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Facts
The assessee, a Primary Agricultural Co-operative Credit Society, claimed deduction under Section 80P(2) for the assessment year 2017-18. The Assessing Officer denied this deduction, and the CIT(A) upheld the denial, leading to the present appeal.
Held
The Tribunal held that Section 80P of the Income Tax Act is a benevolent provision and should be interpreted liberally. Following Supreme Court and High Court decisions, the Tribunal concluded that the assessee, being a primary agricultural cooperative credit society, is entitled to the deduction under Section 80P(2)(a) and 80P(4).
Key Issues
Whether the assessee, a primary agricultural cooperative credit society, is entitled to deduction under Section 80P(2) and 80P(4) of the Income Tax Act, considering the definition of 'member' and the principles laid down by higher courts.
Sections Cited
80P(2), 80P(4), 143(1), 143(3), 2(16), 59(2), 59(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S.R. RAGHUNATHA
सुनवाई क� तारीख/Date of Hearing : 07.04.2025 घोषणा क� तारीख/Date of Pronouncement : 25.04.2025 आदेश /O R D E R PER S.R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeal), Addl/JCIT (A), Agra dated 30.12.2024 for the assessment year 2017-18.
2. The assessee has raised the following grounds of appeal:- 1. The CIT(A) erred in confirming the denial of the claim of deduction of Rs.15,91,774/ - under sec.80P(2) of the Act to the assessee.
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The CIT(A) failed to appreciate that the assessee is a Primary Agricultural cooperative credit society, registered under the Tamilnadu Cooperative Societies Act, 1983 and fu11y satisfies the statutory requirements of providing credit facilities to its members and hence the denial of the claim of deduction is unjust, arbitrary, based on surmises and conjectures.
3. The CIT(A) further failed to appreciate that the case of assessee is stands covered by the Supreme Court decision in the case of M/s.The Mavilayi Service Cooperative bank Ltd. and the assessee having satisfied the parameters laid down, the benefit of deduction u/s.80P(2) is to be allowed to the assessee.
4. The CIT(A) further failed to appreciate that Sec.2(16) of the T.N. Co-operative Societies Act states that a Member includes an Associate Member and hence confirming the denial of deduction on this ground is wholly unjustified. 5. The CIT(A) failed to appreciate that the decision of Citizen Co-op. Society Ltd. is no longer good law, considering the judgement of M/s.The Mavilayi Service Co-op. Bank case and denying the claim of the deduction and hence merely following the decision of Citizen Co- op. Society, which does not apply to the facts herein is unjust and untenable in law,. 6. The CIT(A) further failed to appreciate that considering the provisions of sec.2(16) of the Parent legislation and the Supreme Court decision in Mavilayi Co-op. Bank case, the assessee satisfies the principles of mutuality and hence is entitled to the benefit u/s.80P(2) of the Act. 7. The CIT(A), in any event, ought to have considered the contentions of assessee in the proper perspective and allowed the claim of deduction u/s.80P(2) of the Act and thus accepted the Nil income returned by assessee.
The brief facts of the case are that the assessee is Primary Agricultural Co-Op. Society registered under the Tamil Nadu Co Operative Societies Act 1983. The assessee filed its return of Income for the A.Y. 2017-18 on 07.11.2017 admitting Nil Total
- 3 - ITA. No:148/Chny/2025 Income after claiming deduction u/s.80P(2)(a), (c) and (d) to the tune of Rs.15,97,774/-. The return of income was processed u/s. 143(1) of the Act. Subsequently the case was selected for scrutiny under CASS and statutory notices were issued. The society is providing credit facilities to its regular members (A Class members) and also to Associate members or Nominal members (B class members). Therefore, the AO concluded that the principle of mutuality do not apply, since the assessee is carried on business with other than members i.e. nominal members and the deduction u/s.80P has been denied relying on the decision of Hon’ble Supreme court in the case M/s.Citizen co-op. Society ltd.
Further, the AO also denied the deduction u/s.80P(4) of the Act stating the assessee has advanced loan which includes jewel loans, deposit loans, consumer loans, short term loans, housing loans etc, which is carrying on the exclusive activities in connection with the agricultural activities by passing an order u/s. 143(3) dated 10.12.2019. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A), NFAC.
The assessee reiterated the submissions and prayed for allowing the deductions claimed u/s.80P of the Act. However, the ld.CIT(A) confirmed the order of the AO and dismissed the appeal of - 4 - ITA. No:148/Chny/2025 the assessee by passing an order dated 30.12.2024. Aggrieved by the order of the ld.CIT(A), the assessee preferred an appeal before us.
The ld.AR for the assessee submitted that the issue has been concluded by the decision of Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd., vs. CIT, (2021) 431 ITR 1 (SC), wherein the Hon’ble Supreme Court has considered the decision of Co-ordinate Bench of Supreme Court in the case of Citizen Co-operative Bank Ltd., supra¸and Hon’ble Supreme Court has laid down certain principles which are culled out from the judgment as under:- (I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; (II) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction; (III) That this Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; (IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the - 5 - ITA. No:148/Chny/2025 legislature expressly says so – which is not the case with section 80P(2)(a)(i); (V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that case was not so licenced, the assessee would not fall within the mischief of section 80P(4).
