ITO, v. S-39, Gajalnaickenpatty PACCS Ltd., Salem

ITA 1079/CHNY/2016 | 2012-2013
Pronouncement Date: 30-09-2016

Appeal Details

RSA Number 107921714 RSA 2016
Assessee PAN AAAJG0828Q
Bench Chennai
Appeal Number ITA 1079/CHNY/2016
Duration Of Justice 5 month(s) 8 day(s)
Appellant ITO,
Respondent S-39, Gajalnaickenpatty PACCS Ltd., Salem
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Department
Bench Allotted A
Assessment Year 2012-2013
Appeal Filed On 21-04-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI . . . .. ' #$ & '( [ BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH ACCOUNTANT MEMBER] ./ I.T.A.NO.1079/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE INCOME TAX OFFICER WARD 2(1) SALEM VS. M/S S - 39 GAJALNAICKENPATTY PACCS LTD GAJALNAICKENPATTY POST SALEM 636 201 [PAN AAAJG 0828 Q] ( )* / APPELLANT) ( + )* /RESPONDENT) / APPELLANT BY : SHRI SHIVA SRINIVAS JCIT /RESPONDENT BY : SHRI M. NARAYANAN RETD. ACIT / DATE OF HEARING : 21 - 09 - 2016 ! / DATE OF PRONOUNCEMENT : 30 - 09 - 2016 / O R D E R PER D.S. SUNDER SINGH ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) SALEM D ATED 25.2.2016 FOR ASSESSMENT YEAR 2012-13. 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80P OF INCOME-TAX ACT 1961 (IN SHORT THE ACT). :- 2-: ITANO.1079/16 3. THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAG ED IN EXTENDING CREDIT FACILITIES TO ITS MEMBERS. FOR TH E ASSESSMENT YEAR 2012-13 THE ASSESSEE FILED ITS RETURN OF INCOME ADMITTING TOTAL INCOME OF RS. 54 09 461/- AND CLAIMED THE DEDUCTION U/S 80P. T HE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON TWO GROUNDS. FIRSTLY THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE IS ENGAGED IN THE BANKING BUSINESS AS WELL AS TRADING IN PDS COMMODITIES. THE ASSESSING OFFICER HAS ALSO NOTICE D THAT EVEN THOUGH THE ASSESSEE IS REGISTERED AS AN AGRICULTURA L CO-OPERATIVE SOCIETY THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIV ITIES IN CONNECTION WITH THE AGRICULTURE. FURTHER THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE IS EXTENDING JEWEL LOANS @ 14.25% INTEREST AND THE DEPOSIT LOANS @ 12.5% INTEREST WHICH IS MORE OR LESS OF COM MERCIAL RATE OF INTEREST RATES AND ARE EQUATED WITH INTEREST RATES CHARGED BY THE COMMERCIAL BANKS. THE ASSESSING OFFICER IN HIS OBS ERVATIONS STATED THAT THE ACTIVITIES OF THE SOCIETY ARE NEVER FOR AN Y AGRICULTURAL ACTIVITIES OR PURPOSES. THE AO STATED THAT MERE NA MING THE SOCIETY AS A PRIMARY AGRICULTURAL CO-OPERATIVE SOCIETY IS N OT SUFFICIENT FOR CLAIMING THE DEDUCTION U/S 80P BUT THE PRINCIPAL OR PREDOMINANT ACTIVITIES OF THE BANK SHOULD BE IN CONNECTION WITH AGRICULTURAL PURPOSES OR PURPOSES CONNECTED WITH AGRICULTURAL AC TIVITIES. AS THE ASSESSEE IS NOT CARRYING ON THE ABOVE ACTIVITIES T HE ASSESSING OFFICER :- 3-: ITANO.1079/16 DISALLOWED THE DEDUCTION U/S 80P. FURTHER THE ASS ESSING OFFICER ALSO EXAMINED THE CLAIM OF DEDUCTION U/S 80P(2)(A)(I) AN D HELD THAT FROM THE DETAILS OF INTEREST INCOME IT IS SEEN THAT THE MAJOR PORTION OF INTEREST RECEIVED WAS ON ACCOUNT OF JEWEL LOANS. I T IS GATHERED THAT THE JEWEL LOANS ARE ISSUED TO ASSOCIATE MEMBERS WHO ARE ADMITTED AS ASSOCIATE MEMBERS FOR THE LIMITED PURPOSE OF AVAILI NG LOANS ONLY AND THE INTEREST CHARGED ON JEWEL LOAN WAS AROUND 14.25 % WHICH IS NOT IN CONSONANCE WITH AGRICULTURAL ACTIVITIES OF THE S OCIETY. