M/s. Pandyan Grama Bank, Virudhunagar v. ACIT, Virudhunagar

ITA 1941/CHNY/2009 | 2007-2008
Pronouncement Date: 13-08-2010 | Result: Allowed

Appeal Details

RSA Number 194121714 RSA 2009
Assessee PAN AAAAP0895P
Bench Chennai
Appeal Number ITA 1941/CHNY/2009
Duration Of Justice 7 month(s) 15 day(s)
Appellant M/s. Pandyan Grama Bank, Virudhunagar
Respondent ACIT, Virudhunagar
Appeal Type Income Tax Appeal
Pronouncement Date 13-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 13-08-2010
Date Of Final Hearing 03-08-2010
Next Hearing Date 03-08-2010
Assessment Year 2007-2008
Appeal Filed On 29-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER) ..... I.T.A. NO. 1941 / MDS/2009 ASSESSMENT YEAR : 2007-08 M/S PANDYAN GRAMA BANK ADMN. OFFICE NO.2-70-1 COLLECTORATE COMPLEX VIRUDHUNAGAR 626 002. PAN : AAAAP0895P (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE I VIRUDHUNAGAR. (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN RESPONDENT BY : SHRI TAPAS KUMAR DUTTA O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 28.10.2009 OF THE COMMISSIONER OF INCOME TAX-II MA DURAI UNDER SECTION 263 OF THE INCOME-TAX ACT 1961(IN SHORT T HE ACT) FOR ASSESSMENT YEAR 2007-08. 2. ASSESSEE HAD INITIALLY FILED 28 GROUNDS OF APPEA L WHICH WERE LATER CONCISED TO 6 GROUNDS. GRIEVANCE OF THE ASSE SSEE IS THAT THE CIT CONSIDERED SUB-SECTION (4) OF SECTION 80P OF T HE ACT WHICH WAS I.T.A. NO. 1941/MDS/09 2 APPLICABLE TO CO-OPERATIVE BANKS AS APPLICABLE TO ASSESSEE ALSO. ACCORDING TO ASSESSEE IT WAS NOT A CO-OPERATIVE BA NK AND THEREFORE SUB-SECTION (4) OF SECTION 80P WOULD NOT APPLY TO I T. IN ANY CASE AS PER THE ASSESSEE TWO VIEWS WERE POSSIBLE REGARDING APPLICABILITY OF SECTION 80P(2)(A)(I) OF THE ACT TO REGIONAL RURAL B ANK AND THE ASSESSING OFFICER HAD TAKEN A PERMISSIBLE VIEW. TH EREFORE IN THE OPINION OF THE ASSESSEE THE ORDER OF THE ASSESSING OFFICER COULD NOT BE CONSIDERED AS ERRONEOUS IN SO FAR AS IT WAS PREJ UDICIAL TO THE INTEREST OF THE REVENUE. 3. IN THE ASSESSMENT COMPLETED BY THE A.O. ORIGINAL LY ON 19.3.2009 ASSESSEE WAS GIVEN DEDUCTION UNDER SECTI ON 80P(2)(A)(I) OF THE ACT. HOWEVER THE CIT ISSUED SHOW CAUSE NOT ICE TO THE ASSESSEE AS TO WHY DEDUCTION UNDER SECTION 80P(2)(A )(I) OF THE ACT ALLOWED TO IT ON INCOME FROM BANKING AND CERTAIN O THER INCOME SHOULD NOT BE CONSIDERED AS ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF THE REVENUE. ACCORDING TO THE CIT SUB-SECTION (4) WHICH WAS INTRODUCED IN SECTION 80P WITH EFFECT FROM 1.4.2007 THROUGH FINANCE ACT 2006 WAS APPLICABLE TO THE ASSESSEE AND ACCORDI NGLY DEDUCTIONS ALLOWED TO IT UNDER SECTION 80P(2)(A)(I) OF THE ACT HAD TO BE WITHDRAWN. THE ONLY EXCEPTIONS AS PER CIT WERE P RIMARY I.T.A. NO. 1941/MDS/09 3 AGRICULTURAL CREDIT SOCIETY OR PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. ACCORDING TO THE CIT THE ASSESSEE DID NOT FALL IN EITHER OF THESE TWO EXCEPTIONS. REPLY OF T HE ASSESSEE WAS THAT ASSESSEE WAS A BANK ESTABLISHED UNDER REGIONAL RURA L BANK ACT 1976 (RRB ACT 1976) AND AS PER PART V OF BANKING RE GULATION ACT 1949 CO-OPERATIVE BANK MEANT A STATE CO-OPERATIVE BANK A CENTRAL CO-OPERATIVE BANK AND/OR PRIMARY CO-OPERATIVE BANK. ACCORDING TO THE ASSESSEE IT WAS NONE OF THESE. IT WAS ONLY A REGIONAL RURAL BANK ESTABLISHED UNDER RRB ACT 1976. FURTHER ACCORDIN G TO THE ASSESSEE AS PER SECTION 22 OF THE RRB ACT 1976 I T HAD TO BE DEEMED AS A CO-OPERATIVE SOCIETY FOR THE PURPOSE OF INCOME TAX ACT. HENCE IT WAS SUBMITTED THAT IT WAS ELIGIBLE FOR TH E RELIEF UNDER SECTION 80P(2)(A)(I) OF THE ACT. MAIN CONTENTION WAS THAT AS LONG AS SECTION 22 OF THE RRB ACT 1976 WAS IN THE STATUTE AN RRB COULD NOT BE TAXED UNDER INCOME-TAX ACT 1961. HOWEVER THE CIT DID NOT APPRECIATE THE CONTENTION OF THE ASSESSEE. THE REL EVANT FINDINGS OF THE CIT ARE AS UNDER:- 3 . 3 TH E ST ATUTO R Y PROV IS I ON I S TH A T T HIS D E DUCT IO N I S APPL IC A BLE TO A ' COOPE R AT I V E S O CIE TY' O NL Y . THE AMOUNT OF D E D UC TI O N RE FER S T O IN COME OUT O F CAR R YI N G O N T HE BU SI N ESS OF BANKING OR PROVID I NG C R ED I T FAC I LITIES TO ITS MEMBERS (AND OTHER ACTIVITIE S WH IC H A R E NOT RE L EVANT FOR OUR PURPOSE) . THE ASSESSEE IS A COOPERATIVE BA NK RE N D E R ING B A NKING S ER V ICES T O THE PUBL IC I N R UR AL A R E AS . A ' C OO PE R ATI V E B ANK ' A N D A 'COOPERATI V E SOCIET Y ' A RE TW O I.T.A. NO. 1941/MDS/09 4 D IST I NCT E N TI T IES. TH E P RIMAR Y D I S T INC T I ON BEIN G A ' COOP ERATIVE BANK ' RE N DE R S BANKING S ER VICE T O T H E PUB LI C IN G E NERAL B Y WAY OF A C CEPTING D EPOS I T S A N D A DVA NCI NG LO A N S . A ' COOPE R AT IVE SO C I ET Y ' ON TH E OTHER H A N D REN D E RS SE RV IC E T O I TS MEMBER S A S PE R THE REG ULAT I O N S O F T H E S OCIET Y . IT M A Y O R M A Y NOT E X T E ND BA N K I NG FACI L I TI E S TO G EN E R AL PUBL I C . IN OTHER WO R DS A COOPERAT I V E SO CI ETY IS A MU T U A L ASSOCIAT I O N AND SERV I CES REND E RED ARE L I MI T E D TO ITS MEMBER S. T H E S E RVI C ES MAY INCLUDE BANK I NG SE R V I C E S O R ANY OTHE R SERV IC E S A S I T MAY DE C ID E . T HE ASSES S EE ALTHOUGH A COOPERATIVE BANK CONT I NUED TO ENJOY THE DEDUCTION OF W HO L E OF IT S I NC O ME OUT OF ITS BANKING ACT I VITIES APP LI CABLE TO A COOPERATIVE SOCIE T Y BY V IR TU E OF SE C T I ON 22 & 23 OF RRB ACT 1976 . THE BENEFIT SO ALLOWED TO THE A SSESSEE - BANK VID E PROVIS I ON S OF RRB ACT 1976 WA S MERELY R E I TE RATED V I DE CBDT C I RC U LA R 319 DAT E D 1 1 . 0 1 . 