Income Tax Appellate Tribunal - Chandigarh
The Khamano Primary Coop Agriculture ... vs Assessee on 13 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES 'B' CHANDIGARH BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA No. 798/Chd/2011 Assessment Year: 2007-08 The Khamano Primary Cooperative Vs The ITO, Agricultural Development Bank Ltd., Sirhind, Khamano Mandi Gobindgarh PAN No. AABCT3146N (Appellant) (Respondent) Appellant By : Shri M.R.Sharma Respondent By: Shri N.K.Saini Date of hearing : 13.12.2011 Date of Pronouncement : 30.12.2011 ORDER PER SUSHMA CHOWLA, JM
The appeal by the assessee is against the order of CIT(A), Shimla dated 18.7.2011 relating to assessment year 2007-08 against the order passed under section 143(3) of the I.T. Act, 1961.
2. The assessee has raised the following grounds of appeal:-
That the order of the Assessing Officer as upheld by the CIT(A) Patiala is bad in law and is beyond all the cannons of law and justice.
That the order of the Assessing Officer as upheld by the CIT(A) Patiala whereby the action has been initiated for the audit of accounts under the provisions of section 142(2A) is bad in law and the consequently order of the assessment needs to be set aside in the facts and circumstances of the case.
That the order of the Assessing Officer as upheld by the CIT(A), Patiala disallowing the status of Cooperative Society to the appellant on the facts and circumstances of the case is bad in law and needs to be set aside.
That the order of the Assessing Officer as upheld by the CIT(A) Patiala disallowing an expenditure of Rs. 2,88,705/- under section 14A of the Income Tax Act on the investment in the share capital on the Punjab State Coop Agricultural Development Bank Ltd. Chandigarh of which the appellant / assessee is a member is bad in law and need to be set aside more so when the dividend income of a cooperative society do not fall within the purview of section 10(36) of the Income Tax Act as the same is not subject to dividend tax. The income of dividend is deductible under the provision of section 80P(2)(d) of the Income Tax Act to which the provision of section 14A is not applicable.
3. The assessee has further filed additional ground of appeal No.3, which reads as under:-
"That the order of the Assessing Officer as upheld by the CIT(A), Patiala disallowing the status of Cooperative Society to the appellant on the facts and circumstances of the case and thereby denying the deduction claimed u/s 80P(2)(a)(i) of the Income Tax Act is bad in law and needs to be set aside."
4. The Ld. AR for the assessee pointed out that by an error part of the ground No.3 was omitted out in the Original ground No.3 and was raised in the additional ground of appeal as the second part. The perusal of the additional ground of appeal reveals that the same is in continuation of the original ground of appeal raised by the assessee and the same is thus admitted for adjudication.
5. Ground No.1 raised by the assessee is general in nature and hence the same is dismissed.
6. Ground No.2 raised by the assessee was against the Special audit of accounts carried out in the case of the assessee in view of the provisions of section 142(2A) of the Act. The Ld. AR for the assessee fairly pointed out that the issue of Special Audit has become academic after the completion of the assessment in the case and the same does not require adjudication as the assessment order has been passed by the Assessing Officer. In view of the admission of the Ld. AR for the assessee, ground No.2 raised by the assessee is thus dismissed.
7. Ld. AR for the assessee further pointed out that ground No.4 raised by the assessee in connection with the disallowance u/s 14A of the Income Tax Act stands covered by the order of the Tribunal in assessee's own case relating to assessment year 2008-09. The issue also stands covered by the order of the Hon'ble Punjab & Haryana High Court in CIT Vs Kings Exports [318 ITR 100 (P&H)]. The Ld. AR further pointed out that the dividend income earned by the assessee was not exempt under the provisions of section 115-O of the Act and hence there was no merit in invoking the provisions of section 14A of the Act. The Ld. DR placed reliance on the order of CIT(A).