Further, the ld.AR relied on the decision of this tribunal in the case of Kalapet Primary Agricultural Co-op. Credit Society ltd Vs.ITO in dated 08.06.2022, wherein the identical facts to the assessee’s case, has been decided by allowing the deduction claimed u/s.80P in favour of the assessee.
Per contra the ld.DR supported the orders of the lower authorities.
We have heard both the parties perused the material available on record, gone through the orders of the lower authorities along with the judicial precedents relied on. Admittedly the assessee is an agricultural co-op. credit society registered under the Tamil Nadu Co Operative Societies Act 1983 and having both A class and B class members. We note that the assessee has provided credit facilities both to A and B class members. On perusal of this Tribunal decision in the case of Kalapet Primary Agricultural Co-op. Credit Society ltd Vs.ITO (Supra) the tribunal by following the Hon’ble Madras High
- 6 - ITA. No:148/Chny/2025 Court decisions in the case of S1911 AN Udhur PACCS Vs.PCIT in TCA No.170 & 171 of 2020 dated 17.07.2020 after taking note of definition of ‘member’ under Tamilnadu Co-Op.Societies Act, 1983 and also PCIT Vs.S1308 Ammapet Primary Agricultural Co Op.Bank Ltd., Ammapet in TCA No.882 & 891 of 2018 dated 06.12.2018, has allowed the deduction claimed by the assessee by observing and holding as under : “6. Now, before us the ld.counsel for the assessee only argued that the issue has been concluded by the decision of Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd., vs. CIT, (2021) 431 ITR 1 (SC), wherein the Hon’ble Supreme Court has considered the decision of Co-ordinate Bench of Supreme Court in the case of Citizen Co-operative Bank Ltd., supra¸and Hon’ble Supreme Court has laid down certain principles which are culled out from the judgment as under:- (I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; (II) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction; (III) That this Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; (IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so – which is not the case with section 80P(2)(a)(i); (V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that 45 case was not so licenced, the assessee would not fall within the mischief of section 80P(4).
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6.1 The Hon’ble Supreme Court also discussed the ratio descending of the case law of Citizen Co-operative Bank Ltd., and noted that 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. 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). 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. 6.2 The Hon’ble Supreme Court also considered the definition of ‘member’ in the Kerala State Co-operative Bank and loan given to such nominal members and finally held that the same would qualify for the purpose of claiming deduction u/s.80P(2)(a)(i) of the Act. The Hon’ble Supreme Court further held that unlike the facts in Citizen Co-operative Society Ltd., supra, the Kerala State Society Act expressly permits loans to non-members u/s.59(2) & (3). It was noted that giving of loans by a primary agricultural credit society to non-members is not illegal, unlike the facts in Citizen Cooperative Society Ltd., supra. 6.3 In view of the above decision of Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd., we noted that the assessee is primary agricultural co-operative credit society and it transacts business only with members whether ‘A’ class, ‘B’ class or ‘C’ class as noted by the AO. The Pondicherry Co-operative Societies Act, 1972 is a pari-materia to the Co-operative Societies Acts of Tamil Nadu State and Andhra Pradesh. As referred by ld.counsel for the assessee, the decision of Hon’ble Madras High Court in the case of S 1911 AN Udhur PACCS vs. PCIT in T.C.A. Nos.170 & 171 of 2020 dated 17.07.2020, after taking note of definition of ‘member’ under Tamil Nadu Co-operative Societies Act, 1983 held that this issue has been dealt with in the case of PCIT vs. S1308 Ammapet Primary Agricultural Cooperative Bank Ltd., Ammapet in T.C.A. No.882 & 891 of 2018 dated 06.12.2018. The Hon’ble Madras High Court in para 5 has extracted the relevant portion of judgment of S1308 Ammapet Primary Agricultural Cooperative Bank Ltd., as under:- “5. The case on hand is also an identical matter. The only difference being, the assessee lost before the Tribunal and therefore, the assessee is before us by way of these appeals. For better appreciation, we refer to the relevant paragraphs in the case of Ammapet Primary Agricultural Cooperative Bank Ltd., (cited supra):
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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 Sub- Section (2) of Section 80P of the Act.
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.
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 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.
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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.
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.
Accordingly, the above tax case appeals are dismissed. The substantial questions of law framed are answered against the Revenue. 7. We noted that facts are exactly identical to recent decision delivered by Chennai Bench of ITAT in the case of TN Co-operative State Agricultural & Rural Development in to 33/Chny/2021 order dated 29.04.2022 and this issue has been dealt with after considering the recent decision of Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd., supra. Admittedly, the assessee is a primary agricultural credit co-operative society and is governed by Tamil Nadu Co-operative Societies Act and it is carrying out its co-operative business with its members, the claim of deduction u/s.80P(2)(a)(i) of the Act cannot be denied. Hence, we reverse the orders of lower authorities and allow this issue of all five appeals of assessee.”
In the present facts and circumstances of the case and respectfully following the judicial precedents (supra) we are of the considered view that the lower authorities erred in disallowing the deduction claimed by the assessee u/s.80P(2)(a) and 80P(4) of the Act. Therefore, we set aside the order of the ld.CIT(A) and direct the AO to allow the deductions
- 10 - ITA. No:148/Chny/2025 claimed by the assessee u/s.80P(2)(a) and 80P(4) by allowing the grounds of appeal raised by the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 25th April, 2025 at Chennai.