner of Income Tax(Appeals)-I, Coimbatoredated 01.05.2014 made in P.A.No./GIR.No.AAAAV3131G, andagainst the Order of the Income Tax Officer, Ward II(3),Coimbatore dated 08.03.2013 made in PAN.No. ,Assessment Year 2010-11. (In TCA.460 of 2015). For Respondent : Mr. A.S. Sri Raman for Mr. S. Sridhar https://hcservices.ecourts.gov.in/hcservices/ COMMON JUDGMENT (Judgment of the Court was made by D. KRISHNAKUMAR, J) These Appeals have been filed by the Revenue againstthe orders of Madras 'D' Bench dated 11.02.2014 inI.T.A.No.197/ Mds/2013, 'C' Bench dated 21.03.2014 inI.T.A.No.2287/Mds/2013 and 'A' Bench dated 30.01.2015 inI.T.A. No. 2102/Mds/2014 on the file of the Income TaxAppellate Tribunal. 2. The facts of the case are as follows :- The Assessee society, namely, Veerakeralam PrimaryAgricultural Co-operative Credit Society, filed return ofincome for the Assessment years 2008-09, 2009-10 and 2010-11on 30.03.2010, admitting 'Nil' income. The cases wereselected for scrutiny and notice under Section 143(2) of theIncome Tax Act, was issued and served on the assessee. TheAssessee, stating they are a Primary Agricultural CreditSociety, carrying on the business of banking and providingcredit facilities to its members, claimed deduction underSection 80P (2) of the Income Tax Act. The assessee societyis registered under Tamil Nadu Co-operative Societies Act,primarily engaged in the principle business of providingfinancial assistance to its members, besides deriving incomefrom its Tractor division and Public Distribution Division.The aforesaid assessee invested its funds in CDCC Bank etc.,to comply with the statutory obligations and received interestfrom such investments, which has been headed under “Incomefrom other sources”. Therefore, the interest income anddividend income have come under the taxable income underSection 80P (2)(a)(i) & (d) of the Income Tax Act, 1961. TheAssessing Officer has observed that the assessee bynomenclature is a “Primary Agricultural Co-operative CreditSociety” and with the insertion of Section 80P (4), all theco-operative banks other than primary agricultural creditsociety or a primary co-operative agricultural and ruraldevelopment bank, become ineligible for exemption underSection 80P. 3. It is further stated that the meaning of“Primary Agricultural Credit Society” as defined in Section 5(cciv) of the Banking Regulation Act, 1949, reads asfollows :- 3. It is further stated that the meaning of“Primary Agricultural Credit Society” as defined in Section 5(cciv) of the Banking Regulation Act, 1949, reads asfollows :- “ (cciv) Primary Agricultural Credit Society meansCo-operative Society :- (1)the primary object or principal business ofwhich is to provide financial accommodationto its members for agricultural purposes orhttps://hcservices.ecourts.gov.in/hcservices/for purposes connected with agricultural activities (including the marketing ofcrops); and(2) the bye-laws of which do not permitadmission of any other co-operative societyas a member ; ” Therefore, the Assessing Officer decided that though theassessee society is a Primary Co-operative Society, sincecarrying on the business of banking, it falls within the ambitof Primary Co-operative Society. As the assessee society is a“co-operative bank” within the meaning of explanation ofSection 80P (4), the benefit under Section 80P is denied.Aggrieved by the said orders, the assessee society, wentbefore the Commissioner of Income Tax (Appeals)-I, Coimbatore,on appeal, raising the following grounds :- 1. The assessee “The Veerakeralam Primary AgriculturalCooperative Credit Society” is engaged with the primeobjective of providing agricultural credit facilities toits members and also doing banking business. The statusof the assessee, as a primary agricultural cooperativecredit society, has been affirmed by the audit reports ofthe Co-operative Auditor of the Tamil Nadu Government. At the outset of the assessment order in question, theAssessing Officer treated as well, the status of theassessee as Primary Agricultural Cooperative CreditSociety, for