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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश आदेश /O R D E R आदेश आदेश
PER MAHAVIR SINGH, VP:
This appeal by the Assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi in Appeal No.CIT(A), Coimbatore – 3/11150/2019-20; dated 12.10.2021. The Assessment was framed by the Income Tax Officer, Ward – 1(3), Tirupur u/s.143(3) of the Income Tax Act, 1961 (hereinafter “the Act”)
:: 2 :: I.T.A No.:586/CHNY/2021 vide order dated 28.12.2019 for the Assessment Year 2017 – 2018.
At the outset, it is noticed that the appeal is time bared by limitation by one day and the Assessee has filed a condonation petition stating the reason that the delay in filing the appeal was due to the outbreak of ‘Covid-19’ pandemic.
The Hon’ble Bench took into cognizance the Order of the Hon’ble Supreme Court the “Suo Moto WP 03/2020 dated 20.03.2020 while considering the condonation of delay. It is a fact that ‘Covid-19’ pandemic was prevalent during the period and in term of the directions issued by the Hon’ble Supreme Court in Miscellaneous Application No.21/2022 in Suo Motu Writ Petition No.3 of 2020, we condone the delay of one day and admit the appeal for adjudication on merits.
The first issue in this appeal of the Assessee is as regards to the order of the CIT(A) confirming the action of the Assessing Officer in providing loans to its members, i.e. non-voting members and challenged the same. For this, the Assessee has raised Ground Nos.3 to 6, as under:
“3) The CIT(A) ought to have seen that the Appellant is a Primary Agricultural Cooperative Society registered under the Tamil Nadu Cooperative Societies Act, 1983
:: 3 :: I.T.A No.:586/CHNY/2021 and provides providing agricultural loans to its members (Class A and Class B).
4) The CIT(A) ought to have seen that there is no definition of members under the Income Tax Act, 1961 and all the members have to renew their membership once in three years.
5) The Appellant submitted details pertaining to members and loan advanced in response to Notice u/s.142(1), dated 04.11.2019 and the same is accepted by the Revenue.
6) The CIT(A) ought to have seen that the ratio descending in the case of Citizen Co-operative Society Limited Vs. ACIT [2017] 397 ITR 1 (SC) is that Section 80P of the Act being a benevolent provision to encourage and promote the credit of the co-operative sector in general, must be read liberally and reasonably, and if there is ambiguity in favour of the Assessee.”
At the outset, the learned Counsel for the Assessee stated that the Assessee is a Primary Agricultural Co-operative Credit Society registered under the Tamil Nadu Co-operative Societies Act, 1983 and thus a Co-operative Society. The Assessee is engaged in the activity of lending credit facilities to its agricultural farmer members and supplies seeds, fertilizers and other agricultural implements to them and accepts deposits from the members and borrowings from the EDCC Bank Limited. It was pointed out by the learned Counsel for the Assessee that during the year under consideration, it is seen that there exists two categories of members in the Co-operative Society, i.e. “A Category members” and “Associate Members”
:: 4 :: I.T.A No.:586/CHNY/2021 who are eligible to avail loan from the Society and pay interest on the same to the Society. However, the “A” category members are only eligible to avail the three privileges, namely (i) to contest in the elections of the Society (ii) to vote in such elections of the Society and (iii) towards receipt of the dividend from the Society, whereas the “Associate member” are not eligible for the above three privileges, even though the Associate members do contribute to the income / profit of the Society by way of paying interest on the loans availed but no dividend is sanctioned. The learned Counsel for the Assessee stated that it is apparent that in the case of the Assessee, the participators to the profit are different from the contributors to that profit.
The Assessing Officer as well as the CIT(A) relied on the decision of the Hon’ble Supreme Court in the case of Citizen Co- operative Society Limited, Hyderabad Vs. Assistant Commissioner of Income Tax in Civil Appeal No.10245 of 2017, dated 08.08.2017 / [2017] 397 ITR 1 (SC) and disallowed the claim of deduction of the Assessee u/s.80P(2)(a)(i) of the Act. She stated that now the issue is covered by the decision of the Hon’ble Madras High Court in the case of The Principal Commissioner of :: 5 :: I.T.A No.:586/CHNY/2021 Income Tax Vs. M/s.S-1308, Ammapet Primary Agricultural Co- operative Bank Ltd., in Tax Case Appeal Nos.882 and 891 of 2018, dated 06.12.2018 and by the decision of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, Calicut reported in [2021] 123 Taxmann.com 161, wherein the Hon’ble Supreme Court has held as under:
“45. To sum up, therefore, the ratio dividend of Citizen Co-operative Society Limited (supra), must be given effect to Section 80P of the Income Tax Act, being a benevolent provision enacted by the Parliament to encourage and promote the credit of the co-operative 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 world “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 license in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench Judgement is wholly incorrect in its reading of Citizen Co-operative Society Limited (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.
It must also be mentioned here that unlike the Andhra Act that Citizen Co-operative Society Limited (supra) considered, ‘nominal members’ are ‘members’ as defined under the Kerala Act. This Court in U.P. Co- operative Cane Unions’ Federation Limited vs.
:: 6 :: I.T.A No.:586/CHNY/2021
Commissioner of Income Tax [1997] 11 SCC 287 referred to section 80P of the Income Tax Act and then held:
“8. The expression “members” is not defined in the Act. Since a co-operative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression “members” in section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the Co-operative 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 Co-operative 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 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 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).”
On the other hand, the learned Senior Departmental Representative relied on the Assessment Order as well as the order of the CIT(A).
