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TMI Blog2024 (1) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... o be a conclusive evidence of it s registration, which is, further, on the basis of declared objects (s.7). The appellant-societies, thus, despite loosing all the characteristics of a PACS in view of their activities subsequent to registration, yet continue to be primary agricultural cooperative societies under the Kerala Act. This is again principally for the reason that taxing statutes, and more so the exemption provisions, are to be strictly read. It would be a different matter, we may add, where the benefit u/s. 80P(1), which in the instant case is u/s. 80P(2)(a)(i), was for agricultural credit. Taxing statutes are to be strictly construed; more so, exemption provisions, with the burden to prove it s claims being on the assessee. This, coupled with the mandate that the statute is to be read in a manner so as to effectuate it s object, rather than defeat it, led us to examine the obtaining facts in light of the law as explained by the Hon ble higher courts. The object of s. 80P(4), as explained by the Apex Court in Mavilayi SCB Ltd. [ 2021 (1) TMI 488 - SUPREME COURT] , is not the financing of agriculture per se, as understood by the Hon ble jurisdictional High Court in Poonj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed in full u/s. 80P(1) r/w s. 80P(2)(a)(i) / 80P(2)(d), on its gross total income, are as under: (a) 27.8% (AY 2017-2018) and 23.6% (AY 2018-2019) of its total advance, based on the balance sheet figures as at the relevant year-end, are for other than agricultural purposes; (b) Loans being extended other than Class A members, i.e., who alone have voting rights; the right to surplus, etc., i.e., the real members, as opposed to Class B, C and D members, who are only nominal members; (c) There is no specific clause in the bye-laws of the assessee-society, which does not permit admission of any other co-operative society as it s member. (d) The paid-up share capital of the assessee-society is in excess of Rs. 1 lac, i.e., the monetary limit for it to be regarded as a primary credit society under the Kerala Act. In addition to the above, the Revenue also claims the assessee/s to have a public character, i.e., is not a co-operative society meant for it s members only, inasmuch as they are accepting deposits from the public, satisfying thus the test of being in the business of banking as defined u/s. 5(b) of the Banking Regulation Act, 1949 (BRA), which reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nism in place for withdrawal from their deposit accounts by the depositors. Now, clearly, acceptance of deposits from members and nonmembers (i.e., other than members), implies acceptance thereof from public at large. Sections 58 to 60 of the Kerala Act read as under, providing thus the legal basis for cl. 56 of the bye-laws: 58. Restriction on borrowings.-A society shall receive deposits and loans only to such extent and under such conditions as may be prescribed or as may be specified in the byelaws. 59. Restrictions on loans.-(1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank: Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society. (2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit. (3) Granting of loans to members or to non-members under sub-section (2) and recovery thereof shall be in the manner as may be specified by the Registrar. 60. Restrictions on other transactions with non-mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitting that running a stock exchange was an object of general public utility and, thus, a charitable object by definition, rejected in the absence of any prohibition for dividend to it s shareholders and specific provision for creating funds for their benefit or for the employees or their relations. The decision by the Tribunal was upheld by the Hon'ble Courts; there being no trust and legal obligation compelling the assessee to utilize it s income only for charitable purposes, so that it was at liberty to distribute its entire profit or income by way of dividend. That is, prior to the amendment in clause (xiv) of Article 103 of it s Articles of Association in December, 1973. Whether any dividend was in fact distributed, was, as explained, not relevant, but the authority to do so, and toward which, apart from the byelaws, reference stood made to SCRA, 1956 and the letters received from the Government. There is further no restriction as to the area of operation for co-operative societies, as the assessees before us, for a society registered prior to the commencement of the amendment Act of 1999. The character of the assessees as public bodies, undertaking banking business, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossibly be for the reason of being registered as a PACS under the Kerala Act, is another matter