the reason of the facts of the case of theassessee. However, the Assessing Officer erred indisallowing the deduction claimed under Section 80P bythe assessee for the reason that the assessee beingprimary cooperative society carrying on the business ofbanking. Such a disallowance is not based on the factsand circumstances of the case. 2. The Assessing Officer erred in treating its interestetc., on investments made, as taxable under the head“Income from other sources” and not under bankingbusiness. The judicial decision cited i.e., M/s.Totgar'sCooperative Sale Society Limited Vs ITO 229 CTR 209 (SC)2010 is not relevant to the assessee's case where thefacts are entirely different. Also for the assessee theentire interest and dividend income are deductible underSection 80P(2)(d) also. 3. The Assessing Officer erred in ignoring the facts andcircumstances of the case i.e., Primary AgriculturalCooperative Credit Society doing banking as its principalbusiness complying with section 5(cciv) of the BankingRegulation Act, 1949, but based her assessment on thestatements made by the Authorised Representative at thetime of assessment proceedings. 4. In the aforesaid circumstances, it is earnestly prayedthat the deduction u/s 80P may be restored in toto in theassessment and the tax demand raised may be nullified. https://hcservices.ecourts.gov.in/hcservices/ 3. The Assessing Officer erred in ignoring the facts andcircumstances of the case i.e., Primary AgriculturalCooperative Credit Society doing banking as its principalbusiness complying with section 5(cciv) of the BankingRegulation Act, 1949, but based her assessment on thestatements made by the Authorised Representative at thetime of assessment proceedings. 4. In the aforesaid circumstances, it is earnestly prayedthat the deduction u/s 80P may be restored in toto in theassessment and the tax demand raised may be nullified. https://hcservices.ecourts.gov.in/hcservices/ 4. The appellant has submitted before theCommissioner of Income Tax that Section 80P was amended videFinance Act, 2006, with effect from 01.04.2007 i.e., from theAssessment year 2008-09 onwards. Sub section (4) wasintroduced under Section 80P. This subsection denied thededuction to a cooperative bank. Till the amendment ofintroducing subsection (4) under Section 80P, there was norequirement to analyse and understand the various terms,namely, banking business, agricultural credit society, primarycooperative society, the nature of head of income under whichthe income should be categorized etc.. The assessee is aprimary agricultural credit society within the meaning of BankRegulation Act, 1949. Subsection (cciv) which has beenmodified by Section 56 of the said Act, defines 'the PrimaryAgricultural Credit Society'. In view of the abovedefinition, the assessee society provides financial assistanceonly to its members for agricultural and related purposes. Its byelaw does not permit admission of any other cooperativesociety as a member. All the deposits it receive from themembers, are deposited into the Coimbatore District CentralCooperative Bank and the credit facilities are withdrawn fromthese accounts, for its members. Therefore, the assesseesociety is not a cooperative bank as defined under Section 5(b) of the Banking Regulation Act, 1949, which is extractedbelow :- “ 5 (b)- Banking means the accepting, for thepurpose of lending, or investment, of depositsof money from the public, repayable on demandor otherwise, and withdrawable by cheque,draft, order or otherwise.” 5. It is further submitted that without licensefrom Reserve Bank of India, no person, other than the PrimaryCredit Society can carry on the business of banking. Theassessee society is not a primary credit society and has notobtained any license from RBI and the business it carries isnot banking as per the Banking Regulation Act. Further, theinterest income is derived from Investment in a cooperativesociety and so claimed deduction under Section 80P (2)(d). Considering the above submissions, the appellate authority, inits order has clearly defined the difference between theCooperative Bank and the Cooperative Society and decided theappeal in favour of the assessee and granted relief underSection 80P(2)(a)(i) of the Income Tax Act. Thus, the appealwas allowed by the Appellate Authority. 