M/s.Punnol Service Co-op Bank Ltd, Kannur v. ITO, Kannur

ITA 124/COCH/2013 | 2009-2010
Pronouncement Date: 31-07-2014

Appeal Details

RSA Number 12421914 RSA 2013
Assessee PAN AAJFP7993E
Bench Cochin
Appeal Number ITA 124/COCH/2013
Duration Of Justice 1 year(s) 4 month(s) 23 day(s)
Appellant M/s.Punnol Service Co-op Bank Ltd, Kannur
Respondent ITO, Kannur
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2014
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 31-07-2014
Date Of Final Hearing 26-06-2014
Next Hearing Date 26-06-2014
Assessment Year 2009-2010
Appeal Filed On 07-03-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND CHANDRA POOJ ARI AM I.T.A. NOS. A.Y. APPELLANT RESPONDENT 1.123/COCH/2012 2009-10 PINARAYI SERVICE CO-OPERATI VE BANK LTD. PINARAYI TELLICHERRY KANNUR-670 741. [PAN: AAJFP 7993E] THE INCOME TAX OFFICER WARD-2 KANNUR. 2.124/COCH/2013 2009-10 M/S. PUNNAL SERVICE CO- OPERATIVE 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 CO- OPERATIVE 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 CO- OPERATIVE 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 CO- OPERATIVE BANK LTD. NILESHWAR KASARGOD-671 314. [PAN:AAAAT 3163C] THE INCOME TAX OFFICER WARD-2 KASARGOD. 8.325/COCH/2012 2009-10 THE PAYYANNUR SERVICE CO- OPERATIVE BANK LTD. MAIN ROAD PAYYANNUR KANNUR-7[PAN:AAEFT 2178E] THE INCOME TAX OFFICER WARD-4 KANNUR 9.660/COCH/2013 2008-09 MAVILAYI SERVICE CO-OPERATI VE BANK LTD. MOONAPALAM MAVILAYI P.O. KANNUR. [PAN:AAAAM 8091L] THE INCOME TAX OFFICER WARD-1 KANNUR 10.680/COCH/2013 11.681/COCH/2013 12.682/COCH/2013 2007-08 2008-09 2010-11 THE CHIRACKAL SERVICE CO- OPERATIVE BANK LTD. P.O. CHIRACKAL KANNUR-670 001. [PAN:AAAAC 0458M] THE INCOME TAX OFFICER WARD-1 KANNUR 13.683/COCH/2013 14.684/COCH/2013 15.685/COCH/2013 2007-08 2008-09 2010-11 THE KAPPAD SERVICE CO- OPERATIVE BANK LTD. P.O. KAPPAD KANNUR-670 006. [PAN:AABAK 4922D] THE INCOME TAX OFFICER WARD-1 KANNUR. I.T.A. NOS. 325 ETC./COCH/2013 . 2 16.739/COCH/2013 17.740/COCH/2013 18.741/COCH/2013 2007-08 2008-09 2009-10 CHERUKUNNU SERVICE CO- OPERATIVE BANK LTD. P.O. CHERUKUNNU KANNUR. [PAN:AAAAC 5016F] THE INCOME TAX OFFICER WARD-1 KANNUR. 19.742/COCH/2013 20.743/COCH/2013 21.744/COCH/2013 2007-08 2008-09 2010-11 THE KANNAPURAM SERVICE CO- OPERATIVE BANK LTD. P.O. CHERUKUNNU KANNUR. [PAN:AABAT 3964G] THE INCOME TAX OFFICER WARD-1 KANNUR. 22.745/COCH/2013 23.746/COCH/2013 24.747/COCH/2013 2007-08 2008-09 2010-11 THE MADAI CO-OPERATIVE BANK LTD. VENGARA P.O. KANNUR-670 305. [PAN:AAAJM 1064A] THE INCOME TAX OFFICER WARD-1 KANNUR. 25.800/COCH/2013 26.801/COCH/2013 2008-09 2009-10 THE KUTTIKAKAM SERVICE CO- OPERATIVE BANK LTD. KUTTIKAKAM POST KANNUR. [PAN: AAAAK 4614M] THE INCOME TAX OFFICER WARD-1 KANNUR. REVENUE BY SHRI K.K. JOHN SR. DR ASSESSEE BY SHRI VEDANGA PRABHU SRI K.P. PRADEEP AND SHRI MATHEW JOSEPH CAS & SMT. DIVYA RAVINDRAN ADV. I.T.A. NO.770 /COCH/2013 ASSESSMENT YEAR: 2009-10 THE INCOME TAX OFFICER WARD-4 KOTTAYAM. VS. THE CHIRAKKADAVU SERVICE CO-OP BANK LTD. CHIRAKKADAVU KANJIRAPALLY KOTTAYAM-686 520. [PAN: AAABT 2064P] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SHRI K.K. JOHN SR. DR ASSESSEE BY SHRI PRASANTH SRINIVAS CA I.T.A. NOS. 325 ETC./COCH/2013 . 3 C.O. NO. 05/COCH/2014 (ARSG. OUT OF I.T.A. NO.770 /COCH/2013) ASSESSMENT YEAR: 2009-10 THE CHIRAKKADAVU SERVICE CO-OP BANK LTD. CHIRAKKADAVU KANJIRAPALLY KOTTAYAM-686 520. [PAN: AAABT 2064P] VS. THE INCOME TAX OFFICER WARD-4 KOTTAYAM. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT ) ASSESSEE BY SHRI PRASANTH SRINIVAS CA REVENUE BY SHRI K.K. JOHN SR. DR DATE OF HEARING 26/06/2014 DATE OF PRONOUNCEMENT 31/07/2014 O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER : THESE CROSS APPEALS FILED BY DIFFERENT ASSESSEES A ND REVENUE ARE DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A) KOZH IKODE 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 DEDU CTION U/S. 80P(2) AND 80P(2)(D) OF THE I.T. ACT. 2. 1 THE BRIEF FACTS OF THE CASES ARE THAT THE L OWER AUTHORITIES DENIED THE CLAIM OF THE ASSESSEES FOR DEDUCTION U/S. 80P OF TH E ACT. THE PRIMARY I.T.A. NOS. 325 ETC./COCH/2013 . 4 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. S INCE THE ASSESSEES PROVIDED ONLY NOMINAL AMOUNT OF LOAN FOR AGRICULTUR AL PURPOSES; THESE ASSESSEES ARE NOT TREATED AS PRIMARY AGRICULTURAL C REDIT SOCIETIES (PACS). SINCE THE ASSESSEE ARE DOING BANKING BUSINESS AND T HESE ASSESSEE ARE TREATED AS CO-OPERATIVE BANKS THE ASSESSEES ARE NO T GRANTED DEDUCTION U/S. 80P OF THE I.T. ACT. AGAINST THIS ALL THESE A SSESSEES ARE IN APPEAL BEFORE US. 3. THE LD. AR SUBMITTED THAT IN THE RETURN OF INCOM E FILED THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80P(2)(A)(I) ON INCOME EARNED BY THE ASSESSEE IN THE ACTIVITY OF PROVIDING CREDIT FACILI TY TO MEMBERS. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION . ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE IS A CO-OPERATIVE BA NK AND AT THE SAME TIME IT IS NOT A PRIMARY AGRICULTURAL CREDIT SOCIETY AN D THEREFORE THE PROVISIONS OF SUB-SECTION (4) OF SEC. 80P WOULD APPLY. ACCORD INGLY HE DENIED THE BENEFIT OF DEDUCTION U/S. 80P TO THE ASSESSEE. ON APPEAL CIT(A) CONFIRMED THE DECISION OF THE ASSESSING OFFICER. 4. SECTION 80P AS AMENDED BY FINANCE ACT 2006 READS AS UNDER: I.T.A. NOS. 325 ETC./COCH/2013 . 5 DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SO CIETIES 80P. (1) WHERE IN THE CASE OF AN ASSESSEE BEING A CO- OPERATIVE SOCIETY THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SECTION (2) THEY SHALL B E DEDUCTED IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION THE SUMS SPECIFIED IN S UB- SECTION (2) IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION(1) SHALL 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 (II) A COTTAGE INDUSTRY OR (III)THE MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS OR (IV)THE PURCHASE OF AGRICULTURAL IMPLEMENTS SEEDS LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS OR (V)THE PROCESSING WITHOUT THE AID OF POWER OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS OR (VI) THE COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS OR (VII)FISHING OR ALLIED ACTIVITIES THAT IS TO SAY THE CATCHING CURING PROCESSING PRESERVING STORING OR MARKETING OF FISH OR THE PURCHASES OF MATERIALS AND EQUIPMENT IN CONNECTION THEREWITH FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES: (3). I.T.A. NOS. 325 ETC./COCH/2013 . 6 (4) THE PROVISION OF THIS 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 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 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 BANKI NG AND INCOME FROM PROVIDING CREDIT FACILITY TO MEMBERS. AS PER THE NE WLY INTRODUCED SUB SECTION 4 THE PROVISION OF SECTION 80P SHALL NOT A PPLY IN RELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K. THUS THE RESTRICTION U/S. 80P(4) IS APPLICABLE ONLY TO CO-OPERATIVE BANK S AND WHAT HAS BECOME TAXABLE AS PER THE AMENDMENT IS THE INCOME FROM BAN KING MENTIONED IN THE FIRST PART OF 80P(2) A(I). THE RESTRICTION IN SUBSECTION 4 DOES NOT APPLY TO ANY OTHER CO-OPERATIVE INSTITUTIONS WHICH ARE NO T BANKS. HENCE ALL OTHER CO-OPERATIVE SOCIETIES SUCH AS CONSUMER CO-OPERATIV ES HOUSING CO- OPERATIVES ETC. ARE STILL ELIGIBLE FOR DEDUCTION U/ S. 80P(2) (A) (I) FOR THEIR I.T.A. NOS. 325 ETC./COCH/2013 . 7 INCOME FROM PROVIDING CREDIT FACILITY TO THEIR MEMB ERS. NOW THE QUESTION IS WHETHER THE ASSESSEE IS A BANK OTHER THAN PRIMARY A GRICULTURAL CREDIT SOCIETY. 6. THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SO CIETY NOT A CO- OPERATIVE BANK FOR THE FOLLOWING REASONS: 7 A) CLASSIFIED AS PACS BY THE CO-OPERATIVE DEPARTM ENT: THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED U NDER THE CO-OPERATIVE SOCIETY REGISTERED UNDER THE CO-OPERATIVE SOCIETIES ACT WITH THE REGISTRAR OF CO-OPERATIVE SOCIETIES GOVT OF KERALA. THE CO- OPERATIVE DEPARTMENT HAS CLASSIFIED THE ASSESSEE AS A PRIMARY AGRICULTURAL C REDIT SOCIETY. THE AREA OF OPERATION OF THIS SOCIETY IS LIMITED TO A VILLAGE. THIS SOCIETY IS FORMED MAINLY FOR PROVIDING CREDIT FACILITY TO THE MEMBERS FOR CARRYING OUT THEIR AGRICULTURAL AND ALLIED ACTIVITIES. THE FUND IS MO BILIZED MAINLY THROUGH DEPOSITS FROM MEMBERS. THE MONEY IS ADVANCED OR LE NT ONLY TO MEMBERS AND NOT TO PUBLIC MOSTLY FOR AGRICULTURAL ANIMAL H USBANDRY AND OTHER AGRO BASED ACTIVITIES AS PER THE OBJECTS OF THE SOCIETY. THE CO-OPERATIVE DEPARTMENT HAS CLASSIFIED THE ASSESSEE AS A PRIMARY AGRICULTURAL CREDIT SOCIETY. B) DEFINITION OF PRIMARY AGRICULTURAL CREDIT SOCIET Y. DEFINITION IN BANKING REGULATION ACT. I.T.A. NOS. 325 ETC./COCH/2013 . 