Income Tax Appellate Tribunal - Cochin
M/S.Kerala State Co-Op Agricultural & ... vs The Dcit, Trivandrum on 3 November, 2016
ITA Nos.182 & 26/Coch/2015
& 101 & 236/Coch/2015
आयकर अपीलीय अिधकरण
IN THE INCOME TAX APPELLATE TRIBUNAL
नयायपीठ,
् कोिच
COCHIN BENCH, COCHIN
ौी बी पी जैन, लेखा सदसय् एवं ौी जाज जाज के, नयाियक
् सदसय
्
BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE.K, JM
आयकरअपील सं./ I.TA Nos.182 & 26/Coch/2015
(Asst Years : 2010-11 & 2011-12)
M/s. Kerala State Co-op Agricultural & Vs The Assistant Commissioner of
Rural Development Bank Ltd., Income-tax, Circle-1(2), Trivandrum.
Trivandrum
( अपीलाथ /Assessee - Appellant) (ूतयथ
् /Revenue -Respondent)
आयकरअपील सं./ I.TA Nos.101 & 236/Coch/2015
(Asst Years : 2010-11 & 2011-12)
The Assistant Commissioner of Income- Vs M/s. Kerala State Co-op Agricultural
tax, Circle-1(2), Trivandrum. & Rural Development Bank Ltd.,
Trivandrum
( अपीलाथ /Revenue - Appellant) (ूतयथ
् /Assessee -Respondent)
PAN No. AAAAK 4391F
अपीलीय क# ओर से/Assessee By Shri Balakrishnan K. & Shri
Aneesh Viswanathan, CA
ूतयथी
् क# ओर से/ Revenue By Shri A. Dhanaraj, Sr. DR
सुनवाई क# तार'ख/Date of Hearing 02/11/2016
घोषणा क# तार'ख/Date of pronouncement 03//11/2016
1
ITA Nos.182 & 26/Coch/2015
& 101 & 236/Coch/2015
आदे श/ORDER
PER BENCH:
These appeals, at the instance of the Assessee and the Revenue, are directed against the separate orders of the CIT(A), Trivandrum for the assessment years 2010- 11 and 2011-12.
2. Common issues are raised in these appeals and they pertain to the same assessee, hence, these appeals were heard together and are being disposed off by this consolidated order for the sake of convenience and brevity.
3. We shall take up the assessee's appeal first.
I.T.A. Nos. 182 & 26/Coch/2015 : AYs 2010-11& 2011-12
4. Though several grounds are raised in these appeals, all the grounds relate to two issues, namely,
i) Whether the assessee is entitled to the benefit of deduction u/s. 80P(2)(a)(i) of the Act?
ii) Whether the authorities below are justified in disallowing the contribution made to unrecognized Superannuation Fund.
i) Whether the assessee is entitled to the benefit of deduction u/s. 80P(2)(a)(i) of the Act.
2
ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015
5. The Assessing Officer had denied the benefit of deduction u/s. 80P(2) of the Act for the assessment years 2010-11 and 2011-12. The Assessing Officer held that the assessee is engaged in the business of banking and in view of section 80P(4), since the assessee is not a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank, it is not entitled to deduction u/s. 80P(2) of the Act. The relevant finding of the Assessing Officer for the assessment year 2010-11 reads as follows:
"(3) As per return of income the assessee claimed a deduction of Rs.70,70,11,107/- u/s.
80P(2)(a)(i). The allowability of the above mentioned deduction is discussed due to the change in amendment of section 80P by insertion of sub-section 4 with effect from the assessment year 2007-08. Assessee's authorized representative Shri V. Devarajan vide letter dated 19/12/2012 stated that"
U/s. 80P(2)(a)(i), the whole of the amount of profits and gains of ARDB of its business attributable to the activity of providing credit facilities toits members is deductable from its gross total income.
U/s. 80P(2)9d), the whole of the income by way of interest or dividends derived by ARDB from its investments with any other co-operative society is also deductible from gross total income.
