Income Tax Appellate Tribunal - Ahmedabad
Agriculture Development Co-Op. Credit ... vs Department Of Income Tax on 14 October, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD ''B'' BENCH - AHMEDABAD
Before S/Shri Rajpal Yadav, JM, & Manish Borad, AM.
ITA No.1956/Ahd/2011
Asst. Year: 2008-09
. Income-tax Officer, Ward-2, Patan Vs The Agriculture Dev. Cop.op.
Credit Society Ltd., Zapali Pole,
Sidhpur.
(Appellant) (Respondent)
PA No.AAAAA 1055C
Appellant by Shri Rajendra Singh, Sr. DR
Respondent by Shri A. C. Shah, AR
Date of hearing: 12/10/2015
Date of pronouncement: 14/10/2015
ORDER
PER Manish Borad, Accountant Member.
This is an appeal filed by the Revenue against the order of CIT(A), Gandhinagar, Ahmedabad, dated 24.5.2011. Assessment order for Asst. Year 2008-09 was framed by ITO, Wd-2, Patan, u/s 143(3) of the I.T. Act, 1961 (in short the Act), on 24.12.2010. Revenue has raised the following grounds of appeal :-
1. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.26,38,833/- made on account of disallowance of deduction u/s 80P of the I.T. Act.
2. On the facts and circumstances of the case the ld. CIT(A) ought to have upheld the order of the AO.ITA No.1956/Ahd/2011 2
Asst. Year 2008-09
3. It is therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the AO be restored to the above extent.
2. Briefly stated the facts of the case are that the assessee is a registered Primarily Agricultural Credit Co-op. Society. It has filed its return of income on 22.9.2008 declaring total income of Rs.73,170/- after claiming deduction under section 80P(2)(a)(i) of the Act, at Rs.26,38,833/-. Assessment proceedings were completed under section 143(3) of the Act on 24/12/2010, wherein Assessing Officer disallowed the deduction under section 80P of the Act at Rs.26,38,833/-.
3. Aggrieved, assessee went in appeal before the CIT(A) who deleted the disallowance made by the Assessing Officer and allowed the appeal of the assessee.
4. Aggrieved, Revenue is now in appeal before the Tribunal. The ld. DR referred to the main objects of the assessee society wherein it is mentioned that loan upto 75% of the Fixed Deposit can be given to its member or non-members holding fixed deposit with society. Rate of interest will be decided by Board of Directors for time being Manager can sanction such loans & borrower has to provide such documents and agreements as society decide. The ld. DR inferred from this clause that assessee society is providing credit facilities to non-members also and assessee society has also shown interest income on loan for business at Rs.11,64,287/- in its profits and loss ITA No.1956/Ahd/2011 3 Asst. Year 2008-09 account and, therefore, the society is not eligible for deduction u/s 80P(2)(a)(i).
5. On the other hand, the ld. AR of the assessee submitted that the primary business of the assessee society is to provide financial accommodation to its members for agricultural purposes whereas the main reason for disallowance made by Assessing Officer u/s 80P(2)(a)(i) is that the Assessing Officer has not considered the assessee society as primary agricultural credit co-op. society. The ld. AR further referred to the provisions of section 80P(4) which reads as below :-
"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 cooperative agricultural and rural development bank."
Explanation to section 80P(4) provide as under -
For the purpose of this sub-section "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.
The ld. AR further stated that in part V of banking regulating act, primary agricultural credit society is defined as under -
"Primary agricultural credit society" means a Co-operative Society -
(1) The primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops).
And ITA No.1956/Ahd/2011 4 Asst. Year 2008-09 (2) The bye-laws of which do not permit admission of any other Co- operative society as a 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 the State Government for the purpose;
As per above definition of PAC, the words to be noted are "Primary Objet or Principal Business". The condition of primary object or principal business may be of alternatives. If the condition of "principal business" is satisfied, condition of primary object need not be fulfilled.
iii. Appellant further submits that the main activity of the society is to give loan to farmers only. The advances were given for business purposes to member farmers residing in rural area only. Interest income from agricultural loans is of Rs.67.40 lacs as against the interest income from loans other than agricultural loan is of Rs.11.34 lacs.
Appellant had earned interest income of Rs.34.62 lacs from deposit with banks by investing surplus funds resulting from the activities of credit facilities to member farmers. Such income is incidental to income from primary activity. So such incidental income does not alter our status.
Thus, interest from agriculture credit is more than 50% of the total revenue earned from loan to members and interest earned from activity of commercial loan is quite less as compared to interest income from agricultural credit and hence the principal business of the society is to provide financial accommodation to its members for agricultural purpose and therefore, it is primary agricultural credit society as per the definition in part (V) of Banking Regulation Act.
Interest income of loan against deposits was of Rs.52.445/- appellant had not given any such loan to non members. The list of such borrowers alone with their membership number is submitted in paper book. So there is no loan to non members. So it fulfills this condition ITA No.1956/Ahd/2011 5 Asst. Year 2008-09 as per the definition of Primary Agriculture Credit Society as defined in part (V) of Banking Regulation Act.
As per the byelaws of the appellant, only individuals can become members so any co operative society cannot become member of the appellant. So it fulfills this condition or per the definition of Primary Agriculture Credit Society as defined in part (V) of Banking Regulation Act.
