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Facts
The assessee, a primary agricultural co-operative society, claimed deduction under Section 80P for assessment years 2012-13 and 2013-14. The Assessing Officer disallowed the deduction, holding that 'B' class (nominal) members were not true members and thus violated the principle of mutuality.
Held
The Tribunal held that 'B' class members are also considered 'members' under the Tamil Nadu Co-operative Societies Act, 1983. Therefore, the assessee society is entitled to the deduction under Section 80P.
Key Issues
Whether 'B' class (nominal) members of a co-operative society are considered 'members' for the purpose of Section 80P deduction.
Sections Cited
250, 143(3), 147, 80P, 80P(2)(a)(i), 2(16)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND SHRI S.R. RAGHUNATHA
आदेश /O R D E R PER BENCH:
These two appeals at the instance of the assessee are directed against different orders of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, both dated 08.01.2025 passed under section 250 of the Income Tax Act, 1961 & 595/CHNY/2025 (hereinafter called ‘the Act’). The relevant Assessment Years are 2012-13 & 2013-14.
The issue involved in both these appeals are common and hence, by way of this common order, these appeals are being disposed off. The facts and circumstances are exactly identical in both these appeals.
Brief facts of the case are as follows: The assessee is a primary agricultural co-operative society registered under the Tamil Nadu Co-operative Societies Act, 1983. For the assessment years 2012-13 and 2013-14, the assessee filed its return of income admitting ‘Nil’ income after claiming deduction u/s.80P of the Act. The assessments were completed u/s.143(3) r.w.s. 147 of the Act vide order dated 27.12.2019 & 28.12.2019 for the assessment years 2012-13 & 2013-14 respectively. In the said assessment orders, the AO disallowed the claim of deduction u/s.80P of the Act. The reason for the AO to disallow the claim of deduction u/s.80P(2)(a)(i) of the Act was, the assessee had admitted ‘A’ Class members and ‘B’ Class members (nominal members). According to the AO, the ‘B’ class members namely nominal members are not members in the real sense and thereby violated the principle of mutuality. The AO came to the above conclusion by relying on the judgment of the Hon’ble & 595/CHNY/2025 Supreme Court in the case of Citizen Co-operative Society Ltd., reported in 397 ITR 1.
Aggrieved by the orders of the assessment completed u/s.143(3) r.w.s. 147 of the Act, the assessee filed appeals before the First Appellate Authority (FAA). The FAA dismissed the appeals of the assessee by upholding the orders of the AO.
Aggrieved by the orders of the FAA, the assessee has filed the present appeals before the Tribunal. The Ld.AR submitted that the AO is not justified in rejecting the claim of deduction u/s.80P(2)(a)(i) of the Act by holding that assessee was dealing with nominal members (‘B’ class members). It was submitted as per the TamilNadu Co-operative Societies Act, 1983, Members also include ‘associate / nominal members’. The Ld.AR also relied on the order of the Chennai Bench of the Tribunal in the case of K864 Murali Chennampatti Primary Agricultural Co-op Credit Society in (order dated 03.06.2025) wherein the Tribunal considering the decision of Chennai Bench of the Tribunal in the case of AA533 Umareddiyur Primary Agricultural Cooperative Credit Society Ltd., after following the decision of Hon’ble Apex Court in the case of Mavilayi Service Co-opertive Bank Ltd., 123 Taxmann.com 161 (SC) held that associate members/nominal & 595/CHNY/2025 members (‘B’ class members) are also members as per section 2(16) of the Tamil Nadu Cooperative Societies Act, 1983 and hence, allowed deduction u/s.80(2)(a)(i) of the Act.
The Ld.DR supported the orders of the AO and FAA.
We have heard rival submissions and perused the material on record. The AO had denied the claim of deduction u/s.80P(2)(a)(i) of the Act for the reason that the assessee was dealing with nominal members who are not actual members of the assessee society and hence had violated the principles of mutuality. Therefore, it was concluded by the AO that assessee society was not entitled to deduction u/s.80P(2)(a)(i) of the act. The Chennai Bench of the Tribunal in the case of K864 Murali Chennampatti Primary Agricultural Co-op Credit Society in following the decision of Chennai Bench of the Tribunal in the case of AA533 Umareddiyur Primary Agricultural Cooperative Credit Society Ltd., vs. ITO in after considering the judicial precedents on the subject has held that associate members/nominal members (‘B’ class members) are also members as per section 2(16) of the TamilNadu Cooperative Societies Act, 1983. The relevant finding of the Tribunal read as under:-
& 595/CHNY/2025 8. We have heard rival submissions and perused the material on record. The AO had denied the claim of deduction u/s.80P(2)(a)(i) of the Act for the reason that the assessee was dealing with nominal members who are not actual members of the assessee society and hence had violated the principles of mutuality. Therefore, it was concluded by the AO that assessee society was not entitled to deduction u/s.80P(2)(a)(i) of the act. The Chennai Bench of the Tribunal in the case of AA533 Umareddiyur Primary Agricultural Cooperative Credit Society Ltd., vs. ITO in after considering the judicial precedents on the subject has held that associate members/nominal members (‘B’ class members) are also members as per section 2(16) of the Tamilnadu Cooperative Societies Act, 1983. The Chennai Bench of the Tribunal in the case of AA533 Umareddiyur Primary Agricultural Cooperative Credit Society Ltd., supra after following the decision of Hon’ble Apex Court in the case of The Mavilayi Service Cooperative Bank Ltd., supra, held the said judgmental have equal application to the assessee since Tamilnadu Cooperative Societies Act allows admission of ‘B’ class (associate/nominal) members. The relevant finding of the Tribunal read as follows:-
8. We have heard rival submissions and perused the material on record. The members of assessee co-operative society are admitted as per section 2(16) of the TNCS Act. The TNCS Act allows admission of two class Members A Class (Primary) and B Class (Associate) Members. Section 2(16) of TNCS Act defines member". The same reads as follows:-
; 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; 9.The Hon'ble Supreme Court order in the case of The Mavilayi Service Cooperative Bank Ltd. & Ors. Vs. CIT, Calicut reported in 431 ITR 1, has held as under:- “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-l (1997) 11 SCC 287 referred to section 80P of the IT Act and then held:
& 595/CHNY/2025 "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 65 provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It İs, 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).”
The above Judgement of Hon’ble Apex Court will equally applicable to the assessee, since TNCS Act allows admission of B Class (Associate) Member. The ITAT Chennai in the Case of AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd in allowed the deduction under sec. 80P by accepting submission made by the assessee on the issue of admission of two classes of member. The relevant finding of ITAT reads as follows:-
“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 & 595/CHNY/2025 assessee and direct the AO to grant 80P deduction to the extent of Rs.7,06,759/-.
In the result, the appeal of the assessee is allowed.”
In light of the aforesaid judicial pronouncements, we direct the AO to allow the claim of deduction u/s.80P(2)(a)(i) of the Act for Rs.6,28,728/-. It is ordered accordingly.”
In view of the above judicial precedents, we are of the considered view that there cannot be any classification of ‘A’ Class and ‘B’ Class members in respect of societies registered under Tamil Nadu Co- Operative Societies Act, 1983. Hence, the assessee co-operative society is entitled for the claim of deduction u/s.80P(2)(a)(i) of the Act. Therefore, we direct the AO to allow the deduction claimed by the assessee u/s.80P of the Act in both the assessment years. It is ordered accordingly.
In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open court on 24th June, 2025 at Chennai.