2011 (2) TMI 1422 - AT - Income Tax

Claim for deduction u/s 080P(2)(a)(i) - cooperative society - The assessee in the instant case being an apex cooperative society lending money to such primary units functioning within the State of Kerala. The assessee s claim is that it is not a cooperative bank , so that it would not be hit by the provision of section 80P (4). In fact, it is not a bank, inasmuch as it is not in the business of banking. It would be incorrect to be guided by the presence of the word bank in its name, which is not determinative of its character. It is in fact a land mortgage bank, to which the provisions of Banking Regulation Act, by virtue of section 3 thereof, do not apply, even as being a cooperative society providing credit facilities to its members, its income continues to enjoy exemption u/s. 80P(2)(a)(i). Hence, this appeal. HELD THAT - In view of the obtaining legal position, as discerned from the reading of the applicable laws, i.e., the BR Act and the NBARD Act, in conjunction with which the relevant provisions of the Act are to be read, and the judicial precedents brought to our notice, we are of the clear view that the assessee is a cooperative bank and, consequently, hit by the provision of s. 80P(4), so that the deduction provided by the said section would not be available to it from A.Y. 2007-08 onwards and, accordingly, stood rightly denied the impugned claim in its assessment for the year. So, however, we also clarify that to the extent the assessee is (also) or is acting (also) as a state land development bank , which too falls within the purview of the NBARD Act, exigible for financial assistance from NBARD, the assessee s claim merits acceptance, and it would be entitled to deduction u/s. 80P(2)(a)(i) on the income relatable to its lending activities as such a bank. The matter is, therefore, remitted to the file of the AO for a consideration of this aspect of the matter and adjudication as per law on factual verification and determination, per a speaking order, after allowing reasonable opportunity to the assessee to establish its claims, the onus for which is only on it. We decide accordingly.

Summary

Issues Involved:
1. Denial of the assessee's claim for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
2. Contribution to the staff retirement benefit fund.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80P(2)(a)(i):

Background:
The assessee, an apex cooperative society, claimed a deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, amounting to Rs. 3639.87 lakhs for the assessment year 2007-08. The Assessing Officer (AO) denied this deduction citing the amendment to section 80P by the Finance Act, 2006, effective from 1.4.2007, which excluded cooperative banks from this benefit, except for primary agricultural credit societies and primary cooperative agricultural and rural development banks.

Findings:
- The assessee is not a primary agricultural credit society or a primary cooperative agricultural and rural development bank, thus falling outside the exceptions provided in section 80P(4).
- The assessee argued it is not a bank but a land mortgage bank, and thus, the provisions of the Banking Regulation Act, 1949, do not apply to it.
- The CIT(A) and the tribunal examined the structure and activities of the assessee, concluding it functions as a state-level apex body of affiliated primary cooperative agricultural and rural development banks, effectively making it a state cooperative bank.

Legal Interpretation:
- Section 80P(1) allows deductions for cooperative societies engaged in specified activities, including banking or providing credit facilities to its members.
- The term "cooperative bank" is defined in the Banking Regulation Act, 1949, as a state cooperative bank, central cooperative bank, or primary cooperative bank.
- The tribunal found the assessee to be a state cooperative bank as it finances other cooperative societies in the state, making it ineligible for the deduction under section 80P(4).

Conclusion:
The tribunal upheld the denial of the deduction under section 80P(2)(a)(i) but remitted the matter back to the AO to determine if any part of the assessee's activities could be classified as those of a state land development bank, which would still be eligible for the deduction.

2. Contribution to Staff Retirement Benefit Fund:

Background:
The assessee contributed Rs. 221.26 lakhs to the staff retirement benefit fund, which it disclaimed in its return by adding back the amount in the computation of taxable income. The claim was later pressed before the CIT(A) based on a tribunal decision in a similar case, which was rejected due to the absence of a legitimate claim.

Findings:
- The assessee argued that claims not made during the assessment could still be raised before appellate authorities, citing various judicial precedents.
- The Revenue countered that claims must be made through the original or revised return, referencing the Supreme Court decision in Goetze (India) Ltd. vs. CIT.

Legal Interpretation:
- The tribunal noted that appellate authorities have plenary powers to consider new claims if justified by circumstances, such as changes in law or facts arising after the assessment.
- The tribunal distinguished between the powers of the AO and appellate authorities, emphasizing that new claims at the appellate stage must be bona fide and could not have been raised earlier.

Conclusion:
The tribunal found no change in law or circumstances justifying the late claim. The decision in Goetze (India) Ltd. was upheld, and the claim was not admitted. The tribunal emphasized that claims must be made through the prescribed statutory process, and appellate authorities could only admit new claims under exceptional circumstances.

Final Order:
The assessee's appeal was partly allowed for statistical purposes, remitting the matter to the AO to determine the eligibility of any part of the income for deduction under section 80P(2)(a)(i) if it pertains to activities of a state land development bank. The stay petition was dismissed as unfructuous.