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Income Tax Appellate Tribunal, “C ” BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI. G. PAVAN KUMAR
आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:
These two appeals filed by the Revenue are directed against different assessees against different orders of Commissioner of Income Tax (Appeals), Salem dated 27.10.2015 for the assessment year 2012-2013. Since the issue in these two appeals is common in nature, hence these appeals are combined, heard together, and disposed of by a common order for the sake of convenience.
The grounds of appeal raised by the Revenue are under:-
2. ‘’The 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 taxmann 14) clearly brought out the definition of 'Banking business' .
3. The Commissioner of Income Tax (Appeals) ought to have considered that in the Tamil Nadu Co-operative Societies Act, 1983 the term "Member" 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 section the term "member" means ONL Y SHARE HOLDER - MEMBER. Hence the intention of the legislature is that associate member will not be treated as member.
4. The Commissioner of Income Tax (Appeals) ought to & 2342/Mds/2015 :- 3 -:
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.
5. The Commissioner of Income Tax (Appeals) ought to have considered that the assessee society is not eligible for claiming the deduction u/s 80P(2)(a)(i) and that the Assessing Officer has rightly disallowed the same.
6. The Commissioner of Income Tax(Appeals), Salem ought to have considered the fact that deduction u/s 80P(2)( d) is allowable only on net receipts after deducting the expenses from the gross receipts of interest and that the Assessing Officer has rightly disallowed the deduction u/s 80P(2)(d) on pro-rata basis.
7. The Commissioner of Income Tax (Appeals) ought to have considered that the orders of the Hon’ble ITAT, Chennai in the cases of M/s. SL(SPL) 151 Karkudalpatty PACCS Ltd, M/s. The Salem Agricultural Producers Co-operative Marketing Society Ltd and M/s. S-1308 Ammapet Primary Agricultural Co-Op Bank Ltd, which have been relied upon by him, have not become final as appeals have been filed u/s.260A before the Hon’ble Madras High Court’. 3. Since the issue is common in both appeals, we consider the facts as narrated in assessment year 2012-13 for adjudication
The assessee is a Co-operative society is in the business of banking and trading and filed return of income for the assessment year 2012-13 on 21.09.2012 admitted Nil income after claim of deduction of u/s.80P of the Act. Subsequently, the case was selected for scrutiny and notice u/s.143(2) was served on the assessee. In compliance to notice, the ld. Authorised Representative of the assessee appeared on & 2342/Mds/2015 :- 4 -:
various dates filed details and produced books of accounts for examination. A revised statement of total income based on Audited Accounts was filed in the assessment proceedings as original return of income filed u/s.139 (1) of the Act was based on Pre Audit Accounts and also the accounts of the society are covered under provision of tax audit u/s.44AB of the Act. The assessee claimed deductions u/s.80P (2)(a)(i) of the Act �60,66,657/- u/s.80P(2)(c), �50,000/- and u/s.80P(2)(d) �13,96,945/-. The ld. Assessing Officer verified books of accounts and considered the statements for allowing deduction. The Assessing Officer on examination found that the assessee society claimed deduction u/s.80P(2)(a)(i) of the Act in respect of business of banking and providing credit facilities to its members and complied stipulated conditions. The society is providing credit facilities to Class A Members and Class B Members. The class A members are having the voting rights and eligible to be appointment in administrative committee and ld. AO verified membership details and By laws and clauses; The class B Members are who do not have voting rights and they are like customers with normal membership and considered as Associated Members for the purpose of Sec.80P(2)(a)(i) of the Act. The ld. Assessing Officer observed the & 2342/Mds/2015 :- 5 -: entire business activities of society as providing credit facilities and trading for both members and nonmembers and rejected the deduction. The ld. Assessing Officer verified the claim of deduction u/s.80P(2)(d) of the Act, were the assessee society received income from investments in Salem District Central Co-operative Bank and others Co-Operative institutions referred at page 3 of order as under:-
Sl.No Interest on 1 SDCCB SB A/c. No.1 �13,506/- 2 SDCCB SB A/c. No.3 �25 3 SDCCB SB A/c. No.5 �38 4 SDCCB SB A/c. No.8 �6,455 5 SPL Saving Deposit �1,66,352 6 SPL Current A/c. Deposit �5,862 7 Reserve Fund Deposit �2,81,031 8 Recapitalization Interest �1,35,063 9 Liquidity Cover Deposit Interest �7,37,914 10 VSP Fine �26 11 Govt 2% interest �6,470 12 Insurance excess collection �1,093 13 Govt. 9% interest �42,550 Dividend on share capital IFFCO �490 Salem Co-Op press �70 The Assessing Officer perused the provisions u/s.80P(2) (d) of the Act and relied on decisions of the various High Courts and concluded that Deduction u/s.80P(2)(d) of the Act is excessive and shall be allowed only on net receipts after deducting expenses from gross receipts of interest and dividend income and calculated proportionate expenses & 2342/Mds/2015 :- 6 -: and allowed proportionate deduction and completed the assessment with assessed income at �73,16,391/-. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).
In the appellate proceedings, The ld. Authorised Representative reiterated the submissions of assessment proceedings. The ld. Commissioner of Income Tax (Appeals) on perusal of grounds and arguments, the assessee society is working on the concepts of mutuality, principle but the ld.Assessing Officer has rejected society, claim of deduction under provisions of Sec. 80P of the Act because the assessee society has not restricted activities to its members and also provided services on par with commercial banking.
