Income Tax Appellate Tribunal - Cochin
M/S. Kunnamangalam Co-Op Rural Bank ... vs Assessee on 25 July, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI N.R.S.GANESAN, JM and CHANDRA POOJARI, AM
I.T.A. No. 156/Coch/2014
Assessment Year : 2009-10
Kunnamangalam Co-operative Vs. The Income Tax Officer, Ward-
Bank, 2(3), Kozhikode.
Kunnamangalam,
Kozhikode.
[PAN: AAAJT 1353R]
(Assessee -Appellant) (Revenue-Respondent)
Assessee by Shri C.B.M. Warrier, CA
Revenue by Shri K.K. John, Sr. DR
Date of hearing 02/07/2014
Date of pronouncement 25/07/2014
ORDER
Per CHANDRA POOJARI, Accountant Member:
This appeal by the assessee is directed against the order dated 04- 02-2014 passed by the CIT(A), Kozhikode for the assessment year 2009-
10.
2. The assessee has raised the following grounds:
1. The assessee is Kunnamangalam Co-operative Bank, Kunnamangalam, Kozhikode and in regard to the assessment year 2009-10, the Assessing officer has disallowed the deduction u/s.
80P of the Act and the Commissioner of Income Tax has gone wrong in confirming the disallowance.
2 I.T.A. No.156/Coch//20142. The assessee is a co-operative bank which is a primary agricultural credit society for which deduction u/s. 80P is allowable under the Act.
3. The assessee were given deduction u/s. 80P in respect of the earlier assessment year and there is no reason why the deduction is denied for the assessment year 2009-10 without any fresh reason for disallowance.
4. The assessee is giving agricultural loan to the members of the society and hence the income of the society is exempted under Mutuality.
5. The Commissioner of Income Tax (Appeals) has gone wrong in concluding the agricultural loans is only 31.81% of the loan. The gold loan are for agricultural purposes and the other loans are for related matters of agriculture. For the purpose of the percentage of utilization of loan, the fixed deposit loan of Rs. 1,67,88,656/- at 5.43% of the total loans, day deposit loan Rs.15,62,025/- and employee's overdraft Rs.41,10,338/- should not be considered. The loans are given only to members of the society.
6. The assessee society is filing return under the Act every year and the assessment is completed u/s. 143(3) of the Act and the disallowance u/s. 80P is not justified.
3. The first ground of appeal is with regard to disallowance of deduction u/s. 80P of the Act.
4. The brief facts of the case are that the assessee filed its return of income for the assessment year 2009-10 declaring nil income as 26-03- 2011. The return was processed and selected for scrutiny assessment under CASS. In the course of assessment, the Assessing officer noticed that the assessee has claimed its entire income as being exempt u/s. 80P of the Income Tax Act. As per Finance Act, 2006, deduction u/s. 80P of 3 I.T.A. No.156/Coch//2014 the Act is limited to primary Agricultural Society and Primary Co-operative Agricultural and Rural Development Bank with an intersection to allow tax benefits only to primary societies which help agriculturists by providing agricultural credits to promote agricultural activities in the country. Since the main activity of the society is to provide non agricultural credits and banking business, the Assessing officer disallowed the claim of deduction u/s. 80P of the Act, and completed the assessment determining the total income at Rs. 68,71,578/-. On appeal, the CIT(A) confirmed the disallowance made by the Assessing officer by observing as under:
"I have gone through the assessment order and also the submission and case laws relied by the assessee. As regards the first ground of appeal against the disallowance of deduction claimed u/s. 80P of the Income Tax Act, 1961, the Assessing officer after analyzing the activities of the assessee-society came to the conclusion that since the assessee has not fulfilled its main object of providing financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities, it is not eligible for deduction u/s. 80P of the Act. During remand proceedings, the Assessing officer again verified the claim of the assessee that most of the loans given during the year are for agricultural purposes, and found the claim of the assessee was not true. Further, it was held by the Hon'ble High Court of Kerala in WP(C) No. 14226 of 2012(C) dated 14th September, 2012 in the case of M/s. Thathamangalam Service Co- operative Bank Ltd. that:
"16. True, some of the petitioners have obtained a certificate as to the classification/registration 4 I.T.A. No.156/Coch//2014 as Primary Agricultural Credit Societies. But, by virtue of the amendment of Section 2(oa) of the Kerala Co-operative Societies Act, if the Society does not continue to fulfil the obligation, it will lose the colour and characteristics 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 Agricultural Credit Societies to substantiate that their main object of incorporation is being continued to be fulfilled as well.....