8 8. AS PER THE EXPLANATION A TO SECTION 80P(4) CO -OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY SHALL HAVE TH E MEANING RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATIO N ACT 1949 PART V OF THE BANKING REGULATION ACT AS REFERRED TO IN THE AB OVE EXPLANATION DEFINES A PRIMARY AGRICULTURAL SOCIETY AS A CO-OPERATIVE S OCIETY - (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHI CH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULT URAL PURPOSES OR FOR THE PURPOSES CONNECTED WITH AGRICULTURAL ACTIVI TIES (INCLUDING MARKETING OF CROPS); AND (2) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION O F ANY OTHER CO- OPERATIVE SOCIETY AS A MEMBER; 9. THE LD. AR SUBMITTED THAT ON A PERUSAL OF THE BY E-LAWS OF THE SOCIETY THE PRIMARY OBJECT OF THE SOCIETY IS TO PR OVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPO SES OR FOR THE PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES (IN CLUDING MARKETING OF CROPS). IT MAY ALSO PLEASE BE NOTED THAT THE SOCIE TY CAN GIVE MEMBERSHIP ONLY TO INDIVIDUALS AND CERTAIN OTHER SPECIFIED ENT ITIES LIKE STATE CO- OPERATIVE BANKS DISTRICT CO-OPERATIVE BANKS AND TH E GOVERNMENT OF KERALA. THE BYE-LAWS DO NOT PERMIT ADMISSION OF ANY OTHER C O-OPERATIVE SOCIETY AS A MEMBER. IT IS ON FULFILLING THE ABOVE TWO CONDITI ONS 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 A SSESSING OFFICER THAT THE I.T.A. NOS. 325 ETC./COCH/2013 . 9 SOCIETY IS NOT A PRIMARY AGRICULTURAL CREDIT SOCIET Y IS BEYOND HIS POWERS AND IS INVALID. 10. THE PRINCIPAL BUSINESS OF THE SOCIETY IS TO PRO VIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPO SES AND FOR THE PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES. T HE SOCIETY IS SITUATED IN A PLACE/VILLAGE MOSTLY INHABITED BY AGRICULTURISTS. S INCE THE AREA OF OPERATION OF THE BANK IS ALSO RESTRICTED BY BYE-LAWS THESOCI 8ETY CAN LEND MOSTLY TO AGRICULTURISTS ONLY AND NOT OTHERS. A MAJOR PORTIO N OF THE ADVANCES BY THE SOCIETY IS GOLD LOANS. A GOLD LOAN TAKEN BY AN AGR ICULTURIST WILL BE FOR AGRICULTURAL PURPOSES ONLY THOUGH IT GETS WRONGLY CLASSIFIED UNDER OTHER HEADS DUE TO TECHNICAL REASONS. THE OBSERVATION BY THE ASSESSING OFFICER IN THIS REGARD IS THAT THE AGRICULTURAL FINANCE BY THE SOCIETY IS ONLY A SMALL PERCENTAGE OF THE TOTAL LOANS SANCTIONED IS NOT TRU E TO FACTS. THOUGH MAJORITY OF THE ADVANCES ARE AGRICULTURAL IN NATURE THE CIRCUMSTANCES UNDER WHICH THE ASSESSEE SOCIETY AND OTHER SOCIETIE S ARE FORCED TO CLASSIFY THEM AS NON AGRICULTURAL SHOULD ALSO BEEN CONSIDERE D IN THE RIGHT PERSPECTIVE. THE MAIN SOURCE OF FUNDS OF THE ASSES SEE SOCIETY IS COLLECTION OF FUND BY WAY OF FIXED DEPOSITS THE RATE OF INTER EST WHICH WILL COME TO 8.5% TO 10.5%. BUT FOR AGRICULTURAL ADVANCES THE A SSESSEE CAN COLLECT INTEREST AT THE RATE OF 7% ONLY FROM THE BORROWERS AS PER LAW. SINCE THERE IS NO EFFECTIVE MECHANISM FOR REFINANCING THE AGRIC ULTURAL LOANS OF THE I.T.A. NOS. 325 ETC./COCH/2013 . 10 SOCIETIES BY THE APEX BANKS THE ASSESSEE SOCIETY W ILL NOT BE IN A POSITION TO LEND TO AGRICULTURISTS CLASSIFYING THE LOAN AS A GRICULTURAL PER SE AS FUND COLLECTED AT 10% WILL HAVE TO BE LENT FOR 7%. THIS IS THE SITUATION WHICH COMPELS A PRIMARY AGRICULTURAL SOCIETY TO CLASSIFY A PART OF THE AGRICULTURAL LOANS LEND BY IT AS NON AGRICULTURAL. HENCE THE ASS ESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY FACTUALLY AND THEORETIC ALLY. 11. THE ALTERNATIVE OR IN THE TERM PRIMARY OBJE CT OR PRINCIPAL BUSINESS IS QUITE RELEVANT. ONCE THE PRIMARY OBJE CT OF THE SOCIETY IS PROVIDING FINANCIAL ACCOMMODATION TO MEMBERS FOR AG RICULTURAL PURPOSES IT SATISFIES THE CONDITION TO BE A PRIMARY AGRICULTURA L CREDIT SOCIETY. IN THE CASE OF THE ASSESSEE ITS PRINCIPAL BUSINESS ALSO IS LENDING FOR AGRICULTURAL PURPOSES. ALL THE FACTS POINTED OUT CLEARLY INDICA TE THAT THE ASSESSEE SOCIETY IS A PRIMARY AGRICULTURAL SOCIETY AS PRESCR IBED IN BANKING REGULATION ACT. STATUS OF PACS RECOGNIZED BY RBI 12. IN SECTION 3 OF THE BANKING REGULATION ACT IT I S CLEARLY SPECIFIED THAT THE BANKING REGULATION ACT IS NOT APPLICABLE TO A P RIMARY AGRICULTURAL SOCIETY. THE RESERVE BANK OF INDIA IS TREATING THE ASSESSEE AS A PRIMARY AGRICULTURAL CREDIT SOCIETY RECOGNIZING 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 BANKI NG COMPANY AS PER BANKING REGULATION ACT. I.T.A. NOS. 325 ETC./COCH/2013 . 11 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. WHIC H ARE CO-OPERATIVE BANKS FUNCTIONING AT PAR WITH THE ASSESSEE AND HAVI NG MUCH HIGHER VOLUME OF BUSINESS HAD APPLIED TO THE RESERVE BANK OF INDI A FOR BANKING LICENSE. BUT THE LICENSE WAS DENIED TO THEM AS ACCORDING TO THE RESERVE BANK OF INDIA THE APPLICANTS ARE PRIMARY AGRICULTURAL CREDI T SOCIETY. THUS ACCORDING TO THE RESERVE BANK OF INDIA ALSO THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY. AS PER EXPLANATION BELOW SECTION 5 6 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 B Y THE RESERVE BANK OF INDIA SHALL BE FINAL. AS THE RBI HAS RECOGNIZED TH E ASSESSEE AS A PRIMARY AGRICULTURAL CREDIT SOCIETY THE ASSESSING AUTHORIT Y IS BOUND TO ACCEPT IT. 14. ACCORDING TO THE LD. AR THE ASSESSEE IS NOT A CO-OPERATIVE BANK FOR THE FOLLOWING REASONS. AS PER THE SECTION 80P(4) OF CO-OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY SHALL HAVE THE MEANING RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANK ING REGULATION ACT 1949. PART V OF THE BANKING REGULATION ACT DEFINES A CO- OPERATIVE BANK AS GIVEN BELOW: SECTION 5(CI) CO-OPERATIVE BANK MEANS A STATE CO-OPERATIVE BANK A CENTRAL CO-OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. I.T.A. NOS. 325 ETC./COCH/2013 . 12 14.1 FROM THE DEFINITION OF CO-OPERATIVE BANK IT I S APPARENT THAT CO- OPERATIVE BANK MEANS STATE CO-OPERATIVE BANK A CEN TRAL CO-OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. THE ASSESSEE IS NOT A STATE CO- OPERATIVE BANK OR CENTRAL CO-OPERATIVE BANK. SO IT IS TO BE FOUND OUT WHETHER THE ASSESSEE IS A PRIMARY CO-OPERATIVE BANK . THE PRIMARY CO- OPERATIVE BANK IS DEFINED U/S. 5 CLAUSE (CCV) OF BA NKING REGULATION ACT 1949 AS UNDER: (CCV) :PRIMARY CO-OPERATIVE BANK MEANS A CO- OPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURA L CREDIT SOCIETY. (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHI CH 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 O F ANY OTHER CO-OPERATIVE SOCIETY AS A MEMBER: (4) PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY T O THE ADMISSION OF A CO-OPERATIVE BANK AS A MEMBER BY REASON OF SUCH CO-OPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO-OPERATIVE SOCIETY OUT OF F UNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSES 15. FROM THE EXPRESSION IN CLAUSE (CCV) QUOTED ABO VE PRIMARY CO- OPERATIVE BANK MEANS A CO-OPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY IT IS DOUBTLESSLY CLE AR THAT A PRIMARY AGRICULTURAL I.T.A. NOS. 325 ETC./COCH/2013 . 13 SOCIETY CANNOT BE A CO-OPERATIVE BANK AS THE DEFINI TION IS MUTUALLY EXCLUSIVE ONE. THE ASSESSEE BEING A PRIMARY AGRICU LTURAL CREDIT SOCIETY IS NOT A CO-OPERATIVE BANK. 16. WITHOUT PREJUDICE TO THE ASSESSEES CONTENTION THAT ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY THE LD. AR CON TENDED THAT IT IS NOT A CO- OPERATIVE BANK EVEN IF IT IS NOT HELD TO BE PRIMARY AGRICULTURAL CREDIT SOCIETY FOR ARGUMENTS SAKE. 17. THE FIRST CONDITION FOR A CO-OPERATIVE SOCIETY TO BECOME A CO- OPERATIVE BANK AS PER THE DEFINITION IN SECTION 5(C C(V) OF THE BANKING REGULATION ACT IS THAT THE PRIMARY OBJECT OR THE P RINCIPAL BUSINESS OF IT SHOULD BE TRANSACTION OF BANKING BUSINESS. PRIMARY OBJECT 18. THE OBJECTS OF THE SOCIETY ARE PRESCRIBED IN TH E BYE LAWS. BANKING BUSINESS IS NOT AN OBJECT OF THE SOCIETY. THE OBJE CT CLAUSE IN THE BYE LAWS CLEARLY INDICATES THAT THE SOCIETY IS FORMED MAINLY FOR PROVIDING CREDIT FACILITY TO THE MEMBERS FOR CARRYING OUT THEIR AGRI CULTURAL ACTIVITIES AND ALSO TO PROMOTE OTHER AGRO BASED ACTIVITIES. PRINCIPAL BUSINESS 19. AS PER THE SECOND PART OF SUB CLAUSE (1) OF CLA USE (CCV) QUOTED ABOVE IN ORDER TO BECOME A CO-OPERATIVE SOCIETY A BANK ITS PRINCIPAL I.T.A. NOS. 325 ETC./COCH/2013 . 