19 8 2 ( A S M E N TI ONE D I N T HE W RIT T EN B R I EF) . S EC T ION 80P O F T H E IN CO M E TA X A C T ~WA S I N SERTE D A S S EC T IO N 81 I N T O TH E STA T U TE AND C O N T I NU E D T O C ONFER EXEM P TION OF I T S IN COME TO ALL C O OPER ATIV E SOC I ET I ES U P T O 3 1 . 03 . 200 7. VID E FINANCE AC T 2006 SU B -SEC TI ON (4) HAS B EEN INS ER T E D I N SEC TI O N 8 0 P WHE R E BY TH E E NTI RE D E DU CTI ON AP PL I C AB LE TO T HE COOPER A TI V E S OCIET Y U / S . 8 0P( 1 ) R . W . SEC TI ON 80P(2) HAS BEEN W I T HDR A WN I N CASE OF COOPE R A T I V E B ANK . BUT TH E EXE M PT I ON WI L L CONTINUE TO APPLY TO TWO SPECIFIC COOPERATIVE SOCIE TIES VIZ. (I) PR I MAR Y AG R I C U LTUR A L CREDIT SOCIETY & (II) PR I MARY C O OPER AT I VE AGRICU LTU RA L AND RU R A L DEVE L OPMENT B ANK . THI S MEAN S ALL COO PE R A TIVE B A NK S W H I C H H I T H E RT O E N J OY E D TAX B E N E F I T U / S . 80 P ( 2 ) ( A )( I ) W IL L LOSE T HE SAID EX EMPTION FR OM 01 . 0 4 .200 7 B U T T HE SPECIFICAL L Y MENT I O N ED TW O C O OPERAT I V E S OCI ET IE S WILL CONT I NU E TO ENJOY SU C H E X EM P TION. IN TH E EXP L ANAT I ON TO S U B-S EC T IO N ( 4 ) I T HAS BEE N M ENT IO NED THAT ' C O O P E RA T I VE BANK ' A N D ' P RI MA R Y AGRIC ULT URA L CREDIT SO CIE TY ' SH A LL HAV E T HE ME A NIN G A S AS SI GNED T O T H E M IN PART V O F THE BANKING REGULATION A C T 1949 . A N D ' P RI MA R Y COOPERAT I VE AG R I C ULTURA L AND RURAL D E V E LOPMENT BANK ' ME A NS ' A SOCIE T Y HA VI NG ITS AREA O F OPERAT IO N C O NFINE D T O A T ALUK A ND P RI N C IPAL O BJ E C T OF WH IC H IS TO P ROVIDE FOR LON G T ERM CREDIT FOR AG RIC U LTUR AL A N D RURA L DEVELO P MENT A C T I V ITIES'. 3 . 4 THE A S SESS E E I S A ' R URAL COOPERAT I VE BAN K' (ADMITTED IN THE WRITTEN S UBMI SS ION IT S ELF); YET IT CONT I NUED TO E NJOY E X EMP T I O N OF ITS I NC OME O UT O F BA N KIN G AC TIV I TY UJS. 8 0 P(2) ( A) ( I) WHI CH WAS PRIMA R Y DESIGNED FO R COOPERATIVE SOC I ETY BY V I R T UE OF SEC T I ON 2 2 & 23 O F THE R R B A C T 1976 . THAT M EAN S A COOPERATIVE BA NK AND NOT A COO P ER A TIVE S OCIE TY ENJ O Y E D TA X E XE MPTION I N RESPECT OF I N C OME OU T OF B ANKING A TTRI B UT AB LE T O A C O OP E RAT I V E SOC IE TY . W H EN SUCH EXEMPTION OF INCOME IS W I THD R AW N S P EC I F IC A LL Y F OR A COOPERAT I VE BANK THROUGH AMENDMENT MADE I N T H E S T ATUT E T HE INTENT I ON OF THE I N D I A N LEG I SLATURE IS VERY MUCH CLEAR THAT T H E EX EMPTI O N OF I NCOM E H I THE R TO ENJOYED BY ALL COOPERATIVE BANKS S TANDS W ITHD R AWN W . E.F . 01 . 04. 