The assessee is, admittedly, neither a `primary agricultural credit society’ nor a `primary cooperative agricultural and rural development bank’. As such, it is not covered by the exceptions to s. 80P(4), as provided by the said sub-section itself, denying deduction u/s. 80P to all cooperative banks. The Legislature in its wisdom restricted the exemption, which extends to the whole of the specified incomes, i.e., of cooperatives societies undertaking specified activities, w.e.f. 1/4/2007 to the said two primary units, where the assessee is a cooperative bank. The assessee in the instant case being an apex cooperative society lending money to such primary units functioning within the State of Kerala, he denied the assessee its claim for deduction u/s. 80P (2)(a)(i).
INCOME TAX APPELLATE TRIBUNAL, COCHIN
I.T.A. No. 506/Coch/2010 & S.P. No.67/Coch/2010
Assessment Year: 2007-08
Kerala State Co-operative Agricultural Rural Development Bank Ltd.,
Vs.
The Assistant Commissioner of Income-tax
O R D E R
Per Sanjay Arora, AM:
This Appeal by the Assessee is arising out of the Order by the Commissioner of Income-tax (Appeals)-I, Trivandrum (`CIT(A)’ for short) dated 30.7.2010, and the assessment year (A.Y.) under reference is 2007-08.
2. The appeal raises two issues, each of which we shall take up in seriatim. The first and principal ground is in relation to the denial of the assessee’s claim for deduction u/s. 80P(2)(a)(i) of the Income-tax Act, 1961 (‘the Act’, hereinafter), made at `3639.87 lakhs per its return of income for the year filed on 27.10.2007. This was done by the Assessing Officer (AO), the assessee being allowed the said deduction for the earlier years, in view of the amendment to s. 80P of the Act by insertion of sub-section (4) there-to by Finance Act, 2006, w.e.f. 1.4.2007, which reads as under:-
`(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.
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 and 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.’
3.1 The assessee is, admittedly, neither a `primary agricultural credit society’ nor a `primary cooperative agricultural and rural development bank’. As such, it is not covered by the exceptions to s. 80P(4), as provided by the said sub-section itself, denying deduction u/s. 80P to all cooperative banks. The Legislature in its wisdom restricted the exemption, which extends to the whole of the specified incomes, i.e., of cooperatives societies undertaking specified activities, w.e.f. 1/4/2007 to the said two primary units, where the assessee is a cooperative bank. The assessee in the instant case being an apex cooperative society lending money to such primary units functioning within the State of Kerala, he denied the assessee its claim for deduction u/s. 80P (2)(a)(i).
3.2 In first appeal, the matter, including the assessee’s claims, was examined at length by the ld. CIT(A), to the same effect. She examined the activities and the structure of the assessee-society, to find it to be a state-level apex body of 48 affiliated primary cooperative agricultural and rural development banks (or primary ARDBs) functioning under a federal structure, with each primary unit having an area of operation of one to three taluks. It is formed as a successor to the `Central Land Mortgage Bank’ by the Kerala State Cooperative Agricultural and Rural Development Banks Act, 1984 (`KSARDB Act’ hereinafter) (Act 20 of 1984) with a mission of `comprehensive rural development’ in the State of Kerala. There has been a shift with time in the focus of lending by the banking industry in the rural sector, i.e., in terms of the segments and areas of financing (viz. rural housing, which, of late has been accorded a high priority status), so that the banks now function as development banks; the assessee working as a nodal bank for the State of Kerala under the auspices of KSARDB Act. The assessee’s claim that it is not a bank, so that the word `bank’ in its name is a misnomer, was not correct in view of s. 7 (Part V) of the Banking Regulation Act, 1949 (`the BR Act’, hereinafter). The same clearly provides that no cooperative society other than a `cooperative bank’ could function as a bank and use the name `bank’ (or `banker’ or `banking’) in its name, or in connection with its business and, further, that the same is a must for any cooperative society carrying on the business of banking in India. The non-qualification for exemption u/s. 80P stood, therefore, confirmed.
4. We have heard the parties, and perused the material on record as well as the case
law cited.
4.1 Section 80P(1) of the Act provides for a deduction in computing the total income under the Act of a cooperative society in respect of sums specified in sub-section (2) thereof. Section 80P(2), to the extent it is relevant, reads as under:-
`(2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in case of a cooperative society engaged in –
(i) carrying on the business of banking or providing credit facilities to its
members, or …
(vii) fishing or allied activities, …
the whole of amount of profits and gains of business attributable to any one or more of
such activities:…..’.
4.2 The assessee’s claim is that it is not a `cooperative bank’, so that it would not be hit by the provision of section 80P (4). In fact, it is not a bank, inasmuch as it is not in the business of banking. It would be incorrect to be guided by the presence of the word `bank’ in its name, which is not determinative of its character. It is in fact a land mortgage bank (now called Agricultural and Rural Development Bank), to which the provisions of Banking Regulation Act, by virtue of section 3 thereof, do not apply, even as being a cooperative society providing credit facilities to its members, its income continues to enjoy exemption u/s. 80P(2)(a)(i) of the Act .
4.3 The Revenue’s case, on the other hand, is that the assessee is a federal cooperative society, engaged in providing credit facilities to its member societies. As such, it is only a `cooperative bank’ financing primary units, to which only the exemption u/s. 80P stands since restricted to.
4.4 The controversy, as would be apparent from the foregoing, revolves around whether the assessee is a `cooperative bank’ or not. The assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969. It was initially formed as a Land Mortgage Bank known as Kerala Co-operative Central Land Mortgage Bank Ltd. However, with the enactment of KSARDB Act by the Kerala State Legislature, the assessee became an apex co-operative society of the State of which the primary agricultural and rural development banks, which includes co-operative societies registered or deemed to be registered under the said Act as primary co-operative land mortgage banks, are members. That it is not a `primary agricultural credit society’ or a `primary cooperative agricultural and rural development bank’, i.e., the two entities that stand excepted from the provision of section 80P(4), which is even otherwise patent, is admitted. The assessee, nevertheless, contends that it is not a `cooperative bank’, so that it would not be hit by the rigour of section 80P(4) brought in by way of an amendment to s. 80P by the Finance Act, 2006 with effect from 1.4.2007, i.e., A.Y. 2007-08 onwards. The expression ‘cooperative bank’ has been defined in the BR Act, i.e., the Legislation to which the Act adverts to for the purpose of defining it, so that this matter should not pose any problem, besides providing a firm and legal basis for resolution as to the scope of the term. Section 5(cci) of the BR Act [forming part of Part V thereof by virtue of s. 56 ] reads as under:-
`5. Interpretation. – In this Act, unless there is anything repugnant in the subject or context, –
(a) …….
(cci) “Co-operative Bank” means a state co-operative bank, a central co-operative bank and a primary co-operative bank.
[underlining supplied]