14 BUSINESS SHOULD BE TRANSACTION OF BANKING BUSINESS. THE PRINCIPAL BUSINESS OF THE ASSESSEE IS NOT DOING BANKING BUSINESS FOR T HE FOLLOWING REASONS: THE ASSESSEE DOES NOT HAVE A BANKING LICENSE FROM T HE 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 DEPOS ITS AND LENDING IT WILL NOT CONSTITUTE BANKING. IF IT WERE SO THE MULTI CRORE FINANCE COMPANIES (EVEN LISTED IN STOCK EXCHANGES) LIKE RELIANCE CAPITAL AN D LIC HOUSING FINANCE NEED NOT HAVE BEEN CALLED NON BANKING FINANCE COM PANIES. MANY SUCH MULTI CRORE COMPANIES ARE COLLECTING DEPOSITS AND L ENDING FOR HOME FINANCE VEHICLE FINANCE AND OTHER INFRASTRUCTURAL ACTIVITIES. THE LD. AR SUBMITTED THAT THE REQUIREMENT OF OBTAINING A LICEN SE BEING THAT MUCH IMPORTANT AND THE MATTER OF OBTAINING IT BEING THA T MUCH DIFFICULT IT CANNOT BE SAID THAT WHAT THE ASSESSEE IS DOING IS B ANKING BUSINESS. ACCORDING TO THE LD. AR BANKING BUSINESS HAS BEEN D EFINED UNDER SECTION 5(B) OF THE BANKING REGULATION ACT AS UNDER: SEC. 5(B) BANKING MEANS THE ACCEPTING FOR THE PURPOSE OF LENDING OR INVESTMENT OF DEPOSITS OF MONEY FROM THE PUBLIC REPAYABLE ON DEMAND OR OTHERWISE AND WITHDRAWAL BY CHEQUE DRAFT ORDER O R OTHERWISE. I.T.A. NOS. 325 ETC./COCH/2013 . 15 21. THE LD. AR CONTENDED THAT FROM THE SAID DEFINIT ION IT IS CLEAR THAT THE BANKING MEANS ACCEPTING THE DEPOSITS OF MONEY F ROM THE PUBLIC WHICH IS REPAYABLE ON DEMAND OR OTHERWISE AND WITHDRAWAL OF THESE DEPOSITS BY CHEQUE DRAFT OR OTHERWISE AND THESE DEPOSITS ARE A CCEPTED FOR THE PURPOSE OF LENDING OR INVESTMENT. IN THE CASE OF THE ASSES SEE THE DEPOSITS ARE MOSTLY ACCEPTED FROM THE MEMBERS AND THE DEPOSITS F ROM PUBLIC INDIVIDUALS ARE NEGLIGIBLE. THE MONEY IS ADVANCED OR LENT ONLY TO MEMBERS AND NOT TO PUBLIC MOSTLY FOR AGRICULTURAL PURPOSES. HENCE THE PRINCIPLE OF MUTUALITY IS APPLICABLE IN THE CASE OF THE ASSESSEE WHICH MEANS THAT THE ACTIVITY OF THE ASSESSEE IS NOT OF BANKING BUT IS T HAT OF PROVIDING CREDIT FACILITY TO ONLY MEMBERS. 22. THE LD. AR SUBMITTED THAT THE ASSESSEE IS NOT A SCHEDULED BANK AND HENCE NOT A MEMBER OF THE CLEARING HOUSE. ACCORDING TO THE LD. AR A BANK CANNOT DO THE BUSINESS OF BANKING WITHOUT BEING A M EMBER OF THE CLEARING HOUSE. THE ASSESSEE HAS SAVING BANK ACCOUNTS WITH CHEQUE FACILITY. BUT THESE CHEQUES ARE IN EFFECT ONLY WITHDRAWAL SLIPS A S ANY CHEQUE ISSUED OUTSIDE THE DISTRICT WILL NOT BE ACCEPTED BY ANYBOD Y. 23. THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE IS NOT ALLOWED TO OPEN NRE/NRO/FCNR ACCOUNTS ISSUE DRAFTS RTGS NEFT TRANSF ER AND THEREBY NOT ALLOWED TO TRANSFER FUNDS THROUGH RTGS. SIMILA RLY HE SUBMITTED THAT I.T.A. NOS. 325 ETC./COCH/2013 . 16 FACILITIES LIKE USE OF PASS BOOKS HAS NO CONNECTION WITH THE BUSINESS OF BANKING AND THE CHEQUES ISSUED ARE ONLY WITHDRAWAL SLIPS. 24. THE LD. AR DREW OUR ATTENTION TO S. 43D AND SUB MITTED 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 ACCOUNT ED FOR BANKS ON RECEIPT BASIS. BUT THE ASSESSEE NOT BEING A BANK IS NOT EL IGIBLE FOR THE BENEFITS OF SEC. 43D. 25. THE LD. AR SUBMITTED THAT SUCH BANKS ARE NOT AL LOWED TO DO TRADING. AS PER SEC. 8 OF THE BANKING REGULATION ACT A BANK ING COMPANY MAY ENGAGE ONLY IN ANY ONE OR MORE OF THE BUSINESS AS S PECIFIED IN CLAUSE 6 PART II OF THE BANKING REGULATION ACT 1949 WHICH D OES NOT INCLUDE TRADING ACTIVITY. THUS THE LD. AR CONTENDED THAT IT IS CLEA R THAT OUT OF THE THREE CONDITIONS PRESCRIBED FOR A PRIMARY CO-OPERATIVE BA NK AS DEFINED UNDER SECTION 5 CLAUSES (CCV) OF BANKING REGULATION ACT 1949 THE MOST IMPORTANT CLAUSE NO. 1 IS NOT BEING APPLICABLE TO T HE ASSESSEE. HENCE THE ASSESSEE DOES NOT FALL UNDER THE DEFINITION OF CO-O PERATIVE BANK AS DEFINED IN PART V OF THE BANKING REGULATION ACT 1949 AND T HEREFORE SUB-SECTION 4 OF SECTION 80P OF THE ACT IS NOT APPLICABLE TO IT. I.T.A. NOS. 325 ETC./COCH/2013 . 17 26. ALTERNATIVELY THE LD. AR CONTENDED THAT EVEN I F IT IS HELD TO BE A BANK FOR ARGUMENTS SAKE STILL IT IS ELIGIBLE FOR T HE DEDUCTION OF 80P(2)(A)(I) SINCE THE INTENTION OF LAW AS PER EXPLANATORY NOTE TO FINANCE BILL 2006 UNDER THE HEAD WITHDRAWAL OF TAX BENEFITS AVAILABLE TO CERTAIN CO-OPERATIVE BANKS ARE RIGHTLY QUOTED BY THE ASSESSING OFFICER I S GIVEN BELOW: THE CO-OPERATIVE BANKS ARE FUNCTIONING AT PAR WIT H OTHER COMMERCIAL BANKS WHICH DO NOT ENJOY ANY TAX BENEFI TS. IT IS THEREFORE PROPOSED TO AMEND SECTION 80P BY INSERTI NG A NEW SUB- SECTION (4) SO AS TO PROVIDE THAT THE PROVISIONS OF THE SAID SUB- SECTION SHALL NOT APPLY IN RELATION TO ANY CO-OPERA TIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRI MARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. 27. THUS THE LD. AR SUBMITTED THAT FROM THE ABOVE I T IS VERY CLEAR THAT THE INTENTION OF LAW WAS ONLY TO TAX CO-OPERATIVE B ANKS LIKE DISTRICT CO- OPERATIVE BANK STATE CO-OPERATIVE BANK AND URBAN C O-OPERATIVE BANK WHICH ARE FUNCTIONING AT PAR WITH OTHER COMMERCIAL BANKS. 28. THE LD. AR DREW OUR ATTENTION TO THE INTERPRETA TION OF SECTION 2(24) (VIIA) OF THE ACT. FOR DENYING THE CLAIM OF DEDUCT ION U/S. 80P THE ASSESSING OFFICER HAS ALSO RELIED ON THE INSERTION OF CLAUSE (VIIA) OF SUB SECTION (24) OF SECTION 2 BY WHICH THE PROFITS AND GAINS OF ANY BU SINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBERS IS INCLUDED IN THE DEFINITION OF INCOME. THE LD. AR SUBMITTED THAT THE EARNED ASSESSING OFFICER HAS FAI LED TO APPRECIATE THE I.T.A. NOS. 325 ETC./COCH/2013 . 18 FACT THAT THE INCOME REFERRED TO IN SECTION 2(24) I S GROSS TOTAL INCOME AND THE ASSESSEE IS FREE TO CLAIM THE ELIGIBLE DEDUCTIO NS PROVIDED UNDER THE ACT. 29. THE LD. AR ALSO DREW OUR ATTENTION TO THE RELIE F PROVIDED U/S. 43D OF THE ACT. IN THE INCOME TAX ACT A DIFFERENTIAL TRE ATMENT IS METED OUT TO PRIMARY AGRICULTURAL SOCIETIES IN THE MATTER OF REV ENUE RECOGNITION ON NON- PERFORMING ASSETS U/S. 43D. WHILE ALL FINANCIAL IN STITUTIONS INCLUDING NATIONALIZED BANKS AND SCHEDULED BANKS ARE ALLOWED TO ACCOUNT INCOME BY WAY OF INTEREST ON NON PERFORMING ASSETS ON RECEIPT BASIS SUCH A BENEFIT IS NOT GIVEN TO THE PRIMARY CO-OPERATIVE BANKS. DEFIN ITELY THE REASON WHY THE CO-OPERATIVE BANKS WHICH DO NOT COME UNDER THE DEFI NITION OF SCHEDULED BANKS ARE LEFT OUT OF SECTION 43D MUST DEFINITELY B E BECAUSE OF THE EXEMPTION THAT THEY ENJOY U/S. 80P. ACCORDING TO T HE LD. AR NOW IF THESE BANKS ARE NOT ALLOWED THE BENEFIT OF SECTION 43D I T WILL BE A GREAT INJUSTICE TO THEM. THOSE BANKS WILL BE LIABLE TO PAY TAX EVE N ON INTEREST CHARGED ON NON-PERFORMING ASSETS. 29.1 THE LD. AR ALSO MADE A COMPARATIVE STUDY OF TH E 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 PRUDEN T LAW AS SURVIVAL OF THE ENTITY IS AT STAKE IN THE LONG RUN. I.T.A. NOS. 325 ETC./COCH/2013 . 19 30. THE LD. AR DREW OUR ATTENTION TO THE SUB-SECTI ON 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 CO - OPERATIVE 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 AGRICULTUR AL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK IMPLIES THAT STATUTE INTENDS TO EXEMPT A CERTAIN CATEGORY OF CO- OPERATIVE BANKS FROM THE ADVERSE IMPACT ARISING ON IMPLEMENTATION OF THE AMENDED LAW. OTHERWISE IT WOULD HAVE BEEN SUFFICIENT TO SAY THAT THE PROVISION OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO-OPERA TIVE BANK. NOW THE ASSESSING AUTHORITIES MAY BE OUT OF THEIR ENTHUSIA SM TO ACHIEVE COLLECTION TARGET ARE NOT ALLOWING EXEMPTION TO ANY CATEGORY OF CO-OPERATIVE BANKS AS INTENDED IN THE SUB-SECTION 80P(4) INSTEAD ARE TRESPASSING LEGAL BOUNDARIES OF THE RELATED SECTION TO BRING INTO TAX NET THE CO-OPERATIVE SOCIETIES WHICH ARE NOT EVEN BANKS. THE LD. AR RELIED ON THE FOLLOWING CASE LAW: (I)THE HONBLE ITAT PANAJI BENCH IN THE CASE OF JAY ALAKSHMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. WHER EIN IT WAS HELD AS UNDER: I.T.A. NOS. 325 ETC./COCH/2013 . 