As per object clause and the loan clause of the bye laws of the society the primary object of the appellant is to provide financial accommodation to members for agricultural operation. So it is PAC as defined in part (V) of Banking Regulation Act.
iv. On referring above, legal provisions, object clause and facts of the activity and considering certificate from RBI for certifying appellant as primary agriculture credit society and agricultural business of finance accommodation to members for agricultural purpose, appellant is a Primary Agriculture Credit Society as per explanation of subsection (4) of section 80P of the Income-tax Act, 1961 read with part (V) of Banking Regulation Act. Deduction u/s 80P of the Act is not allowable to the Co-operative Bank other than Primary Agriculture Credit Society. So it implies that deduction u/s 80P(2)(a)(i) is allowable to Primary Agriculture Credit Society. As appellant is a Primary Agriculture Credit Society, its profit from providing credit facilities to members is fully allowable deduction."
6. We have heard the rival contentions and gone through the facts and circumstances of the case and also perused the material on record. From the available records, it is noticed that there is no contrary view to the fact that assessee society is a primary agriculture credit society and not a co-operative bank. Nor the Revenue has brought any contrary view to this. Therefore, the assessee is entitled to deduction of the income from providing credit facilities to its members under section 80P(2)(a)(i) of the Act. But as referred by ld.
ITA No.1956/Ahd/2011 6Asst. Year 2008-09 DR to the object of the assessee society as well as interest income on loans for business shown in the audited profit and loss account one cannot deny the element of some portion of income which the assessee society has earned from non-members also. On going through the order of CIT(A) dated 17.03.2015 for AY 2009-10 (copy placed on record) in the case of assessee's own case, we find that he has discussed this issue related to income from loan to members and non-members and the same is reproduced below :-
"4.2 I have considered the assessment order, remand report and the submissions made by the appellant. The AO has examined the clause 37 and 41© of the by laws. The AO has also examined the loan to members and non members to ascertain whether loan has been given to nonmembers, in view of clause 41© and submitted that no loan has been given to non members. In view of the above facts, it is evident that though there is a provision under clause 41© of by law to give loan to nonmembers upto 70% of amount invested in fixed deposited but actually no loan has been given to non members. AS CIT(A) in original order has noted that the RBI has certified that the appellant is a primary agriculture credit society, the appellant is eligible for benefit for deduction u/s 80P(2)(a)(i), as it is specifically excluded from the exception in section 80O(4). However, not the entire income is exempted, and it is to be examined whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed by them as exempt to the extent of Rs.6,44,090/- by treating the income from interest on bank deposit as taxable u/s 56 of the Act. This issue has been decided by Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd. vs. ITO 188 taxman 282 (2010). The Hon'ble Supreme Court has held that interest income on the short term bank term deposit and security would fall in the category of other income to be taxed u/s 56 of the I.T. Act. In view of the above, the appellant is not eligible for deduction u/s 80P(2)(a)(i) in respect of income from other sources of Rs.6,44,090/- as worked out under :-
"Working of interest income from bank deposit cut of interest free fund-
1. Details of interest free funds Rs.
Share capital 2873160
Reserve Fund 5651147
ITA No.1956/Ahd/2011 7
Asst. Year 2008-09
Other funds 16107712
24632019
2. Details of investment in non co op bank deposit a Development Credit Bank Rs.2,10,00,000
3. Details of investment in co op bank deposit and loans to members -
Rs.
MDC co op bank deposit 16700000
MDC co op bank deposit in PF a/c 1378644
Loans to members 48861394
66940038
4. Total interest yielding investment is Rs. (2,10,00,000 + 6,69,40,038) i.e. Rs.8,79,40,038
5. The proportion of own and interest fund invested in non co op bank deposit by assuming mixed use of the fund is Interest free fund/own fund x deposits with other than coop bank Total interest yielding investment 2,46,32,0191 x 2,10,00,000 8,79,40,038
6. Interest at 10.95% on Rs.52,82,103 is of Rs.6,44,090/-
I have gone through the above working and find it reasonable and correct on the facts of the case. Therefore, the interest income which is taxable u/s 56 and not exempt would be Rs.6,44,090. The ground of appeal is decided accordingly."
Similar situation is there in the year under appeal i.e. AY 2008-09 wherein this element of income from non members is arising and there was no objection from both the sides that matter of the appeal be remitted back to the file of Assessing Officer for working out the income from other sources i.e. income from non members and other sources to be calculated on the same pattern as has been mentioned above in the CIT(A)'s order for AY 2009-10. Accordingly, we remit ITA No.1956/Ahd/2011 8 Asst. Year 2008-09 back the matter to the file of Assessing Officer for fresh calculation of income entitled to deduction u/s 80P(2)(a)(i) of the Act. This ground of appeal is allowed for statistical purposes.
7. Other grounds are of general nature, which do not require adjudication.
8. In the result, the appeal of Revenue is allowed for statistical purposes.
Order pronounced in the open Court on 14/10/2015 Sd/- Sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 14/10/2015
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asstt. Registrar, ITAT, Ahmedabad
ITA No.1956/Ahd/2011 9
Asst. Year 2008-09
1. Date of dictation: 12/10/2015
2. Date on which the typed draft is placed before the Dictating Member: 13/10/2015 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 14/10/2015
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: