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TMI Blog2021 (10) TMI 970X X X X Extracts X X X X X X X X Extracts X X X X ..... matter requires reconsideration by the primary authority, for, the return filed by the assessee is examined in the light of decision of the Apex Court in Mavilayi Service Co-operative Bank Ltd case [ 2021 (1) TMI 488 - SUPREME COURT ] and fresh assessment orders are made. Hence, the orders in Annexures A, B, and C are set aside, case remitted to the Income Tax Officer for examination of books of accounts and verification of the return filed by the assessee for the subject year, strictly within the four corners of the dictum laid down by the Supreme Court in Mavilayi Service Co-operative Bank Ltd case and make a fresh assessment order. The assessee is entitled to file a fresh reply, if so advised, and the assessee is afforded an opportunity in accordance with law. - ITA. No. 43 And 114 OF 2019 - - - Dated:- 16-3-2021 - Honourable Mr.Justice S.V.Bhatti And Honourable Mr. Justice Bechu Kurian Thomas For the Appellant : By Adv. Sri.P.K.R.Menon,Senior Counsel, Goi (Taxes) For the Respondent : Adv. Dr.K.P.Pradeep, Adv. Sri.Sanand Ramakrishnan, Adv. Smt.Neena Arimboor, Adv. Sri.T.T.Biju, Adv. Smt.T.Thasmi, Adv. Smt.Anjana Kannath JUDGMENT S.V. BHATTI, J. Hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Co-operative Societies Act and the Rules made thereunder. On such a claim for deduction under Section 80P of the IT Act, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of Section 80P. 32. In Chirakkal (2016 (2) KLT 535 = 384 ITR 490) the Division Bench held that the appellant societies having been classified as Primary Agricultural Credit Societies by the competent authority under the KCS Act, it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rate of interest on such loans and advances to be at the rate to be fixed by the Registrar of Cooperative Societies under the KCS Act and having its area of operation confined to a Village, Panchayat or a Municipality and as such, they are entitled for the benefit of sub-section (4) of Section 80P of the IT Act to ease themselves out from the coverage of Section 80P and that, the authorities under the IT Act ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited contentions canvassed by the counsel appearing for both the parties. 21. An analysis of this judgment would show that the question of law that was reflected in paragraph 5 of the judgment was answered in favour of the assessee. The following propositions may be culled out from the judgment: (I) That S.80P of the I.T. Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; (II) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of S.80P must be given by way of deduction; (III) That this Court in Kerala State Co-operative Marketing Federation Ltd. And Ors. (supra) has construed S.80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of eligibility, it is unnecessary to probe any further as to whether the co-operative society is classified as X or Y. 29. Thirdly, the gross total income must include income that is referred to in sub-section (2). 30. Fourthly, sub-clause (2)(a)(i) with which we are directly concerned, then speaks of a co-operative society being engaged in carrying on the business of banking or Mavilayi S.C.B. Ltd. v. Commr.of Income Tax (R.F. Nariman, J.) (SC) providing credit facilities to its members. What is important qua sub-clause (2)(a)(i) is the fact that the co-operative society must be engaged in the providing credit facilities to its members. As has been rightly pointed out by the learned Additional Solicitor General, the expression engaged in , as has been held in Commissioner of Income Tax, Madras v. Ponni Sugars and Chemicals Ltd. (2008 (3) KLT OnLine 1133 (SC)= (2008) 9 SCC 337), would necessarily entail an examination of all the facts of the case. This Court in Ponni Sugars and Chemicals Ltd. (supra) held: 20. In order to earn exemption under S.80-P(2) a co-operative society must prove that it had engaged itself in carrying on any of the several businesses referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fact-finding enquiry as to whether the co-operative society concerned is in fact providing credit facilities to its members. Such fact finding enquiry (see S.133(6) of the IT Act) would entail examining all relevant facts of the co-operative society in question to find out whether it is, as a matter of fact, providing credit facilities to its members, whatever be its nomenclature. Once this task is fulfilled by the assessee, by placing reliance on such facts as would show that it is engaged in providing credit facilities to its members, the assessing officer must then scrutinize the same, and arrive at a conclusion as to whether this is, in fact, so. 33. Sixthly, what is important to note is that, as has been held in Kerala State Co-operative Marketing Federation Ltd. and Ors. (supra) the expression providing credit facilities to its members does not necessarily mean agricultural credit alone. S.80P being a beneficial provision must be construed with the object of furthering the co-operative movement generally, and S.80P(2)(a)(i) must be contrasted with S.80P(2)(a)(iii) to (v), which expressly speaks of agriculture. It must also further be contrasted with sub-clause (b), whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... societies, are also entitled to deduct the whole of such income, the object of the provision being furtherance of the co-operative movement as a whole.} xxx xxx xxx xxx xxx xxx 39. The above material would clearly indicate that the limited object of S.80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e.which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from S.3 read with S.56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by S.5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under S.22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society shall carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, however, shall not get into whether the assessee is a Primary Agricultural Credit Society or not, for, admittedly, the Society is registered under Kerala Societies Registration Act. The Appellate Authority and the Tribunal have considered the extent to which Section 80P(2) is operative or applicable to the case on hand and have not examined that portion of income to which exemption is attracted and the other portion of income which could be included in the income of the assessee. The assessee failed to produce the books of account and income earned from non-members, therefore, the assessee is not entitled to exemption under Section 80P(2) of total income. The benefit must strictly be confined now to the four corners of law laid down by the Supreme Court in Mavilayi Service Co-operative Bank Ltd case and permissible deduction is given. 8. Dr K P Pradeep admits that the assessee is under obligation to produce the books of accounts. The Department is entitled to examine the accounts and decide the issue both under Sections 80P(2) and 80P(4). But, in the case on hand, the Department is insisting on presentation of abstract on the numbers' details, loans lent to members/no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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