20 FROM THE AFORESAID OBJECTS IT IS APPARENT THAT NO NE OF THE AIMS AND OBJECTS ALLOWS AN ASSESSEE CO-OPERATIVE SO CIETY TO ACCEPT DEPOSITS OF MONEY FROM PUBLIC FOR THE PURPOS E OF LENDING OR INVESTMENTS. IN OUR OPINION UNTIL AND UNLESS TH AT CONDITION IS SATISFIED IT CANNOT BE SAID THAT THE PRIME OBJECT OR PRINCIPAL BUSINESS OF THE ASSESSEE IS BANKING BUSINESS THEREF ORE THE ASSESSEE WILL NOT COMPLY WITH THE FIRST CONDITION A S LAID DOWN IN THE DEFINITION AS GIVEN UNDER SECTION 5(CCV) OF THE BANKING REGULATION ACT 1949 FOR BECOMING PRIMARY CO-OPERA TIVE BANK. THE ASSESSEE THEREFORE CANNOT BE REGARDED TO BE A PRIMARY CO-OPERATIVE BANK AND IN CONSEQUENCE THEREOF IT CA NNOT BE A CO-OPERATIVE BANK AS DEFINED UNDER PART V OF THE BA NKING REGULATION ACT 1949. ACCORDINGLY IN OUR OPINION THE PROVISIONS OF SEC. 80P(4) READ WITH EXPLANATION THE REUNDER WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSEE THEREFORE IN OUR OPINION WILL BE ENTITLED FOR THE DEDUCTION U/S. 80P(2)(A)(I). WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A) ALLOWING DEDUCTION TO THE ASSESSEE. (II) RECENTLY IN THE CASE OF CIT VS. SRI BILURU GURUBASA VA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT WHEREI N THE HONBLE KARNATAKA HIGH COURT HAS HELD HAS UNDER: THE ASSESSEE IS NOT A CO-OPERATIVE BANK CARRYING O N EXCLUSIVELY BANKING BUSINESS AND AS IT DOES NOT POS SESS A LICENSE FROM RESERVE BANK OF INDIA TO CARRY ON BUSI NESS IT IS NOT A CO-OPERATIVE BANK. IT IS A CO-OPERATIVE SOCI ETY WHICH ALSO CARRIES ON THE BUSINESS OF LENDING MONEY TO I TS MEMBERS WHICH IS COVERED U/S. 80P(2)(A)(I) I.E. CARRYING O N 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 SO CIETY. (III)THE HONBLE GUJARAT HIGH COURT IN THE CASES OF (A) SURAT VANKAR SAHAKARI SANGH LTD. AND (B) JAFARI MOMIN VIKAS CO-O P CREDIT SOCIETY LTD. HAS HELD AS UNDER: FROM THE ABOVE CLASSIFICATION IT CAN BE GATHERED THAT SUB- SECTION (4) OF SECTION 80P WILL NOT APPLY TO AN ASS ESSEE WHICH IS I.T.A. NOS. 325 ETC./COCH/2013 . 21 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 EN TITY NOT BEING A CO-OPERATIVE SECTION 80P(4) OF THE ACT WOULD NOT A PPLY TO IT. IN VIEW OF SUCH CLARIFICATION WE CANNOT ENTERTAIN THE REVENUE CONTENTION THAT SECTION 80P(4) WOULD EXCLUDE NOT ON LY THE CO- OPERATIVE BANKS OTHER THAN THOSE FULFILLING THE DES CRIPTION CONTAINED THEREIN BUT ALSO CREDIT SOCIETIES WHICH ARE NOT CO- OPERATIVE BANKS. IN THE PRESENT CASE RESPONDENT A SSESSEE IS ADMITTEDLY NOT A CREDIT CO-OPERATIVE BANK BUT A CRE DIT CO- OPERATIVE SOCIETY. EXCLUSION CLAUSE OF SUB-SECTION( 4) OF SECTION 80P THEREFORE WOULD NOT APPLY. (IV) THE HONBLE KERALA HIGH COURT HAS HELD IN MOOLAMATT OM ELECTRICITY VS. UNKNOWN ON 10 JULY 199 EQUIVALENT CITATIONS : (1999) 238 ITR 630 (KER) HAS HELD AS UNDER: THE EXEMPTION CLAUSE IN REFERENCE TO THE CO-OPERA TIVE SOCIETY CALLS FOR A LIBERAL INTERPRETATION. THAT A PART A PLAIN INTERPRETATION OF THE RELEVANT CLAUSES WOULD GO TO SHOW THAT THERE IS A CLEAR EXEMPTION IN FAVOUR OF A PRIMARY C REDIT SOCIETY. IT MAY NOT BE POSSIBLE OR OPEN FOR THE RE VENUE TO DISSECT AND FIND OUT THE OBJECT OF THE PRIMARY CRED IT SOCIETY AND SHARE LIMIT OF THE PRIMARY CREDIT SOCIETY SO AS TO CLASSIFY THEM AS A CO-OPERATIVE BANK AND REMOVE THEM OUT OF THE PURVIEW OF THE EXEMPTION CLAUSE. THAT IS A MATTER TO BE DECIDED UNDER THE BANKING REGULATION ACT. AS RIGHT LY CONTENDED BY THE PETITIONER THEY ARE NOT CONTROLLE D OR GOVERNED BY THE RBI AND THEY ARE REGISTERED AND ARE BOUND BY THE PROVISIONS OF THE CO-OPERATIVE SOCIETIES ACT . (V) THE HONBLE MADRAS HIGH COURT IN 188 ITR 671 (M AD.) HAS HELD AS UNDER: U/S. 80P (2)(A)(I) OF THE INCOME TAX ACT 1961 IN ORDER TO CLAIM THE BENEFIT OF DEDUCTION UNDER SECTION 80P(1) OF THE ACT THE COOPERATIVE SOCIETY SHOULD BE ENGAGED IN C ARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACI LITY TO ITS MEMBERS. AS THE PROVISION IS INTENDED TO ENCOURAGE CO- OPERATIVE SOCIETIES A LIBERAL CONSTRUCTION SHOULD BE GIVEN TO THE LANGUAGE EMPLOYED IN THE PROVISION. HENCE IF A CO- I.T.A. NOS. 325 ETC./COCH/2013 . 22 OPERATIVE SOCIETY IS ENGAGED IN CARRYING ON BUSINES S OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS THAT WO ULD SUFFICE TO ATTRACT THE BENEFIT OF DEDUCTION U/S. 80P(1) AND (2) (A)(I). 31. THUS THE LD. AR CONCLUDED THAT IT IS DOUBTLESSL Y CLEAR THAT A PRIMARY AGRICULTURAL CREDIT SOCIETY PROVIDING CREDIT FACILI TY TO ITS MEMBERS IS NOT A BANK COMING UNDER THE CONTROL OF RESERVE BANK OF IN DIA AND IS ELIGIBLE FOR DEDUCTION U/S. 80P. IT IS NOT OPEN FOR THE REVENUE TO DISSECT THE OPERATIONS OF THE SOCIETY TO REMOVE IT OUT OF THE EXEMPTION CL AUSE AS OBSERVED BY THE HONBLE HIGH COURT OF KERALA IN THE CASE OF MOOLAMA TTOM ELECTRICITY EMPLOYEES CREDIT SOCIETY (SUPRA). THE INTENTION OF LAW WAS ALSO TO TAX ONLY THE STATE AND DISTRICT CO-OPERATIVE BANKS AND OPERA TE AT PAR WITH THE OTHER COMMERCIAL BANKS AND NOT TO DEPRIVE THE BENEFIT OF DEDUCTION UNDER SECTION 80P (2)(A)(I) TO THE SMALL CO-OPERATIVE SOC IETIES OF THE ASSESSEES NATURE FOR THEIR INCOME FROM THE ACTIVITY OF PROVID ING CREDIT FACILITY TO MEMBERS. 32. ON THE OTHER HAND THE LD. DR SUBMITTED THAT DE DUCTION U/S. 80(P) OF THE I.T ACT WAS DENIED TO THE ABOVE SOCIETIES SI NCE IT WAS FOUND THAT THE SOCIETIES WERE NOT FULFILLING THEIR PRIMARY OBJECT OR PRINCIPAL BUSINESS OF PROVIDING FINANCIAL ACCOMMODATION TO ITS MEMBERS FO R AGRICULTURAL PURPOSES. THE ASSESSEE SOCIETIES WERE PROVIDING ON LY MEAGER PERCENTAGE OF THEIR TOTAL LOANS DISBURSED TOWARDS AGRICULTURAL PURPOSES. I.T.A. NOS. 325 ETC./COCH/2013 . 23 33. THE LD. DR SUBMITTED THAT APART FROM THIS IT W AS FOUND THAT THE PRINCIPAL BUSINESS OF THE ABOVE SOCIETIES WAS BANKI NG BUSINESS. HENCE THE ASSESSEE SOCIETIES/BANK WERE TREATED AS CO-OPERATIV E 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 RES PECTIVE 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 RELIED ON HIS OWN ORD ER IN THE CASE OF KARIVELLUR SERVICE CO-OPERATIVE BANK LTD. FOR THE A.Y. 2009-10 . THE CIT(A)S ORDER WAS ALSO CONFIRMED BY THE HONBLE ITAT COCHIN VIDE ORDER DATED 22/03/2013 IN I.T.A. NO. 311/COCH/2012 IN THE CASE OF THE KARIVELLOOR SERVICE CO-OP BANK TD. 35. THE LD. DR ALSO PLACED RELIANCE ON THE RECENT D ECISION OF THE ITAT PANAJI BENCH DATED 14-03-2014 IN THE CASE OF SHRI C HANDRAPRABHU URBAN CO-OPERATIVE SOCIETY LTD. (45 TAXMANN.COM 14(PANAJI -TRIB) AND ALSO ON THE DECISION OF THE HYDERABAD B BENCH OF THE ITAT IN THE CASE OF THE CITIZEN CO-OP SOCIETY HYDERABAD WHICH WAS AUTHORED BY THE HONBLE ACCOUNTANT MEMBER. I.T.A. NOS. 325 ETC./COCH/2013 . 24 36. IN THIS CASE THE CIT(A)-IV KOCHI HAVING JURIS DICTION OVER THE FILES OF KOTTAYAM ALLOWED THE DEDUCTION U/S. 80P(2)(A)(I) OF THE I.T. ACT MISTAKENLY HOLDING THAT IT WAS ADMITTED BY THE ASSESSING OFFIC ER IN THE ASSESSMENT ORDER THAT 91% PERCENTAGE OF THE LOANS WERE GIVEN F OR AGRICULTURAL PURPOSES. THE CIT(A) ALSO ERRED IN HOLDING THAT CE RTIFICATE FROM THE REGISTRAR OF CO-OPERATIVE SOCIETIES CATEGORIZING TH E ASSESSEE AS A PRIMARY AGRICULTURAL CREDIT SOCIETY IS SUFFICIENT TO CLAIM DEDUCTION U/S. 80P. THIS FINDING OF THE CIT(A) IS AGAINST THE FINDING OF THE HONBLE HIGH COURT OF KERALA IN WP(C) NO. 14226 OF 2012(C) DATED 14 TH SEPTEMBER 2012 IN THE CASE OF THATHAMANGALAM SERVICE CO-OPERATIVE BANK LT D. AND OTHERS WHEREIN THEIR LORDSHIPS HAVE OBSERVED AS UNDER: TRUE SOME OF THE PETITIONERS HAVE OBTAINED A CERT IFICATE AS TO THE CLASSIFICATION/REGISTRATION AS PRIMARY AGRICULTURAL CREDIT SOCIETIES. BUT BY VIRTUE OF THE AMENDMENT TO SECTION 2(OA) OF THE KERALA CO- OPERATIVE SOCIETIES ACT IF THE SOCIETY DOES NOT CO NTINUE TO FULFILL THE OBLIGATION IT WILL LOSE THE COLOR AND CHARACTERIST ICS OF A PRIMARY AGRICULTURAL CREDIT SOCIETY EXCEPT FOR THE PURPOSE OF STAFF STRENGTH. THUS IT IS VERY MUCH OBLIGATORY FOR THE PETITIONERS SOCIETIES WHO CLAIM THE STATUS AND THE BENEFITS OF PRIMARY AGRICU LTURAL CREDIT SOCIETIES TO SUBSTANTIATE THAT THEIR MAIN OBJECT OF INCORPORATION IS BEING CONTINUED TO BE FULFILLED AS WELL. 37. THE LD DR SUBMITTED THAT IT IS FOR THE PETITIO NERS TO ESTABLISH THEIR STATUS AS PRIMARY AGRICULTURAL CREDIT SOCIETIES BY OBTAINING AND PRODUCING THE RELEVANT CERTIFICATE FROM THE COMPETENT AUTHORI TY AS MENTIONED HEREINBEFORE. IT IS ALSO OPEN FOR THE PETITIONERS TO OPT TO PRODUCE THE I.T.A. NOS. 325 ETC./COCH/2013 . 25 RELEVANT RECORDS BEFORE THE INCOME TAX AUTHORITIES AS WELL TO ESTABLISH THEIR STATUS AND CREDENTIALS THAT THERE IS NO LAPSE IN F ULFILLING THE OBJECTIVE AS PRIMARY AGRICULTURAL CREDIT SOCIETIES SO AS TO ABSO LVE FROM FURTHER PROCEEDINGS AT THE HANDS OF THE INCOME TAX DEPARTME NT. HE SUBMITTED THAT THE HONBLE HIGH COURT OF KERALA IN I.T.A. NO. 4 OF 2014 DATED 31-01- 2014 IN THE CASE OF PERINTHAMANNA SERVICE CO-OPERAT IVE BANK HAS OBSERVED AS UNDER: THE REVISIONAL AUTHORITY WAS JUSTIFIED IN SAYING WITH THE INTRODUCTION OF SECTION 80P(4) NECESSARILY AN ENQ UIRY HAS TO BE CONDUCTED INTO THE FACTUAL SITUATION WHETHER CO-OPE RATIVE BANK IS CONDUCTING THE BUSINESS AS PRIMARY AGRICULTURAL CRE DIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK AND DEPENDING UPON THE TRANSACTIONS THE ASSESSING OFFI CER HAS TO EXTEND THE BENEFITS AVAILABLE AND NOT MERELY LOOKIN G AT THE REGISTRATION CERTIFICATE BY THE KERALA CO-OPERATIVE SOCIETIES ACT OR THE NOMENCLAUTURE. 