2 00 7 . THE A SSESSEE B EING A C OOP ERA T IVE BANK C ANNOT HAV E A WIN-WI N S IT UATION IN TW O MUTUALL Y - I.T.A. NO. 1941/MDS/09 5 A D V ERSE S I T UA TI O NS L I K E WH E N THE INC OME IS D ECL A RE D EXEMPT AND W HEN SUCH EXEMPTION IS WITHDR A WN T H RO UGH L EG I SLATIVE AMENDMENT. IF I T CONTINUED TO ENJOY EXEMP TION B Y B EING T R EA T ED A S A ' COOPERATIVE SOCIETY ' I T A LSO SHOULD STAN D TO L OS E SUCH E XEM P T I ON BY LA T ER AMENDMENTS WITHD R AWING IT . SECONDLY THE A R G U MEN TS O F TH E L D . A/ R TH A T I T IS INCLUDED IN THE T WO E X C E P TIONA L COOPER A TI V E S O CI ET I E S A S M ENT I O NE D I N S U B - S E C T I ON (4) IS \ NOT MET EIT H ER T HRO UG H THE D EFI N I T I O N A S APPEA R ING IN PAR T V OF THE BAN KI N G R E GULA T ION A CT NOR EXPLANAT I ON (B) OF SUB - SECTION (4) O F SEC T I ON 80 P O F THE I . T . A C T . A SSESSEE I S A C O O P ER A T I V E BANK A N D N O T A C OOPERAT I V E S O C I ET Y A N D H EN C E CO N TINU AT I O N O F D ED U C T I O N FO R T W O SPEC I F IC C OOPERAT I VE SOC I ET I ES W I L L NOT APP L Y TO THE A S SES S EE WH I CH IS A CO O PERAT I VE BA NK . T H E LE G IS L A TIVE INTENTION B EHIND SUCH AMEN D MENT A S QUOTED I N P ARAG R APH 3. 1 A BOVE C LEAR LY SPECIFIES T HAT THE COOPERATI V E BANKS WILL HENCEFOR T H B E SUBJECT TO INCOME TAX IN THE LINE AS OT H ER CO MM E R CIAL B A N KS W. E .F . 0 1 . 04.2007 A N D HENCE WI LL N O T ENJOY TH E BENEFIT HI T HERTO ALLOW E D U / S . 80P ( 2) ( A )(I ) OF T HE I . T . AC T . I N V I EW OF TH E S E FACT S A N D C IR CU MS TANC ES A NALYS I S O F T HE STATUTOR Y PROVISION AND EX PL A NA TOR Y ME MORA N D UM T HEREO F I A M INC L I N E D THE R E J EC T TH E ARGUM E NT S O F THE LD . A/R . 4. NOW BEFORE US THE LEARNED A.R. SUBMITTED THAT THE ASSESSING OFFICER HAD CAREFULLY CONSIDERED THE CLAIM OF THE A SSESSEE AND ALLOWED DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. ACCORDING TO HIM ASSESSING OFFICER WAS VERY WELL AWARE THAT ASS ESSEE WAS A RURAL BANK UNDER RRB ACT 1976 AND IT WAS ONLY AFTER CONS IDERING RELEVANT PROVISIONS HE HAD DECIDED THAT THE ASSESSEE WAS EQ UIVALENT TO A CO- OPERATIVE SOCIETY ELIGIBLE FOR DEDUCTION UNDER SECT ION 80P(2)(A)(I) OF THE ACT. 5. PER CONTRA LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE CIT. I.T.A. NO. 1941/MDS/09 6 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. IT IS NOT DISPUTED THAT IF THE ASSESSEE IS TO BE TREAT ED AS A CO-OPERATIVE SOCIETY THEN THE DEDUCTION UNDER SECTION 80P(2)(A) (I) OF THE ACT IS AVAILABLE TO IT. THE ONLY DISPUTE HERE IS THAT ASS ESSEE BEING A REGIONAL RURAL BANK ESTABLISHED UNDER RRB ACT 1976 WAS TO BE TREATED AS A CO-OPERATIVE BANK OR COULD BE CONSIDER ED AS A CO- OPERATIVE SOCIETY. NO DOUBT SUB-SECTION (4) OF SE CTION 80P INTRODUCED BY FINANCE ACT 2006 CLEARLY TAKES A CO-O PERATIVE BANK OUT OF THE PURVIEW OF DEDUCTION AVAILABLE UNDER 80P(2)( A)(I) OF THE ACT. THUS IF THE ASSESSEE IS A CO-OPERATIVE BANK IT WO ULD NOT BE ELIGIBLE FOR SUCH DEDUCTION. CONTENTION OF THE ASSESSEE IS THAT IN VIEW OF SECTIONS 22 AND 23 OF THE RRB ACT 1976 IT WAS