8. We have heard the rival contentions and perused the records. The assessee during the year under consideration had declared dividend income and not claimed any exemption u/s 10(38) of the Act. Dividend income received / accrued to the assessee was declared as its income for the year under consideration and was not claimed as exempt. In view thereof, where the income has not been claimed as exempt, we find no merit in applying the provisions of section 14A of the Act in computing the disallowance of expenses which were attributable to the earning of dividend income. We further find that similar issue arose before the Tribunal in assessee 's own case relating to assessment year 2008-09 in ITA No. 742/Chd/2011 wherein vide order dated 19.9.2011 in turn relying upon the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs Kings Exports (supra), the order of CIT(A) in deleting the said addition was upheld. The issue raised in the present appeal is identical to issue raised before the Tribunal in assessment year 2008-09 and following the same, we direct the Assessing Officer to delete the disallowance made in view of the provisions of section 14A of the Act. The ground No.4 raised by the assessee is thus allowed.
9. The only issue now remaining for adjudication is raised vide additional ground No.3. The assessee is aggrieved by the orders of the authorities below in not granting the status of Cooperative Society to the assessee and further thereon denying deduction claimed u/s 80P(2)(a)(i) of the Income Tax Act.
10. The brief facts of the case are that assessee is a cooperative society registered under the Punjab Cooperative Society Act, 1961. The claim of the assessee is that it is providing credit facilities to its members within the meaning of section 80P(2)(a)(i) of the Act and the income of the assessee is thus eligible for the said deduction 80P(2)(a)(i) of the Act. During the year under consideration, the Assessing Officer made reference for Special Audit u/s 142(2A) of the Income Tax Act and report of the Special Auditor is placed at pages 3 to 21 of the paper book. In its observation and findings, the Special Auditor had commented upon the entries reflected in the balance sheet and profit and loss account and also certain other aspects as incorporated at pages 14 to 16 of the assessment order. Thereafter the Special Auditor has commented upon the deduction claimed by the assessee under section 80P of the Income Tax Act. The Special Auditor refereed to the amendment made to section 80P under which w.e.f. assessment year 2007-08, the said exemption was not available to a cooperative bank other than a primary agricultural credit society or primary cooperative agricultural and Rural Development bank. The conclusion of the special auditor is that the assessee was not a primary agricultural credit society and was also not a cooperative bank. The special auditor further observed "hence it is not to be considered as carrying out the business of banking as per section 80P(2)(a)(i) of the Income Tax Act, 1961". The Special Auditor thereafter concluded by saying as under:-
"However, the assessee may fall within the definition of primary cooperative agricultural and rural development bank which means a society area of operation is confined to a taluka and the principal object of which is to provide for long term credit for agricultural and rural development activities. Since the word taluka means a tehsil of a district, a group of several villages organized for Revenue purposes. It means a congregation of villages. As the assessee area of operation extends to Sub Division of Khamano only, hence it operations are confined to a taluka as per the requirement of this section."
11. The special auditor further computed the non eligibility of deduction u/s 80P(2)(a)(i) of the Act on loans to members for the purpose other than agricultural and rural development activities, to non members who became members as per amended bye laws and the interest received on deposits to SABB, which does not qualify for 100% deduction. The special auditor also tabulated the loanees to whom loans were given under different schemes and it was observed by the Special Auditors that the said loans given to the persons are not members of the assessee's society. The Assessing Officer confronted the said Special Audit report to the assessee and the comments of the assessee to various allegations in the Special Audit Report are reproduced at pages 22 & 23 of the assessment order. In the said reply, the assessee in addition to other submissions also pointed out that there were no loanees, who were non members, to whom the loans were given. The list of members along with Membership numbers was annexed to the said submissions. It was further pointed out by the assessee that it was not a cooperative bank as it was providing only credit facilities to its members and all types of loans were agricultural and rural development loans under different schemes. The assessee further stressed that no interest was received from non members of the society and / nor any type of loans was given to non members. The Assessing Officer rejected the explanation of the assessee on account of following reasons:-
As per bye laws of the society, the society meetings were to be held once in two months whereas the assessee held meetings on 7.4.2006, 7.7.2006, 22.9.2006, 5.10.2006, 9.2.2007 and 30.3.3007. In view of the said, the assessee as per the Assessing Officer was a defaulter and not eligible for exempt ion u/s 80P of the Act.