38. THE LD. DR FURTHER SUBMITTED THAT IT IS PERTINE NT TO NOTE THAT THE PRESIDENT OF THE KIZHATHADIYOOR SERVICE CO-OP BANK HAS VIDE LETTER DATED 13-11-2010 WRITTEN TO THE HONBLE FINANCE MINISTER OF INDIA STATED THAT THE PACS IN KERALA ARE DOING BANKING BUSINESS AND PROVI DING CREDIT FACILITIES TO MEMBER AND NON-MEMBERS AND THAT THEY ARE GIVEN NON- AGRICULTURAL LOANS AS WELL AS NON-CREDIT SERVICES TO MEMBERS AND NON-M EMBERS. 39 AFTER HEARING BOTH THE PARTIES WE ARE OF THE O PINION THAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS COCHIN B ENCH OF THE TRIBUNAL ON I.T.A. NOS. 325 ETC./COCH/2013 . 26 THE EARLIER OCCASION IN THE CASE OF KUNNAMANGALAM C O-OPERATIVE BANK IN I.T.A. NO. 156/COCH/2014 VIDE ORDER DATED 25/07/201 4 DECIDED THE ISSUE AGAINST THE ASSESSEE. THE RELEVANT PORTION OF THE SAID ORDER IS AS FOLLOWS: 8.10 WE HAVE GONE THROUGH THE DECISION OF THE HYD ERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF THE CITIZEN C OOPERATIVE SOCIETY VS. ADDL. CIT 41 305 (HYD). WE NOTICE THAT THIS DE CISION IS APPLICABLE TO THE FACTS OF THE CASE BEFORE US. IN T HAT DECISION UNDER PARA 23 THE TRIBUNAL HAS GIVEN A FINDING THAT THE A SSESSEE IS CARRYING ON BANKING BUSINESS AND FOR ALL PRACTICAL PURPOSES IT ACTS LIKE A CO-OPERATIVE BANK. THE SOCIETY IS GOVERNED B Y THE BANKING REGULATIONS ACT. THEREFORE THE SOCIETY BEING A CO- OPERATIVE BANK PROVIDING BANKING FACILITIES TO MEMBERS IS NOT ELIG IBLE TO CLAIM DEDUCTION U/S 80P(2)(A)(I) AFTER THE INTRODUCTION O F SUB-SECTION (4) TO SECTION 80P. IN VIEW OF THIS FINDING THE ASSESS EE WAS DENIED DEDUCTION U/S 80P(2)(A)(I). WE HAVE ALSO GONE THROU GH THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DIVYAJYOTHI CREDIT CO-OPERATIVE SOCIETY LTD. (SUPRA ) IN ITA NO. 72/BANG/2013. IN THIS CASE WE NOTICE THAT THE HON' BLE TRIBUNAL CONFIRMED THE ORDER OF CIT(A) FOLLOWING THE DECISIO N OF THE TRIBUNAL IN THE CASE OF ACIT CIRCLE 3(1) BANGALORE VS. M/S . BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LT D. IN ITA NO. 1069/BANG/2010 HOLDING THAT SEC. 80P(2)(A)(I) IS AP PLICABLE ONLY TO A CO-OPERATIVE BANK AND NOT TO CREDIT CO-OPERATIVE SOCIETY. WITH DUE REGARDS TO THE BENCH WE ARE UNABLE TO FIND ANY TER MCREDIT CO- OPERATIVE SOCIETY U/S 80P(2)(A)(I) OR U/S 80P(4) THEREFORE THIS DECISION CANNOT ASSIST US. WE NOTED THAT THE HON'BL E GUJARAT HIGH COURT IN THE CASE OF CITVS. JAFARI MOMIN VIKAS CO-O P. CREDIT SOCIETY LTD. IN TAX APPEALS NO 442 OF 2013 443 OF 2013 AND 863 OF 2013 (SUPRA) VIDE ORDER DT. 15.1.2014 TOOK THE VIEW THAT SEC. 80P(4) WILL NOT APPLY TO A SOCIETY WHICH IS NOT A CO-OPERATIVE BANK. IN THE CASE OF VYAVASAYA SEVA SAHAKARA SANGHA VS. STATE OF KARN ATAKA &ORS. (SUPRA) WE NOTICE THAT THE ISSUE BEFORE THE HON'BLE HIGH COURT IN THE WRIT PETITION FILED BY THE PETITIONER RELATED TO TH E LEGISLATIVE COMPETENCE OF THE STATE LEGISLATURE FOR ISSUING A C IRCULAR. 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 UND ER 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- I.T.A. NOS. 325 ETC./COCH/2013 . 27 OPERATIVE SOCIETIES REGISTERED UNDER THE ACT AND A S 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 ACTI VITIES OF THE PETITIONERS ARE TO FINANCE ITS MEMBERS. FOR THE PURPOSE OF FINANCING ITS MEMBERS THEY BORROW MONEY FROM THE F INANCING AGENCIES AND REPAY THE SAME. MERELY BECAUSE THE PET ITIONERS- 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 TREAT ED AS BANKING COMPANIES. IT IS ALSO NOT POSSIBLE TO HOLD THAT THESE ACTIVITIES OF THE PETITIONERS AMOUNT TO BANKING A S CONTEMPLATED UNDER THE BANKING REGULATION ACT 1949 INASMUCH AS THESE CO-OPERATIVE SOCIETIES ARE NOT ES TABLISHED FOR THE PURPOSE OF DOING BANKING AS DEFINED IN SE CTION 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 FA CILITIES TO ITS MEMBERS IF IT IS NOT A CO-OPERATIVE BANK. WE HAVE A LSO GONE THROUGH THE DECISION OF THIS BENCH IN THE CASE OF DCIT VS. JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. IN IT A 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 UND ER : 12.FROM THE AFORESAID OBJECTS IT IS APPARENT THAT NONE OF THE AIMS AND OBJECTS ALLOWS THE ASSESSEE COOPERATIV E SOCIETY TO ACCEPT DEPOSITS OF MONEY FROM PUBLIC FOR THE PU RPOSE OF LENDING OR INVESTMENT. IN OUR OPINION UNTIL AND UNL ESS THAT CONDITION IS SATISFIED IT CANNOT BE SAID THAT THE PRIME OBJECT OR PRINCIPAL BUSINESS OF THE ASSESSEE IS BANKING BU SINESS. THEREFORE THE ASSESSEE WILL NOT COMPLY WITH THE FI RST CONDITION AS LAID DOWN IN THE DEFINITION AS GIVEN U /S. 5(CCV) OF THE BANKING REGULATION ACT 1959 FOR BECOMING PRIM ARY COOPERATIVE BANK. THE ASSESSEE THEREFORE CANNOT BE REGARDED TO BE PRIMARY COOPERATIVE BANK AND IN CONS EQUENCE THEREOF IT CANNOT BE A CO-OPERATIVE BANK AS DEFINE D UNDER PART V OF THE BANKING REGULATION ACT 1949. ACCORDIN GLY IN OUR OPINION THE PROVISIONS OF SECTION 80P (4) READ WITH EXPLANATION THERE UNDER WILL NOT BE APPLICABLE IN T HE CASE OF THE ASSESSEE. THE ASSESSEE THEREFORE IN OUR OPINI ON WILL BE I.T.A. NOS. 325 ETC./COCH/2013 . 28 ENTITLED FOR THE DEDUCTION U/S 80P(2)(A)(I). WE ACC ORDINGLY CONFIRM THE ORDER OF CIT(A) ALLOWING DEDUCTION TO T HE ASSESSEE. THE OTHER DECISIONS ALSO RELIED ON ARE NOT APPLICAB LE TO THE FACTS OF THE CASE OF THE ASSESSEE. 8.11. IN VIEW OF OUR AFORESAID DISCUSSION WE HOLD THAT THE ASSESSEE IS A PRIMARY COOPERATIVE BANK AND THEREFORE HIT BY THE PROVISIONS OF SECTION 80P(4). 9. ON THE OTHER HAND THE ASSESSEE MADE AN ALTERNA TIVE PLEA THAT THE ASSESSEE IS LENDING MONEY ONLY TO ITS MEMB ERS. BEING SO APPLYING THE CONCEPT OF MUTUALITY THE TOTAL INCOME OF THE ASSESSEE HAS TO BE EXEMPT FROM TAX. HOWEVER WE FIND THAT T HIS ARGUMENT OF THE ASSESSEE IS ALSO DEVOID OF MERITS. THE HONBLE SUPREME COURT HAD AN OCCASION TO CONSIDER THIS MUTUALITY CONCEPT. SIMILAR ISSUE CAME UP FOR CONSIDERATION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. KUMBAKONAM MUTUAL BENEFIT FUND LTD. 53 ITR 241 (SC) WHEREIN IT WAS HELD THAT IF THE PROFITS ARE DISTRIB UTED 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 CO MPANY 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 COMPA NY LIMITED BY SHARES. INDEED THE POSITION OF THE ASSESSEE IS NO DIFFERENT FROM AN ORDINARY BANK EXCEPT THAT IT LENDS MONEY AND RECEIV ES DIVIDEND FROM ITS SHAREHOLDERS WHICH DOES NOT BY ITSELF MAKE ITS INCOME ANY THE LESS INCOME FROM BUSINESS. THE SAME JUDGMENT WAS F OLLOWED IN THE CASE OF CIT VS. ARCOT DHANASEKHARA NIDHI LTD. 59 I TR 480 (MAD.) CIT VS. DHARMAVARAM MUTUAL BENEFIT PERMANENT FUND L TD. 67 ITR 673 (AP) AND CIT VS. BHAVNAGAR TRUST CORPORATION ( P) LTD. 69 ITR 278. FURTHER THE HONBLE KERALA HIGH COURT IN THE CASE OF KOTTAYAM CO-OPERATIVE LAND MORTGAGE BANK LTD. VS. CIT 172 I TR 443(KER.) WHERE IT WAS HELD AS UNDER: THE INCOME-TAX OFFICER HELD THE VIEW THAT THE ASSE SSEE IS NOT ENTITLED TO CLAIM ANY FURTHER EXEMPTION UNDER C LAUSE (C) AS THE ASSESSEE IS ENTITLED TO EXEMPTION U/S. CLAUS E (A) IN RESPECT OF THE BANKING ACTIVITIES. THE APPELLATE AS SISTANT COMMISSIONER IN ALLOWING THE ASSESSEES APPEAL HE LD THAT EXEMPTION UNDER CLAUSE (C) IS IN ADDITION TO THE EX EMPTION ALLOWABLE UNDER CLAUSES (A) AND (B) AND DIRECTED TH E INCOME- I.T.A. NOS. 325 ETC./COCH/2013 . 