THE ITO, TIRUR vs. M/S.RAMAPURAM SERVICE CO-OP BANK LTD, MALAPPURAM

The solitary issue raised in this appeal is whether the assessee is entitled to deduction u/s 80P of the I.T.Act?

Brief facts of the case are as follows: The assessee in this case is registered as co-operative society under the Kerala State Co-operative Societies Act, 1969. The assessment was completed in assessee’s case by denying deduction claimed u/s 80P of the I.T.Act. The Assessing Officer for denying the claim of deduction u/s 80P of the I.T.Act,

Aggrieved by the order of the assessment, the assessee filed appeal before the first appellate authority. The CIT(A) by following the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. (384 ITR 490) allowed the claim of deduction u/s 80P of the I.T.Act.

Aggrieved by the order of the CIT(A), the Department has filed the present appeal before the Tribunal. The grounds raised read as follows:

In view of the recent decision of the Hon'ble Supreme Court in the case of The Citizens Co- Operative Society Limited Vs Assistant Commissioner of Income Tax, Circle- 9(1), Hyderabad dated 8th August 2017, is not the order of the learned Commissioner of Income Tax (Appeals) against law and the facts and circumstances of the case?

Is the above decision of the Id CIT(A) to grant the assessee deduction u/s. 80P just in law when the full bench of the Hon'ble High Court in ITA No : 97 of 2016 &Ors has answered the issue of deduction u/s. 80P in favour of the revenue and while arriving at the decision reliance has been placed by the full bench of High Court on the decision of Apex court in the case of M/s Citizens Co-Operative Society Limited?

Whether, on the facts and circumstances of the case and in law, is the Id CIT(A) justified in granting deduction u/s. 80P to the assessee relying on the decision of division bench of Hon'ble High Court in the case of M/s Chirakkal Service Co-Operative Bank Ltd when the decision of full bench of High Court in ITA

Is the above decision of the CIT(A) relying on the decision of the Hon'ble ITAT in the case of M/s Maruthonkara Service Co-Operative Bank Ltd stating that the decision of Apex court in the case of M/s Citizens Co-Operative Society is not applicable to the facts of the instant case just in law, when the full bench of the High Court has relied on the aforesaid decision while arriving at the conclusion that the AO need not extend the benefits available, merely looking at the class of the society as per the certificate issued by the registrar?

From the table given below, listing the similarities between M/s Citizen Service Co- Operative Society and the assessee, hasn't the CIT(A) erred in relying on the decision ITAT Cochin Bench in the case of M/s Maruthonkara Service Co-Operative Bank Ltd where it has been held that the decision of M/s Citizen Service Co-Operative Society is not applicable to the instant case of the assessee?

The learned CIT(A) ought to have appreciated the fact that there is not even a single point that can be projected as a difference between the M/s Citizen Co- Operative Society and our assessee, MIs Ramapuram Service Co-Operative Bank Ltd. Therefore, the decision of the Apex Court in the case of MIs Citizen Co-Operative Society is squarely applicable in the instant case.

Whether, on the facts and circumstances of the case and in law, is the ld CIT(A) justified in holding that the decision of the Apex Court in the case of MIs Citizen Co-Operative Society is not applicable to the facts of the case when our assessee also lacks mutuality where assessee earns from outside its members vide dividends and interest, permits a category of persons to make profit at the expense of others and possesses a profit motive analogical to M/s Citizens Co-Operative Society Limited?

In the case of the assessee, Class C and D members are just nominal members who can take loans against security and do not have any other rights. Majority of income is received by the society from nominal members through non agricultural gold loan interest and majority of such income is used to give agricultural loans to ordinary members. In short, major part of the income are collected from nominal

It is statutory that 20% of deposits collected is to be maintained with the district co-operative bank as fixed deposit in order to maintain liquidity for a society doing banking activities as per Kerala co- operative societies act. However the investments made by the assessee are much more than the required amount to be deposited in the form of various deposits and shares in Kozhikode district co-operative bank and other co-operative societies. Here, the income is generated from a third party(where the' investments are made) and substantial share of income is generated outside the members. Therefore the mutuality entitled between the contributor and the recipient is lost in such a case. In such a case, as laid down by the Hon'ble Apex Court, the society is not eligible for deduction u/s. 80P.

Is the decision of Id CIT(A) just in law, when the Hon'ble High Court in the case of Antony Pattukulangara in 2012(3)KHC 726 has held that if the society has ceased to be a PACS , it was the duty of the Registrar to order alteration of classification of society as PACS in the light of the definition clause (oa) of section 2(v) of the KCS Act?

The judicial ratios in the cases of CIT v. Bandipur Club ltd. [1997] 226 ITR 97 and Wankaner Jain Social Welfare Society v. CIT [2003] 260 ITR 241(Mad.) wherein it was held that there must be complete identity between the contributors and the participators for the principle of mutuality to hold good.

The Bangalore bench of ITAT in the case of M/s Bapooji Pattin Souhard has remitted the issue back to the assessing officer to examine the issue of 80P deduction in the light of the order of the Apex Court in the case of M/s Citizen Service Co-Operative Society. This may also be kindly taken into account.

For these and other grounds that may be urged at the time of hearing, it is requested that the order of the CIT(A) may be set aside and that of the Assessing Officer restored.

The learned Departmental Representative relied on the grounds raised in the appeal. Further, the learned DR placed reliance on the latest judgment of the Larger Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT [ITA No.97/2016 order dated 19th March, 2019]. None appeared on behalf of the assessee.

We have heard the learned Departmental Representative and perused the material on record. The Larger Bench of the

In Chirakkal [384 ITR 490] the Division Bench expressed a divergent opinion, without noticing the law laid down in Antony Pattukulangara [2012 (3) KHC 726] and Perinthalmanna [363 ITR 268]. Moreover, the law laid down by the Division Bench in Chirakkal [384 ITR 490] is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1], on a claim for deduction under Section 80P of the Income Tax Act, by reason of sub-section (4) thereof, 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 of the IT Act. In view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1] the law laid down by the Division Bench Perinthalmanna [363 ITR 268] has to be affirmed and we do so.

In view of the law laid down by the Apex Court in Ace Multi Axes Systems’ case (supra), since each assessment year is a separate unit, the intention of the legislature is in no manner defeated by not allowing deduction under Section 80P of the IT Act, by reason of sub-section (4) thereof, if the assessee society ceases to be the specified class of societies for which the deduction is provided, even if it was eligible in the initial years.”

In the result, the appeal filed by the Revenue is allowed for statistical purposes.