:: 7 :: I.T.A No.:586/CHNY/2021
After hearing both the sides and on going through the facts and circumstances of the case, the Assessee’s issue is squarely covered with the facts of the decision of the Hon’ble Madras High Court in the case of The Principal Commissioner of Income Tax, Salem Vs. M/s.S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd., (supra) and in the decision of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, Calicut (supra).
Respectfully following the same, we direct the Assessing Officer to allow the claim of deduction u/s.80P(2)(a)(i) of the Act on the interest income amounting to Rs.68,79,255/- from the Associated Members. Thus, this issue in the Assessee’s appeal is allowed.
The next issue in the appeal of the Assessee is as regards to the order of the CIT(A) in disallowing the claim of interest as deduction u/s.80P(2)(a)(i) of the Act in regard to the interest income earned from deposits made with the Co- operative Banks. The learned Counsel for the Assessee drew our attention to Ground Nos.7 to 9, as under:
“7) The Respondent ought to have seen that Section 80P(2)(a)(i) of the Act envisages that a Co-operative
:: 8 :: I.T.A No.:586/CHNY/2021
Society can claim deduction towards income by way of interest or dividends derived by the Co-operative Society from its investments with any other Co-operative Society.
8) The Respondent failed to see that the Assessee had kept surplus funds with other Co-operative Banks and the same is part of its business activity and hence the total income including interest earned from deposits is eligible for deduction.
9) The CIT(A) ought to have appreciated the facts that the Hon’ble Madras High Court in the case of the Commissioner of Income Tax Vs. Veerakeralam Primary Agricultural Co-operative Credit Society [2016] 388 ITR 492 (Mad), after referring to the decision of the Hon’ble Supreme Court in the case of Totagars Co-operative Sales Society Limited held that the benefits of deduction u/s.80P of the Act is excluded for Co-operative Banks but Credit Co-operative Societies are entitled to claim deduction u/s.80P of the Act in respect of the interest income earned from deposits kept in other Co-operative Banks.”
We have heard the rival contentions and had gone through the facts and circumstances of the case. We have noted now that the issue has been thrashed by the decision of the Co-ordinate Bench of the Tribunal in the case of Tamilnadu Co-operative State Agriculture and Rural Development Bank Limited in to 33/Chny/2021, order dated
:: 9 :: I.T.A No.:586/CHNY/2021 29.04.2022, wherein we have already considered the decision of Hon’ble Supreme Court in the case of Mavilayi Service Co- operative Bank Limited vs. CIT, Calicut (supra) held as under:-
“30. In view of the above facts discussed and the case- laws of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, Calicut (supra), we are of the view that the Assessee is a Co-operative Society under the name and style as “Tamil Nadu Co-operative State Agricultural and Rural Development Bank Limited” and it is not engaged in the banking activities. It is also clear that in view of Section 3 read with Section 56 of the Banking Regulation Act, 1949, the Assessee cannot be considered as a Primary Co-operative Bank but it is a Primary Agricultural Credit Society because Co-operative Bank must be engaged in the business of Banking as defined in the Section 5(b) of the Banking Regulation Act, which means accepting, for the purpose of lending or investment of deposits of money from the public. Similarly, u/s.22(1)(b) of the Banking Regulation Act, as applicable to Co-operative Societies, no Co-operative Society shall carry on in banking business in India, unless it is a Co-operative Bank and holds license issued on this behalf by the Reserve Bank of India.
In the present case also, there is no banking activity and it is not registered as a Bank and it does not hold any license issued by the Reserve Bank of India. The Assessee being a Primary Agriculture Credit Society is a Co-operative Society. The primary object of which is to provide financial accommodation to its members, i.e. members as well as Associate members for agriculture
:: 10 :: I.T.A No.:586/CHNY/2021 purposes or for purpose connected with the agricultural activities. Further, we are of the view that the provision of Section 80P(4) of the Act is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in the banking business, i.e. engaged in lending money to members of the public, which have a license in this behalf from the Reserve Bank of India. Clearly, therefore, the Assessee’s case is out of the provisions of Section 80P(4) of the Act. In relation to the Associate members, we are of the view that the provisions of Section 22 read with Rule 32 of the Tamil Nadu Co- operative Societies Act, 1983 and Tamil Nadu Co- operative Societies Rules clearly determine the procedure to admit Associate members and accordingly in the present case, the Assessee’s Co-operative Society has admitted the same. In view of the above finding, we hold that the Assessee is entitled for the claim of deduction u/s.80P(2)(a)(i) of the Act. Thus, we reverse the orders of the lower authorities and allow these three appeals of the Assessee.”
9.1 It is to be seen as to whether the interest earned by the Assessee is from the Co-operative Bank which is governed and registered under the Tamilnadu Co-operative Societies Act, 1983 or as to whether it is governed by the Reserve Bank of India holding banking license under the Banking Regulations Act, 1949. This fact is not coming out of the order of the Assessing Officer or of the Commissioner of Income Tax
:: 11 :: I.T.A No.:586/CHNY/2021 (Appeals). Hence, this issue is remanded back to the file of the Assessing Officer who will verify as to whether the Assessee has earned interest from the Co-operative Banks governed by the Reserve Bank of India holding banking license under the Banking Regulations Act, 1949 or as to whether it is governed by the Tamilnadu Co-operative Societies Act, 1983, the Assessing Officer will verify the facts and will decide accordingly. Thus, the appeal of the Assessee is partly allowed as indicated above.