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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2017-18 arises out of the order of Learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [hereinafter “CIT(A)”] dated 23.02.2024 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 24.12.2019. :- 2 -:
The only ground of appeal in this appeal is against the disallowance of claim of deduction u/s. 80P(4) of the Act of Rs.35,32,342/-. The assessee is the primary agricultural co-operative
society registered under Tamil Nadu Co-operative Societies Act. The assessee has filed its return of income on 19.03.2018 admitting Nil
income after claiming deduction u/s. 80P of the Act to the tune of Rs.35,32,342/-. The A.O has disallowed the claim of disallowance
u/s.80P of the Act on the ground that the assessee-society is providing
credit facility to its regular Members as well as associate members and as associate members are not holding members, hence the assessee-
society is not eligible for deduction u/s. 80P(2)(a)(i) of the Act. The A.O has also held that the principle of mutuality is not satisfied and though the assessee-society is registered under Tamil Nadu Co-
operative Societies Act, it is not carried out any activity in connection
with the agricultural activity therefore, as per Section 80P(4) of the Act
is not eligible for deduction u/s. 80P of the Act.
The Ld. A.R has contended that the assessee is a primary
agricultural co-operative credit society and income derived from its regular Members and associate Members. The Ld. A.R further
submitted that the Hon’ble Supreme Court in the case of Mavilayi
Service Co-operative Bank Ltd. vs. CIT, Calicut [2021] 123 :- 3 -: Taxmann.com 161 (SC) and the Hon’ble Madras High Court in the case of S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd.
in TCA Nos.484 and 490 of 2016 dated 02.08.2016 and Hon’ble ITAT
in the case of Tamilnadu Co-operative State Agriculture and Rural
Development Bank Ltd. in ITA Nos.31 to 33/Chny/2021 dated
2022 have clearly held that Members include associated
Members and therefore, the claim of deduction u/s. 80P cannot be denied on the ground that the credit was given to associate members
also. The Ld. CIT(A) has confirmed the disallowance and upheld the assessment order.
The Ld. D.R, on the other hand, has relied upon the orders of the authorities below and has argued that the activity of assessee-society
in the commercial banking and therefore, as per Section 80P(4) of the Act, the deduction u/s. 80P of the Act is not available.
We have heard both the parties and gone through the orders of the authorities below. The A.O has not allowed the claim of deduction
u/s. 80P of the Act on the ground that the society is not only advancing
loans to members, but has also advancing loans to associate
members, which is in contravention of the provisions of Section 80P(2)(a)(i) of the Act. According to the A.O, this provision provides :- 4 -: deduction only to the society which is providing credit facility to its members. The A.O and the Ld. CIT(A) has relied upon the decision of Hon’ble Supreme Court in the case of Citizen Co-operative society vs.
ACIT [2017] 84 Taxman 114 (SC) in support of their contention. The A.O has clearly noted in the assessment order that the assessee is a primary agricultural co-operative credit society registered under Tamil
Nadu Co-operative Societies Act. We note that this issue is squarely
covered by the decision of Hon’ble Madras High Court in the case of S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd., supra,
in which the Hon’ble Madras High Court has held in favour of assessee as under:
“3. This issue has been considered by Income Tax Appellate Tribunal, Chennai 'B' Bench in the cases of SL(SLP) 151, Karkudalpatty Primary Agricultural Co-operative Credit Society Ltd and S 1382 Mullukuruchi Primary Agricultural Co-operative Credit Society Ltd in I.T.A. Nos. 292 & 293/Mds/2014 vide common order dated 17.03.2014 and also the decision of 'C' Bench in the cases of M/s. 1915 Vellalapatty Primary Agricultural Co-operative Credit Society Ltd. in I.T.A. Nos. 385 & 386/Mds/2014, M/s.6648 Attur Mulluvadi Primary Agricultural Co- operative Credit Society Ltd. in I.T.A. No. 387/Mds/2014 vide common order dated 01.05.2014. After perusing the relevant provisions of State Co-operative Societies Act, 1983, governing similar assessees, the Tribunal found that definition of 'members' includes 'associate members', as well. The Tribunal found that such nominal members also enjoy statutory recognition as per the State Co-operative Societies Act. The Tribunal further observed that the objections of the Revenue that 'members' defined in sub-clause (i) of Section 80P(2) should only include voting members, would amount to a classification within classification which is beyond the purview of taxing statute; unless provided specifically by the legislature. :- 5 -:
Therefore, we find that the issue raised in these appeals stands adjudicated by the Tribunal in favour of the assessee. Accordingly, we set aside the orders of the lower authorities on this point and direct the assessing authority to grant the benefit to the assessee available under Section 80P(2)(a)(i).
In the case of ITO Vs. M/s. Veerakeralam Primary Agricultural Co- operative Credit Society in ITA No.197/Mds/2013 dated 11.02.2014, the Tribunal dismissed the appeal of the Revenue. Against the order of the Income Tax Appellate Tribunal, the aforesaid Veerakeralam Primary Agricultural Co-operative Credit Society filed an appeal under Section 260A of the Income Tax Act, 1961, in T.C.A. Nos. 735, 755 of 2014 and 460 of 2015 before this Court. By judgment dated 05.07.2016, the appeals were dismissed, on the following reasoning:
Sub-section (4) of Section 80P of the Income Tax Act, 1961 is extracted below : (4) The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation For the purposes of this sub-section --- (a) co-operative bank and primary agricultural credit societyshall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bankmeans a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.