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INTEREST RATE OF 14.25% IS NOTHING BUT COMMERCIAL RATE OF INTEREST AND AT PAR WITH NATIONALIZED BANKS AND OTHER CO-OPERATIVE BANKS. THEREFORE THE ASSESSING OFFICER HELD THAT SINCE THE SOCIETY IS ENGAGED IN COMMERCIA L ACTIVITIES AND PROVIDED LOANS TO ASSOCIATE MEMBERS THE SOCIETY IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 80P(2)(A)(I) ALSO AND ACCO RDINGLY DENIED THE DEDUCTION. 4. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSE E WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE C LAIM OF THE ASSESSEE RELYING ON THE DECISIONS OF ITAT CHENNAI IN THE FOLLOWING CASES: (I) I.T.A.NO.825/MDS/2015 DATED 23.9.2015 IN THE CASE OF M/S S-1308 AMMAPET PRIMARY AGRICULTURAL CO-OPERATI VE BANK LTD. (II) I.T.A.NO. 292/MDS/2012 DATED 17.3.2014 (III) I.T.A.NOS.730 731 AND 732/MDS/2014 DATED 30.6.2014 :- 4-: ITANO.1079/16 5. THE LD. DR SUPPORTED THE ORDER OF THE ASSESS ING OFFICER. 6. ON THE OTHER HAND THE LD. AR ARGUED THAT THE ASSESSING OFFICER HAS MISTAKEN THAT THE SOCIETY IS A BANK BUT IT IS A PRIMARY AGRICULTURAL CO-OPERATIVE SOCIETY WHICH IS ENGAGED IN THE AGRICULTURAL ACTIVITIES TO ITS MEMBERS. THE LD. AR VEHEMENTLY O PPOSED THE ASSESSING OFFICERS OBSERVATIONS AND HOLDING THAT T HE ASSESSEE IS ENGAGED IN THE BANKING BUSINESS. THE LD. AR FURTHE R SUBMITTED THAT THE ASSESSEE ADVANCE LOANS TO ITS ASSOCIATE MEMBER S FOR AGRICULTURAL PURPOSES. THE JEWEL LOANS WERE ALSO G IVEN FOR AGRICULTURAL PURPOSES AS STATED BY THE LD. AR. THE LD. AR STATED THAT THE ASSESSEE HAS NEVER FLOATED THE BYLAWS OF T HE SOCIETY ON EXTERNAL FACILITIES IN THE CAPACITY OF PRIMARY CO-O PERATIVE BANK TO ITS MEMBERS. THEREFORE THE LD. AR ARGUED THAT THE CIT (A) HAS RIGHTLY ALLOWED THE ASSESSEES APPEAL AND THE CIT(A)S ORD ER SHOULD BE CONFIRMED. HE HAS PLACED RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS TIRUCHENGODE AGRICULTU RAL PRODUCERS COOPERATIVE MARKETING SOCIETY LTD AND IN S-1308 AMM APET PRIMARY AGRICULTURAL COOPERATIVE BANK LTD IN TAX CASE APPEA L NOS. 484 TO 487 AND 490 OF 2016 DATED 2.8.2016 WHEREIN THE HI GH COURT AS HELD AS UNDER: :- 5-: ITANO.1079/16 9. IN THE INSTANT CASE WHILE ALLOWING THE APPEAL S FILED BY THE ASSESSEE THE COMMISSIONER OF INCOME TAX (APPEALS) HAD RELIED UPON THE FOLLOWING PORTION OF THE DECISION OF THE TRIBUNAL ARRIVED IN I.T.A.NO. 292/CHNY/2014: 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CASE FILE. AS STATED IN THE PRECEDING PARAGRAPHS THE CIT(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 CLASS NOMINAL MEMBERS WHOSE LIABILITY IS LIMITED AT THE BEST TO THE EXTENT OF LOAN REPAYABLE INSTEAD OF A CLASS MEMBERS WHO HAVE 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 SOCIETIES ACT 1983 GOVERNING THE ASSESSEE-SOCIETY IT IS EVIDENT FROM THE DEFINITION OF MEMBER U/S 2(16) THAT THE SAME INCLUDES AN ASSOCIATE MEMBER RECOGNITION AS PER THE ACT. THE NET RESULT IS THAT ONCE THE NOMINAL MEMBERS ALSO ENJOY STATUARY CONDITION IMPOSED