With effect from assessment year 2007-08, sub-section (4) has been inserted in section 80P, which reads as under, "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."
Therefore, essentially a State Level ARDB such as KSARDB is a registered Co-operative society under the respective State law and it is very much engaged in the business of providing credit facilities to its members. Hence ARDB continues to be a co-operative society which is engaged in the business of providing credit facilities to its members and therefore, it does not get excluded from the newly inserted sub-section (4) of Sec. 80P. He also stated that KASCARD is in the business of providing credit facilities to its members not as a co-operative society by virtue of its nature of business of providing 3 ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 credit facilities to its members. It is not a co-operative bank not only account of the fact that BR Act does not apply to it, but also due to the fact that:-
(i) It is deemed to be a credit society under BR Act. (ii) It is not required to hold a banking licence under RBI Act.
(iii) Provisions regarding CRR, SLR and other regular norms of RBI and BR Act are not applicable to it.
(iv) Its business and objects are to provide credit facilities to its member under its constitution and
(v) The work "bank" in its name is a misnomer because it is permitted to, use this word, which means it is not considered as a bank since it is not undertaking any regular banking activities."
The provisions of newly inserted sub-section 4 to section 80P are specific on the point that the provisions of section 80P shall not apply in relation to any cooperative bank other than a primary agricultural credit society or primary cooperative bank other than a primary agricultural credit society or primary cooperative agricultural and rural development bank. The definition to the primary units are given in the explanation to section 80P given as under, "Primary cooperative agricultural and rural development bank is a society having area of operation confined to taluk and principal object of which is to provide long term credit for agricultural and rural development activities." The definition of primary agricultural credit society is with reference to part V of Banking Regulations Act, 1949. As per part V of Banking Regulations Act, 1949. As per Part V of Banking Regulations Act, 1949 primary agricultural credit society means a cooperative society:-
(1)The primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes for purposes connected with agricultural activities (including market of crops), and (2The bye-laws of which do not permit admission of any other cooperative society as a member:
Provided that this sub-clause shall not apply to the admission of a cooperative society out of funds provided by the State Government for the purpose."
(5) Thus considering the definitions of the above mentioned two primary units, the assessee does not fit into the definition of the above mentioned two primary units. It is an apex co-operative body lending money to all units throughout the state. Financing to primary agricultural and credit societies is none of the objects of the society. Its members are primary banks within the State o Kerala. Thus as per the above mentioned provisions of law, the assessee is neither a primary agricultural credit society nor a primary co-
operative agricultural and rural development bank. The provisions of sub-section 4 to section 80P are applicable to those two primary units. Assessee claimed a deduction of 4 ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 Rs.70,70,11,107/- u/s. 80P(2)(a)(i). It is not an allowable deduction. Hence it is added back to the total income returned".
5.1 Aggrieved by the denial of the benefit of deduction u/s. 80P(2), the assessee preferred appeals to the first appellate authority. The CIT(A) following the order of the Tribunal in assessee's own case in I.T.A. No.506/Coch/2010 and S.P. No.67/Coch/2010 dated 23.2.2011 for the assessment year 2007-08 decided the issue against the assessee.
5.2 The assessee being aggrieved, is in appeal before us. The Ld. Counsel for the assessee submitted that as per the RTI information received from NABARD, the assessee is not a co-operative bank. The Ld. AR contended that since the assessee is not a co-operative bank, the provisions of section 80P(4) does not have application and therefore, the assessee is entitled to the benefit of deduction u/s. 80((2) of the Act. 5.3 The Ld. DR, on the other hand, submitted that the Tribunal order which has been relied on by the CIT(A) for deciding the issue in favour of the Revenue, has been upheld by the Hon'ble High Court of Kerala vide judgment dated 26/11/2015. in I.T,A. No. 103/2011.