17. As held already, it is for the petitioners to establish their status as Primary Agricultural Credit Societies by obtaining and producing the relevant certificate from the competent authority, as mentioned hereinbefore. It is also open for the petitioners to opt to produce the relevant records before the Income Tax authorities as well, to establish their status and credentials, that there is no lapse in fulfilling the objective as Primary Agricultural Credit Societies so as to absolve from further proceedings at the hands of the Income Tax Department....."
In the instant case, it is crystal clear, as stated by the Assessing officer in his order that the assessee has been more in the field of banking instead of its principal object of extending credit facility to its members for agricultural purposes. At no point of time either before the Assessing officer or during the course of appeal hearing, the Ld. Counsel has produced any evidence to controvert the business activities tabulated by the Assessing officer in the assessment order, from which it is clear that hardly 3.56% of the total loans advanced during the year was for the purpose of agricultural activities. Regarding the claim of the ld counsel that the nature of the business of the assessee is in the character of 'mutuality', and therefore its income is exempt from taxation does not hold muster. First, because the ld. counsel has not supported his plea with any fact. Second, 5 I.T.A. No.156/Coch//2014 admitting any new fact at this late stage will be a clear violation of rule 46A of IT Rules. Thus, in view of the decision of the Hon'ble High Court of Kerala referred above, and also for the reasons stated in my order in I.T.A. No. 245/KNR/CLT/2011-12 dated 21-09-2012 in the case of Karivellur Service Co-operative Bank Ltd. for A.Y. 2009-10, I uphold the decision of the Assessing officer".
,
5. Against this, the assessee is in appeal before us. The Ld. AR relied on the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co-op Credit Society Ltd. in I.T.A. Nos. 442,443 & 863/2013 dated 15/01/2014 wherein it was held as under:
"7. From the above clarification, it can be gathered that sub-section(4) of section 80P will not apply to an assessee which is not a co- operative bank. In the case clarified by CBDT, Delhi Co-op Urban Thrift and Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a co-operative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue's contention that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained therein but also credit societies, which are not co- operative banks. In the present case, respondent assessee is admittedly not a credit co-operative bank but a credit co-operative society. Exclusion clause of sub-section (4) of section 80P, therefore, would not apply. In the result, Tax Appeals are dismissed."
6. The Ld. AR further submitted that even on applying the concept of mutuality, the assessee's claim is to be allowed. For this, he relied on the 6 I.T.A. No.156/Coch//2014 judgment of the Hon'ble Delhi High Court in the case of CIT vs. Talangang Co-op Group Housing Society Ltd., (2010) 44 DTR (Del) 58 and the decision of the Hon'ble Supreme Court in the case of Chelmsford Club vs. CIT, (2000) 243 ITR 89 (SC).
7. On the other hand, the Ld. DR submitted that this is a covered matter wherein the Tribunal consistently held that when the assessee is carrying on the operation in the field of banking, the assessee cannot be granted deduction u/s. 80P of the Act. He submitted that the question of applying the concept of mutuality also does not arise.
8. We have heard both the parties and perused the material on record. In this case, the assessee's contention is that it is lending money primarily for the purpose of agricultural activities and its member agriculturists. Being so, the assessee is entitled for deduction u/s. 80P of the Act. We have carefully gone through the business carried on by the assessee. The Assessing officer has clearly brought on record that the assessee has lent only 3.56% of total loans advanced during the year under consideration for the purpose of agricultural activities. The assessee was unable to point out that how with this meagre 3.56% of the loans advanced for the purpose of agricultural activities; the assessee is entitled for deduction u/s. 80P of the I.T. Act. The question before us is 7 I.T.A. No.156/Coch//2014 whether the Assessee is entitled for deduction u/s 80P(2)(a)(i) and whether the Assessee is hit by the provisions of Sec. 80P(4) which was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The relevant provisions of both the sections are re-produced for our ready reference as under :
"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), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- 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..............."the whole of the amount of profits and gains of business attributable to any one or more of such activities.
