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TMI Blog2013 (11) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide long term loans to its members for specified purposes and the assessee admittedly was doing so - Once the primary activity of providing loans to its members had been undertaken by the assessee society, its entitlement for exemption u/s 80P(2)(a)(i) of the Act merits to be allowed. Section 80P of the Act exempted certain categories of income of co-operative societies - The income arising from the specified activities were 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 was upon the assessee to prove that it was 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 was not to be denied where the society was carrying on certain other activities - The underlying principle of granting exemption to a society was whether it was engaged in any of the activities falling under 80P(2) of the Act. The assessee was allowed exemption u/s 80P (2)(a)(i) of the Act 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 come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee at the outset pointed out that the issue in the case is identical to the issue raised in The Khamano Primary Cooperative Agricultural Development Bank Ltd. Vs. ITO in ITA No.798/Chd/2011 and is covered by the order of the Tribunal vide order dated 30.12.2011. 4. The learned D.R. for the Revenue placed reliance on the order of the Assessing Officer. 5. We have heard the rival contentions and perused the record. The issue raised in the present appeal is in relation to exemption claimed by the assessee under section 80P of the Act. The assessee is a cooperative society and was providing credit facilities to its members and had claimed its income to be eligible for deduction under section 80P(2)(a)(i) of the Act. The Assessing Officer noted that Special Audit under section 142(2A) of the Act was carried out in the case of The Khamano Primary Cooperative Agricultural Development Bank Ltd. And on that basis deduction under section 80P of the Act was disallowed The Assessing Officer further noted that similar discrepancies were found in the year under consideration in the case of the assessee and consequently the deduction under section 80P was disallowed. The CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roved 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts 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- -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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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