It was necessary to hold general body meeting once in a year but during the period under consideration, no general meting was held and last general meeting was held on 25.8.2007. Further, the minutes of approval of accounts for the financial year 2006-07 under consideration were not provided either to the auditors or to the Assessing Officer and as such, the assessee did not qualify for exemption u/s 80P of the Act.
There was certain disparity in shares held by A class members and B class members vis a vis bye laws of the assessee society. Because of the said default in not holding of requisite number of shares by A class members and B class members, the assessee was held to be not eligible for exemption u/s 80P of the Act.
As no general body meeting was held, no profits as per the Assessing Officer were distributed among its members and thus making the assessee ineligible for the exemption u/s 80-P of the Act.
Further, as per the objects of the society as mentioned in the bye laws of the society, the assessee had to advance loans but the list provided by the assessee did not mention the same heads as mentioned in the bye laws of the assessee society and thus Assessing Officer held the assessee to be in eligible for exemption u/s 80P of the Act.
Further, the assessee had not followed its bye laws and hence was ineligible for the deduction u/s 80P of the Act.
Further, the assessee had given loans to 15 persons who were not members of the society and hence the assessee was held to be not eligible for deduction u/s 80P of the Act.
12. The Assessing Officer computed the total income of the assessee society at Rs. 56,87,814/- vide order dated 17.5.2010. The said income was computed after making disallowance u/s 14A, 80P and other disallowances.
13. The CIT(A) vide paras 5 to 5.4 considered the submissions of the assessee in respect of issue of deduction u/s 80-P of the Act. The CIT(A) admits that the books of account were produced before the auditor and were also produced before the Assessing Officer but no membership number in loan register in different schemes were mentioned. However, the assessee provided the membership numbers later on but as per the CIT(A) the said books of account were found to be incorrect by the Assessing Officer and liable to be rejected. The CIT(A) has considered the mandate provisions of the Act and held that the assessee does not answer the description of the society engaged in carrying on the business of providing credit facilities to its members and, therefore, is not entitled to the relief. The activities carried on by the assessee were held to be not as per objectives for which it was set up by the assessee. The CIT(A) thus upheld the order of Assessing Officer in rejecting the claim of deduction u/s 80P of the Act.
14. The assessee is in appeal against the order of CIT(A). The Ld. AR for the assessee pointed out that the society was not engaged in the business of banking but the deduction was claimed u/s 80P (2)(a)(i) for providing credit facilities to its members. The Ld. AR further referred to the observation of the Assessing Officer at page 2 under which activities undertaken by the assessee have been accepted by the Assessing Officer. In respect to the denial of deduction u/s 80P of the Act, the Ld. AR pointed out that the Special Auditor had prepared list of all the members of the society which was around 5000 and out of the said list, few members were not members of the society, as per the special auditor, which is as per list enclosed at page 167 of the paper book. The Ld. AR for the assessee vehemently argued that the credit facilities have been given only to the members of the society and in some of the cases, in the loan application form, the membership number was missing. However, before the Assessing Officer, the complete list of members were filed which has been admitted by the Assessing Officer. In respect of the second objection of the Assessing Officer, that the meetings have not been held on a periodic intervals of two months, the contention of the Ld. AR for the assessee was that the details reveals that the requisite number of meetings were held during the year but may be not at the gap of two months. The Ld. AR for the assessee pointed out that 124 similar organizations were operating in the state of Punjab and the status and deduction claimed by the each such organization was allowed by the Assessing Officer in the same circle, Gobindgarh for the assessment year 2009-10. The Ld. AR further made reference to the amendment incorporated in section 80P(4) of the Act w.e.f. 1.4.2007. It is further pointed out by the Ld. AR that even after the amendment, the assessee was entitled to the deduction as it was a cooperative agriculture and Rural Development Bank. Our attention was drawn to the bye laws of the assessee society in this regard. The Ld. AR stressed that the Assessing Officer at page 2 of the assessment order has accepted the status of the assessee and even in the earlier years, the same status of the assessee has been accepted vide order passed u/s 143(3) of the Act. The Ld. AR concluded by stating that the assessee society is a cooperative society is Agricultural Credit Society, acting on behalf of the Govt. of India for providing credit facilities to its members.