"80P(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."8 I.T.A. No.156/Coch//2014
8.1 In our opinion, Sec. 80P(2)(a)(i) provides two types of activities in which the co-operative society must be engaged to be eligible for deduction under sub-clause (i). These two activities are not alternate ones because the section allows deduction to the co-operative society on the whole of profits and gains of business attributable to any one or more of such activities. This pre-supposes that eligible co-operative society can carry on either one of these two businesses or can carry both these businesses for the members. If the Assessee co-operative society carries on one or both of the activities, it will be eligible for deduction. These two activities are (a) co-operative society engaged in carrying on business of banking facilities to its members or (b) co-operative society engaged in providing credit facilities to its members. Both the activities must be carried on by the co-operative society for its members. If a co-operative society is engaged in carrying on these activities/facilities for the persons other than its members, the co-operative society, in our opinion, will not be eligible for deduction u/s 80P(2)(a)(i) on the income which it derives from carrying on the activities not relating to its members. Therefore, where a co-operative society is engaged in carrying on business of banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business of banking facilities to its members or providing credit facilities to its members will only be eligible for deduction u/s 80P(2)(a)(i). There is 9 I.T.A. No.156/Coch//2014 no prohibition u/s 80P not to allow deduction to such co-operative societies in respect of business relating to its members.
8.2 Now, the question before us is whether the Assessee is a co-
operative bank or not. Co-operative Bank as defined in Part V of the Banking Regulations Act, 1949 is as under :
"Co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank:"
8.3 From the definition of Co-operative bank it is apparent that Co-
operative bank means state co-operative bank, a Central Co-operative Bank and a Primary Co-operative bank. It is not the case of the revenue that the assessee is a state Co-operative bank or Central Co-operative bank. We have therefore to find whether the assessee is a primary Co-
operative bank.
8.4 The Primary Co-operative bank is defined under section 5 clause (CCV) of Banking Regulation Act 1949 as under:-
"(CCV)" primary co-operative bank" means a co-operative society, other than a primary agricultural credit society-
(1) The primary object or principal business of which 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 of any other co-operative society as a 10 I.T.A. No.156/Coch//2014 member: Provided that this sub-clause shall not apply to 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 funds provided by the State Government „for the purpose"
8.5 From the aforesaid definition, it is apparent that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transacted by it is a banking business, secondly, the paid up share capital and reserve of which are 1 lakh or more and thirdly, by laws of the co-operative society do not permit admission of any other co-operative society as a member, it will be regarded to be primary co-operative bank. If co-operative society does not fulfill any of the conditions, it cannot be regarded to be a primary co-
operative bank. Therefore, in the case of the Assessee we have to examine on the basis of the facts and materials on record whether the Assessee co-operative society complies with all the three conditions. In case, it does not comply with all the three conditions, it cannot be regarded to be a co-operative bank and the provisions of Sec. 80P(4), in our opinion, will not be applicable in the case of the Assessee. Once, the Assessee will not fall within the provisions of Sec. 80P(4), the Assessee, in our opinion, will be eligible to get deduction u/s 80P(2)(a)(i) in respect of whole of the income which the Assessee derives from carrying on the business of banking or providing credit facilities to its members.
11 I.T.A. No.156/Coch//20148.6 Whether condition no. 1 is applicable in the case of the Assessee, for this we have to look into the bye-laws of the Assessee. The objects of the Assessee in this case are enumerated as under :
1) To provide short terms, medium term and long term loans to its members.
