The Kuttiattoor Panchayath Service ... vs Assessee

ITA No.s 520 to 523/Coch/2014

Assessee By None Revenue By Shri K K John, Sr DR Date of Hearing 11th Feb 2015 Date of pronouncement 6th March 2015

ORDER

PER CHANDRA POOJARI, AM:

These appeals filed by different assessees are directed against the different

orders of the CIT(A), Kozhikode for the assessment years 2009-10 & 2010-11 respectively

wherein the issues are common and therefore, we heard the appeals together and

decide the same by this common order.

2 The first common ground in all these appeals relates to disallowance of

deduction u/s 80P of the I T Act.

2. 1 The brief facts of the cases are that the lower authorities denied the claim of the

assessee for deduction u/s. 80P of the Act. The primary 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 so as to grant

deduction u/s 80P of the I T Act. Since the assessee provided only nominal amount of

loan for agricultural purposes; the assessee is not treated as primary agricultural credit

societies (PACS). The assessee was also doing banking business and the assessee was

treated as co-operative banks, the assessee was not granted deduction u/s. 80P of the

I.T. Act. Accordingly, the AO disallowed the claim of the assessee.

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ITA No.s 520 to 523/Coch/2014

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 Karnataka &Ors. (supra) we notice that the issue before the Hon'ble High Court in the Writ Petition filed by the Petitioner related to the legislative competence of the State Legislature for issuing a circular. 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 under 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-operative societies registered under the Act, and as 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 activities of the petitioners are to finance its members. For the purpose of financing its members, they borrow money from the financing agencies and repay the same. Merely because the petitioners-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 treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to "banking" as contemplated under the Banking Regulation Act, 1949, inasmuch as these co-operative societies are not established for the purpose of doing "banking" as defined in section 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 facilities to its members if it is not a co-operative bank. We have also gone through the decision of this Bench in the case of DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. in ITA 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 under:

"12.From the aforesaid objects, it is apparent that none of the aims and objects allows the assessee cooperative society to accept deposits of

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"The Income-tax Officer held the view that the assessee is not entitled to claim any further exemption under clause (c) as the assessee is entitled to exemption u/s. clause (a) in respect of the banking activities. The Appellate Assistant Commissioner, in allowing the assessee's appeal, held that exemption under clause (c) is in addition to the exemption allowable under clauses (a) and (b) and directed the Income-tax Officer to allow a deduction of Rs. 20,000 separately, taking into consideration the property income earned 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 construction of clause (c), which results in profits and gains, that 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 contention raised by the assessee for the first time before the Tribunal that the letting out of surplus space should be treated as a business activity under clause

(a) of sub-section (2) of section 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 straight deduction, in the computation of the total income of a co-operative society, to the extent mentioned. Clause(c) of section 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 attributable to such activities as does not exceed Rs. 20,000 shall be deducted in computing the total income.

The co-operative society engaged in carrying on the business of banking or providing credit facilities to its members falls under clause (a) of section 80P(2). The claim for exemption under clause (c) is in addition to the exemption provided under clause (a). The provisions are cumulative and mutually supplementing. The limits specified in clause(c) are in relation to the profits and gains attributable to the activity other than that specified in clause (a). If the rental income received by the society is attributable to any activity of the society, clause (c) would be attracted. It is then necessary that the co-operative society must prove that it has engaged itself in carrying on the activity giving rise

6 ITA No.s 520 to 523/Coch/2014

4. The next common ground of appeal in all the appeals relates to disallowance

made u/s. 40(a)(ia) of the Act.

5 The contention of the assessee before the lower authorities was that section

40(a)(i) is applicable only for the amount remaining to be paid as at the accounting

year end and it is not applicable to the amounts already paid. The CIT(A) followed the

order of this Tribunal in the case of Karivelloor Service Co-operative Bank Ltd. vs. ITO in

I.T A. No. 311/Coch/2012 vide order dated 22-03-2013 and Smt. Prasanna

Radhakrishnan Dawson vs. ITO in I.T.A. No. 153/Coch/2014 vide order dated 08-08-2014

and found that the decision of the Special Bench of the Visakhapatnam Bench of this

Tribunal in Merilyn Shipping & Transports 136 ITD 23 (SB) is not applicable in these cases. In fact, this Tribunal in the case of Orchid Marine Vs. ITO in I.T.A. No. 802/Coch/2013

dated 24/09/2014 by following the judgment of the Gujarat High Court in the case of

CIT vs. Sikandarkhan N Tunvar reported in 33 Taxman.com.133 found that the provisions

of section 40(a)(ia) are applicable not only in respect of the amount paid but also the

amounts remain to be paid as on the last day of the financial year. The CIT(A) has

followed the order of this Tribunal. Therefore, we do not find any infirmity in the order of

the lower authorities. Accordingly, the same is confirmed. Accordingly, this ground in

all the appeals stand dismissed.

6 The next ground in all the appeals relates to disallowance of provisions made for

of unrealized interest on overdue loans.

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ITA No.s 520 to 523/Coch/2014

Copy to:

1. Appellant -

2. Respondent -

3. CIT(A)

4. CIT,

5. DR

6. Guard File

By order

Assistant Registrar ITAT, COCHIN

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