KALAPET PRIMARY AGRICULTURAL CO-OPERATIVE BANK LTD. ,PONDICHERRY vs. THE INCOME TAX OFFICER, WARD -4, PUDUCHERRY

The only issue in these five appeals of assessee is as regards to the order of CIT(A) confirming the denial of claim of deduction

627 to 630/Chny/2020 u/s.80P(2)(a)(i) of the Act. The assessee has raised identically worded grounds in all the appeals and hence, we take the facts and grounds from for the assessment year 2009-10. The relevant grounds raised by assessee reads as under:-

2. The CIT(A) erred in confirming the denial of the claim of deduction under sec.80P(2) (a) (i) of the Act to the assessee.

3. The CIT(A) failed to appreciate that the assessee is a Primary Agricultural cooperative credit society, registered under the Pondichery Cooperative Societies Act, 1972 and fully 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.

4. The CIT(A) further failed to appreciate that the activity of the assessee of providing credit facilities is only to its members and also confined to its area of operation, namely, Kalapet Taluk and that the distinction sought to be made by the officer is perverse and subjective and the assessee having satisfied the parameters laid down, the benefit of deduction u/s.80P(2) (a) (i) is to be allowed to the assessee.

5. The CIT(A) further failed to appreciate that the Hon'ble Madras High Court in the recent decisions in the case of M/s.AA-713, Kodumudi Growers Cooperative Bank Ltd. and M/s.Ammapet PACCS (after considering the SC decision), has referred to the earlier Madras High Court decision and held that the distinction sought to be made by revenue between 'A' class and 'B' class members is non-existent and granted the deduction under sec.80P(2) as claimed by the assessee.

6. The CIT(A) failed to appreciate that the decision of the Supreme Court referred is factually different, in as much as, in that case, the activity of providing credit to 'B' class members was not authorised under the parent law and so the apex court held there was violation, thereby denying the claim of the deduction and hence merely following the said decision which does not apply to the facts herein is unjust and untenable in law.

7. The CIT(A) further failed to appreciate that the assessee does not possess the approval of RBI to function as a cooperative bank with core banking operations and is a cooperative society entitled to the statutory deduction.

627 to 630/Chny/2020 8. The CIT(A), in any event, ought to have considered the contentions of the assessee in the proper perspective and thus accepted the claim of deduction u/s.80P(2) (a)(i) of the Act.

627 to 630/Chny/2020 The dispute raised by AO is as regards to class ‘C’ members and noted that the assessee accepts deposits from some persons who are neither class ‘A’ nor class ‘B’ and they have no voting rights. The AO further noted that though assessee is a Primary Co-operative Bank as it fulfills the conditions laid down u/s.56(ccv) of the Banking Regulation Act, hence primary object or primary business of the assessee is of transacting banking business. Accordingly, the AO noted that the assessee was carrying on the operation of banking by accepting deposits from public i.e., class ‘C’ members and non-members apart, which are repayable on demand or withdrawal or otherwise, for the purpose of lending. The matter was referred to JCIT for directions u/s.144A of the Act, who also noted the same. The AO considering the directions of JCIT u/s.144A of the Act and discussing that the assessee as a Co-operative Bank as it is carrying on the business of banking and also is a ‘Primary Co-operative Bank’ as it fulfills the conditions laid down in section 56(ccv) of the Banking Regulation Act. Hence, the AO denied the claim of deduction u/s.80P(2)(a)(i) of the Act, amounting to Rs.33,46,074/-. Aggrieved against appeal effect given by AO and passing of assessment order u/s.154 r.w.s. 254 of the Act, assessee preferred appeal before CIT(A).

627 to 630/Chny/2020 for confirming the action of AO in denying the claim of deduction u/s.80P(2)(a)(i) of the Act to the assessee. Aggrieved, assessee preferred appeal before the Tribunal.

627 to 630/Chny/2020 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).

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-

627 to 630/Chny/2020 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

627 to 630/Chny/2020 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): 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.

627 to 630/Chny/2020 in the case of Coimbatore District Central Co-operative Bank Ltd., vs. ITO, 382 ITR 266, wherein it is held that the amended provision of section 194A of the Act is prospective and not retrospective and further this does not apply to a co-operative society carrying on banking business with the approval of RBI, was not liable to deduct TDS u/s. 194A of the Act on the interest payment made to its members. The ld.DR could not controvert the same.