29 TAX OFFICER TO ALLOW A DEDUCTION OF RS. 20 000 SEPA RATELY TAKING INTO CONSIDERATION THE PROPERTY INCOME EARNE D BY THE ASSESSEE. THE REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE APPELLATE TRIBUNAL. THE TRIBUNAL HELD THAT THE RULE OF CONSTRUCTION OF EJUSDEM GENERIS APPLIES TO THE CONS TRUCTION OF CLAUSE (C) WHICH RESULTS IN PROFITS AND GAINS THA T THE INCOME FROM HOUSE PROPERTY HAS BEEN DEALT WITH IN SECTIONS 22 TO 27 AS INCOME AND NOT AS PROFITS AND GAINS AND THAT THE ASSESSEE IS NOT THEREFORE ENTITLED TO ANY EXEMPTION UNDER CLAUSE (C). THE TRIBUNAL DID NOT ACCEPT THE ALTERNATIVE CONTENT ION RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBU NAL THAT THE LETTING OUT OF SURPLUS SPACE SHOULD BE TREATED AS A BUSINESS ACTIVITY UNDER CLAUSE (A) OF SUB-SECTION (2) OF SEC TION 80P OF THE ACT. THE APPEALS WERE ACCORDINGLY ALLOWED. THE QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL. SECTION 80P OF THE INCOME-TAX ACT 1961 ALLOWS A S TRAIGHT DEDUCTION IN THE COMPUTATION OF THE TOTAL INCOME O F A CO-OPERATIVE SOCIETY TO THE EXTENT MENTIONED. CLAUSE(C) OF SEC TION 80P(2) PROVIDES THAT IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED IN ACTIVITIES OTHER THAN THOSE SPECIFIED IN CLAUSE (A) OR CLAUSE (B) EITHER INDEPENDENTLY OF OR IN ADDITION TO ALL OR ANY OF THE ACTIVITIES SO SPECIFIED SO MUCH OF ITS PROFITS AND GAINS ATTRIBU TABLE TO SUCH ACTIVITIES AS DOES NOT EXCEED RS. 20 000 SHALL BE D EDUCTED IN COMPUTING THE TOTAL INCOME. THE CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS FALLS UNDER CLAUSE (A) OF SECTION 80P(2). THE CLAIM FOR EXEMPT ION UNDER CLAUSE (C) IS IN ADDITION TO THE EXEMPTION PROVIDED UNDER CLAUSE (A). THE PROVISIONS ARE CUMULATIVE AND MUTUALLY SUPPLEMENTIN G. THE LIMITS SPECIFIED IN CLAUSE(C) ARE IN RELATION TO THE PROFI TS AND GAINS ATTRIBUTABLE TO THE ACTIVITY OTHER THAN THAT SPECIF IED IN CLAUSE (A). IF THE RENTAL INCOME RECEIVED BY THE SOCIETY IS ATTRIB UTABLE TO ANY ACTIVITY OF THE SOCIETY CLAUSE (C) WOULD BE ATTRAC TED. IT IS THEN NECESSARY THAT THE CO-OPERATIVE SOCIETY MUST PROVE THAT IT HAS ENGAGED ITSELF IN CARRYING ON THE ACTIVITY GIVING R ISE TO PROFITS OR GAINS. SUCH ACTIVITY OF THE ASSESSEE MUST HAVE A D IRECT OR PROXIMATE CONNECTION WITH OR NEXUS TO THE EARNING IN ORDER TH AT THE ASSESSEE MAY ENJOY THE EXEMPTION. SECTION 80P(2)(C) OF THE ACT EXEMPTS INCOME OF CO-O PERATIVE SOCIETIES TO THE EXTENT MENTIONED THEREIN IF THE PR OFITS OR GAINS ARE ATTRIBUTABLE TO THE ACTIVITY IN WHICH THE CO-OPERAT IVE SOCIETY IS I.T.A. NOS. 325 ETC./COCH/2013 . 30 ENGAGED. THE EXPRESSION ATTRIBUTABLE TO IS MUCH WIDER THAN THE EXPRESSION DERIVED FROM AND IT COVERS RECEIPTS FR OM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF THE ASSE SSEE. IN THIS VIEW OF THE MATTER INTEREST EARNED BY A CO-OPERATI VE SOCIETY WHICH WAS CARRYING ON THE BUSINESS OF SUPPLYING SURGARCAN E ON STATUTORY INVESTMENT IN GOVERNMENT SECURITIES WAS HELD PROFI T ATTRIBUTABLE TO THE CARRYING ON OF THE ACTIVITY OF SUPPLYING SUGARC ANE (CIT VS. CO- OPERATIVE CANE DEVELOPMENT UNION LTD. (1979) 118 IT R 770 (ALL.) THE PROFITS AND GAINS FROM SUCH INVESTMENTS WERE CO NNECTED WITH OR INCIDENTAL TO THE CARRYING ON OF THE ACTUAL BUSINES S. WHERE HOWEVER THE ASSESSEE AS OWNER OF CERTAIN PROPERTY LETS OUT THAT PROPERTY AND RECEIVES RENTAL INCOME THE INCOME THU S RECEIVED CANNOT PARTAKE OF THE CHARACTER OF PROFITS AND GAIN S ATTRIBUTABLE TO AN ACTIVITY CARRIED ON BY THE SOCIETY. THE BUILDIN G 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 SPEC IFIED FORM OF SUPERVISED ACTION OR 0FIELD OF ACTION. READ IN THE CONTEXT OF THE PROFIT EARNING ACTIVITY OF A CO-OPERATIVE SOCIETY IT MEANS THE CORPORATE ACTIVITY OF THE SOCIETY THAT IS TO SAY WHETHER OR NOT THEY AMOUNT TO A BUSINESS TRADE OR PROFESSION IN THE OR DINARY SENSE. CLAUSE (C) OF SECTION 80P(2) IS INTENDED TO COVER R ECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINE SS BUT ATTRIBUTABLE TO AN ACTIVITY WHICH RESULTS IN PROFIT S AND GAINS. LETTING OUT OF SURPLUS SPACE IN THE BUILDING OWNED AND USED BY THE ASSESSEE IS NOT SUCH AN ACTIVITY FALLING UNDER CLAUSE (C). THE RENT THUS RECEIVED BY THE ASSESSEE IS NOT ELIGIBLE FOR THE EX EMPTION PROVIDED THEREUNDER. IN THIS VIEW THE APPELLATE TRIBUNAL W AS JUSTIFIED IN REJECTING THE ASSESSEES CLAIM. 10. IN VIEW OF THE ABOVE DISCUSSIONS WE ARE INCLIN ED TO HOLD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80P OF THE ACT ON ANY REASONING. 40 IN VIEW OF THE ORDER OR THE TRIBUNAL WE ARE I NCLINED TO DISMISS THIS GROUND OF THE ASSESSEE IN ALL THE APPEALS. HOWEVER IN THE CASE OF REVENUE APPEAL IN I.T.A. NO. 770/COCH/2013 THE CIT(A) HAS BROUGHT ON RECORD THAT THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF THE ASS ESSEE IS TO PROVIDE I.T.A. NOS. 325 ETC./COCH/2013 . 31 FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPOSES OR FOR THE PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES AND BEING SO THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEES IN RESPECT OF DE DUCTION U/S. 80P OF THE ACT. HENCE THE GROUND IN REVENUE APPEAL IS ALSO DI SMISSED AND ALSO CO NO.05/COCH/2014 IS DISMISSED AS INFRUCTUOUS. 41. NEXT GROUND IN I.T.A. NOS. 135/COCH/2013 720/C OCH/2013 134/COCH/2013 719/COCH/2013 660/COCH/2013 745/CO CH/2013 746/COCH/2013 747/COCH/2013 800/COCH/2013 133/CO CH/2013 124/COCH/2013 123/COCH/2013 683/COCH/2013 684/CO CH/2013 685/COCH/2013 739/COCH/2013 740/COCH/2013 741/CO CH/2013 743/COCH/2013 & 744/COCH/2013 IS WITH REGARD TO DED UCTION OF 7.5% PROVISION FOR BAD AND DOUBTFUL DEBTS U/S. 36(1)(VII A) 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 KANN UR CO-OPERATIVE BANK LTD. IN I.T.A. NOS. 182&183/COCH/2014 DATED 27/06/2 014 WHEREIN THE TRIBUNAL HELD AS UNDER: 3. THE ASSESSEE RAISED THE GROUND IN BOTH THE APPE ALS THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE W AS NOT ENTITLED TO DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADVANC ES MADE BY ITS RURAL BRANCHES U/S. 36(1)(VIIA) OF THE I.T. ACT . I.T.A. NOS. 325 ETC./COCH/2013 . 32 4. AFTER HEARING BOTH THE PARTIES WE ARE OF THE OP INION THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE IN I.T.A. NOS. 179 /2012 33 37 238 241 243 254&258 OF 2013 VIDE ITS JUDGMENT DATED 3RD APRIL 2014. THE HONBLE JURISDICTIONAL HIGH COURT HELD AS UNDER: 8. SECTION 36 OF THE ACT DEALS WITH VARIOUS DEDUCT IONS THAT COULD BE ALLOWED IN COMPUTING THE INCOME REFERRED T O IN SECTION 28 OF THE ACT. SECTION 36 HAS VARIOUS CLAU SES AND EACH CLAUSE REFERS TO DEDUCTION ALLOWABLE TO A PART ICULAR ASSESSEE LIKE AMOUNT OF PREMIUM PAID IN RESPECT OF INSURANCE AGAINST RISK OF DAMAGES FEDERAL MILK CO-OPERATIVE SOCIETY GENERAL INSURANCE ETC. WE ARE CONCERNED WITH SUB-C LAUSE (A) OF CLAUSE (VIIA) TO SECTION 36(1). THIS CLAUSE MAKE S PROVISION FOR BAD AND DOUBTFUL DEBTS. IN OTHER WORDS DEDUCT ION COULD BE CLAIMED BY BANKS REFERRED TO IN CLAUSE (VIIA) IN RESPECT OF BAD AND DOUBTFUL DEBTS. IT PROVIDES CERTAIN TERMS AND CONDITIONS UNDER WHICH SUCH DEDUCTIONS COULD BE CLA IMED BY A PARTICULAR BANK. SECTION 36(1)(VIIA) COMMENCES WIT H FOLLOWING WORDS IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBT MADE BY AND SUB-CLAUSE (A) READS AS UNDER: A SCHEDULED BANK NOT BEING A BANK APPROVED BY CEN TRAL GOVERNMENT FOR THE PURPOSES OF CLAUSE (VIIIA) OR A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTS IDE INDIA OR A NON-SCHEDULED BANK OR A CO-OPERATIVE BANK OTHER THA N A BANK OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTUR AL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PERCENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVA NCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. UNDER EXPLANATION TO SECTION 36 FOR BETTER UNDERSTA NDING OF CERTAIN TERMS USED IN SUB-CLAUSE (A) OF CLAUSE (VIIA) DEFIN ITIONS ARE PROVIDED. FOR THE PURPOSE OF THE ABOVE APPEALS WE NEED TO KN OW WHAT EXACTLY NON-SCHEDULED BANK RURAL BRANCH CO-OPERATIVE BANK AND SCHEDULED BANK MEAN AS PER THE EXPLANATION WHICH READ AS UNDE R: NON-SCHEDULED BANK MEANS A BANKING COMPANY AS DEF INED UNDER CLAUSE (C) OF SECTION 5 OF THE BANKING REGULA TION ACT 1949 WHICH IS NOT A SCHEDULED BANK. I.T.A. NOS. 325 ETC./COCH/2013 . 33 RURAL BRANCH MEANS A BRANCH OF A SCHEDULED BANK O R A NON-SCHEDULED BANK SITUATED IN A PLACE WHICH HAS A POPULATION OF NOR MORE 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 S OCIETY AND PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELO PMENT 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 IN CLUDED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA ACT. IN ORDER TO UNDERSTAND WHAT IS A BANKING COMPANY O NE HAS TO REFER TO BANKING REGULATION ACT AND TO UNDERSTAND WHETHER A PARTICULAR BANK IS A SCHEDULED BANK ONE HAS TO SEE WHETHER SU CH BANK FINDS A PLACE IN THE SECOND SCHEDULE TO RESERVE BANK OF IND IA ACT. CO- OPERATIVE BANK MEANS A BANK AS EXPLAINED UNDER SUB- SECTION (4) OF SECTION 80P OF THE ACT. SECTION 5(C) OF BANKING RE GULATION 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 REGULAT ION ACT ENTIRE PROVISIONS DEAL WITH CO-OPERATIVE SOCIETIES. SECTI ON 56 SAYS AFTER CLAUSE (CC) CLAUSE (CCI) DEFINITION OF CO-OPERATIV E BANK IS TO BE INCLUDED. SECTION 56(C) OF BANKING REGULATION ACT S AYS: IN SECTION 5:- (I) AFTER CLAUSE (CC) THE FOLLOWING CLAUSE SHALL BE INSERTED NAMELY:- (CCI) CO-OPERATIVE BANK MEANS A STATE CO-OPERATI VE BANK A CENTRAL CO-OPERATIVE BANK AND A PRIMARY C O- OPERATIVE BANK. MEANING OF DIFFERENT TERMS USEFUL FOR THE PURPOSE O F DECIDING THE CONTROVERSY ONE HAS TO SEE HOW PRESEN CE OF A PARTICULAR TERM IN A PARTICULAR PROVISION AND I.T.A. NOS. 325 ETC./COCH/2013 . 