BY THE LEGISLATURE U/S 90P(2)(A)(I). WE MAKE IT CLEAR THAT WE ARE DEALING WITH THE DEDUCTION PROVISION TO BE INTERPRETED LIBERALLY. IN OUR CONSIDERED OPINION THE OBJECTIONS OF THE REVENUE THAT THE MEMBERS DEFINED IN SUB CLAUSE(I) OF SECTION 80P SHOULD ONLY INCLUDE VOTING MEMBERS WOULD AMOUNT TO A CLASSIFICATION WITHIN CLASSIFICATION WHICH IS BEYOND THE PURVIEW OF TAX STATUTE; UNLESS PROVIDED SPECIFICALLY BY THE LEGISLATURE. MOREOVER WE FIND THAT THE CASE LAW OF HON'BLE PUNJAB AND HARYANA HIGH COURT (SUPRA) ALSO SUPPORTS THE ASSESSEES CASE WHEREIN IT HAS BEEN HELD UNDER THE VERY PROVISION THAT FOR THE PURPOSE OF IMPUGNED DEDUCTION IT IS IRRELEVANT SO FAR AS CLASSIFICATION OF THE MEMBERS IN A OR B CATEGORY IS CONCERNED. FOLLOWING THE DECISION OF THE PUNJAB AND HARYANA HI GH COURT THE APPELLATE AUTHORITY AS WELL AS THE INCOME TAX A PPELLATE TRIBUNAL HAS PASSED THE ORDER IMPUGNED. 10. THE APPELLATE AUTHORITY NAMELY THE COMMISSIO NER OF INCOME TAX (APPEALS) AND THE INCOME TAX APPELLATE T RIBUNAL :- 6-: ITANO.1079/16 HAS CLEARLY HELD THAT THE ASSESSEES ARE NOT CO-OPE RATIVE BANK AND THAT THEIR ACTIVITIES IN THE NATURE ACCEPTING D EPOSITS ADVANCING LOANS ETC. CARRIED ON BY THE ASSESSEES ARE CONFINED TO ITS MEMBERS ONLY AND THAT TOO IN A PARTICULAR GE OGRAPHICAL AREA. THEREFORE THE RESPONDENT SOCIETIES ARE ELIG IBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. T HE CONTENTION OF THE APPELLANTS THAT THE MEMBERS OF THE ASSESSEE SOCIETIES ARE NOT ENTITLED TO RECEIVE ANY DIVIDEND OR HAVING ANY VOTING RIGHT OR NO RIGHT TO PARTICIPATE IN THE GENERAL ADMINISTRATI ON OR TO ATTEND ANY MEETING ETC. BECAUSE THEY ARE ADMITTED AS ASSOC IATE MEMBERS FOR AVAILING LOAN ONLY AND WAS ALSO CHARGIN G A HIGHER RATE OF INTEREST AT THE RATE OF 14% IS NOT A GROUN D TO DENY THE EXEMPTION GRANTED UNDER SECTION 80P (2)(A) (I) OF T HE ACT. 11. THE DECISION RENDERED BY THIS COURT IN TCA 735 755 OF AND 460 OF 2015 DATED 05.07.2016 SQUARELY COVERS THE P RESENT FACTS OF THE CASE SO FAR AS IT RELATES TO THE INEL IGIBILITY OF THE RESPONDENT SOCIETIES UNDER SECTION 80P (2)(A)(I). IN THE LIGHT OF THE ABOVE DISCUSSION AND THE DECISIONS WE ARE OF THE VIEW THAT THE SUBSTANTIAL QUESTIONS O F LAW RAISED IN THE INSTANT APPEALS ARE ANSWERED AGAINST THE REVENU E. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISIONS OF THE ITAT CHENNAI CITED SUPRA. WE HAVE ALSO GONE THROUGH THE JUDGMENT OF THE MADRAS HIGH C OURT IN THE CASE OF S-1308 AMMAPET PRIMARY AGRICULTURAL COOPERA TIVE BANK LTD.(SUPRA) AND IT IS SQUARELY APPLICABLE TO THE AS SESSEES CASE. THE LD.D.R DID NOT PLACE ANY MATERIAL CONTROVERTING THE DECISIONS RELIED UP ON BY THE LD.CIT(A) IN HIS ORDER AND THE HONBLE MADRAS HIGH COURT JUDGMENT CITED SUPRA. IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SA ME IS UPHELD. :- 7-: ITANO.1079/16 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER 2016 AT CHENNAI. SD/- SD/- ( ' . ' / . 0 ) ( N.R.S. GANESAN ) / JUDICIAL MEMBER ( . . ' #$ ) (D.S. SUNDER SINGH) & / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 30 TH SEPTEMBER 2016 RD %& '( )( / COPY TO: 1 . / APPELLANT 4. * / CIT 2. / RESPONDENT 5. (+ - / DR 3. * () / CIT(A) 6. 0 1 / GF