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Before: Shri Abraham P. George & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 7, Salem dated 31.07.2017 relevant to the assessment year 2014-15. The only effective ground raised in the appeal of the Revenue is that the ld. CIT(A) erred in holding that the assessee is entitled for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 [“Act” in short].
Brief facts of the case are that the assessee is “Primary Agricultural Co-operative Credit Society” registered under “Tamilnadu Co-operative Societies Act”. It is also engaged in the business of trading in PDS commodities. The assessee filed its return admitting NIL income and claimed deduction under section 80P(2)(a)(i) of the Act to the tune of ₹.3,64,73,662/- and 80P(2)(d) of the Act of ₹.30,97,475/- and restricted both the deduction to ₹.3,83,82,362/- from the “income chargeable under the head business and profession”. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was served on the assessee. In response thereto, the assessee filed all details. After considering the details filed by the assessee, the Assessing Officer completed the assessment under section 143(3) of the Act by allowing deduction under section 80P(2(d) and disallowing the claim of deduction under section 80P(2)(a)(i) of the Act.
On appeal, by following the various decisions of the Tribunal on the identical facts and circumstances, the ld. CIT(A) allowed the appeal of the assessee.
Aggrieved, the Revenue is in appeal before the Tribunal and relied on the order of the Assessing Officer. Further, the ld. DR has submitted that the decision of the Hon’ble Supreme Court in the case of The Citizen Co-operative Limited reported in 84 taxmann.com 114 is squarely covered in favour of the assessee and the same should be followed.
On the other hand, the ld. Counsel for the assessee has submitted that against the order of the Tribunal, the appeals filed by the Department in respect of various assessees have been adjudicated against the Revenue by the Hon’ble Madras High Court vide its order in TCA Nos. 484 to 487 and 490 of 2016 dated 02.08.2016, TCA No. 735, 755 of 2014 and 460 of 2015 dated 05.07.2016 and in assessee’s own case for the assessment year 2011-12 in TCA No. 490 of 2016 dated 02.08.2016. Thus, he prayed that the appeal filed by the Revenue should be dismissed.
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. Even though the issue raised in this appeal and facts are similar to that of the decisions of the Hon’ble Jurisdictional High Court decided in various assessee’s case including assessee’s own case for the assessment year 2011-12, since the Department has not accepted the judgement of the Hon’ble High Court and preferred SLP before the Hon’ble Supreme Court, the Assessing Officer made the disallowance on the claim of deduction under section 80P(2)(a)(i) of the Act. Before us, the ld. DR strongly relied on the decision in the case of The Citizen Co- operative Limited v. ACIT (supra), wherein, the Hon’ble Supreme Court decided the appeal against the assessee. We have perused the judgement of the Hon’ble Supreme Court.
6.1 As would be seen from the facts of the case, the assessee is a co- operative society. However, it has been denied the benefit of Section 80P on the ground that it is a co-operative society of the nature covered by sub- section (4) of section 80P of the Act and, therefore, becomes disentitled to get the benefit. In order to ascertain as to whether barring the assessee to claim deduction in view of the section 80P(4) of the Act, the relevant facts as emanating from the judgement are reproduced as under: (i) The assessee was established on May 31, 1997 initially as a Mutually Aided Co-operative Credit Society having been registered, under Section 5 of Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995 with Registration No. AMC/RR/DCO/9714 by Registrar of Mutually Aided Co-operative Societies, Ranga Reddy. As operations of assessee over the years had increased manifold a 5 Co-operative Societies Act, 2002 in terms of certificate dated July 26, 2005 issued by Office of Central Registrar of Co-operative Societies, Krishi Bhawan, New Delhi. (ii) The assessee is being assessed to income tax since its inception. It has been claiming exemption under Section 80P of the Act which was being allowed by the Income Tax Authorities. As per the assessee, in course of its operations, members deposit cash into their accounts with the society and they withdraw the same. It is claimed that earlier, none of Income Tax Authorities had pointed out that acceptance of deposits from its members in cash and withdrawal thereof by them in cash would violate the provisions of sections 269SS and 269T of the Act. sections 269SS and 269T of the Act relate to mode of taking or accepting certain loans and deposits and their repayment respectively. (iii) The assessee as Co-operative Society and assessee under PAN No. AAAAT3952F had filed return of income before Assistant Commissioner of Income Tax, Circle-9(I), Hyderabad for the Assessment