6. Against the aforesaid order, the Revenue filedan appeal before the Income Tax Appellate Tribunal and thesaid appeal was also dismissed, based on the provisions of theBanking Regulation Act and the Cooperative Societies Act. Thehttps://hcservices.ecourts.gov.in/hcservices/Tribunal also considered the decision rendered by the Bangalore Bench of the Tribunal in the case of ACIT vs.Bangalore Commercial Transport Credit Co-operative SocietyLimited, in ITA No.1069/Bang/2010 relevant to the AY 2007-08decided on 08.04.2011, which was subsequently followed by theco-ordinate Benches of the Tribunal and held that theactivities are not regulated by the Reserve Bank of India orby the provisions of the Banking Regulation Act. Therefore,the appeal filed by the Revenue was dismissed by the Tribunal. Bangalore Bench of the Tribunal in the case of ACIT vs.Bangalore Commercial Transport Credit Co-operative SocietyLimited, in ITA No.1069/Bang/2010 relevant to the AY 2007-08decided on 08.04.2011, which was subsequently followed by theco-ordinate Benches of the Tribunal and held that theactivities are not regulated by the Reserve Bank of India orby the provisions of the Banking Regulation Act. Therefore,the appeal filed by the Revenue was dismissed by the Tribunal. 7. Aggrieved with the abovesaid orders rendered bythe Commissioner of Income Tax as well as the AppellateTribunal, the revenue has filed the instant Appeals. 8. Learned counsel for the appellant would submitthat revenue has filed the instant appeals mainly on theground that allowing a claim for deduction, on the incomearisen through banking business by the assessee society, iscontrary to the provisions of law, when the deduction isallowable only for ‘Primary Agricultural Credit Society’ and‘Primary Co-operative Agricultural and Rural DevelopmentBank’. And that the deduction is not allowable to a PrimaryAgricultural Credit Society, carrying on the business ofbanking. The appellant Revenue has raised such substantialquestions of law, in the above appeals. 9. Learned counsel for the respondent submittedthat they are a Primary Agricultural Co-operative CreditSociety, within the meaning of Section 5 of Banking RegulationAct, 1949. Subsection (cciv) of the said Section, definesthe Primary Agricultural Credit Society. The society providesfunds only to its members and its bye-laws do not admit anyother co-operative society as a member. The sub section (4)of Section 80P, provides that deduction under the said sectionshall not be extended to any Co-operative Bank other than aPrimary Agricultural Credit Society or a Primary Co-operativeAgricultural and Rural Development Bank. 'Co-operative Bank'shall have its meaning under part V of the Banking RegulationAct, 1949 . It is clear from the above said provisions of subsection 4 of Section 80P, that the benefit shall not beavailable to Co-operative banks. There is a differencebetween Co-operative Bank and Co-operative Society, which areregistered under different Acts. 'Co-operative banks' aregoverned by the Co-operative Society registered under the BankRegulation Act, 1949 and the aforesaid regulation is bindingon the Co-operative banks. Whereas, the 'Co-operativesocieties' are governed by the Co-operative Societies Act,registered under the Co-operative Societies Act and the samewill be governed by the Co-operative Societies Act, 1959. Therefore, the introduction of subsection (4) to Section 80Pis brought into the statue only to bring the cooperative bankson par with the commercial banks. Therefore, the assesseehttps://hcservices.ecourts.gov.in/hcservices/society is not a co-operative bank but a co-operative society extending credit facilities to its members. It is submittedthat in view of the above, the Appellate Authority as well asthe Appellate Tribunal, have rightly rejected the contentionof the Revenue and passed orders in favour of the assesseesociety. 