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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI VIKRAM SINGH YADAV
आदेश / O R D E R
PER GEORGE MATHAN, JUDICIAL MEMBER:
This is an appeal filed by the Revenue against the Order of the Commissioner of Income Tax (Appeals), Salem, in dated 20.11.2017 for the AY 2014-15.
Mr. Sridhar Dora, JCIT, represented on behalf of the Revenue and Mr. S.Sridhar, Adv., represented on behalf of the assessee.
In the Revenue’s appeal, the Revenue has raised the following grounds:
The order of the Commissioner of Income-tax (Appeals) is contrary to law and against the facts and the circumstances of the case.
2. The learned Commissioner of Income-tax (Appeals) has erred in holding that the assessee is entitled for deduction u/s.80P(2)(a)(i).
3. The learned Commissioner of Income-tax (Appeals) ought to have considered that the Hon'ble ITAT, Panaji Bench in Shri Chandraprabhu Urban Co. Operative Credit Society Ltd., (2014) (45 taxman 14) clearly brought out the definition of "Banking Business".
The learned Commissioner of Income-tax (Appeals) ought to have distinguished the fact that assessee society caters to the needs of "resident members" and " Nominal Members;" and that the loans to the "Nominal Members" and receipt of interest thereof, tantamount to the assessee society conducting business dealings.
5. The Commissioner of Income-tax (Appeals) ought to have considered that in the Tamilnadu Co-operative Societies Act, 1983 the term "Members" is dealt in sections 4, 5, 6, 8, 13, 14, 15, 20, 21, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 38, 40, 41, 42, 44, 46, 51, 66, 69, 72, 81, and 85. In all these sections the term "member" means ONLY SHARE HOLDER - MEMBER. Hence the intention of the legislature is that associate member will not be treated as member.
6. The learned Commissioner of Income-tax (Appeals) ought to have considered that the Statutory Auditor for Co-operative Society, in his report, discloses only share Holder Members as Members and did not include the Associate Member in the report.
7. The learned Commissioner of Income-tax (Appeals) erred in allowing the assessee deduction u/s.80P(2)(a)(i) when the aforesaid activity is merely that of a finance business and cannot be treated as a Co-operative society so as to be eligible for the said deduction.
8. The learned Commissioner of Income-tax (Appeals) failed to take cognizance of the latest decision of the Hon'ble Apex Court in the case of The Citizen Co- operative Limited reported in 84 taxmann.com 114 (SC) (2017), wherein the facts are identical and squarely applicable to the fact of the instant case.
The learned Commissioner of Income-tax (Appeals) failed to note that the principles of mutuality was missing between the society and the nominal members who do not have any share in voting etc. and receipt of interest from those members will automatically be in violation of the Mutually Aided Co-operative Societies Act, 1995 (MACS) under which the assessee society is formed.
10. For these grounds and any other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned Commissioner of Income-tax (Appeals) may be cancelled and that the Assessing Officer resorted.
4. It was submitted by the Ld.DR that in the course of the assessment, the AO had denied the assessee the benefit of deduction u/s.80P(2)(a)(i) of the Act on the ground that the basic element of mutuality and equality among the members were missing in so far as there were members and associate members in the assessee’s co-operative society. It was a submission that the society admitted the associate members for the purpose of availing loan and the income earned from such associate members was by way of interest and the profit was shared by only shareholder members and not all the members. Consequently, the AO had held that the assessee has not entitled the benefit of deduction u/s.80P(2)(a)(i) of the Act. It was a submission that on appeal, the Ld.CIT(A) had followed the decision of the Co-ordinate Bench of this Tribunal in the case of M/s.SL(SPL) 151, Karkudalpatty Primary Agricultural Co-operative Society in dated 17.03.2014 and had given relief to the assessee. It was a further submission that the Ld.CIT(A) had followed the decision of the co-ordinate Bench of this Tribunal in the case of M/s.S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd., in ITA No.825/Mds/2015 dated 23.09.2015. It was a submission that the order of the Ld.CIT(A) was liable to be reversed in view of the decision of the Hon’ble Supreme Court in the case of M/s.The Citizen Co-operative Society Ltd., reported in [2017] 84 taxmann.com 114 (SC).
In reply, the Ld.AR submitted that the Co-ordinate Bench of this Tribunal in the case of M/s.S-1308, Ammapet Primary Agricultural Co- operative Bank Ltd., in dated 28.02.2018, had considered the decision of the Hon’ble Supreme Court in the case of M/s.The Citizen Co-operative Society Ltd., and had held that in Para No.6.2 as follows:
“………..6.2 On carefully going through the above facts and observations of the Hon’ble Court, we find that the above judgment of the Hon’ble Supreme Court has no application to the facts of the present case. Because, in the present assessee’s own case for earlier assessment years, the Coordinate Benches of the Tribunal has clearly held that the assessees are not cooperative bank and that their activities in the nature of accepting deposits, advancing loans etc., carried on by the assessees are confined to its members only and that too in a particular geographical area. Therefore, the assessee societies are eligible for deduction under section 80P(2)(a) (i) of the Act. The contention of the Revenue that the members of the assessee societies are not entitled to receive any dividend or having any voting right or no right to participate in the general administration or to attend any meeting etc., because they are admitted as associate members for availing loan only and was also charging a higher rate of interest at the rate of 14%, is not a ground to deny the exemption granted under section 80P(2)(a)(i) of the Act. The Hon’ble Jurisdictional High Court sustained the above findings of the Tribunal. If the Department has not accepted the judgment of the Hon’ble Jurisdictional High Court and preferred SLP before the Hon’ble Supreme Court, the Tribunal cannot take different view, since, the decision of the Hon’ble High Court is binding on the Tribunal. In view of the above facts and circumstances, the ground raised by the Revenue stands dismissed”.
It was a submission that this order was a subject matter of the appeal before the Hon’ble Madras High Court in Tax Case Appeal No.882 & 891 of 2018 vide an order dated 06.12.2018, the Hon’ble Madras High Court had also considered the decision of the Hon’ble Supreme Court in the case of M/s.The Citizen Co-operative Society Ltd., and held as follows:
“…..15. 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.
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”.
It was a submission that the Hon’ble Madras High Court has upheld the findings of the Co-ordinate Bench of this Tribunal in holding that under the Tamil Nadu Co-operative Societies Act, an associate member is also a member in terms of Sec.2(16). It was a submission that the order of the Ld.CIT(A) was liable to be confirmed.
We have considered the rival submissions.
9. As it is noticed that the issue as to whether the associate member is to be considered as a member in terms of the Tamil Nadu Co-operative Societies Act is concerned, the issue is settled by the Hon’ble jurisdictional High Court in the case of M/s.S-1308, Ammapet Primary Agricultural Co- operative Bank Ltd., in Tax Case Appeal Nos.882 & 891 of 2018 dated 06.12.2018, respectfully following the decision of the Hon’ble jurisdictional High Court in the case of M/s.S-1308, Ammapet Primary Agricultural Co- operative Bank Ltd., the findings of the Ld.CIT(A) on this issue stands confirmed.
In the result, the appeal filed by the Revenue stands dismissed.