and, to our mind, irrelevant. That would only make the assessees as co-operative societies undertaking banking business in India, albeit without a licence from the regulatory body and, thus, illegal inasmuch as section 22 bars the same, operating thus outside the administrative control of the RBI. It would not detract from the fact of the assessee/s undertaking banking business or of being entitled to being licensed under BRA inasmuch as it is, by definition, not a PACS there-under. Why, as argued at the instance of the Revenue in Mavilayi SCB Ltd. (supra) (pg. 16 of the Reports), RBI itself had issued a press release cautioning the public from dealing with societies engaged in the business of banking without licence there-from. The consequence of being unlicensed would make its income as from an illegal business, which is as much liable to tax as the income of a legal business. That is, it would not alter the nature or character of the income, which would thus continue to be eligible for the same treatment under the Act as the income of the legal business. In Mohammed Usman v. Registrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose; Again, true, a co-operative bank has been explained by the Hon'ble Courts in The Citizen Co-operative Society Ltd. (supra) and Mavilayi Service Co-op. Bank Ltd. (supra), as a co-operative society engaged in the banking business. The same, yet, does not take the Revenue s case far. Section 80P(4) clearly excludes only a cooperative bank , as defined therein. Taxing statutes are to be strictly construed; more so, the exemption provisions. As such, even though qualifying to be a banking company u/s. 5(c) of the BRA inasmuch as it defines a banking company as a company which transacts the business of banking in India, reference to which must be construed as reference to a co-operative bank in view of the non-obstante provision of section 56 of BRA, yet the same Act clearly defines the term cooperative bank , which definition stands adopted in section 80P. As such, only where the assessee-society is a primary co-operative bank in terms of section 5(ccv), which it is not, would it qualify to be regarded as one and, thus, excluded u/s. 80P(4) from the benefit of section 80P(1). Reference in this context be made again to The Citizens CS Ltd. (supra); Mavilayi SCB Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trar and having its area of operation confined to a Village, Panchayat or a Municipality; Provided that the restriction regarding the area of operation shall not apply to Societies or Banks in existence at the commencement of the Kerala Co-operative Societies (Amendment) Act, 1999 (1 of 2000). Provided further that if the above principal object is not fulfilled, such societies shall lose all characteristics of a Primary Agricultural Credit Society as specified in the Act, Rules and Bye-laws except the existing staff strength. . . . There is no reference therein, as in the case of s. 5(cciv) of BRA, to a restriction in its byelaws for admission of other cooperative societies as it s members. Reference to section 5(cciv) of BRA for the purpose of section 2(19) of the Act is mistaken. This constitutes the second flaw in the Revenue s case, the first being of the assessee, though decidedly in the business of banking, not a co-operative bank in terms of section 80P(4), to be hit thereby. True, we are conscious that a society registered as a PACS stands to loose all it s characteristics, i.e., other than existing staff strength, on failing to fulfill, as in the instant case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly construed; more so, exemption provisions, with the burden to prove it s claims being on the assessee. This, coupled with the mandate that the statute is to be read in a manner so as to effectuate it s object, rather than defeat it, led us to examine the obtaining facts in light of the law as explained by the Hon ble higher courts. The object of s. 80P(4), as explained by the Apex Court in Mavilayi SCB Ltd. (supra), is not the financing of agriculture per se, as understood by the Hon ble jurisdictional High Court in Poonjar SCB Ltd. (supra), but the exclusion of the cooperative banks from the purview of the beneficial provision of s. 80P. The appellants are, despite the extent of their agricultural financing, found to be engaged in the business of banking, albeit unlicensed, and which is one of the two eligible activities u/s. 80P(2)(a)(i). On the basis of their activities and bye-laws, mutually consistent, they are further found to be a cooperative society in terms of s. 2(19) of the Act, operating in pursuance of their bye-laws, consistent with the Kerala Act. And, two, not a cooperative bank in terms of s. 80P(4) of the Act. The assessees are, accordingly, entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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