10. Heard Mr.T.R.Senthil Kumar, learned SeniorStanding Counsel for the appellant and Mr. A.R. Sri Ramanfor Mr. S. Sridhar, learned counsel for the respondent. 11. At the time of admission, this Court admittedthe instant appeals, framing the following substantialquestions of law :- 1. Whether on the facts and circumstances ofthe case, the Appellate Tribunal was rightin directing the assessing officer to allowthe deduction under Section 80P(2) of theIncome Tax Act to the assessee who isprimarily engaged in lending loans for nonagricultural purposes ?2. Whether on the facts and circumstances ofthe case the Appellate Tribunal was right inholding that the assessee’s claim fordeduction is not restricted by Section 80P(4) of the Income Tax Act ? 10. Heard Mr.T.R.Senthil Kumar, learned SeniorStanding Counsel for the appellant and Mr. A.R. Sri Ramanfor Mr. S. Sridhar, learned counsel for the respondent. 11. At the time of admission, this Court admittedthe instant appeals, framing the following substantialquestions of law :- 1. Whether on the facts and circumstances ofthe case, the Appellate Tribunal was rightin directing the assessing officer to allowthe deduction under Section 80P(2) of theIncome Tax Act to the assessee who isprimarily engaged in lending loans for nonagricultural purposes ?2. Whether on the facts and circumstances ofthe case the Appellate Tribunal was right inholding that the assessee’s claim fordeduction is not restricted by Section 80P(4) of the Income Tax Act ? 12. The assessee society, primarily registered as“Veerakeralam Primary Agricultural Co-operative Bank Ltd.,” under the Tamilnadu Co-operative Societies Act, 1964,subsequently in 1968, has changed its name as “ VeerakeralamPrimary Agricultural Co-operative Credit Society”. Theassessee claims to be a “primary agricultural credit society”,engaged primarily in the principle business of providingfinancial assistance to its members, during the assessmentyears 2008-2009, 2009-2010 and 2010-2011. The members of thesociety are agriculturists and are governed by the Tamil NaduCo-operative Societies Act, 1964. A Co-operative Bank, asdefined in Section 5(cci) of the Banking Regulation Act 1949means a primary co-operative bank. A primary co-operativeBank is a co-operative society other than a primaryagricultural credit society. Therefore, a primaryagricultural credit society need not be treated as a PrimaryCo-operative Bank. The terms ‘co-operative bank’ and ‘primaryagricultural credit society’ for the purpose of subsection (4)of Section 80P Act, shall have the meanings, as assigned tothem in part V of the Banking Regulation Act, 1949; going byExplanation (a) occurring after section 80P(4). For thepurpose of that sub-section, ‘primary co-operativeagricultural and rural development bank’ is defined to meanhttps://hcservices.ecourts.gov.in/hcservices/what is stated in Explanation (b) to Section 80P (4) of the Income Tax Act. Therefore, ‘primary agricultural creditsociety’ means a ‘co-operative society’. Income Tax Act. Therefore, ‘primary agricultural creditsociety’ means a ‘co-operative society’. 13. Sub-section (4) of Section 80P of the IncomeTax Act, 1961 is extracted below :“(4) The provisions of this section shall notapply in relation to any co-operative bankother than a primary agricultural creditsociety or a primary co-operative agriculturaland rural development bank.”Explanation – For the purposes of this sub-section ---(a) “co-operative bank” and“primary agricultural credit society”shall have the meanings respectivelyassigned to them in Part V of the BankingRegulation Act, 1949 (10 of 1949);(b) “primaryco-operativeagricultural and rural development bank” means a society having its area ofoperation confined to a taluk and theprincipal object of which is to providefor long-term credit for agricultural andrural development activities.” It is seen that the primary object of the society is toprovide financial accommodation to its members to meet all