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Facts
The assessee, a primary agricultural cooperative society, claimed deduction under Section 80P(2)(a)(i) for income from credit facilities. The Assessing Officer denied this deduction, stating that the society catered to both members and non-members, violating the principle of mutuality. The CIT(A) confirmed the AO's order.
Held
The Tribunal held that the definition of 'member' under the Tamil Nadu Cooperative Societies Act includes Associate Members, to whom loans can be provided. Citing Supreme Court judgments, the Tribunal found that the assessee's operations, catering to different classes of members as per the Act, do not disqualify them from the deduction.
Key Issues
Whether the assessee cooperative society is eligible for deduction under Section 80P(2)(a)(i) when it provides credit facilities to both 'A' class and 'B' class (Associate) members.
Sections Cited
80P, 143(2), 143(3), 250, 2(16), 2(n)
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI JAGADISH
आदेश /O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal at the instance of the assessee is directed against the Commissioner of Income Tax (Appeals) / Addl/JCIT(A)-3, Kolkata order dated 30.07.2024 passed u/s.250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17.
There is a delay of 32 days in filing this appeal. The assessee has filed a petition for condonation of delay. On perusal of the reasons stated in the condonation application, we are satisfied that there is sufficient cause for delay in filing this appeal and no latches can be attributed to the assessee. Hence, we condone the delay of 32 days in filing the appeal and proceed to dispose off the appeal on merits.
3. The grounds raised reads as follows:- Ground No.1 The Assessing officer and CIT(A) is contrary to law, facts and circumstances of the case to the extent prejudicial to the interest of the appellant and at any rate is opposed to the principles of equity, natural justice and fair play.
Ground No.2 The Assessing officer and CIT(A) failed to appreciate that when none of the activities of the Appellant are in violation of the Tamilnadu Co- operatives Societies Act 1983 or its Bye-Laws, the benefit under sec. 80P cannot be denied to the Appellant. Sec. 80-P was introduced to encourage the Co- operative movement among the Members.
Ground No.3 The Assessing officer and CIT(A) failed to accept decision of the Honourable High court of Madras in the case PCIT Vs M/s.S-1308 Ammapet Primary Agricultural Cooperative Bank Ltd Tax Case Appeal Nos.882 and 891 of 2018 has been elaborately discussed about the admission of two class Members. Hence the Appellant by admission of two classes of Members are eligible for deduction u/s 80P(2)(a)(i) .
Ground No.4 The Assessing officer and CIT(A) followed the principles decided in the Honourable Supreme court case M/s. Citizen Co-operative Society Ltd vs. ACIT, Which is a multi-state cooperative society. The appellant is Primary Agricultural cooperative credit society and it’s totally different from object of the appellant. Honourable Apex court in the case The Mavilayi Service Cooperative Bank Ltd. & Ors confirmed the eligibility of deduction u/s 80P for Primary Agricultural Co-operative Society
Ground No.5: Prayer i. Your appellant pray on considering the above submission, delete the Addition made by Assessing Officer and allow the deduction under Sec. 80P(2)(a)(i) of the Income Tax Act, 1961. ii. Your appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of appeal at any time before or at the time of hearing.
Brief facts of the case are as follows:- The assessee is a primary agricultural society registered under TamilNadu Co- operative Societies Act, 1983 (hereinafter ‘TNCS Act’). For the assessment year 2016-17, the return of income was filed on 25.03.2018 declaring ‘nil’ income after claiming deduction u/s.80P(2)(a)(i), 80P(2)(d) and 80P(2)(c) of the Act. The assessment was selected for scrutiny under CASS and notice u/s.143(2) of the Act was issued on 10.08.2018. The assessment was completed u/s.143(3) of the Act vide order dated 22.12.2018. In the said assessment order, the claim of deduction u/s.80P(2)(d) and 80P(2)(c) of the Act was allowed. However, the claim of deduction u/s.80P(2)(a)(i) amounting to Rs.6,28,728/- was denied for the reason that assessee was having both members as well as non-members. Thereby violated the principles of mutuality, hence not entitled to deduction u/s.80P(2)(a)(i) of the Act. In this context, the AO relied on the judgment of the Hon’ble Apex Court in the case of Citizen Co-operative Society Ltd., vs. ACIT reported in 397 ITR 1 (SC).
Aggrieved by the assessment order, the assessee filed appeal before the First Appellate Authority. The CIT(A) confirmed the order of the AO. The relevant finding of the CIT(A) reads as follows:- The assessee was given fresh opportunity of being heard vide letter dated 21.06.2024 and 25.07.2024. The submission of the assessee has been considered and the appeal is decided as below:
Ground no. 01 to 03: All the grounds 01 to 03 are related to the same issue all are taken together for adjudication.
The fact of the case is assessee is a credit co-operative society, the assessee filed return of income for the A.Y.2016-17 on 25.03.2018 admitting NIL income after claiming deduction U/s. 80P(2)(a)(i) & (ii), 80P(2)(d) and 80P(2)(C) of the income Tax Act, 1961.
The assessee claimed deduction under section 80P(2)(a)(i) at Rs. 6,28,728/. As per assessee, this deduction was claimed u/s. 80P(2)(a)(i) being income from providing credit facilities to its members.
The A.O. held that the assessee's Authorized Representative stated that in the case of M/s. Citizen Co-operative Society Ltd vs. ACIT, that assessee was a multi-state operator having its operations spread over many states and registered by the Central Registrar of Cooperative Societies, New Delhi. It is also submitted by the AR that in the above case the assessee had been taking deposits from nominal members, while such classification was not available under the Parent Act. In the present case, the assessee's operations are limited to a small geographical area. The assessee's contentions are considered. It has to be noted that the decision of the Honorable Supreme Court does not differentiate co-operative societies between those dealing with two categories of people with the approval of Registrar of co-operative societies and those dealing with two categories of people without the approval of registrar of co-op societies or a society registered under Mutually aided co-operative societies Act or Multi State co- operative societies act or under Tamilnadu Societies Act, but on whether the society is dealing with only members in real sense or not and whether principles of mutuality exits. In view of the discussions as above, there is no doubt that the assessee is catering to two distinct categories of people, i.e. A class members and B class members(nominal members). The B class members(nominal members) are not members in real sense as discussed before. Hence, the submission that the assessee is extending credit facilities only to members was not accepted. In view of the above, it is held that A.O has rightly disallowed the deduction claimed u/s 80P(2)(a) (i) of the I.T. Act.
In the result, ground no. 01 to 03 filed by assessee are dismissed.
Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal.
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;”
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:
"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) () 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 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 the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 19th May, 2025 at Chennai.