15. The Ld. DR for the Revenue relied on the order of Assessing Officer and CIT(A) pointed out that after amendment to Section 80P(4) of the Act, the word used is Agricultural and Rural Development Bank. The Ld. DR stressed that neither the name of the assessee nor the objectives of the assessee Society were changed in view of the said amendment to section 80P(4) of the Act. The Ld. DR for the Revenue further drew our attention to the list of members annexed at page 167 of the paper book and pointed out that in some of the cases, the membership numbers were missing and in case of the person Mr. Onkar Singh, no such membership number was mentioned. In rejoinder, the Ld. AR for the assessee pointed out that as per bye laws placed at paga 4 onwards of the paper book, the Society was engaged in the business of providing credit facilities to its members and the said members could not be any other person but owner/s of cultivated land located in Taluka over which the assessee has jurisdiction. The Ld. AR made reference to the explanation u/s 80P(4) of the Income Tax Act and stressed that it fell within the said definition. In respect of Mr. Onkar Singh, it was explained that the said member was transferred from another society.
16. We have heard the rival contentions and perused the records. The assessee is a society and registered under the Punjab Cooperative Society Act, 1961 vide Registration No. 992 dated 24.8.1995. The copy of the original letter of Assistant Register (Cooperative Society, Punjab) in Punjabi is enclosed at page 2 of the paper book and its English translation is placed at page 1 of the paper book No.1. The registered office of the assessee is at P.O. Khamano, Tehsil Khamano, Distt. Fatehgarh Sahib. The assessee-society is affiliated to Punjab State Cooperative Agricultural Development Bank Ltd. Chandigarh, which is an apex cooperative institution engaged in providing long term credit to farmers of Punjab for development of agriculture and allied activities in the State. The Bye laws of the assessee society as amended upto 31.8.1987 are placed at pages 3 to 27 of the paper book. The perusal of the said bye laws reflects the assessee to be a primary Cooperative Agricultural Development Bank Ltd with headquarter under Post Office Khamano, The Dhamano, District Fatehgarh Sahib. The area of operation of the assessee society was Sub Division, Khamano. The objectives of the said society was to promote the economic interest of its members and to provide facilities of long term loan to its A class members on the security of immovable properties for various purposes in connection with agricultural activities or purchase of land for cultivation, fencing of agricultural land, construction of godown, cattle shed etc. As per clause 5, the objectives of the assessee society are enlisted. Under clause 7 of the bye laws, the eligibility for admission as a members of the primary bank are to be restricted to (1) Central Cooperative Bank, Cooperative farming society, Tubewell Irrigation Cooperative Society and such other cooperative society as may be approved by Register. In case of individual, as per clause 7(iii), criteria for admission as members of the assessee society's primary registration in the area of operation of primary bank, being persons over 18 years of age and of sound mind and owners or cultivators of agricultural land or landless agricultural labour with the area of operation of the primary bank. Further, the bye laws of the assessee society provide the eligibility criteria of the A class and B class members. The bye laws also enlist the procedure to be followed for membership and allotment of shares to the said members of the assessee society. Further clauses of bye laws provide the termination and expulsion classes of members and also the non transfer of shares by the members. The bye laws are placed at pages 3 to 27 of the paper book No.1. The account of the assessee society were audited by the Statutory Auditor for the financial year 2006-07 and were signed by Shri Manmohan Singh, Inspector Audit Cooperative Societies, Govt. of Punjab and the said Audit Report is placed at pages 1 to 81 of the paper book No.2. The assessee during the year under consideration had furnished return of income declaring nil income by claiming deduction u/s 80P of the Income Tax Act. The copy of the audit report furnished u/s 44AB of the Income Tax Act is placed at pages 48 to 59 of the paper book No.1. During