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TMI Blog2017 (11) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... as the matter is principally of fact, on which no examination has taken place; the Assessing Officer (AO) also resting content on finding, and not incorrectly, that the assessee is a primary co-operative bank, i.e., save for it being a primary agricultural credit society, which stands excepted in the definition of the former and, in any case, is excepted u/s. 80-P(4) and, therefore, is entitled to deduction u/s. 80-P(1). Where so, and which would only be on the basis of a positive finding to that effect, the assesseee, irrespective of its’ name, which is apposite, is eligible for deduction u/s. 80-P. The matter is accordingly restored to the file of the AO, who shall decide per a speaking order TDS u/s 194A - non deduction of tds on the interest allowed on the time deposits maintained with it by it’s depositors, members or nonmembers - Interest other than “Interest on securities” - Held that:- The word ‘principal’, a word of common usage, is well understood both in law and in common parlance. Its use, in conjunction with the words ‘primary object’, as explained in Madras Autorickshaw Driver’s Cooperative Society Ltd. (1982 (10) TMI 28 - MADRAS High Court) is to ascertain the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, of the impugned order. The bone of contention between the assessee and the Revenue is the assessee s eligibility for deduction u/s. 80P of the Act, which in its relevant part 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) - (vii) . 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Act, 1949 ( the BR Act hereinafter), reading as under: 5(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 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 Cooperative Bank subscribing to the share capital of such Cooperative Society out of funds provided by the State Government for the purpose; The definition of a primary agricultural credit society, thus, provides two conditions, finding qua both of which stands, as is required to be, rendered by the ld. CIT(A), again with reference to the assessee s bye-laws, the relevant parts of which stand reproduced in his order. Clause-16 of the bye-laws (Chapter-6) is in respect of membership, and which stands reproduced at para 6.5.5 (pgs. 11-12) of the order. Of the three classes of me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auses (4), (5), (6), (7) (9) of Q.6, i.e., 5 out of 9 objects, relate to non-agricultural purposes. On being confronted with this during hearing, the ld. counsel for the assessee would submit that jewellery loans could be for agricultural purposes/ activities as well, as the nomenclature does not indicate their end-use, i.e., the purpose for which the loan is/is to be utilized; the name only referring to the manner of it s grant, i.e., on pledge of jewellery. True, but then it could equally be for nonagricultural purposes. This is rather all the more probable as being subject to a higher rate of interest, i.e., vis-a-vis agricultural loans, would ordinarily stand to be availed only for non-agricultural purposes. This, in fact, could be so for mortgage loans as well, which again does not indicate the purpose of the loan, being stated only in terms of the security provided therefor . The matter, in any case, is one of fact, on which therefore a finding, one way or the other, would have to be issued, and only on the basis of material, viz. loan and related documents. Further, even so, excluding jewellery loans for the sake of argument, would yet imply that 4 (5, including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinction, i.e., between objects and powers, in the instant case; the two being in complete harmony. Rather, the very fact that the assessee has the power, and which is only in pursuance of its objects, to lend for non agricultural purposes, is itself sufficient, and it is not necessary, to regard it as set up/formed equally for non agricultural purposes, that non agricultural loans to any extent are actually granted, i.e., as long as the assesseesociety has the power to do so, being in fact a defined object and purpose per it s constitution. Even as pointed out by the Bench during hearing, the Hon'ble Apex Court in Delhi Stock Exchange Association Ltd. v. CIT [1997] 225 ITR 235 (SC), clarified likewise. In the facts of that case, the claim of the assessee, a company limited by shares, established to promote and regulate the business in stocks, shares, debentures and other securities, admittedly an object of general public utility, running a stock exchange, for exemption u/s. 11 of the Act was denied by the Tribunal in the absence of any prohibition (in it s Articles of Association) for distribution of dividend to the shareholders and, rather, specific provisions for creating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined (refer object clauses 6(2) and 6(8) of the Main Objects). And for which therefore the matter shall require being restored to the file of the assessing authority. The ld. AR would, upon this, express concern, stating that this would put the assessee to harassment. We are afraid to say that this is, with respect, unfortunate. The burden to prove its return, and the claims preferred thereby, is on the assessee ( CIT v. R. Venkataswamy Naidu [1956] 29 ITR 529 (SC); CIT v. Calcutta Agency Ltd . [1951] 19 ITR 191 (SC)), and which it has singularly failed to. The assessee, apart from raising a plea, which, without substantiation, is of no consequence, does precious little, except furnishing the copy of it s bye-laws, which in fact disproves its case . Why, it does not even specify the (exempt) category (of the cooperative society) it falls under, much less stating the basis there-for, and merely makes a bald claim for deduction. In fact, even here we observe a contradiction . While in the assessment proceedings, the assessee claims to be a primary agricultural credit society, extending credit facilities to its members (refer pg.2 of the assessment order), before