5.4 We have heard the rival contentions and perused the material on record. The Hon'ble High Court of Kerala has categorically held in assessee's own case for the assessment year 2007-08 (supra) that the assessee is not a primary agricultural credit 5 ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 society and it is a co-operative bank. The Hon'ble High Court further held that the assessee is not entitled to deduction u/s. 80P(2) of the Act, in view of introduction of section 80P(4) of the Act with effect from 01/04/2007. The relevant finding of the Hon'ble High Court of Kerala reads as follows:
"......These provisions would show that the appellant falls within the term "co-operative bank"in clause (cci) of section 5 of the BR Act and thereby is a co-operative bank for the purpose of section 80P of the IT Act.
15. Having held as aforesaid, the question for further consideration is as to whether the appellant is also a primary agricultural credit society. We proceed to decide that issue.
16. In terms of Clause (a) of the Explanation to section 80P(4), "primary agricultural credit society" takes the meaning assigned to it in Part V of the BR Act. Clause (cciv) of Section 5 of BR Act defines the term 'primary agricultural credit society'. It reads as follows:-
(cciv) "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 (2) The bye-laws of which do not permit admission of any other co-operative society as 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.
To fall under the aforesaid definition of "primary agricultural credit society", an assessee has to satisfy the two conditions under Sub-Clauses (1) and (2) of that Clause; which are conjunctive, and, not alternative.
17. The condition in Sub-Clause (2) of Clause (cciv) of Section 5 of the BR Act is to the effect that a primary co-operative society should not be one which permits admission of any other co-operative society as member, to be a 'primary agricultural credit society'.
The provisions of the Kerala Co-operative Land Mortgage Banks Act, 1960 and of the 6 ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 CARDB Act show that the appellant Kerala State Co-operative Agricultural and Rural Development Bank Limited may admit a primary bank as its member. 'Primary bank' as defined in Section 2(h) of the CARDB Act means, among other things, a co-operative society. Therefore, the appellant does not satisfy the condition prescribed in Sub- Clause (2) of Clause (cciv) of Section 5 of the BR Act and hence, it is not a co-operative bank which is a primary agricultural credit society." 5.5 In view of the above finding of the Hon'ble High Court of Kerala, we hold that the order of the CIT(A) in denying the benefit of deduction u/s. 80P(2) of the Act is correct and is in accordance with law. It is ordered accordingly. Hence, the grounds relating to disallowance of deduction u/s. 80P(2)(a)(i) of the Act are rejected.
(ii) Whether the authorities below are justified in disallowing the contribution made to unrecognized Superannuation Fund.
6. The CIT(A) had confirmed the disallowance made by the Assessing Officer by observing as under:-
"With regard to the second ground of appeal on Staff retirement benefit, it is seen that the fund is not recognized provident fund or superannuation fund as mentioned in section 36(1)(iv) nor an approved gratuity fund as mentioned in section 36(1)(v) of the Act. By virtue of the provisions of section 40A(9) the claim of deduction for any payment made not in accordance with section 36(1)(iv) or 36(1)(v) of the Act is not an allowable expenditure. The claim of deduction can be allowed only when the same is allowable under the Act. But, the appellant is of the view that the fund has been set up purely as a welfare measure of the employees and therefore is an allowable business expenditure u/s. 37. Since the appellant has not complied with specific provisions of the Act, the claim of deduction made towards contribution to the staff retirement benefit fund cannot be entertained and need be rejected. My predecessor vide order in I.T.A. No. 12/T/R- 2/11-12 passed on 7.3.2013 in the appellant's own case for the A.Y. 2009-10 has also taken the same stand and rejected the appellant's claim for deduction. Meticulously following the stand taken by my predecessor, I hereby confirm the addition of Rs.1,96,60,612/- made by the Assessing Officer. Thus, appeal on this ground is dismissed."7
ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 6.1 Aggrieved by the order of the CIT(A), the assessee has filed the present appeals before us.
6.2 The Ld. Counsel for the assessee stated that the contribution made by the assessee in the unrecognized provident fund or superannuation fund can be disallowed. However, it was submitted that when the employees withdraw the amount from such fund, to the extent of withdrawals, it should be allowed as deduction u/s. 37(1) of the Act.