the course of appeal, the Assessing Officer had made a reference to Special Audit u/s 142(2A) of the Act. The copy of the report of Special Auditor is placed at pages 1 to 167 of the paper book No.2. The Special Auditor while computing its report u/s 142(2A) had pointed out several defects vis a vis claim of the assessee for deduction u/s 80P of the Act. The said defects are enlisted by us in the paras hereinabove. The assessee had furnished the explanation in respect of said defects, which is incorporated at pages 22 & 23 of the assessment order. The Assessing Officer found discrepancies in the claim of the assessee u/s 80P of the Act and the said deduction claimed by the assessee was rejected. The CIT(A) upheld the order of Assessing Officer on two counts i.e. activities undertaken by the assessee were not as per the true nature and objectives for which the society was set up or carried out and further the assessee society does not answer the description of a society engaged in carrying on the business of providing the credit facilities to its members. The claim of the assessee is to be looked into in line with the provisions of section 80P of the Act.
17. Section 80P of the Income Tax Act reads as under:-
Deduction in respect of income of co-operative societies.
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
(ii) a cottage industry, or [(iii) the marketing of agricultural produce grown by its members, or]
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members, [or] [(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities :
[Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:--
(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; (3) the State Government;] [(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to--
(i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or
(ii) the Government or a local authority; or
(iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business;]
(c) 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,--
(i) where such co-operative society is a consumers' co-operative society, [one hundred] thousand rupees; and
(ii) in any other case, [fifty] thousand rupees.
Explanation.--In this clause, "consumers' co-operative society" means a society for the benefit of the consumers;]
(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;
(e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;
(f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities [***] or any income from house property chargeable under section 22.
Explanation.--For the purposes of this section, an "urban consumers' co-operative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.
[(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.]"
18. Under the provision of section 80-P of the Act, income derived from co-operative activities to large extent are exempt from tax. Section 80 P(2)(a)(i) of the Act provided that in the case of co-operative society engaged in the carrying of the business of banking or providing credit facilities to its members, the whole of the profits derived by such co-operative society from such activities was to be excluded from its total income.
19. Sub-section (4) of section 80P has been inserted by the Finance Act, 2006, with effect from 1 April, 2007. It provides that the provisions of the said section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative and rural development bank. The Finance Act, 2006 further defines the expressions "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank". The Finance Act, 2006 also inserted sub-clause (viia) to section 2(24) so as to provide that the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of 'income'. This amendment was effective from 1st April 2007 and accordingly, applied in relation to the assessment year 2007-2008 and subsequent years.
20. Section 80P of the Act exempts certain categories of income of co-operative societies. The income arising from the said specified activities are exempt from tax and not the whole receipts of the previous year. In order to avail the exemption provided u/s 80P of the Act, onus is upon the assessee to prove that it is engaged in carrying on of one or more of the activities specified in 80P(2) of the Act. The exemption u/s 80P of the Act is not to be denied where the society is carrying on certain other activities. The underlying principle of granting exemption to a society is whether it is engaged in any of the activities falling under 80P(2) of the Act.