2) To provide over draft facilities to members who are traders and kisan credit card loan to members who are farmers;
3) To invent and execute different schemes for the non agricultural purpose of the members;
4) To procure and distribute fertilizers, pesticides and equipments for agricultural purposes and different articles for house-hold needs of the members;
5) To devise different schemes for collection, processing and the marketing of agricultural produce of the members;
6) In order to lend money to members, take loans from government and other co-operative institutions;
7) To provide banking facilities to members including encashment of cheque, drafts, bills etc.;
8) To acquire movable and immovable assets for the functioning of the bank;
9) To collect deposits from members and customers under different deposit Schemes;
10)Marketing of the agricultural produce of the members, co-operating with government and Quasi government agencies;12 I.T.A. No.156/Coch//2014
11) To start branches and extension counters within its area of operation if necessary for the development of the bank;
12) To acquire and market industrial products for the benefit of the members;
13) To issue loans to members under hire purchase scheme for purchasing household articles, machinery, jeep, autorikshaw, car etc.
14) To accept deposits from primary non-agricultural co-
operative societies.
Out of these, only four objects (i.e. clause no. 2,4,5 and 10) are related to agriculture or agricultural operations. So from the bye- laws of the bank it cannot be aid that the primary object or principal business of the bank is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities.
8.7 On the basis of these objects whether it can be said that the primary object or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner :
" banking" means the accepting, for the purpose of lending or in vestment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise."
From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwise and withdrawal of these deposits by cheque, draft, order or otherwise and these deposits are accepted for the purpose of lending or investment. These deposits must be accepted from the public, not only from the 13 I.T.A. No.156/Coch//2014 members. These deposits must be repayable on demand or otherwise and could be withdrawn by the depositor by cheque, draft or otherwise. We notice that the CIT(A) has given a categorical finding that the Assessee has carried on banking activities on the basis of findings in the assessment order. The relevant portion of the assessment order is as under :
"16. This shows that more than 95% percentage of the loans advance for non-agricultural purposes (normal banking business activities like any other commercial bank). The percentage of loans issued for agricultural purposes is only 3.56%. In short, it cannot be said that the primary object or principal business of the bank is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities.
17. The assessee bank is having four types of share holdings. (A) Class equity shares of Rs. 5/- each with voting rights. It is explained that these shares are issued to individuals. (B) Class equity shares of Rs.250/- each. It is submitted that presently Kerala Government is holding three shares. (C) Class equity shares of Rs. 5/- each without voting rights. These shares are issued to individuals. (D) Class equity shares of Rs. 25/- each without voting rights. These shares are also issued to individuals. As per the bye- laws of the banks, (B) class shares can be issued to State Government, State Co-operative bank, District Co-operative bank, Kerala Coconut Farmer's Co-operative Federation, Local bodies and trust falling under the area of operation of the bank. There is no specific clause in the Bye-laws of the bank which do not permit admission of any other co-operative society as a member.
18. The assessee Co-operative bank is registered as a Primary Agricultural Credit Society, but as narrated above, it does not satisfy the criteria or conditions stipulated in the Banking Regulation Act, 1949. So it squarely falls under the operation of Sub-section (4) of Section 80P of Income Tax Act, 1961. As such the assessee is not eligible for deduction u/s. 80P of the Income Tax Act, 1961."
8.8 The deposits accepted are used by the Assessee co-operative society for lending or investment. This fact has not been denied. Even out of the deposits so received, the loans have been given to the members of the 14 I.T.A. No.156/Coch//2014 society in accordance with the objects as enumerated above. Thus, in our opinion, condition no. 1 stands satisfied and it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right. So far as the second condition is concerned, there is no dispute that the paid up share capital and reserves in the case of the Assessee is more than Rs. 1 lac. Therefore, the Assessee satisfies the second condition.
8.9 Thus, we notice that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with.
8.10 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT, 41 305 (Hyd). We notice that this decision is applicable to the facts of the case before us. In that decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a co-operative bank. The Society is governed by the Banking Regulations Act. Therefore, the society being a co- operative bank providing banking facilities to members is not eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of sub-section (4) to section 80P. In view of this finding, the Assessee was denied deduction u/s 80P(2)(a)(i). We have also gone through 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 decision of the Tribunal in the case of ACIT, Circle 3(1), Bangalore vs. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No. 1069/Bang/2010 holding that Sec. 80P(2)(a)(i) is applicable 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 term„credit co-operative 15 I.T.A. No.156/Coch//2014 society u/s 80P(2)(a)(i) or u/s 80P(4), therefore, this decision cannot assist us. We noted that the Hon'ble Gujarat High Court in the case of CITvs. Jafari Momin Vikas Co-op. 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."16 I.T.A. No.156/Coch//2014
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 money „from public for the purpose of lending or investment. In our opinion until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. Therefore, the assessee will not comply with the first condition as laid down in the definition as given u/s. 5(ccv) of the Banking Regulation act, 1959 for becoming "primary cooperative bank". The assessee, therefore, cannot be regarded to be primary cooperative bank and in consequence thereof, it cannot be a co-operative bank as defined under part V of the Banking Regulation Act 1949. Accordingly, in our opinion the provisions of section 80P (4) read with explanation there under 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."