Year 2009-10, for the year ending March 31, 2009 on September 30, 2009 declaring NIL income. In the return filed for the Assessment Year 2009-10, year ending with March 31, 2009, the assessee claimed a sum of Rs.4,26,37,081/- as deduction under Section 80P of the Act. Return filed by the assessee was taken up for scrutiny under CASS (Computer Assisted Selection of Cases for Scrutiny) and notice under Section 143(2) of the Act was issued. In response thereto, books of account were produced by the assessee society and information called for was submitted. The Assessing Officer had arrived at Rs.19,57,32,920/- as the net amount of tax payable by the assessee in terms of his order dated December 19, 2011 (iv) On appeal, the CIT(A) rejected the claim for deduction thereby upholding the order of the Assessing Officer. While doing so, the CIT(A) followed the order of the Income Tax Appellate Tribunal (ITAT) in assessee’s own case for the assessment years 2007-08 and 2008- 09. (v) In assessee’s own case for the assessment years 2007-08 & 2008-09, the Tribunal observed that the Society is carrying on the banking business and for all practical purpose it acts like a co-op bank and is governed by the Banking Regulations Act. Therefore, the Society being a co-op bank providing banking facilities to members is not eligible to claim the deduction u/s. 80P(2)(i)(a) after the introduction of sub-section (4) to Section 80P. (vi) On further appeal, the Hon’ble High Court upheld the order of the Tribunal and dismissed the appeal filed by the assessee. (vii) On further appeal, the Hon’ble Supreme Court has observed as under: “23) With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a co-operative bank. However, if it is a primary agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act. 24) Undoubtedly, if one has to go by the aforesaid definition of ‘co-operative bank’, the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P. 25) So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P of the Act is not sub-section (4) thereof. What has been noticed by the Assessing Officer, after discussing in detail the activities of the appellant, is that the activities of the appellant are in violations of the provisions of the MACSA under which it is formed. It is pointed out by the Assessing Officer that the assessee is catering to two distinct categories of people. The first category is that of resident members or ordinary members. There may not be any difficulty as far as this category is concerned. However, the assessee had carved out another category of ‘nominal members’. These are those members who are making deposits with the assessee for the purpose of obtaining loans, etc. and, in fact, they are not members in real sense. Most of the business of the appellant was with this second category of persons who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co- operative Societies Act. Moreover, it is a co-operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act. 26) It is in this background, a specific finding is also rendered that the principle of mutuality is missing in the instant case. Though there is a detailed discussion in this behalf in the order of the Assessing Officer, our purpose would be served by taking note of the following portion of the discussion: “As various courts have observed that the following three conditions must exist before an activity could be brought under the concept of mutuality; that no person can earn from him; that there a profit motivation; and that there is no sharing of profit. It is noticed that the fund invested with bank which are not member of association welfare fund, and the interest has been earned on such investment for example, ING Mutual Fund [as said by the MD vide his statement dated 20.12.2010]. [Though the bank formed the third party vis-a- vis the assessee entitled between contributor and recipient is lost in such case. The other ingredients of mutuality are also found to be missing as discussed in further paragraphs]. In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent of whatsoever for participators as their identity is not established. Hence, the assessee fails to satisfy the test of mutuality at the time of making the payments the number in referred as members may not be the member of the society as such the AOP body by the society is not covered by concept of mutuality at all.” 27) These are the findings of fact which have remained unshaken till the stage of the High Court. Once we keep the aforesaid aspects in mind, the conclusion is obvious, namely, the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such a society cannot claim the benefit of Section 80P of the Act.” 6.2 On carefully going through the above facts and observations of the Hon’ble Court, we find that the above judgement 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 co- operative 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 judgement 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.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on the 28th February, 2018 at Chennai.