6.3 The Ld. DR present was duly heard.
6.4 We have heard the rival contentions and perused the material on record. We notice that for the assessment year 2009-10 the assessee has accepted the CIT(A)'s order and no further appeal was preferred to the Tribunal. The assessee's contention that to the extent of withdrawals made by the employees from unrecognized provident fund should be allowed as deduction u/s. 37 of the I.T. Act was never raised before any of the authorities below. Hence, this plea of the assessee is rejected. Therefore, the order of the CIT(A) on this issue is confirmed.
6.5 In the result, the appeals of the assessee are dismissed. 8
ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 ITA No. 236/Coch/2015 & 101/Coch/2015 (by the revenue) 7 For the Assessment Years 2010-11 and 2011-12, the revenue has raised identical grounds, except for variance in figures. The grounds raised for the AY 2010-11 read as follows:
"1. The order of the learned Commissioner of Income tax, Trivandrum is so far the points mentioned below are concerned is opposed to law on the circumstances of the case. as on facts and
2. The learned Commissioner of Income tax (Appeals) ought to have noted that as per amendment to Section 80 P(4) with effect from A Y 01/04/2007, it is stipulated that 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.
3. The learned Commissioner of Income tax (Appeals) ought to have noted that from the activities performed by the assessee and from the geographical area of its operation that the assessee is neither a primary agricultural credit society nor a primary co- operative agricultural and rural development bank. Even while performing its functions as land development bank the assessee is a co-operative bank. Deduction u/s 80(P)(2)(a)(i) is available only for co-operative societies and not for co-operative societies functioning as land development banks. 4 The learned Commissioner of Income tax (Appeals) has erred in allowing the deduction u/s 80 (P) (2) (a) (i) to the extent of Rs.15,03,48,379/- as it is apparent from the reading of section 80 P(4) that once the assessee is hit by the provisions of section, it has to be either a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
5. For these and other grounds that may be advanced at the time of hearing the order of the learned Commissioner of appeals, Trivandrum on the above points a be se aside and that of the Assessing Officer restored."
7.1 The briefly stated the facts in relation to the above ground s are as follows: 9
ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 The assessee is a State Level Agricultural Rural Development Bank registered under the Kerala Cooperative Societies Act. For both the assessment years, the Assessing Officer had denied the benefit of deduction u/s 80P(2) of the Act by holding that in view of introduction of section 80P(4), the assessee society is not entitled to the benefit of section 80P(2) since it is doing the business of banking and it is neither a primary agricultural credit society nor a primary cooperative agricultural and rural development bank.
7.2 Aggrieved by the order of assessment, for both the assessment years 2010-11 and 2011-12, the assessee preferred appeals to the first appellate authority. The CIT(A), following the order of the Tribunal in assessee's own case for the AY 2007-08 in ITA No. 506/Coch/2010 (order dated 23.2.2011) held that the Assessing Officer is justified in denying the benefit of deduction u/s 80P(2) of the Act to the assessee society. However, the CIT(A) held that the assessee should be granted the claim of deduction u/s 80 P(2)(a)(i) to the extend the assessee is acting as a state land development bank and for determining the deduction, the matter was remitted to the Assessing Officer. The relevant finding of the CIT(A),reads as follows:
"4.3 Respectfully following the order of the Hon'ble ITAT Cochin Bench, Cochin, passed vide ITA No.506/Coch/2010 and SP NO.67/Coch/2010 dated 23.2.2011 in the appellant's own case for the AY 2007-08, I hold that the Assessing Officer has justified in denying the benefit of section 80P(2)((a)(i) to the appellant society. However, as ruled by the Hon'ble Tribunal in the above mentioned order, the appellant should necessarily be allowed to claim deduction u/s 80P(2)(a)(i) as State Land Development Bank. Accordingly, the Assessing Officer is hereby directed to work out the deduction to be allowed and in this 10 ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 regard reasonable opportunity must be given to the appellant to establish its claims. In view of the above, appeal on this ground is partly allowed."
