M/S POOYAPPALLY SERVICE CO-OP BANK LTD,KOLLAM vs. THE ITO WARD 2(1), KOLLAM
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI SANJAY ARORA, AM & MS. KAVITHA RAJAGOPAL, JM
per the provision of Kerala Societies Act, 1968 which was amended in 2010. Further, as
the assessee has received deposits from even non members, as per the decision of the
Hon'ble Apex Court in the case of Citizens Co-operative Society (Civil Appeal No. 10246
of 2017), the assessee was ineligible for deduction u/s. 80P of the Act. The assessee, on
the other hand, has placed reliance on the decision of the Hon'ble Apex Court in the case
of Mavilayi Service Co-operative Bank Ltd. and others vs. CIT (in Civil Appeal Nos.
7343-7350 of 2019) wherein it has been held that in case of Co-operative Societies a
liberal view in favour of the assessee should be considered and that in case of loans given
to members and non members, the interest earned out of loans given to non members are
only to be disallowed. It also held that the interest income received from a co-operative
society for investments made are eligible for deduction u/s.80P(2)(d) of the Act. The
Hon'ble Apex Court further reiterated that section 80P(4) is applicable only to
cooperative banks which are regulated by RBI and not to cooperative societies. The
relevant extract of the said decision is cited hereunder for ease of reference:
To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A 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
5 ITA Nos. 65 & 66/Coch/2023 (A.Ys. 2016-17 & 2017-18) Pooyappally Service Co-operative Bank vs. The Income Tax Officer “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). Clearly, 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-members, profits attributable to such loans obviously cannot be deducted.
It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, ‘nominal members’ are ‘members’ as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions’ Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: “8. The expression “members” is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression “members” in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression “members” in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: “2. (n) ‘Member’ means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to ‘members’ anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;”” Considering the definition of ‘member’ under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). 47. Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows: “59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co- operative Bank. Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society. (2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit. (3) Granting of loans to members or to non-members under sub-section (2) and recovery thereof shall be in the manner as may be specified by the Registrar.” Thus, the 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 ITA Nos. 65 & 66/Coch/2023 (A.Ys. 2016-17 & 2017-18) Pooyappally Service Co-operative Bank vs. The Income Tax Officer 10. As the issues raised by the assessee are squarely covered by the said decision and
the findings of the co-ordinate bench in the case of Thalore SCB Ltd. (in ITA
No.226/Coch/2023 vide order dated 31.05.2024, we hereby direct the ld. A.O. to allow
the deduction claimed by the assessee in accordance with the proposition laid down in the
above mentioned decision.
In the result, the appeal filed by the assessee in ITA No. 65/Coch/2023 is allowed.
ITA No. 66/Coch/2023
The finding in ITA No. 65/Coch/2023 applies mutatis mutandis to this appeal also.
In the result, both the appeals filed by the assessee are allowed.
Order pronounced on 03.06.2024 under rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963.
Sd/- Sd/-
(Sanjay Arora) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 03.06.2024 Roshani, Sr. PS
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Cochin 5. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Cochin
