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Income Tax Appellate Tribunal, ‘PANAJI’ BENCH, PANAJI
Before: SHRI CHANDRA MOHAN GARG & SHRI GIRISH AGRAWAL
IN THE INCOME TAX APPELLATE TRIBUNAL, ‘PANAJI’ BENCH, PANAJI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA Nos.26 to 28/PAN/2019 Assessment Year: 2009-10, 2012-13 & 2013-14 The Adarsh Co-op. Credit ITO, WARD-1(2), Society Ltd. BAGALKOT Vs. A-p: Jugul, Tal: Athani, Dist: Belgaum-591252. PAN: AAAAS 5616 H (Appellant) (Respondent) Present for: Appellant by : Shri Pramod Vaidhya, Advocate Respondent by : Shri Mayur Kamble, Sr. DR Date of Hearing : 17.06.2022 Date of Pronouncement : 30.08.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These appeals filed by the assessee are directed against different orders of learned Commissioner of Income Tax (Appeals) – Belagavi in ITA No. CIT(A)/BGM/10349/2015-16, CIT(A)/BGM/10518/2014-15 & CIT(A)/BGM/10136/2015-16 all dated 27.12.2018. The assessments were framed by the ITO, Ward-1(2), Belgaum u/s 143(3) r.w.s. 254 of the Income-tax Act, 1961 (hereinafter ‘the Act’), for the assessment year 2009-10 vide order dated 27.12.2018 and for the assessment years 2012-13 & 2013-14 u/s 143(3) of the Act vide order dated 30.09.2014 & 24.08.2015.
The only issue in these three appeals of assessee is as regards to the order of CIT(A) confirming the denial of claim of deduction u/s 80P(2)(a)(i) of the Act. The assessee has raised identical grounds in all the appeals and hence, we take the facts and grounds from ITA No.
2 ITA Nos.26 to 28/PAN/2019 The Adarsh Co-operative Credit society Ltd. A.Y. 2009-10, 2012-13 & 2013-14 26/PAN/2019 for the assessment year 2009-10. The relevant grounds raised by assessee are reads as under:
“1. On the facts and circumstances of the case and in law the ld. CIT(A) erred in disallowing the deduction u/s 80P(2)(a)(i) of the Act, in respect of income earned from associate/nominal members. The CIT(A) erred in not appreciating that…… i. the Citizen’s case is distinguishable on facts as in the present case the dealings are with members and there are no dealings with public at large. ii. regular, associate and nominal members are recognized as valid as per The Karnataka Co-operative Societies Act, 1959 and as per bye laws of the society and there is no violation of the governing law. 2. The appellant craves leave to add, alter, amend or modify any of the grounds of appeal.” 3. Ld. AO while passing the impugned order u/s 143(3) r.w.s. 254 of the Act noted that assessee is not entitled to claim deduction u/s 80P(2)(a)(i) of the Act of Rs. 27,63,583/- by holding that assessee is a primary co-operative bank since all the three conditions in section 5(ccv) of the Banking Regulation Act, 1949 as below are satisfied. i. The primary object or principal business of which is transaction of banking business. ii. The paid-up share capital and reserves of which are not less than one lakh of rupees and iii. The bye laws of which do not permit admission of any other co- operative society as a member.
He noted that the assessee is a registered Co-operative Society under the Co-operative Societies Act, 1959 and treated it as a Primary Co-op. Bank to disentitle it from the deduction u/s 80P(2)(a)(i) r.w.s. 80P(4) of the Act. Aggrieved, assessee preferred appeal before CIT(A).
3 ITA Nos.26 to 28/PAN/2019 The Adarsh Co-operative Credit society Ltd. A.Y. 2009-10, 2012-13 & 2013-14 4. Ld. CIT(A) took note of the decision of Hon’ble Supreme Court in the case of Citizen Co-operative Bank Ltd. vs ACIT, 397 ITR 1 (SC) for confirming the action of AO in denying the claim of deduction u/s.80P(2)(a)(i) of the Act to the assessee. Aggrieved, assessee preferred appeal before the Tribunal.