theagricultural requirements and to provide credit facilities tothe members, as per the bye-laws and as laid down in Section 5(cciv) of the Banking Regulation Act, 1949. Further, from theCPT Circular dated 12.03.2008, it is evident that a credit co-operative society is not a co-operative bank, as defined inPart V of the Banking Regulation Act, 1949. The object of a'Co-operative bank' is to accept deposits from the public, forlending or investment of money. On perusal of the findings ofthe Appellate Authority as well as the Appellate Tribunal, itis categorically made clear that the assessee society will notcome under the object of the principal business of a co-operative bank, which is a banking business. The benefit ofSection 80P is excluded for deductions by co-operative banks,whereas the primary agricultural credit societies are entitledfor the said deduction. 14. The assessee society does not satisfy theobject, as defined under Section 5(cciv) of the BankingRegulation Act, 1949, for becoming a co-operative bank. Thedecisions, ACIT vs. M/s. Bangalore Commercial Transport CreditCo-operative Society Ltd. in ITA No.1069/Bang/2010 (AY 2007-08) decided on 08.04.2011, ITO vs. M/s. Yeswanthpur Credit Co-operative Society Ltd. in ITA No.737/Bang/2011 (AY 2007-08)decided on 11.04.2012, ITO vs. The Kasipalayam PrimaryAgricultural Co-operative Bank Ltd. in ITA No.174/Mds/2013https://hcservices.ecourts.gov.in/hcservices/decided on 23.08.2013, and also the recent judgment of the Gujarat High Court in the case of CIT vs. Jafari Momin VikasCo-op. Credit Society Ltd. decided on 15.01.2014 reported as2014 (2) TMI 28, were relied upon by the assessee societybefore the Tribunal. By considering the aforesaid decisions,the appeal was rejected by the Tribunal and held that thesubsection 4 of Section 80P of the Income Tax Act, will not beapplicable to the assessee society, since it is not a Co-operative bank. Therefore, it is made clear that the assesseesociety is admittedly not a co-operative bank but a credit co-operative society. 15. In the recent decision of the Kerala HighCourt, in the case of Chirakkal Service Co-operative BankLtd., Kannur vs. the Commissioner of Income Tax, reported in(2016) 68 taxmann.com.298 (Kerala), the High Court consideredsimilar substantial questions of law (Issue No.A) raised bythe assessee, regarding the entitlement for exemption undersub section (4) of Section 80P. By considering the fact thatthe assessee is a primary agricultural society, the KeralaHigh Court has answered the substantial question of law infavour of the assessee and held that the primary agriculturalcredit societies, registered as such under the KCS Act andclassified so under that Act, including the appellants, areentitled to such exemption. Therefore, the aforesaiddecisions is applicable to the instant case. 16. In the light of the aforesaid facts andcircumstances of the case, we are of the view, that thesubstantial question of law framed in the instant appeals, isanswered against the Revenue. The exception barred out inSection 80P (4) of the Income Tax Act, 1961, is applicable tothe assessee credit society. Hence, the appeals areaccordingly dismissed. 17. In view of the above, the TCA Nos. 735, 755 of2014 and 460 of 2015 are dismissed. No order as to costs. Sd/- Assistant Registrar(CS VI) //True Copy// avr Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal Chennai. Chennai. https://hcservices.ecourts.gov.in/hcservices/ 2.The Commissioner of Income Tax, 63, Race Course Road, Coimbatore. 63, Race Course Road, Coimbatore. 3.The Income Tax Appellate Tribunal, Madras A Bench, Chennai. Madras A Bench, Chennai. 4.The Income Tax Appellate Tribunal, Madras B Bench, Chennai. 5.The Income Tax Appellate Tribunal, Madras C Bench, Chennai. 6.The Commissioner of Income Tax(Appeals) - I, Coimbatore. 7.The Income Tax Officer, Ward II(3), Coimbatore.+3cc's to Mr.S. Sridhar, Advocate, S.R.Nos.38073 to 38075+3cc's to Mr.T.R.Senthil Kumar, Advocate, S.R.Nos.38249 to 38251Tax Case Appeal Nos.735, 755 of 2014 and 460 of 2015CA(CO)CA(10/08/2016)