ITO Vs Nannambra Service Cooperative Bank Ltd. (ITAT Cochin)
Reserve Bank of India had given letters to societies similar to assessee stating that they were Primary Agricultural Credit Societies and, therefore, in terms of section 3 of the Banking Regulation Act societies were not entitled for banking license. Hence, assessee could not be considered as bank and was not entitled for deduction under section 80P(2).
FULL TEXT OF THE ITAT JUDGMENT
These appeals at the instance of the Department and the Cross Objections filed by the assessee are directed against the consolidated order of the CIT(A) dated 27/06/2016. The relevant assessment years are 2009-10 to 2011-12.
2. Since common issue is raised in these appeals and the Cross Objections, they were heard together and are being disposed of by this consolidated order.
3. Identical grounds are raised in the appeals filed by the Revenue and they read as follows:
1 The order of the learned Commissioner of Income Tax(Appeals) is against law, facts and circumstances of the case.
2. Whether on the facts and in the circumstances of the case, the Commissioner of Income Tax(Appeals) is right in law in holding that the assessee is eligible for claiming deduction under section 8OP of the Income Tax Act when the assessee failed to fulfil the principal objective of providing agricultural credits to members?
3. The Kerala Co-operative Societies Act(Amendment) Act, 2010, Act 7 o f 2010 stipulates that if the principal objective of providing agricultura l credits to members is not fulfilled, such society shall lose all characteristics of a Primary Agricultural Credit Society. In view of this, is not the decision of the CIT(A) is against law?
4. The Hon’ble High Court of Kerala had in the case of M/s Perinthalmanna Service Co-operative Bank Vs CIT in ITA No 4 of 2014 held that “an enquiry has to be conducted into the factual situation whether cooperative bank is conducting the business as Primary Agricultural Credit Society or a Primary Co-operative agricultural and rural development bank and depending upon the transactions, the Assessing Officer has to extend the benefits available and not merely looking at the registration certificate by the Kerala Co-operative Societies Act or the nomenclature”.
5. In view of the above, the reliance placed by the CIT(A) in the decision of the Hon’ble High Court of Kerala in the case of M/s. Chirakkal Service Co-operative Bank and others in ITA No. 212 of 2013 is not correct, especially when a contrary view was taken by another division bench of eh High Court of Kerala in the case of M/s. Perinthalmanna Service Co-operative Bank in ITA No. 4 of 2014.
6. The decision of the Hon’ble High Court of Kerala in the case of M/s. Chirakkal Service Co-operative Bank and others in ITA No. 212 of 2013, relied on by the Commissioner of Income Tax(Appeals) has not become conclusive as the deduction was not accepted by the department and SLP is being filed in the Supreme Court.
7. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the CIT(A) may be set aside and that o f the Assessing Officer restored.
3.1 The Revenue has also filed additional ground which is identical for all the assessment years. The additional ground raised reads as follows:
1. The learned CIT(Appeals) ought to have seen that the Hon’ble Supreme Court in the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. V. CIT reported in 203 ITR 1027(SC) had held that eligible deduction under section 81(l)(d) [substituted by section 80P by the Finance (No.2) Act,1967 w.e.f. 01/04/1968] of the Income Tax Act,1961 in respect of cooperative societies/banks doing both agricultural and non-agricultural activities should not be 100% of the gross profits and gains of business of such societies etc. but should be limited to the profits generated from agricultural activities alone performed by such assesses.
2. The learned CIT(Appeals) ought to have seen that the above Apex Court’s decision is in sharp contrast to the decision of the High Court of Kerala in the case of M/s. Chirakkal Service Co-operative Bank and others in ITA No. 212 of 2013 held that the authorities under the Income Tax Act cannot probe into question whether the assessee cooperative Society is a ‘primary agricultural credit society’, once it is registered and classified as ‘primary agricultural credit society’ by the competent authorities under the provisions of the Kerala Co-operative Societies Act,1969.
3. The learned CIT(Appeals) ought to have brought his attention to the decision of the Honourable High Court in the case of Perinthalmanna Service Co-operative Bank Ltd. reported in (2014) 363 ITR 268 (Kerala) wherein it was held that ‘with introduction of section 80P(4) necessarily, an enquiry has to be conducted into factual situation whether co-operative bank is conducting business as a primary agricultural credit society or primary co-operative agricultural and rural development Bank and depending upon transactions, Assessing officer has to extend benefits available, and he would not merely look at the registration certificate issued under the relevant Cooperative Societies Act or at nomenclature o f Co-operative Bank.
4. The learned CIT(Appeals) ought to have seen that the Apex court has admitted the SLPs filed by the Department against the decisions of (1) the Honourable Kerala High Court in the case of M/s Karakulam Service Cooperative Bank and (2) the Honourable Karnataka High Court in the case of CIT V. Lokmanya Multipurpose Cooperative Society Ltd. Reported in Part 4 of 394 ITR (ST.)
4. Briefly stated the facts of the case are as follows:
The assessee is a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969. For the assessment years 2009-10, 2010-11 and 2011-12, the assessments were completed by denying the benefit of deduction u/s. 80P(2) of the I.T. Act. The Assessing Officer had denied the claim of deduction u/s. 80P(2) of the Act for the reason that the assessee cannot be considered as primary agricultural credit society as it was engaged in the business of banking and only negligible percentage of loans disbursed by the assessee was for agricultural purposes.
5. Aggrieved by the denial of deduction u/s. 80P(2) of the Act, the assessee preferred appeals to the first appellate authority. The CIT(A) decided the issue in favour of the assessee by following the judgment of the Hon’ble Jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. vs.CIT reported in 384 ITR 490.
6. Aggrieved by the consolidated order of the CIT(A), the Revenue has filed the present appeals before the Tribunal. The Ld. DR, apart from relying on the grounds and the additional grounds raised by the Revenue, has filed a brief written submission. The contents of the same are reproduced below:
“In the case of NSCB Ltd, out of the total loan sanctioned, only negligible percentage given for agricultural purpose.