7.3 Aggrieved by the order of the CIT(A) in directing the Assessing Officer to grant limited deduction u/s 80P(2)(a)(i) of the Act, the revenue has filed these appeals. The ld DR, apart from relying on the grounds raised, submitted that the Hon'ble Kerala High Court in assessee's own case for the AY 2007-08 had held that it is not a primary cooperative agricultural and rural development bank. Therefore, it was submitted that the directions of the CIT(A) to allow deduction u/s 80P(2) with regard to the activities confined to rural development bank, is erroneous.
7.4 On the other hand, the ld AR submitted that the Tribunal for the AY 2007-08 had held that the activities of the assessee, as a 'rural development bank' is entitled to deduction u/s 80P(2) of the Act. It was submitted that this finding of the Tribunal has not been challenged by the revenue before the Hon'ble High Court and had attained finality. It was contended that the CIT(A), for the relevant year, has only followed the directions given by the Tribunal in assessee's own case for Assessment Year 2007-08, hence, it was prayed that the Tribunal's order should not be interfered with. 7.5 We have heard the rival submissions and perused the material on record. During the course of hearing, on a query from the bench, for the AY 2007-08 subsequent to 11 ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 the remand by the Tribunal, whether the Assessing Officer had granted benefit of deduction u/s 80P(2) with regard to the activities of the assessee as a State Land Development Bank, the ld counsel submitted that he does not have any knowledge about the result of the order giving effect to the ITAT's order for the Assessment year 2007-08.
7.6 The Hon'ble Kerala High Court for the AY 2007-08, while holding that the assessee is a cooperative bank, had also found that the assessee is not a primary cooperative agricultural and rural development bank. The relevant finding of the Hon'ble High Court read as follows:
"8 For the purpose of section 80P(4), the term 'primary cooperative agricultural and rural development bank, is defined in clause (b) in the Explanation thereto. Apart from its principal object activities, an assessee can fall under that Explanation only if it is a society having is area of operation confined to a Taluk. The appellant does not have a case that its area of operation is confined to a Taluk. Therefore, the appellant does not belong to that category." 7.7 When the Tribunal, for the Asst Year 2007-08, had specifically directed that the activities of the assessee as a rural land development bank, is to be granted benefit of deduction u/s 80P(2), the revenue ought to have challenged the above findings of the Tribunal before the Hon'ble High Court. There is no clarify as regards the benefit of deduction granted with regard to the activity of the assessee as a land development for the AY 2007-08. Therefore, in the interest of justice and equity, we are of the opinion that the matter needs fresh consideration before the Assessing Officer and accordingly, 12 ITA Nos.182 & 26/Coch/2015 & 101 & 236/Coch/2015 we remit the same to the file of the Assessing Officer. The Assessing Officer after perusing the details of the order giving effect to the ITAT's order in assessee's own case for the asst. year 2007-08, shall take a decision in accordance with law after affording reasonable opportunity of hearing to the assessee. It is ordered accordingly. 7.8 In the result, the appeals filed by the revenue are allowed for statistical purposes.
8 To sum-up, the appeals filed by the assessee are dismissed and the appeals by the revenue are allowed for statistical purposes.
Order is pronounced on 3rd Nov 2016
Sd/- Sd/-
बी.पी
बी पी.
(बी पी जैन) जोज जोज के.)
(जोज
(B. P. JAIN) (GEORGE GEORGE K.)
लेखा सदःय/ACCOUNTANT MEMBER ,याियक सदःय/JUDICIAL MEMBER
-दनांक/dated: 3rd November, 2016
GJ
13
ITA Nos.182 & 26/Coch/2015
& 101 & 236/Coch/2015
Copy to:
1. M/s. Kerala State Co-op Agricultural & Rural Development Bank Ltd., Trivandrum
2. The Assistant Commissioner of Income-tax, Circle-1(2), Trivandrum.
3. The Commissioner of Income-tax(Appeals), Trivandrum.
4. The Commissioner of Income-tax, Trivandrum.
5. The DR/ITAT, Cochin Bench.
6. Guard File.
By order Assistant Registrar ITAT, COCHIN 14