21. The assessee was allowed exemption u/s 80P (2)(a)(i) of the Act till up to 2006-07 on income arising from providing credit facilities to its members. However, because of the amendment by Finance Act, 2006, the insertion of section 80P(4) of the Act comes into play and its provisions are applicable to the year under appeal i.e. A.Y, 2007-08. The subsequent amendment to section 2(24) of the Act entails that such income is includible as 'income' where the assessee is engaged in banking activities. However the amended provisions of 80P of the Act come into play in respect of co-op societies, which are primary agricultural credit society or primary co-op agricultural and rural development bank. The explanation under section 80P of the Act, defines the abovesaid societies. The claim of the assessee is that it is primary co-op agricultural and rural development bank i.e. society having an area of operation confined to a taluka and providing long term credit for agricultural and rural development activities. The assessee before us is admittedly not engaged in the banking activities and hence is not hit by the amendment by Finance Act, 2006.
22. In the facts of the case before us, the Special Auditor has also confirmed that the assessee was not a primary agricultural credit society nor was co-operative bank. Further it has been observed by the Special Auditor that "However, the assessee may fall within the definition of primary cooperative agricultural and rural development bank which means a society area of operation is confined to a taluka and the principal object of which is to provide for long term credit for agricultural and rural development activities. Since the word taluka means a tehsil of a district, a group of several villages organized for Revenue purposes. It means a congregation of villages. As the assessee area of operation extends to Sub Division of Khamano only, hence it operations are confined to a taluka as per the requirement of this section."
23. The bye laws of the assessee's society placed at pages 3 to 27 of the Paper Book 1 reflect that the assessee is Primary Agricultural Development Bank and its operations shall extend to Sub Division Khamano, as per clause 3. The objects of the assessee's society are to promote economic interest of its members and to provide loans to its A- class members on surety of immovable property for undermentioned reasons as per clause 5 of bye laws:
Redemption of mortgages on ordinary on agricultural land;
Purchase of land for cultivation;
Construction and repair of ordinary wells & tube-wells.
Installation of pumps and other water lifting appliance;
Construction of bounds;
Fencing of Agricultural lands against wild animals;
Raising of fruit gardens, Reclamation of banjar land, Purchase or repair of tractor, its allied implement and other agricultural implements, such as chaff cutter, cane crusher; winnowing machine, rice husking equipment etc. It would not include implements such as ordinary piough, wooden cart etc. Construction of godowns and cattle shed, Such other purpose relating to improvement of land and methods of cultivation as may be approved by the Board from time to time.
Liquidation of prior debts.
24. Further Clause 7 of the bye laws reads as under:
Nothing in bylaw 7 shall apply to persons who ipso-facto become members under the provisions of section 11-B of the Punjab Cooperative Land Mortgage Banks Act, 1957.
Subject to the provisions of bye law 8, the following shall be eligible for admission as A-class members of the Primary Bank:-
Central Co-operative Banks, Co-operative Farming Societies, Tube-well Irrigation cooperative societies and such other kinds of Cooperative Societies as may be approved by the Registrar, Individuals who:-
Ordinarily reside in the area of operation of Primary Bank;
Are over 18 years of age and of sound mind;
Are owners or cultivators of agricultural land or landless agricultural labours with in the area of operation of the Primary Bank.
25. As per clause 7 of the bye laws, three types of persons could be members of the assessee society. The Special Auditors by on error had not considered the category of individuals, who could be members of the assessee society. The assessee admittedly has 5000 such members and the list of members is attached at pages 60 to 158 of the Paper Book.
26. The Special Auditors have enlisted the list of members to whom loans have been given under various schemes. There were certain members, against whom membership number was not found by the Special Auditor and hence the objections in granting exemption u/s 80P of the Act. The Ld. authorized representative for the assessee has placed on record the membership numbers of all such persons and has pointed out that the said list was also provided to Assessing Officer/CIT(A). In the above said facts & circumstances, where the assessee society is engaged in the business of providing long terms loans to is members, who are based in Khamano district and are owner/s of agricultural land and have been granted loans under different schemes formulated by the society, we hold that the assessee is primary co-op agriculture and rural development bank, entitled to benefit of deduction u/s 80P(2)(a)(i) of the Act. Merely because certain deficiencies were noted in not holding the meetings on periodic intervals or the membership number of members were not available in particular list, etc., does not make the activities under taken by the assessee society to be not in the nature of providing credit facilities to its members. The basic activity carried on the assessee society as enshrined in its bye laws was to provide long term loans to its members for specified purposes and the assessee admittedly is doing so. Once the primary activity of providing loans to its members has been undertaken by the assessee society, its entitlement for exemption u/s 80P(2)(a)(i) of the Act merits to be allowed.
