AA 284 MAILAMBODY PRIMARY AGRI CO-OP CREDIT SOCIETY,ERODE vs. THE INCOME TAX OFFICER, WARD 2(1), ERODE

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ITA 1116/CHNY/2026Status: DisposedITAT Chennai28 April 2026AY 2016-1712 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that 'B' class members are considered members under the Tamil Nadu Co-operative Societies Act, 1983. Therefore, extending credit facilities to them does not violate the principle of mutuality, and the society is eligible for deduction under Section 80P.

What were the facts?

The assessee, a primary agricultural co-operative credit society, claimed deduction under Section 80P. The Assessing Officer denied the deduction for loans extended to 'B' class members, considering them non-members and a violation of the principle of mutuality. The CIT(A) upheld this denial, demanding extensive documentation.

What were the issues?

Whether extending credit facilities to 'B' class members, who are recognized as members under the State Co-operative Societies Act, violates the principle of mutuality and disentitles the society from Section 80P deduction.

Which sections of the Income-tax Act were involved?

Section 80P,Section 143(3),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE KAND MS PADMAVATHY S

Hearing: 22.04.2026Pronounced: 28.04.2026

आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal filed by the assessee is directed against the Addl./JCIT(A), Panaji order, dated 23.12.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17.

- 2 - ITA No.1116/Chny/2026 2. The grounds raised read as follows:- 1. The order dated 23.12.2025 passed by the Addl./JCIT (Appeals), Panaji under section 250 of the Income-tax Act, 1961 is contrary to law, facts and circumstances of the case and is liable to be set aside. 2. The CIT(A) erred in law in confirming denial of deduction under section 80P to the appellant, a Primary Agricultural Co-operative Credit Society, despite the appellant providing credit facilities exclusively to its members and being eligible for deduction under the Act. 3. The CIT(A) erred in misapplying the ratio of the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs. CIT, by treating the said judgment as adverse to the appellant, whereas the judgment in fact affirms that genuine Primary Agricultural Credit Societies are entitled to deduction under section 80P. 4. The CIT(A) erred in imposing an excessive and impossible burden on the appellant by insisting on furnishing member-wise agricultural loan utilisation, crop linkage, landholding details and proof of end-use of loans, which are not statutory requirements under section 80P or the Co- operative Societies Act and are legally unsustainable. 5. The CIT(A) further erred in relying upon the decision in Madras Auto Rickshaw Drivers Association, which is factually and legally distinguishable and inapplicable to a statutorily recognised Primary Agricultural Co-operative Credit Society engaged in providing credit facilities to its members. 6. The appellant craves leave to add to, amend, alter or withdraw any of the above grounds at the time of hearing.

3.

Brief facts of the case are as follows: The assessee is a primary agricultural co-operative credit society registered under the TamilNadu Co-operative Societies Act, 1983. For the assessment year 2016-17, the return of income was filed on 19.03.2018 declaring ‘nil’ income after claiming deduction u/s.80P of the Act totaling to Rs.16,21,520/-. The assessment was completed u/s.143(3) of the Act vide order dated 26.12.2018, by

- 3 - ITA No.1116/Chny/2026 denying the claim of deduction u/s.80P(2)(a)(i) of the Act for a sum of Rs.13,70,700/- (The AO allowed deduction u/s.80P(2)(d) of the Act for Rs.2,00,820/- and 80P(2)(c) of the Act of Rs.50,000/-). The reason for disallowance of claim of deduction u/s.80P(2)(a)(i) of the Act amounting to Rs.13,70,700/- was on the ground that assessee had extended credit facilities to ‘B’ class members (nominal / associate members). According to AO, ‘B’ class members were non-members since they did not have voting rights. According to the AO, since loan has been advanced to the non-members, assessee society had violated the principle of mutuality, hence not entitled for deduction u/s.80P(2)(a)(i) of the Act.

4.

Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). The delay in filing the appeal before the FAA was condoned, however, the FAA dismissed the appeal on merits primarily on the ground that assessee society failed to substantiate its claim with adequate documentary evidence such as member-wise agricultural loan details, crop linkage, landholding particulars, proper utilization of loans for agricultural purposes, etc.

- 4 - ITA No.1116/Chny/2026 5. Aggrieved by the order passed by the FAA, assessee has filed the present appeal before the Tribunal. Apart from reiterating the submissions made before the Income-Tax Authorities, the Ld.AR relied on the Hon’ble Apex Court judgment in the case of The Mavilayi Service Cooperative Bank Ltd. vs. CIT, Calicut reported in 431 ITR 1 and the order of the Chennai Bench of the Tribunal in the case of M/s.AA531 Kesarimangalam Primary Agricultural Co-op Credit Society Ltd., vs. ITO in ITA No.2611/CHNY/2024 (order dated 05.03.2025).