TO BE TREATED AS A CO- OPERATIVE SOCIETY AND THE SAID SECTIONS HAVING NOT BEEN OVERRIDDEN IT COULD ONLY BE TREATED AS A CO-OPERATIVE SOCIETY. F URTHER RELYING ON DEFINITION OF CO-OPERATIVE BANK AS GIVEN IN THE B ANKING REGULATION ACT 1949 ASSESSEE SUBMITS THAT IT IS NEITHER A ST ATE CO-OPERATIVE BANK NOR A CENTRAL CO-OPERATIVE BANK NOR A PRIMARY CO-OPERATIVE BANK AND THEREFORE NOT A CO-OPERATIVE BANK AT ALL . WHATEVER THAT MAY BE THERE IS MUCH STRENGTH IN THE ARGUMENT OF T HE ASSESSEE THAT IT IS TO BE TREATED AS CO-OPERATIVE SOCIETY IN VIEW OF THE PROVISIONS CONTAINED IN RRB ACT 1976. IF SO IT WOULD BE ELI GIBLE UNDER SECTION I.T.A. NO. 1941/MDS/09 7 80P(2)(A)(I) OF THE ACT. NOW LET US LOOK AT RELEV ANT PARAGRAPH APPEARING AT PAGE NO.2 OF THE ASSESSMENT ORDER DATE D 19.3.2009 WHICH IS VERY PERTINENT AS REPRODUCED HEREUNDER:- THE ASSESSEES AUTHORIZED REPRESENTATIVE PRODUCED THE EVIDENCES AND DETAILS WHICH CONFIRMS T HAT THE ASSESSEE IS A REGIONAL RURAL BANK. AS PER THE PROVISIONS OF REGIONAL RURAL BANKS ACT 1976 THE ASSESSEE BANK IS TREATED AS A CO-OPERATIVE SOCIETY FOR INCOME-TAX PURPOSE AND IT IS ELIGIBLE FOR THE DEDUC TION U/S 80P(2)(A)(I). HENCE THE TOTAL INCOME AS PER T HE PROFIT & LOSS IS ELIGIBLE FOR DEDUCTION U/S 80P(2)( A)(I). 7. THUS THE ISSUE WHETHER ASSESSEE WAS QUALIFIED F OR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT WAS VERY WELL WITHIN THE CONTEMPLATION OF THE ASSESSING OFFICER AND IT WAS O NLY AFTER APPLYING HIS MIND OVER IT THAT HE DECIDED THAT ASSESSEE HAD TO BE TREATED AS CO-OPERATIVE SOCIETY FOR INCOME TAX PURPOSE. MAY B E THE ORDER WAS CRYPTIC BUT APPLICATION OF MIND IS CLEARLY DISCERN IBLE. UNDOUBTEDLY THERE IS AN APPLICATION OF MIND BY THE ASSESSING OF FICER AND HE HAS TAKEN A VIEW WHICH IS A POSSIBLE ONE IN LAW AND HEN CE IT CANNOT BE SAID THAT IT IS ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF THE REVENUE. ASSESSING OFFICER HAD ADOPTED ONE OF THE COURSES PE RMISSIBLE IN LAW AND EVEN IF SUCH A COURSE RESULTED IN LOSS TO THE R EVENUE IT COULD NOT BE DEEMED AS ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF THE I.T.A. NO. 1941/MDS/09 8 REVENUE. THIS POSITION OF LAW HAS BEEN CLEARLY LAI D DOWN BY HON'BLE APEX COURT IN THE CASE OF CIT V. MAX INDIA LTD. (20 07) 295 ITR 282 (SC) . THUS THE LD. CIT WAS ONLY TRYING TO SUBSTITUTE HI S VIEW FOR A LAWFUL VIEW TAKEN BY THE ASSESSING OFFICER IN THIS REGARD. THIS IS NOT POSSIBLE UNDER SECTION 263 OF THE ACT. HENCE THE ORDER OF CIT PASSED UNDER SECTION 263 OF THE ACT IS QUASHED. 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 13.08.2010 . SD/- SD/- (GEORGE MATHAN) (ABRAHA M P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 13 TH AUGUST 2010. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT-II MADURAI (4) D.R. (5) GUARD FILE