Now, before us the ld. counsel for the assessee argued that the issue has been concluded by the decision of Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd., vs. CIT, (2021) 431 ITR 1 (SC), wherein the Hon’ble Supreme Court has considered the decision of Co-ordinate Bench of Supreme Court in the case of Citizen Co-operative Bank Ltd., (supra) wherein it has laid down certain principles which are culled out from the judgment as under:- (i) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee;
(ii) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction;
(iii) That this Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied;
(iv) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative
4 ITA Nos.26 to 28/PAN/2019 The Adarsh Co-operative Credit society Ltd. A.Y. 2009-10, 2012-13 & 2013-14 societies, the legislature expressly says so – which is not the case with section 80P(2)(a)(i);
(v) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that 45 case was not so licenced, the assessee would not fall within the mischief of section 80P(4). 5.1. The Hon’ble Supreme Court also discussed the ratio decidendi of the case law of Citizen Co-operative Bank Ltd., and noted that 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 “agriculture” into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a provision which excludes co-operative banks which are engaged in banking business i.e. engaged in lending money to members of the public, which have a banking licence in this behalf from the Reserve Bank of India (RBI). Judged on this touchstone, Hon’ble Supreme Court noted that it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). 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.
5.2. Hon’ble Supreme Court also considered the definition of ‘member’ in the Kerala State Co-operative Bank and loan given to such nominal
5 ITA Nos.26 to 28/PAN/2019 The Adarsh Co-operative Credit society Ltd. A.Y. 2009-10, 2012-13 & 2013-14 members and finally held that the same would qualify for the purpose of claiming deduction u/s.80P(2)(a)(i) of the Act. The Hon’ble Supreme Court further held that unlike the facts in Citizen Cooperative Society Ltd., supra, the Kerala State Society Act expressly permits loans to non- members u/s.59(2) & (3). It was noted that giving of loans by a primary agricultural credit society to non-members is not illegal, unlike the facts in Citizen Cooperative Society Ltd., supra.
5.3. In view of the above decision of Hon’ble Supreme Court in the case of the The Mavilayi Service Co-operative Bank Ltd. (supra), we note that assessee is a primary agricultural co-operative credit society and it transacts business only with members whether Regular or Associate or Nominal Members as noted by the AO. As referred by ld. counsel for the assessee, this issue has been dealt with by the Hon’ble Madras High court in the case of PCIT vs S1308 Ammapet Primary Agricultural Co- operative Bank Ltd. in T.C.A. No. 882 & 891 of 2018 dated 06.12.2018. The relevant extract of judgement of S1308 Ammapet Primary Agricultural Co-operative Bank Ltd. (supra) is as under:
“12.Admittedly, the assessee – society is registered under the provisions of the TNCS Act. It defines the word ‘members’ under Section 2(16) to mean a person joining in the application for the registration of society and a person admitted to the membership after registration in accordance with the provisions of the Act, the Rules framed thereunder and the By-laws and includes an associate member. The expression associate member is defined under Section 2(6) of the TNCS Act to mean a member, who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in this Act, the Rules and the By-law. 13.Thus, the definition of the word ‘members’ includes an associate member and therefore, the Assessing Officer fell into an error in drawing a distinction between A Class members and B Class members. For the purpose of being entitled to a relief under Section 80P of the Act, all that is required is that the cooperative society should
6 ITA Nos.26 to 28/PAN/2019 The Adarsh Co-operative Credit society Ltd. A.Y. 2009-10, 2012-13 & 2013-14 answer the description of a society engaged in carrying on the business of providing credit facilities to its member. Once the description is answered, then automatically, the benefit of Section 80P of the Act would stand attracted subject to the provisions contained in Sub-Section (2) of Section 80P of the Act.
Further, it is to be pointed out that in terms of Sub-Section (4) of Section 80P of the Act, which was inserted vide the Finance Act, 2006 with effect from 01.4.2007 i.e from the assessment year 2007-08, the ‘primary cooperative agricultural and rural development bank’ means ‘a society having its area of operation confined to a taluk, the principal object of which is to provide for long term credit for agricultural and rural development activities’. What was excluded was the ‘cooperative banks’ and admittedly, the assessee society is a primary agricultural cooperative credit society and therefore, would be entitled to the benefit of Section 80P of the Act.