34 SIMULTANEOUSLY BEING ABSENT IN THE EXPLANATION TO T HE SAID PROVISION WOULD CHANGE THE POSITION OF THE APPELLAT E BANKS WITH REFERENCE TO THE CONTEXT. 9. ADMITTEDLY APPELLANTS/ASSESSEES ARE CO-OPERATIV E BANKS. WITH INTRODUCTION OF FINANCE ACT OF 2007 COMING IN TO EFFECT FROM 01.04.2007 ONE HAS TO UNDERSTAND WHAT WAS THE POSITION PRIOR TO 01.04.2007 AND AFTER 01.04.2007 THEY WERE ENJOYING THE BENEFITS PROVIDED U/S. 80P. WITH THE INTRODUCTI ON OF FINANCE ACT 2007 WITH EFFECT FROM 01.04.2007 THEY COULD CL AIM DEDUCTIONS AS PROVIDED U/S. 36(1) OF THE ACT. WE A RE CONCERNED WITH SUB-CLAUSE(A) OF CLAUSE (VIIA) TO SECTION 36(1 ). PRIOR TO FINANCE ACT OF 2007 CO-OPERATIVE BANK WAS NOT INCL UDED IN SUB- CLAUSE (A) SO FAR AS PROVISIONS FOR BAD AND DOUBTFU L DEBTS. WITH EFFECT FROM 01.04.2007 CO-OPERATIVE BANK WAS INCLU DED UNDER SUB-CLAUSE (A) OF CLAUSE (VIIA) OF SECTION 36(1). I T IS FURTHER CLARIFIED THAT ONLY SUCH CO-OPERATIVE BANK OTHER TH AN A PRIMARY AGRICULTURE CREDIT SOCIETY ETC. IS INCLUDED IN SUB -CLAUSE (A) OF CLAUSE (VIIA). THE PROVISION IS A BENEFICIAL ONE. NO DOUBT PLAIN READING OF MAIN SECTION 36(1) (VIIA)(A) AND EXPLANAT ION UNDER SAID SECTION PRESENT CERTAIN DIFFICULTIES BUT SITU ATION IS NOT WITHOUT POSSIBILITIES. THE OBJECT AND INTENTION OF THE LEGISLATURE IS TO BE UNDERSTOOD BY HARMONIOUS CONSTRUCTION OF T HE PROVISIONS. THE POLICY WAS TO INCLUDE CO-OPERATIVE BANKS AS WELL AS THEY COULD NOT TAKE SHELTER U/S. 80P OF TH E INCOME TAX ACT ANY MORE. BY RESTRICTING THE SCOPE OF THE PROV ISIONS THE VERY PURPOSE OF INCLUSION OF CO-OPERATIVE BANK WOUL D BE LOST. SUB-CLAUSE 9A) CONSISTS OF TWO TYPES OF DEDUCTIONS. ONE REFERS TO DEDUCTION OF AN AMOUNT NOT EXCEEDING 7.5% OF THE TOTAL INCOME. ONLY CONDITION IS THERE SHOULD BE A PROVI SION FOR BAD AND DOUBTFUL DEBTS. TILL 01.04.2007 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 QUEST ION 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 DEDUCTION S ONLY TO 7.5% OF THE TOTAL INCOME AS PROVIDED UNDER SUB-CLAUSE (V IIA) OF SECTION 36(1). I.T.A. NOS. 325 ETC./COCH/2013 . 35 10. THEN COMING TO THE OTHER CONTROVERSIAL ISSUE WH ETHER A CO- OPERATIVE BANK IRRESPECTIVE OF HAVING RURAL BRANCH AS EXPLAINED UNDER EXPLANATION IS ENTITLED TO HAVE THE BENEFIT O F SECOND PART OF SECTION 36(1)(VIIA)(A) WE HAVE TO SEE IN THE A BSENCE OF CO- OPERATIVE BANK IN THE DEFINITION OF RURAL BRANCH UN DER EXPLANATION TO SECTION 36(1) WOULD IT MAKE ANY DIFF ERENCE. LEARNED COUNSEL APPEARING FOR APPELLANTS TRIED TO C ONVINCE THE COURT THAT ADJECTIVE OF RURAL WOULD MEAN IN RELATIO N TO OR CHARACTERISTIC OF THE COUNTRYSIDE RATHER THAN THE T OWN; REMOTE RURAL AREAS. URBAN NO DOUBT IS OPPOSITE TO RURAL . URBAN IS IN RELATION TO OR CHARACTERISTIC OF A TOWN OR CITY. 11. ACCORDING TO US THERE IS NO NECESSITY TO FIND OUT THE GENERIC MEANING OF EITHER URBAN OR RURAL FOR THE SIMPLE REA SON THAT EXPLANATION UNDER SECTION 36(1) ITSELF DEFINES WHAT COULD BE CONSIDERED AS A RURAL BRANCH SO FAR AS SECTION 36(1 ) OF THE ACT. IN THE LIGHT OF GIVING A PARTICULAR DEFINITION FOR THE PURPOSE OF UNDERSTANDING RURAL BRANCH WITH REFERENCE TO SUB-CL AUSE (A) OF CLAUSE (VIIA) TO SECTION 36(1) ONE NEED NOT TO GO I N SEARCH OF THE MEANING OF RURAL OR WHAT EXACTLY WOULD CONSTITU TE RURAL BRANCH. THIS COURT HAD AN OCCASION TO DECIDE THE S AID CONTROVERSY PERTAINING TO BAD AND DOUBTFUL DEBTS OF A RURAL BRANCH. WHILE EXPLAINING THE MEANING OF PLACE IN EXPLANATION (IA) TO SECTION 36(1)(VIIA) THEIR LORDSHIPS OPINED AS UNDER: NEXT QUESTION RAISED PERTAINS TO THE ASSESSEES C LAIM FOR DEDUCTION OF PROVISION FOR BAD DEBTS IN TERMS OF SE CTION 36(1) (VIIA) OF THE INCOME-TAX ACT. HERE THE ONLY QUESTI ON RAISED IS AS TO BASIS OF CLASSIFYING BRANCHES OF THE BANK AS RU RAL BRANCHES AND OTHER BRANCHES. RURAL BRANCH IS DEFIN ED UNDER EXPLANATION (IA) TO SECTION 36(1)(VIIA) AS F OLLOWS: RURAL BRANCH MEANS A BRANCH OF A SCHEDULED BANK OR A NON- SCHEDULES BANK SITUATED IN A PLACE WHICH HAS A POPULATION OF NOR MORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIR ST DAY OF THE PREVIOUS YEAR.. WHAT IS CLEAR FROM THE ABOVE IS THAT THE CLASSIFICA TION BETWEEN RURAL AND OTHER BRANCHES OF A BANK IS MADE BASED ON THE P OPULATION IN THE PLACE WHERE THE CONCERNED BRANCH IS LOCATED. WHILE THE ASSESSEES CASE THAT FOUND ACCEPTANCE WITH THE TRIBUNAL IS THA T PLACE REFERRED TO IN THE ABOVE DEFINITION CLAUSE IS THE WARD OF A PANCHAYAT OR I.T.A. NOS. 325 ETC./COCH/2013 . 36 MUNICIPALITY THE ASSESSING OFFICER TOOK THE VIEW T HAT PLACE CONTAINED IN THE DEFINITION CLAUSE SHOULD MEAN A RE VENUE VILLAGE. NO DOUBT AS SUCH IS NOT DEFINED IN THE DEFINITION CL AUSES AND SO MUCH SO WE HAVE TO FIND OUT THE SCOPE AND MEANING OF P LACE REFERRED TO IN THE SECTION. STANDING COUNSEL FOR THE DEPARTMEN T PRODUCED BEFORE US LAST PUBLISHED CENSUS REPORT OF 2001. EVEN THOU GH THE PREVIOUS CENSUS REPORT MAY BE THE RELEVANT 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 C ENSUS REPORT 2001 IS AS FOLLOWS: THE BASIC UNIT FOR RURAL AREAS IS THE REVENUE VILL AGE WITH DEFINITE SURVEYED BOUNDARIES. THE RURAL AREA IS HOWEVER T AKEN AS THE RESIDUAL PORTION EXCLUDING THE URBAN AREA AND FOR T HAT 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 ASSESSEES CASE ACCEPTED BY THE TRIBUNAL THAT P OPULATION 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 TH EN PROBABLY EVEN IN MUNICIPAL AREAS THERE MAY BE WARDS WITH LESS THAN 1 0000 POPULATION THEREBY ANSWERING THE BRANCH LOCATED IN SUCH MUNICI PAL AREA ALSO AS A RURAL BRANCH. GOING BY THE ORDINARY MEANING OF R URAL BRANCH WE FEEL ONLY BRANCHES OF THE BANK LOCATED IN RURAL ARE AS 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 AVAILABLE FOR IDENTIFICAT ION OF RURAL AREA IN THE CENSUS REPORT CAN BE LEGITIMATELY ADOPTED. SO MUCH SO WE FEEL THE ABOVE MEANING OF RURAL AREA CONTAINED IN THE CE NSUS REPORT WHEREIN REVENUE VILLAGE IS TREATED AS A UNIT OF RUR AL AREA CAN BE RIGHTLY ADOPTED. SO MUCH SO PLACE REFERRED TO IN THE ABOVE DEFINITION CLAUSE FOR THE PURPOSE OF IDENTIFYING TH E BRANCH OF A BANK AS A RURAL BRANCH WITH REFERENCE TO ITS LOCATION IS THE REVENUE VILLAGE. THEREFORE IN OUR VIEW THE FINDING OF THE TRIBUNAL THAT PLACE REFERRED TO IN THE DEFINITION IS THE WARD OF A LOCA L AUTHORITY LIKE PANCHAYAT OR MUNICIPALITY IS INCORRECT AND IN OUR VIEW A RURAL BRANCH HAS TO BE ALWAYS IN RURAL AREAS AND THE PLACE REFER RED CAN EASILY BE TAKEN AS A VILLAGE. SEVERAL WARDS MAY COME WITHIN A VILLAGE WHETHER IT BE IN CORPORATION MUNICIPALITY OR PANCHAYATS. THERE CAN BE NO VILLAGE IN A MUNICIPAL OR CORPORATION AREA WHERE TH E POPULATION IS LESS THAN 10000. SO MUCH SO RURAL BRANCHES ARE SUCH OF THE BRANCHES LOCATED IN A VILLAGE WHERE THE POPULATION IN THE VI LLAGE AS A UNIT IS LESS THAN 10000. I.T.A. NOS. 325 ETC./COCH/2013 . 37 IT IS CLEAR FROM THE ABOVE JUDGMENT THAT THIS COURT HAD ALREADY AN OCCASION TO CONSIDER THE MEANING OF PLACE WITH REFE RENCE TO ABOVE SECTION. THEREFORE RURAL BRANCH IS A BRANCH WHICH FALLS UNDER EXPLANATION (IA) TO SECTION 36(1) (VIIA). TRIBUNAL HAD TO REVERSE THE JUDGMENT OF CIT(APPEALS) IN THE LIGHT OF THE DECISI ON IN LORD KRISHNA BANKS CASE (SUPRA). 12. THEN COMING TO THE CONTROVERSY WHETHER CO-OPE RATIVE BANK COULD CLAIM DEDUCTION OF 10% OF THE AGGREGATE AVERA GE ADVANCES WHILE COMPUTING THE INCOME IRRESPECTIVE OF FALLING UNDER RURAL BRANCH AS PER EXPLANATION IN ORDER TO CONSIDER A COMPANY A S A BANKING COMPANY IT MUST TRANSACT BUSINESS OF BANKING IN IND IA AS DEFINED U/S. 5(C) OF BANKING REGULATION ACT. EXPLANATION TO SECT ION 5(C) CLEARLY INDICATES WHICH ARE THE TRANSACTIONS WHICH WOULD NO T COME WITHIN THE MEANING OF BANKING BUSINESS. NON-SCHEDULE BANK MEA NS A BANKING COMPANY AS DEFINED U/S. 5(C) WHICH IS NOT A SCHEDUL ED BANK. AS ALREADY STATED ABOVE CO-OPERATIVE BANK CANNOT BE C ONSIDERED AS A SCHEDULED BANK AS SECOND SCHEDULE TO RESERVE BANK O F INDIA ACT DOES NOT INCLUDE ANY OF THE CO-OPERATIVE BANKS. RE ADING OF SECTION 5(C) ALONG WITH EXPLANATION CLEARLY INDICATES THOU GH ANY COMPANY WHICH TRANSACTS BUSINESS OF BANKING IN INDIA WOULD COME WITHIN THE MEANING OF NON-SCHEDULED BANK BY VIRTUE OF EXPLANAT ION (1) UNDER THIS CLAUSE SCHEDULED BANK IS EXCLUDED. SO FAR AS SUB-CLAUSE(A) OF CLAUSE (VIIA) TO SECTION 36(1) TWO TYPES OF DEDUCT IONS ARE PROVIDED TO NON-SCHEDULED BANK A SCHEDULED BANK AND A CO-OP ERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY E TC. IT IS TO BE NOTED THAT APPELLANTS/ASSESSEES ARE NOT PRIMARY AGRICULTU RAL CREDIT CO- OPERATIVE 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 SEC TION 36(1)(VIIA) DEFINES WHAT IS A RURAL BRANCH. IT IS WITH REFEREN CE TO A PLACE AND CERTAIN NUMBER OF POPULATION. IT REFERS TO BRANCH OF A SCHEDULED BANK OR A NON-SCHEDULED BANK. APPARENTLY WE DO NO T FIND THE TERM CO-OPERATIVE BANK. SECTION 5(CCI) OF BANKING REGUL ATION ACT THOUGH HAS BROUGHT IN DEFINITION OF CO-OPERATIVE BANK VIR TUALLY EVERY BANK WHICH IS NOT A SCHEDULED BANK WOULD FALL UNDER THE DEFINITION OF NON- SCHEDULE BANK. READING OF DEFINITION OF NON-SCHEDU LE BANK ALONG WITH MEANING OF RURAL BRANCH UNDER EXPLANATION TO SE CTION 36(1) OF THE ACT CLEARLY INDICATE THAT CO-OPERATIVE BANK AL SO FALLS UNDER THE CATEGORY OF NON-SCHEDULE BANK FOR THE PURPOSE OF TH IS SECTION. THEREFORE READING OF ENTIRE SECTION 36(1)(VIIA)(A) ALONG WITH EXPLANATION WOULD MEAN TWO KINDS OF DEDUCTIONS REFE RRED TO IN THE I.T.A. NOS. 325 ETC./COCH/2013 . 