It is seen that the primary object of the society is to provide financial accommodation to its members to meet all the agricultural requirements and to provide credit facilities to the members, as per the bye-laws and as laid down in Section 5 (cciv) of the Banking Regulation Act, 1949. Further, from the CPT Circular dated 12.03.2008, it is evident that a credit co-operative society is not a co-operative bank, as defined in Part V of the Banking Regulation Act, 1949. The object of a 'Co-operative bank' is to accept deposits from the public, for lending or investment of money. On perusal of the findings of the Appellate Authority as well as the Appellate Tribunal, it is categorically made clear that the assessee society will not come under the object of the principal business of a co- operative bank, which is a banking business. The benefit of Section 80P is excluded for deductions by co-operative banks, whereas the primary agricultural credit societies are entitled for the said deduction. :- 6 -:
....
In the recent decision of the Kerala High Court, in the case of Chirakkal Service Co-operative Bank Ltd., Kannur vs. the Commissioner of Income Tax, reported in (2016) 68 taxmann.com.298 (Kerala), the High Court considered similar substantial questions of law (Issue No.A) raised by the assessee, regarding the entitlement for exemption under sub section (4) of Section 80P. By considering the fact that the assessee is a primary agricultural society, the Kerala High Court has answered the substantial question of law in favour of the assessee and held that the primary agricultural credit societies, registered as such under the KCS Act and classified so under that Act, including the appellants, are entitled to such exemption. Therefore, the aforesaid decisions is applicable to the instant case.
In the light of the aforesaid facts and circumstances of the case, we are of the view, that the substantial question of law framed in the instant appeals, is answered against the Revenue. The exception barred out in Section 80P (4) of the Income Tax Act, 1961, is applicable to the assessee credit society. Hence, the appeals are accordingly dismissed.
In the instant cases, while allowing the appeals filed by the assessee, the Commissioner of Income Tax (Appeal), had relied upon, the following portion of the decision of the Tribunal arrived in ITA No.292/Chny/2014:-
We have heard both parties and gone through the case file. As stated in the preceding paragraphs, the CIT (A) has proceeded to enhance the assessment (supra) only on the ground that the assessee's credit and various other loan, facilities have been allowed to be availed by 'B' class 'nominal' members whose liability is limited, at the best; to the extent of loan repayable instead of 'A' class members who have voting rights and dividend claim, and also that the latter members are jointly and severely liable. In this backdrop, when we peruse the relevant provisions of the State Co-operative Societies Act, 1983, governing the assessee-society, it is evident from the definition of 'member' u/s 2(16) that the same includes an 'associate member' recognition as per the Act. The net result is that once the 'nominal' members also enjoy statuary condition imposed by the legislature u/s 80P (2) (a) (i). We make it clear :- 7 -: that we are dealing with the deduction provision to be interpreted liberally. In our considered opinion, the objections of the revenue that the 'members' defined in sub clause (i) of Section 80P should only include voting members would amount to a classification within classification which is beyond the purview of tax statute; unless provided specifically by the legislature. Moreover, we find that the case law of Hon'ble Punjab and Haryana High Court (Supra) also supports the assessee's case wherein it has been held under the very provision that for the purpose of impugned deduction, it is irrelevant so far as classification of the members in 'A' or 'B' category is concerned. Following the decision of the Punjab and Haryana High Court, the appellate authority as well as the Income Tax Appellate Tribunal, has passed the order impugned.
The appellate authority, namely, the Commissioner of Income Tax (Appeal) and the Income Tax Appellate 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 respondent Societies are eligible for deduction under Section 80P (2) (a) (i) of the Act. The contention of the appellants 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 decision rendered by this Court in TCA 735, 755 of 2014 and 460 of 2015 dated 05.07.2016, squarely covers the present facts of the case, so far as it relates to the ineligibility of the respondent societies, under Section 80P (2)(a)(i). In the light of the above discussion and the decisions, we are of the view that the substantial questions of law raised in the instant appeals are answered against the Revenue.”
The Co-ordinate Bench of this Tribunal in the case of ITO vs.
M/s. The Tiruchengode Agricultural Producers Co-operative Marketing :- 8 -: Society Ltd. dated 13.07.2022 on identical facts has also held as under: “5.2 As the issue is squarely covered and the facts are identical to the above referred case laws, respectfully following the Hon’ble Supreme Court decision in the case of Mavilayi Service Co- operative Bank Limited, supra, Hon’ble Madras High Court decision in the assessee’s own case & S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd., and the Co-ordinate Bench decision in the case of Tamilnadu Co-operative State Agriculture and Rural Development Bank Limited, supra, we dismiss the appeal of Revenue. Consequently, all the three appeals of Revenue are dismissed.”
As the issue is squarely covered in favour of the assessee, the disallowance made by A.O is also deleted. Accordingly, the appeal
filed by the assessee is allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced on 24TH July, 2024. (जगदीश) (एबी टी. वक") (Jagadish) (ABY. T. Varkey) लेखा सद! /Accountant Member "ाियक सद! / Judicial Member चे"ई/Chennai, "दनांक/Dated: 24th July, 2024. EDN/-
आदेश क" "ितिलिप अ"ेिषत/Copy to: 1. अपीलाथ"/Appellant
""थ"/Respondent 3. आयकर आयु"/CIT, Salem 4. िवभागीय "ितिनिध/DR 5. गाड" फाईल/GF