27. We find support from the ratio laid down by the Hon'ble Madras High Court in 188 ITR 671 (Mad), wherein it has been held as under:
"Under section 80P (2)(a)(i) of the Income Tax Act, 1961, in order to claim the benefit of deduction under section 80P(1) of the Act, the co-operative society should be engaged in carrying on the business of banking or providing credit facilities to its members. As the provision is intended to encourage co-operative societies, a liberal construction should be given to the language employed in the provision. Hence, if a co-operative society is engaged in carrying on the business of providing credit facilities to its members, that would suffice to attract the benefit of deduction under section 80P(1) and (2)(a)(i).
"Held, that the various objects of the society were distinct and independent objects. A perusal of clause 2(j) of the bye-laws of the society showed that to obtain a loan from the society, it was not necessary that the member should have constructed the house through the society or under its supervision. The restriction imposed on the user of the credit facilities extended by the assessee-society for house building could not be construed as means intended to secure one of the objects of the society, viz., house building. At best it could be regarded as imposition of a condition for obtaining credit facilities. The activity of the assessee-society in making funds available to its members had to be regarded as one of providing credit facilities to its members. Consequently, the assessee was entitled to the benefit of special deduction under section 80P(2)(a)(i)."
28. The Special Leave Petition by the department in the case was dismissed by the Hon'ble Supreme Court as reported in 209 ITR (St) 87.
30. Similar view, has been held by the Hon'ble Allahabad High Court in the case of CIT Vs. Krishak Sahkari Ganna Samiti Ltd. 258 ITR 594 (All), wherein the society was lending or arranging finance to its members to enable them to purchase good seeds of sugar cane, fertilizers, etc., the assessee was held to be engaged in carrying on business of providing credit facilities to its member. The interest earned from members was held to be exempt under section 80P(2)(a)(i) of the Act.
31. Similarly, in the facts of the case before us, the assessee-society is one of such co-operative societies acting within its area of operation i.e. Sub Division, Khamano. Many such co-operative societies are operating in Punjab under affiliation to Punjab State Co-op. Agricultural Development Bank Ltd. The object of the assessee-society is to give long term loans to its members for its utilization for specific purposes and the assessee is carrying on such activities and had earned interest income on such loans provided to its members under various schemes. The Special Auditors have also admitted to the above said facts that the assessee has generally given credit to the members for agriculture and rural development activities. Once the assessee is found to be carrying on its primary activity and similar activity was being carried on in earlier years and accepted by the department from year to year, we find no merit in rejecting the claim of the assessee vis-à-vis its status under section 80P(2)(a)(i) of the Act. The deficiencies pointed out by the Special Auditors and even the Auditors of Govt. of Punjab which have been complied with by the assessee, does not justify the rejection of exemption under section 80P of the Act. Thus we direct the Assessing Officer to allow deduction under section 80P(2)(a)(i) of the Act. The additional ground No.3 raised by the assessee is allowed.
32. In the result, the appeal of the assessee is partly allowed.
Order Pronounced in the Open Court on this 30th day of December, 2011.
Sd/- Sd/-
(MEHAR SINGH) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 30th December, 2011
Rkk
Copy to:
The Appellant
The Respondent
The CIT
The CIT(A)
The DR
True Copy
By Order
Assistant Registrar, ITAT, Chandigarh
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