Further, for the assessment year 2014-15, the decision in the case of Citizen Cooperative Society Limited was relied upon by the Revenue before the Tribunal, which, in paragraph 6.1 of its order dated 28.2.2018 for the assessment year 2014-15, extracted the operative portion of that judgment. In that case, the Hon’ble Supreme Court found that the society carried on certain activities, which were contrary to the provisions of the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995 and that they accepted deposits from third parties, who were not members in the real sense and were using those deposits to advance gold loans. Therefore, the Hon’ble Supreme Court pointed out that such an activity of the said society was that of a finance business and could not be termed as a cooperative society and that the loans, which were disbursed, were without the approval from the Registrar of Mutually Aided Cooperative Societies, Ranga Reddy District. The Hon’ble Supreme Court found that the said society was not entitled to deduction under Section 80P of the Act.
It is noteworthy to point out that the Hon’ble Supreme Court in the decision in the case of Citizen Cooperative Society Limited also observed that in the light of insertion of Sub-Section (4) to Section 80P of the Act by the Finance Act, 2006, such deduction should not be admissible to a cooperative bank and that if it is a primary agricultural credit society or a primary cooperative agriculture and rural development bank, the deduction would still be provided.
7 ITA Nos.26 to 28/PAN/2019 The Adarsh Co-operative Credit society Ltd. A.Y. 2009-10, 2012-13 & 2013-14 17. In the preceding paragraphs, we have pointed out the definitions of the expressions ‘members’ and ‘associate member’ under the TNCS Act and held that an ‘associate member’ is also a ‘member’ in terms of Section 2(16) of the TNCS Act. Furthermore, the Assessing Officer himself found that the associate members are also admitted as members of the society. In such circumstances, the Assessing Officer fell into an error in not granting any relief to the assessee society, which was rightly granted by the CIT (A) as confirmed by the Tribunal. In addition to that, the Assessing Officer has not pointed out that loans have been disbursed to all and sundry in terms of the provisions of the TNCS Act and in terms of Clause (b) to Sub-Section (4) of Section 80P of the Act, the society has an area of operation, operates within the taluk and will provide long term credit for agricultural and rural development activities as well. The CIT (A) rightly granted the relief to the assessee as confirmed by the Tribunal. We do not find any good ground to entertain these appeals.
Accordingly, the above tax case appeals are dismissed. The substantial questions of law framed are answered against the Revenue.”
Admittedly, the assessee is a primary agricultural credit co- operative society and is governed by Karnataka Co-operative Societies Act, 1956 and it is carrying out its co-operative business with its members, the claim of deduction u/s 80P(2)(a)(i) of the Act cannot be denied. Also, assessee does not hold a banking license issued by RBI so as to give it a status of Co-operative Bank. Hence, respectfully following the decision of Hon’ble Supreme Court and Hon’ble Madras High Court in the cases referred above, in the given similar facts and circumstances, we reverse the orders of lower authorities and allow this issue in the appeal of assessee for A.Y. 2009-10 in ITA 26/Pan/2019.
6.1. For the other two appeals in ITA No. 27 & 28/PAN/2019 for A.Y. 2012-13 & 2013-14, the issue involved is identical wherein assessment was completed u/s 143(3) of the Act by making a disallowance of claim made u/s 80P(2)(a)(i) with the difference only in respect of quantum of claim which is Rs. 45,89,812/- for A.Y. 2012-13 and Rs. 66,84,730/-
8 ITA Nos.26 to 28/PAN/2019 The Adarsh Co-operative Credit society Ltd. A.Y. 2009-10, 2012-13 & 2013-14 for A.Y. 2013-14. While making the disallowance, ld. AO has embarked upon similar approach as in the appeal dealt hereinabove for A.Y. 2009- 10 by holding that assessee is a primary co-operative bank. Since the issue involved is similar to what we have dealt in the above appeal in A.Y. 2009-10. These present two appeals are also covered by the same findings and decisions given by us hereinabove. Accordingly, both the appeals of the assessee are also allowed in terms of our observation and findings given in ITA No. 26/PAN/2019 for A.Y. 2009-10.
In the result, all the three appeals of the assessee are allowed.
Order pronounced under Rule 34(4) of the IT (AT) rules, 1963 on 30.08.2022.
Sd/- Sd/- (CHANDRA MOHAN GARG) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30.08.2022. Biswajit, Sr. P.S. Copy to: 1. The Appellant: The Adarsh Co-operative Credit Society Ltd. 2. The Respondent: ITO, Ward-1(2), Bagalkot. 3. The CIT, Concerned, 4. The CIT (A) Concerned, 5. The DR Concerned Bench //True Copy// [ By Order
Sr. Private Secretary ITAT, Panaji (on tour)