The other decisions also relied on are not applicable to the facts of the case of the assessee.
17 I.T.A. No.156/Coch//20148.11. 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 alternative plea that the assessee is lending money only to its members. Being so, applying the concept of mutuality, the total income of the assessee has to be exempt from tax. However, we find that this argument of the assessee is also devoid of merits. The Hon'ble Supreme Court had an occasion to consider this mutuality concept. Similar issue came up for consideration of the Hon'ble Supreme Court in the case of CIT vs. Kumbakonam Mutual Benefit Fund Ltd., 53 ITR 241 (SC) wherein it was held that if the profits are distributed 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 company 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 company, limited by shares. Indeed, the position of the assessee is no different from an ordinary bank except that it lends money and receives dividend from its shareholders which does not by itself make its income any the less income from business. The same judgment was followed in the case of CIT vs. Arcot Dhanasekhara Nidhi Ltd., 59 ITR 480 (Mad.), CIT vs. Dharmavaram Mutual Benefit Permanent Fund Ltd., 67 ITR 673 (AP) and CIT vs. Bhavnagar Trust Corporation (P) Ltd., 69 ITR 278. Further, the Hon'ble Kerala High Court in the case of Kottayam Co-operative Land Mortgage Bank Ltd. vs. CIT, 172 ITR 443(Ker.) where it was held as under:
"The Income-tax Officer held the view that the assessee is not entitled to claim any further 18 I.T.A. No.156/Coch//2014 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 19 I.T.A. No.156/Coch//2014 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 to profits or gains. Such activity of the assessee must have a direct or proximate connection with or nexus to the earning in order that the assessee may enjoy the exemption.
Section 80P(2)(c) of the Act exempts income of co-operative societies to the extent mentioned therein if the profits or gains are attributable to the activity in which the co-operative society is engaged. The expression "attributable to" is much wider than the expression "derived from" and it covers receipts from sources other than the actual conduct of the business of the assessee. In this view of the matter, interest earned by a co-
operative society, which was carrying on the business of supplying surgarcane on statutory investment in Government securities, was held profit attributable to the carrying on of the activity of supplying sugarcane (CIT vs. Co-operative Cane Development Union Ltd. (1979) 118 ITR 770 (All.) The profits and gains from such investments were connected with or incidental to the carrying on of the actual business.
Where, however, the assessee as owner of certain property lets out that property and receives rental income, the income thus received cannot partake of the character of profits and gains attributable to an activity carried on by the society. The building 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 specified form of supervised action or 20 I.T.A. No.156/Coch//2014 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 ordinary sense. Clause (c) of section 80P(2) is intended to cover receipts from sources other than the actual conduct of the business but attributable to an activity which results in profits 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 exemption provided thereunder. In this view, the Appellate Tribunal was justified in rejecting the assessee's claim."
10. In view of the above discussions, we are inclined to hold that the assessee is not entitled for deduction u/s. 80P of the Act on any reasoning.
11. In the result, the appeal filed by the assessee is dismissed.
Pronounced accordingly on 25-07-2014.
sd/- sd/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 25th July, 2014 GJ Copy to:
1. Kunnamangalam Co-operative Bank, Kunnamangalam, Kozhikode.
2. The Income Tax Officer, Ward-2(3), Kozhikode.
3. The Commissioner of Income-tax(Appeals), Kozhikode.
21 I.T.A. No.156/Coch//20144. The Commissioner of Income-tax, Kozhikode.
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.
By Order (Assistant Registrar) I.T.A.T. Cochin