6.

The Ld.DR on the other hand supported the orders of the AO and the FAA.

7.

We have heard rival submissions and perused the material on record. The solitary reason for the AO to deny the benefit of deduction u/s.80P(2)(a)(i) of the Act is that assessee had admitted non-members (‘B’ class members members). Since non- members are admitted to the benefit of credit facilities provided by the assessee, the assessee had violated the principle of mutuality. The AO relied on the judgment of the Hon’ble High Court of Madras in the case of Citizen Co-operative Society Limited vs. ACIT reported in 397 ITR 1 (SC). The Chennai Bench of the Tribunal in the case of M/s. AA531 Kesarimangalam Primary

- 5 - ITA No.1116/Chny/2026 Agricultural Co-op Credit Society Ltd., supra after considering the judicial precedents on the subject had held that ‘B’ class members admitted by the assessee society was permitted by the state statute namely TamilNadu Co-operative Societies Act, 1983. Therefore, since ‘B’ class members are also treated as members under the State Act, it was held by the Chennai Bench of the Tribunal M/s. AA531 Kesarimangalam Primary Agricultural Co-op Credit Society Ltd., supra that there is no violation of principle of mutuality. The relevant finding of the Chennai Bench of the Tribunal reads as follows:- 9. We have heard both the parties and perused the record. We are not repeating the facts for the sake of brevity. We note that the assessee is a primary agricultural co-operative credit society registered under the Tamilnadu Co-operative Societies Act, 1983 (hereinafter the ‘TNCS Act’) and the assessee filed its return of income for the AY 2016-17 on 08.03.2018 admitting ‘nil’ income after claiming deduction u/s.80P(2) of the Act amounting to Rs.15,06,083/- and the AO inter-alia has disallowed the deduction claimed u/s.80P(2) of the Act on the ground that assessee has two classes of members; ‘A’ class as well as ‘B’ class. ‘A’ class members enjoy all rights whereas a ‘B’ class members are admitted for limited purpose of availing loans and do not enjoy any rights. Therefore, according to the AO, assessee was not entitled to claim deduction u/s.80P(2) of the Act. The Ld.AR pointed out that on similar reasons, in another case, the AO denied the claim of a society u/s.80P of the Act, which was finally challenged before the Hon’ble Jurisdictional High Court in the case of PCIT vs. S-1306 Ammapet Primary Agricultural Cooperative Bank Ltd., and the Hon’ble Division Bench by order dated 06.12.2018 in T.C.A. No.882 & 891 of 2018 noted the facts of the case as under:-

“The Assessing Officer was of the view that the assessee has got two categories of members namely shareholding members called as A Class members and associate members called as B Class members.

- 6 - ITA No.1116/Chny/2026 The Assessing Officer was also of the view that the associate members are not entitled to receive dividends or exercise their voting rights and cannot participate in the general administration and meetings of the society and that these privileges are given to A Class members. The Assessing Officer further observed that B Class members are admitted for the limited purpose of availing loans and those members, after discharging their loans, relinquished their membership and did not have any role to play in the society whereas A Class members enjoy all rights in addition to other rights and liabilities in the society as specified in the By-laws. The Assessing Officer concluded that the associate members cannot be regarded as members of the cooperative society. The Assessing Officer allowed the deduction under Section 80P(2)(d) of the Act. The Assessing Officer also concluded that the assessee was not entitled to claim deduction under Section 80P(2)(a)(i) of the Act and that the Department decided to file special leave petitions before the Hon'ble Supreme Court against the said two decisions. The Assessing Officer, further observing that the collection of demand would not be enforced till the outcome of the special leave petitions in the Hon'ble Supreme Court, arrived at tax and initiated penalty proceedings under Sections 271(1)(c) and 271B of the Act.

9.

The assessee carried the matters on appeal to the Commissioner of Income Tax (Appeals) [hereinafter called the CIT(A)], who, by separate orders respectively dated 30.8.2016 and 31.7.2017 respectively for the assessment years 2013-14 and 2014-15, allowed the appeals filed by the assessee. As against the same, the Revenue carried the matters on appeal to the Tribunal. However, the Tribunal, by the impugned orders, dismissed the appeals filed by the Revenue. Therefore, the Revenue is before us. 10. The learned Senior Standing Counsel for the Revenue submits that the decision of the Hon'ble Supreme Court in the case of Citizen Cooperative Society Limited Vs. ACIT [reported in (2017) 84 Taxmann.com 114] is in favour of the Revenue and that the review petition filed against that decision was dismissed by the Hon'ble Supreme Court in the decision reported in (2017) 88 Taxmann.com 279. He further submits that in the case of CIT, Panaji, Goa Vs. Goa Staff Cooperative Housing Finance & Federation Ltd. [reported in (2016) 73 Taxmann.com 400], the Revenue filed a special leave petition and leave has been granted by the Hon'ble Supreme Court by order dated 12.8.2016.