38 SECTION WILL BE ALLOWED TO ALL THOSE BANKS ONLY IF THEY SATISFY THE TERMS AND CONDITIONS REFERRED TO IN THE PROVISION. 13. THEREFORE WE ARE OF THE OPINION AUTHORITIES B ELOW WERE JUSTIFIED IN OPINING THAT BENEFIT OF DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADVANCES IS APPLICABLE TO CO-OPERATIVE BANK ALSO PR OVIDED THEIR RURAL BRANCHES HAVE ADVANCED SUCH AMOUNTS. SUCH RURAL BR ANCH MEANS A BRANCH AS EXPLAINED UNDER EXPLANATION (IA) AS OPIN ED IN THE DECISION OF LORD KRISHNA BANKS CASE (SUPRA). IN THE LIGHT OF ABOVE OBSERVATIONS AND REASONING NONE OF THE CONTENTIONS RAISED BY APPELLANTS ARE SUSTAINABLE. HENCE THESE APPEALS ARE DISMISSED ANSWERING SUBSTANTIAL QUESTIO NS OF LAW IN FAVOUR OF REVENUE. 41.2 IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL W E ARE INCLINED TO DECIDE THE ISSUE AGAINST THE ASSESSEE. ACCORDINGLY THIS GROUND RAISED BY THE ASSESSEES IN ALL THE APPEALS IS DISMISSED. 42. NEXT GROUND NO IN I.T.A. NOS. 325/COCH/2012 66 0/COCH/2013 680/COCH/2013 681/COCH/2013 682/COCH/2013 745/CO CH/2013 746/COCH/2013 747/COCH/2013 801/COCH/2013 123/CO CH/2013 683/COCH/2013 684/COCH/2013 685/COCH/2013 739/CO CH/2013 740/COCH/2013 742/COCH/2013 743/COCH/2013 AND 744 /COCH/2013 IS WITH REGARD TO DISALLOWANCE OF INTEREST PAID WITHOU T DEDUCTING TAX TO NON MEMBERS U/S. 40(A)(IA) OF THE ACT. 42.1 WE HAVE HEARD BOTH THE PARTIES. WE FIND A S IMILAR ISSUE CAME UP FOR CONSIDERATION OF THE COCHIN BENCH OF TRIBUNAL I N THE CASE OF I.T.A. NOS. 325 ETC./COCH/2013 . 39 KARIVELLOOR SERVICE CO-OPERATIVE BANK LTD. VS. ITO IN I.T.A. NO. 311/COCH/2012 VIDE ORDER DATED 22-03-2013 WHEREIN I T WAS HELD AS UNDER: 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE CASE OF KADACHIRA SERVICE CO-OPERATIVE BANK LTD. (S UPRA) THIS TRIBUNAL FOUND THAT THE TAXPAYERS WERE NOT CARRYING ON ANY BANKING ACTIVITY AND THEREFORE THEY ARE AGRICULTU RAL CO- OPERATIVE SOCIETIES. IN VIEW OF THE SPECIFIC PROVI SIONS EXEMPTING THE AGRICULTURAL CO-OPERATIVE SOCIETIES F ROM DEDUCTION OF TAX IN RESPECT OF AGRICULTURAL CO-OPER ATIVE SOCIETIES THIS TRIBUNAL FOUND THAT SECTION 194A(3)( VIIA) IS NOT APPLICABLE TO AGRICULTURAL CO-OPERATIVE SOCIETIES. IN THIS CASE IT APPEARS THAT THE TAXPAYER WAS ACCEPTING DEPOSITS AND MAINTAINING SAVINGS BANK ACCOUNT AND CURRENT BANK A CCOUNT. THE TAXPAYER IS PROVIDING CHEQUE FACILITIES TO ITS CUSTOMERS. APART FROM THIS THE TAXPAYER IS ENGAGED IN THE BUS INESS 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 SAVI NGS ACCOUNT CURRENT ACCOUNT AND PROVIDING CHEQUE FACIL ITY TO ITS CUSTOMERS IT IS OBVIOUS THAT THE TAXPAYER IS ENGAG ED ITSELF IN THE BUSINESS OF BANKING APART FROM OTHER TRADING AC TIVITIES. EXEMPTION U/S. 194A(3)(VIIA) IS APPLICABLE ONLY IN R ESPECT OF AGRICULTURAL COOPERATIVE SOCIETIES. THE AGRICULTURA L CO- OPERATIVE BANKS ARE BOUND TO DEDUCT TAX. IN THIS C ASE ADMITTEDLY THE TAX PAYER IS ENGAGED IN THE BANKING ACTIVITY AND MAINTAINING SAVINGS BANK ACCOUNT CURRENT ACCOU NT AND PROVIDING CHEQUE FACILITY TO ITS CUSTOMERS. THEREFO RE THE TAXPAYER IS BOUND TO DEDUCT TAX IN RESPECT OF INTER EST ON THE DEPOSITS. THEREFORE THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE DECISION IN THE CASE OF KADACHIRA SERVICE CO- OPERATIVE BANK LTD.(SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY THE ORDERS OF TH E LOWER AUTHORITIES ARE CONFIRMED. I.T.A. NOS. 325 ETC./COCH/2013 . 40 42.2. BEING SO THIS ISSUE IS IDENTICAL AND THE FAC TS ARE ALSO SIMILAR TO THE ONE CONSIDERED BY THIS BENCH OF THE TRIBUNAL IN THE EAR LIER OCCASION WE ARE INCLINED TO DECIDED THE ISSUE AGAINST THE ASSESSEE. THIS GROUND IN ALL THE ASSESSEES APPEALS IS DISMISSED. 43. NEXT GROUND IN I.T.A. NOS. 325/COCH/2012 680/C OCH/2013 681/COCH/2013 683/COCH/2013 684/COCH/2013 AND 685/ COCH/2013 IS WITH REGARD TO DISALLOWANCE OF CONTRIBUTION TO THE EMPLO YEES PENSION FUND/GRATUITY FUND. 43.1 WE HAVE HEARD THE PARTIES. WE FIND A SIMILA R ISSUE CAME UP FOR CONSIDERATION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF KADACHIRA SERVICE CO-OPERATIVE BANK IN I.T.A. NO. 251/COCH/2012 & ORS . DATED 31-01-2013 AND I.T.A. NO. 85/COCH/2013 IN THE CASE OF THE MADA I CO-OPERATIVE RURAL BANK LTD. DATED 07-06-2013 WHEREIN THE ISSUE WAS RE MITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO OFFER ONE MORE OPPORTUN ITY TO THE ASSESSEE TO PROVE THAT THE PAYMENT MADE TO APPROVED GRATUITY FU ND OR LIC PENSION FUND WAS WITHIN THE TIME LIMIT FOR FILING RETURN OF INCOME U/S. 139(1) OF THE ACT. ON THE SIMILAR LINE WE ARE INCLINED TO REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION. BEI NG SO THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NOS. 325 ETC./COCH/2013 . 41 44. THE NEXT GROUND IN I.T.A. NOS. 325/COCH/2012 7 20/COCH/2013 AND 719/COCH/2013 IS WITH REGARD TO DISALLOWANCE OF UNR EALISED INTEREST ON OVERDUE LOANS. IN EARLIER PARAGRAPH WE HAVE DECIDE D THE ISSUE AGAINST THE ASSESSEE WHICH DECIDING THE GROUND RELATING TO DEDU CTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS U/S. 36(1)(VIIA) OF THE ACT. MORE SO THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. TALANGA NG CO-OP GROUP HOUSING SOCIETY LTD. REPORTED IN 339 ITR 518 IS ALSO AGAIN ST THE ASSESSEE. 45. TO SUM-UP ALL THE APPEALS FILED BY THE ASSESSE ES AS WELL AS THE CROSS OBJECTION IN C.O NO. 05/COCH/2015 ARE DISMISSED EXC EPT THE APPEAL NOS.325/COCH/2012;680/COCH/2013;681/COCH/2013;683/C OCH/2013; 684/COCH/2013 AND 685/COCH/2013 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. THE APPEAL FILED BY THE REVENUE IN I.T.A. NO. 770/C OCH/2013 IS DISMISSED. PRONOUNCED ACCORDINGLY ON 31-07 -2014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUN TANT MEMBER PLACE: KOCHI DATED: 31ST JULY 2014 GJ COPY TO: 1. PINARAYI SERVICE CO-OPERATIVE BANK LTD. PINARAY I TELLICHERRY KANNUR-670 741. 2.M/S. PUNNAL SERVICE CO-OPERATIVE BANK LTD. P.O. KURICHIYIL KANNUR- 670 102. 3.THE MADIKAI SERVICE CO-OPERATIVE BANK LTD. MADI KAI I.T.A. NOS. 325 ETC./COCH/2013 . 42 KASARGOD-671 531. 4.THE KOTACHERRY SERVICE CO-OPERATIVE BANK LTD. KA NHANGAD KASARGOD-671 315. 5. THE NILESHWAR SERVICE CO-OPERATIVE BANK LTD. NI LESHWAR KASARGOD-671 314. 6. THE PAYYANNUR SERVICE CO-OPERATIVE BANK LTD. MAI N ROAD PAYYANNUR KANNUR-7. 7. MAVILAYI SERVICE CO-OPERATIVE BANK LTD. MOONAPA LAM MAVILAYI P.O. KANNUR. 8. THE CHIRACKAL SERVICE CO-OPERATIVE BANK LTD. P. O. CHIRACKAL KANNUR-670 001. 9. THE KAPPAD SERVICE CO-OPERATIVE BANK LTD. P.O. KAPPAD KANNUR- 670 006. 10. CHERUKUNNU SERVICE CO-OPERATIVE BANK LTD. P.O. CHERUKUNNU KANNUR. 11.THE KANNAPURAM SERVICE CO-OPERATIVE BANK LTD. P .O. CHERUKUNNU KANNUR. 12.THE MADAI CO-OPERATIVE BANK LTD. VENGARA P.O. KANNUR-670 305. 13.THE KUTTIKAKAM SERVICE CO-OPERATIVE BANK LTD. K UTTIKAKAM POST KANNUR. 14.THE CHIRAKKADAVU SERVICE CO-OPERATIVE BANK LTD. CHIRAKKADAVU KANJIRAPALLY KOTTAYAM-686 520. 15.THE INCOME TAX OFFICER WARD-2 KANNUR. 16.THE INCOME TAX OFFICER WARD-4 KANNUR. 17.THE INCOME TAX OFFICER WARD-1 KANNUR. 18.THE INCOME TAX OFFICER WARD-2 KASARGOD. 19.THE INCOME TAX OFFICER WARD-4 KOTTAYAM. 20.THE COMMISSIONER OF INCOME-TAX(APPEALS) KOZHIKO DE. 21.THE COMMISSIONER OF INCOME-TAX KOZHIKODE. 22.THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV KOCH I. 23.THE COMMISSIONER OF INCOME-TAX KOTTAYAM. 24. D.R. I.T.A.T. COCHIN BENCH COCHIN. 25. GUARD FILE. BY ORDER (ASSISTANT REG ISTRAR) I.T.A.T COCHIN