The ld. Authorised Representative filed written submissions referred page 3 of Commissioner of Income Tax (Appeals) order as under:
‘’i. The appeal relates to disallowance of claimuis.80P(2)(a)(i) and 80 P(2)(d) of the Income Tax Act by the Assessing officer. ii. The Appellant relies on the decision of the ITAT in the case of M/s. SL(SPL) 151, Karkudalpatty Primary Agriculture Co-op Credit Society Ltd, Kamaraj Nagar Post, Rasipuram ITAN 292/Mds/2014 dated 17.03.2014, wherein the claim u/s allowed the claim u!s.80P(2)(a)(i) of the Income Tax Ad has been allowed in favour of the assessee. iii. The Appellant relies on the decision of the IT AT in the & 2342/Mds/2015 :- 7 -: case of M/s. The Salem Agriculture Producers Co-Operatlve Marketing Soci.ety Ltd IT AN 730, 731 and 732/Mds/2014 dated 30.06.2014, wherein the claim u/s.80P(2)(d) of the Income Tax Act has been allowed in favour of the assessee. iv. Disallowance cannot be made as the provisions of Section 80P(2)(d) very dearly allow deduction of the whole of such income, the provisions of the section are as below 80P(2)(d) "in respect of any income by way of interest or dividends derived by the Co-operative society from its investments with any other Co-operative society the whole of such income"; v, The Society was able .o make profit of only by borrowing funds from The Salem District Central Co-Op Bank being the Central Bank or the Apex Bank for all Co- Operative Societies registered in and around Salem and in turn advanced (lent) the so borrowed money to its members and was able to make profits. The assessing officer further failed to understand that a Society cannot function only with its own funds from members and it has relay on Central Bank to fund the same.
Vi. The assessing officer has failed to consider that the income from banking business of a Co-Operative Society is fully exempted and the disallowance u/s. 80P(2),(d) would otherwise be eligible for deduction D/s. 80P(2)(a)(d) being income from Banking Activity, as the Society has carried out only one main activity i.e., Banking Business for its members and other ancillary activity of Investing in the Central Bank as required by the statute.
Hence it is prayed that the claim of deduction U/s. 80P(2)(a)(i) and u/s. 80P(2)( d) to be allowed as claimed in the return of income as covered in the above cases and after considering the above written submission’’.
The Commissioner of Income Tax (Appeals) on examination of the assessment records and material relied on the recent Co-ordiante & 2342/Mds/2015 :- 8 -:
Bench decision of Tribunal in the case of M/s. S-1308, Ammapet Primary Agricultural Co-Operative Bank Ltd in dated 23.09.2015 allowed the assessee appeal. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Revenue has assailed an appeal before the Tribunal.
Before us, the ld. Departmental Representative reiterated his submissions on the grounds of appeal and contested the judicial decisions relied by the Commissioner of Income Tax (Appeals) were the department has filed an appeal in Jurisdictional Hon’ble High Court against ITAT order and prayed for set aside of the order of Commissioner of Income Tax (Appeals).
7. Contra, the ld. Authorised Representative relied on the order of Commissioner of Income Tax (Appeals) and judicial decisions and opposed to the grounds of the Revenue.
We heard the rival submissions and perused the material on record and judicial decisions. The ld. Departmental Representative contention that decision relied by the Commissioner of Income Tax (Appeals) has not reached finality and appeal has been filed before jurisdictional High Court and is pending and also urged that on definition of the member relying on the Audit report were the & 2342/Mds/2015 :- 9 -:
member means share holder and does not include associate member.
The assessee society engaged in the business of providing credit facilities to its members and activities of Primary agriculture co- operative credit society are not at par with co-operative banks and rely on Co-ordinate Bench decision of Tribunal in ITO vs Veerakeralam Primary Agricultural Co-operative Credit Society in dated 11.02.2014 and in the case of ITO vs. S- 1308, Ammapet Primary Agricultural Co-Operative Bank Ltd in ITA 825/Mds/2015 where the Tribunal observed in para 6 of the order at page 5 as under:-
“7. 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’ u/s 2(6) appended therein. In other words, the ‘nominal’ members also enjoy statutory recognition as per the Act. The net result is that once the ‘nominal’ members or non-voting members are themselves included in the definition of ‘members’, they satisfy the relevant condition imposed by the legislature u/s 80P(2)(a)(i). We make it clear that we are dealing with a deduction provision to be interpreted liberally. In our considered opinion, the objections of the Revenue that the ‘members’ defined in & 2342/Mds/2015 :- 10 -: 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 tax statute; unless provided specifically by the legislature. Moreover, we find that the case law of hon'ble Punjab & 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. We follow the same and accept contentions of the assessee”.
Similar issue had come up before the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Cooperative Bank Ltd., reported as 300 ITR 24, wherein the Hon’ble High Court had decided the issue in favour of the assessee. The ld.DR has not been able to controvert the contentions of the AR.
8. The issue in appeal is similar to the one adjudicated by the co-ordinate bench in the case of M/s.SL(SPL) 151, Karkudalpatty Primary Agricultural Co-operative Credit Society Ltd., Vs. ITO (supra). Accordingly, we hold that the assessee is entitled to claim benefit’’.
Respectfully following the Co-ordinate bench decision, we are not inclined to interfere with the order of Commissioner of Income Tax (Appeals) who has examined the disputed issue and allowed the appeal of the assessee. Accordingly, we upheld the order of Commissioner of Income Tax (Appeals) and dismisses the appeal of the Revenue.
Consequently, the appeal of the Revenue in is also dismissed. & 2342/Mds/2015 :- 11 -:
In the result, the appeals of the Revenue are dismissed.
Order pronounced on Wednesday, the 16th day of March, 2016 at Chennai.