11.

We have elaborately heard the learned Senior Standing Counsel for the Revenue.

- 7 - ITA No.1116/Chny/2026 12. Admittedly, the assessee – society is registered under the provisions of the TNCS Act. It defines the word 'members' under Section 2(16) to mean a person joining in the application for the registration of society and a person admitted to the membership after registration in accordance with the provisions of the Act, the Rules framed thereunder and the By-laws and includes an associate member. The expression 'associate member' is defined under Section 2(6) of the TNCS Act to mean a member, who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in this Act, the Rules and the By-law.

13.

Thus, the definition of the word 'members' includes an associate member and therefore, the Assessing Officer fell into an error in drawing a distinction between A Class members and B Class members. For the purpose of being entitled to a relief under Section 80P of the Act, all that is required is that the cooperative society should answer the description of a society engaged in carrying on the business of providing credit facilities to its member. Once the description is answered, then automatically, the benefit of Section 80P of the Act would stand attracted subject to the provisions contained in SubSection (2) of Section 80P of the Act.

14.

Further, it is to be pointed out that in terms of Sub-Section (4) of Section 80P of the Act, which was inserted vide the Finance Act, 2006 with effect from 01.4.2007 i.e from the assessment year 2007- 08, the 'primary cooperative agricultural and rural development bank' means 'a society having its area of operation confined to a taluk, the principal object of which is to provide for long term credit for agricultural and rural development activities'. What was excluded was the 'cooperative banks' and admittedly, the assessee society is a primary agricultural cooperative credit society and therefore, would be entitled to the benefit of Section 80P of the Act.

15.

Further, for the assessment year 2014-15, the decision in the case of Citizen Cooperative Society Limited was relied upon by the Revenue before the Tribunal, which, in paragraph 6.1 of its order dated 28.2.2018 for the assessment year 2014-15, extracted the operative portion of that judgment. In that case, the Hon'ble Supreme Court found that the society carried on certain activities, which were contrary to the provisions of the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995 and that they accepted deposits from third parties, who were not members in the real sense and were using those deposits to advance gold loans. Therefore, the Hon'ble Supreme Court pointed out that such an activity of the said society was that of

- 8 - ITA No.1116/Chny/2026 a finance business and could not be termed as a cooperative society and that the loans, which were disbursed, were without the approval from the Registrar of Mutually Aided Cooperative Societies, Ranga Reddy District. The Hon'ble Supreme Court found that the said society was not entitled to deduction under Section 80P of the Act.

16.

It is noteworthy to point out that the Hon'ble Supreme Court in the decision in the case of Citizen Cooperative Society Limited also observed that in the light of insertion of Sub-Section (4) to Section 80P of the Act by the Finance Act, 2006, such deduction should not be admissible to a cooperative bank and that if it is a primary agricultural credit society or a primary cooperative agriculture and rural development bank, the deduction would still be provided.

17.

In the preceding paragraphs, we have pointed out the definitions of the expressions 'members' and 'associate member' under the TNCS Act and held that an 'associate member' is also a 'member' in terms of Section 2(16) of the TNCS Act. Furthermore, the Assessing Officer himself found that the associate members are also admitted as members of the society. In such circumstances, the Assessing Officer fell into an error in not granting any relief to the assessee society, which was rightly granted by the CIT (A) as confirmed by the Tribunal. In addition to that, the Assessing Officer has not pointed out that loans have been disbursed to all and sundry in terms of the provisions of the TNCS Act and in terms of Clause (b) to Sub-Section (4) of Section 80P of the Act, the society has an area of operation, operates within the taluk and will provide long term credit for agricultural and rural development activities as well. The CIT (A) rightly granted the relief to the assessee as confirmed by the Tribunal. We do not find any good ground to entertain these appeals.

10.

And our attention was also drawn to the decision of Hon’ble Supreme Court in similar case of the Mavilayi Service Cooperative Bank Ltd.& Ors. Vs. CIT in Civil Appeal Nos. 7343-7350 of 2019, order dated 12.01.2021, held as under:- 45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the cooperative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word “agriculture” into Section 80P(2)(a)(i) when it is not there.

