ELUMALAIYAN POWERLOOM, WEAVERS COOP P & S SOCIETY LIMITED,ERODE vs. ITO, WARD-1(1), ERODE

The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the ld. Assessing Officer in making disallowance of claim of deduction u/s.80P (2)(a) (i) of the Act on account of interest and dividend income earned amounting to Rs.8,90,246/-. For this, assessee has raised various grounds, which are argumentative and factual and need not be reproduced.

I have heard rival contentions and gone through facts and circumstances of the case. The brief facts of the case are that assessee is a Weavers Co-operative Society registered under the Tamil Nadu Co-operative Society Act, 1983. Assessee claimed business income from cottage industry and interest and dividend income from Co-operative bank. The interest earned on FDR’s is Rs.2,22,328/- and dividend received from Erode District Central Co-operative Bank of Rs.3,59,918/- for financial year 2017-2018 and Rs.3,08,000/- for financial year 2018-2019. The ld. Assessing Officer while framing assessment u/s. 143(3) of the Act disallowed the claim of deduction being interest and dividend income earned from Erode District Central Co-operative Bank amounting to - 3 - Rs.8,90,246/-. The ld. Assessing Officer recorded his findings as under:- “From above discussion, it is clear that the interest & dividend income of Rs.8,90,246/- earned from investment of surplus funds and other activities, Is not related to the business income of the assessee as its objective is to provide credit facilities to its members from deposits of its members and to earned interest thereon. Therefore, the amount of Rs.8,90,246/- as discussed above is proposed to be disallowed from the Deduction claimed u/s 80P(2)(a)(ii) / 80P(2)(d) and the same is to be treated as "Income from Other Sources" u/s 56 of the I.T. Act’’.

The ld. CIT (A) dismissed the appeal of the assessee by stating that Erode District Central Co-operative Bank from which assessee has earned dividend and interest income is a Co-operative bank not a Co-operative Society. He noted that the definition of Co-operative society as contained in Section 2(19) of the Act which speaks only of ‘’Co-operative Society’’ and not a ‘’Co-operative Bank’’. According to him, the word Co-operative Bank is missing in clause (d) of subsection (2) of Section 80P of the Act and therefore he confirmed the disallowance made by the ld. Assessing Officer of interest and dividend income earned by the assessee from Erode District Central Co-operative Bank and claimed deduction u/s.80P(2)(a)(i) of the Act. Aggrieved, assessee preferred an appeal before the Tribunal.

5. I have heard rival contentions and gone through the facts and circumstances of the case. I note that the order of the ld. CIT(A) is ex-parte one and posted for hearing only twice i.e as under:-

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee is a Primary Agricultural Credit Society registered under the TamilNadu Co-operative Societies Act, 1983 carrying on the business of banking or providing credit facilities to its members. It has kept its funds and made deposits or investments and maintained savings bank account with Erode District Central Co-operative Bank and earned interest income to the extent of Rs.5,14,418/-. According to AO and CIT(A) the Erode District Central Co-operative Bank which operates transactions for the public and governed by Reserve Bank of India regulations, it is clearly hit by the provisions of section 80P(4) of the Act. The ld.counsel for the assessee filed copy of Tribunal’s order in the case of The Central Excise Staff Co- op Thrift and Credit Society Ltd., in & 112/CHNY/2023, order dated 31.03.2023, wherein the Tribunal considering the decision of Hon’ble Madras High Court in the case of S-1308 Ammapet Primary Agricultural Co-operative Bank Ltd., in TCA Nos.882 and 891 of 2018 and the decision of Hon’ble Supreme Court in the case of Mavilayi Service Co-opertive Bank Ltd., 123 Taxmann.com 161 (SC) decided an exactly identical issue in favour of assessee by observing in para 6 & 7 as under:- 6. We noted that there are interest income from Chennai Central Co- operative Bank, gratuity interest from Chennai Central Co-operative Bank, dividend from shares of CC Cooperative Bank, BDR interest from Chennai Co-operative Bank, RF interest from CC Co-operative Bank , SRF interest from Cooperative Bank and BF interest from CC Co-operative Bank in aggregate amounting to Rs.29,68,672/-. Admittedly, Chennai Central Co-operative Bank is a co-operative society and registered under Co-operative Society’s Act of Tamil Nadu. This issue has been settled by the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd., & Ors. Vs. CIT, 123 Taxmann.com 161 (SC). A similar issue has been considered by this Tribunal in the case of ITO vs. The Tiruchengode Agricultural Producers Co-operative Marketing Society Ltd., in ITA Nos.2954 to 2956/Chny/2027, vide order dated 13.07.2022, wherein, the Tribunal considered the decision of Hon’ble Madras High Court decision in the case of S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd.,in T.C.A Nos.882 and 891 of 2018 and held as under:- “5.1 Further, this issue is now covered by the Coordinate Bench decision in the case of Tamilnadu Co- 5 ITA Nos.111 & 112/Chny/2023 operative State Agriculture and Rural Development Bank Limited, in ITA Nos.31 to 33/Chny/2021, order dated 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 reported in [2021] 123 Taxmann.com 161 (SC) and held as under:-

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 Cooperative 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 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. 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.

On the other hand, the ld.Senior DR, Shri P. Sajit Kumar, argued that the Erode District Central Co-operative Bank forms a part of RBI recognized banks in India and for that he filed a certificate which reads as under:-

In the result, the appeal filed by the assessee is allowed for statistical purposes.