the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct issuing a finding contradictory to the assessee s own stated decision. So however, it could also be that its principal business is restricted to providing financial accommodation to it s members for agricultural and related purposes. We say so as the said activity also is a sub set of activity of lending, a business the assessee is definitely engaged in. The matter would therefore require being examined on facts. And the assessee allowed deduction if its principal business found to be so, so that it is a primary agricultural credit society, even as held by the ld. CIT(A), even though in contradiction to the assessee s claim before him. This is as the matter is principally of fact, on which no examination has taken place; the Assessing Officer (AO) also resting content on finding, and not incorrectly, that the assessee is a primary co-operative bank, i.e., save for it being a primary agricultural credit society, which stands excepted in the definition of the former and, in any case, is excepted u/s. 80-P(4) and, therefore, is entitled to deduction u/s. 80-P(1). Where so, and which would only be on the basis of a positive finding to that effect, the assesseee, irrespective of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f banking; We ve, setting aside the impugned order, already restored the matter back to the file of the AO for factual determination as to whether the assessee could, in view of its principal business, where so, be regarded as a primary agricultural credit society . This thus has a direct bearing on the application or otherwise of section 194A and, thus, section 40(a)(ia), to the assessee for the relevant year and, consequently, the maintainability of the assessee s claim of being not liable to deduct tax at source on the said interest. This issue is, therefore, also restored to the file of the AO to decide in light of its findings in the Revenue s appeal in ITA No. 634 of 2016. In this regard, we may also clarify that the higher courts of law have regarded the amendments to section 40(a)(ia) by Finance Act, 2012 w.e.f. 01/7/2012 as retrospective, so that where (and to the extent) the assessee is not deemed to be in default under the first proviso to s. 201, inserted simultaneously, for which the AO shall allow opportunity to the assessee to exhibit, s. 40(a)(ia) shall not apply. 5. In summation The assessee, a co-operative society, claimed deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Societies as they apply to, or in relation to, banking companies subject to the following modifications, namely :- ( a) throughout this Act, unless the context otherwise requires,- ( i) references to a banking company or the company or such company shall be construed as references to a Co-operative Bank, ( ii) references to commencement of this Act shall be construed as references to commencement of the Banking Laws (Application to Cooperative Societies) Act, 1965 (23 of 1965) ; ( b) in section 2, the words and figures the Companies Act, 1956 (1 of 1956), and shall be omitted ; ( c) in section 5,- ( i) after clause (cc), the following clauses shall be inserted, namely:- (cci) Co-operative Bank means a state Co-operative Bank, a central Cooperative Bank and a primary Co-operative Bank; ( ccii) ; ( cciia) co-operative society means a society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-State co-operative societies, or any other Central or State law relating to cooperative societies for the time being in force; ( cciv) (extracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would qualify for deduction u/s. 80-P(1). The law in the matter is amply clear, with the Hon ble jurisdictional High Court in CIT v. Madras Autorickshaw Driver s Cooperative Society Ltd . [1983] 143 ITR 981 (Mad) (affirmed in [2001] 249 ITR 330 (SC)), clarifying that deduction u/s. 80-P is assessee specific, so that the same shall extend to eligible societies only. Taxing statutes, it is well settled, are to be strictly construed (viz. UOI vs. Bombay Elphinstone Spinning Weaving Co. Ltd. Ors . 2001(1) SC 536;); more so an exemption provision, cast as it does an exception from the general rule and natural tenor of the statute ( Orissa State Warehousing Corpn. vs. CIT [1999] 237 ITR 589 (SC); Novapan India Ltd. v. CCE 1994 (73) ELT 769 (SC)), and is accordingly to be interpreted only in terms of the language used by the statue ( Bombay Elphinstone Spinning Weaving Co. Ltd. (supra); IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521 (SC)). Not to do so, i.e., to take cognizance of the same, interpreting it by applying the recognized interpretative processes, amounts to legislating, which the courts of law, cannot, even as clarified by the Apex Court time and again, furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, and not the view that the parties may take of their rights in the matter ( CIT v. C. Parakh Co. (India ) Ltd . [1956] 29 ITR 661 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)). Finally, even where the assessee succeeds, it being only on the basis of its principal business , which, could vary in it s composition from year to year, i.e., in response to the market (supply and demand) forces, the assessee-bank s claim would necessarily require being reviewed on a year to year basis, and decided on the basis of facts found. Two, the deduction u/s. 80P(1) shall be necessarily restricted to the income from the activities, as well as the income/s, specified u/s. 80P(2). The matter, accordingly, is restored to the file of the AO to determine the assessee s claim as made before us, i.e., of its principal business being to provide financial accommodation to its members for agricultural (and allied) activities. The word principal , a word of common usage, is well understood both in law and in common parlance. Its use, in conjunction with the words primary object , as explained in Madras Autorickshaw Driver s Cooperative Society Ltd . (supra), is to ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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