- 9 - ITA No.1116/Chny/2026 Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm’s way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. 46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, ‘nominal members’ are ‘members’ as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions’ Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: “8. The expression “members” is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression “members” in Section 80- P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression “members” in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: “2. (n) ‘Member’ means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to ‘members’ anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;”” Considering the definition of ‘member’ under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).

47.

Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to nonmembers under section 59(2) and (3), which reads as follows: “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

- 10 - ITA No.1116/Chny/2026 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.” Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra).

48.

Resultantly, the impugned Full Bench judgment is set aside. The appeals and all pending applications are disposed of accordingly. These appeals are directed to be placed before appropriate benches of the Kerala High Court for disposal on merits in the light of this judgment.

11.

According to the Ld.AR, when we apply the binding judicial precedent of Hon’ble High Court & Supreme Court (supra), in the Mavilayi Service Cooperative Bank to the facts of the assessee’s case, the assessee society is registered under the TamilNadu Co-operative Societies Act and the definition of ‘Member’ under TNCS Act is as under: - “2(16) “member” means a person joining in the application for the registration of a society and a person admitted to membership after registration in accordance with the provisions of this Act, the rules and the by-laws and includes an associate member;”

12.

And further it is noted that the ‘Restrictions on loans’ is similarly given in section 66 of the TNCS Act, which reads as under:-

“66. Restrictions on loans. (1) A registered society shall not make a loan to any person other than a member: Provided that, with the general or special sanction of the Registrar, a registered society may make loans to another registered society: Provided further that a registered society may make such loans as may be specified in the by-laws to any of its paid employees. (2) Notwithstanding anything contained in sub-section (1) – (a) a registered society may make a loan to a depositor on the security of his deposit; (b) a financing bank may provide overdraft to, or discount bills and cheques of, depositors subject to such limits and conditions as may be prescribed; and

- 11 - ITA No.1116/Chny/2026 (c) a financing bank may make a loan to depositors on the security of gold jewels and silver-ware, subject to such limits and conditions as may be prescribed. (3) The Government may, by general or special order, prohibit or restrict the lending of money on mortgage of immovable property by any registered society or class or category of registered societies.”

13.

Therefore, according to Ld.AR, as decided by Apex Court at para 47 in the case of Mavilayi Service Co-operative Bank (supra), the assessee’s claim would be allowable since similar provisions are governing the present case of assessee i.e. TamilNadu Co-operative Societies Act and hence, giving loans by the assessee/primary agricultural credit society to its ‘B’ class members is perfectly valid because the definition of ‘member’ under the TNCS Act, permits loans to be given to ‘B’ class members Hence, giving loan to ‘B’ class members would not disqualify assessee from claiming deduction u/s.80P(2)(a)(i) of the Act. Therefore, we allow the appeal of the assessee and direct the AO to grant 80P deduction to the extent of Rs.7,06,759/-.”

8.

The FAA had dismissed the appeal of the assessee only for the reason that assessee has not furnished documentary evidence with regard to member-wise loan details, utilization of loans for agricultural purpose, etc. The Hon’ble Apex Court in the case of The Mavilayi Service Cooperative Bank Ltd., supra had categorially held that there is no necessity that loan has to be given by the co-operative society for agricultural purpose and the utilization must be only for the said purpose. When co-operative society is carrying on the business of providing credit facilities to its members, classification of the said credit facilities whether it is for agricultural purpose or not is not the subject matter of deduction

- 12 - ITA No.1116/Chny/2026 u/s.80P(2)(a)(i) of the Act. Therefore, the reasoning of the FAA for denying the claim is also not legally tenable. From the facts and circumstances of the case, in light of the judgment of the Hon’ble Apex court in the case of The Mavilayi Service Cooperative Bank Ltd., supra and the Chennai Bench order of ITAT in the case of M/s.AA531 Kesarimangalam Primary Agricultural Co-op Credit Society Ltd., supra, we direct the AO to grant deduction u/s.80P(2)(a)(i) of the Act of Rs.13,70,700/-. It is ordered accordingly.

9.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 28th April, 2026 at Chennai.

Sd/- Sd/- (प�मावती एस) (जॉज� जॉज� के) (PADMAVATHY S) (GEORGE GEORGE K) लेखा सद�य/ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT चे�ई/Chennai, �दनांक/Dated, the 28th April, 2026 RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त /CIT, Coimbatore 4. �वभागीय ��त�न�ध/DR By Order 5. गाड� फाईल/GF. Digitally signed by REKHA REKHA SENTHIL RAJ SENTHIL RAJ Date: 2026.04.30 10:33:13 +05'30'

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