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Deputy Commissioner of Income Tax & The Asst. Commissionerof Income Tax Versus M/s. The Rangareddy District Judicial Employees Mutually Aided Cooperative Credit Society Ltd.,

2015 (5) TMI 751 - ITAT HYDERABAD

Disallowance of deduction claimed u/s.80P - the assessee had violated the provisions of AP Mutually Aided Co-Operative Societies Act, 1995 - whether, having given a finding that Nominal/Associate Members are not Members of the society, the incomes from them are excluded while calculating deduction u/s.80P(2)(a)(i)? - Held that:- Assessee-society is clearly a co-operative society and Assessing Officer herself has stated that assessee is a co-operative society, but violated the provisions of the C .....

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transactions. Just because assessee has deposits from Non Members, it does not prevent being a co-operative society nor it prevents claiming deduction u/s.80P(2)(a)(i), if it is otherwise eligible on the said incomes.

In view of this, while accepting in principle that assessee is eligible for deduction u/s.80P(2)(a)(i) and 80P(2)(d), quantification of income ie. income/profits and gains on credit facilities provided to Members, is restored to the file of Assessing Officer for necessa .....

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nd Smt. Asha Vijayaraghavan JJ. For the Appellant : Shri Rama Krishna Bandi, DR For the Respondent : Shri P. Prasad, AR ORDER Per Bench : These three Revenue are appeals filed against the separate orders of the Commissioner of Income Tax(Appeals)-VI, Hyderabad dated 28-12-2011 for the Assessment Year (AY) 2008-09, dt. 15-06-2012 for the AY. 2009-10 and dt. 21-10-2013 for the AY. 2010-11. Since common issues are involved in all these appeals, these are heard together and disposed-off by this comm .....

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s (collectively called as non-members) can deposit amounts and also obtain loans as per the bye laws of the society. In the course of assessment proceedings, the Assessing Officer was of the opinion that assessee admittedly received deposits mainly from Non- Members, particularly taking deposits of the bail amount from the bailees and keeping them in deposits on the orders of the court while granting bail to the accused persons. While completing the assessment, Assessing Officer was of the opini .....

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at if the corporate veil is lifted, the society runs for the sole purpose and motive of earning profit, as such principle of mutuality cannot be extended to the facts of the case. The Assessing Officer there upon disallowed the deduction claimed u/s.80P. 4. Ld.CIT(A) having noticed that assessee is registered under APMACS Act and bye laws permits acceptance of deposits from the Non- Members also did not find any merit in the Assessing Officer's contentions. Since mobilization of funds is per .....

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it is not specified in the section. Ld.CIT(A) also held that the principle of mutuality relied on by the Assessing Officer is not relevant to the facts of the assessee's case as assessee has not claimed any exemption on account of mutuality. The Ld.CIT(A) also held that there is no bar to categorize of Members as general, nominal and associate. By virtue of Section 19(3) of the Act, Ld.CIT(A) was of the opinion that assessee has not violated the provisions of APMACS Act and also not covered .....

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14,66,822/- and 80P(2)(d) of ₹ 14,61,250/- in AY. 2008-09. Similarly, in other years also, the deductions were quantified and directed to be allowed by the CIT(A) in the order. Revenue has raised the following grounds commonly for AYs.2008-09 and 2009-10: "1. The observation of the learned CIT(Appeals) that the assessee is a Cooperative Society does not emanate from the Assessment Order as she has failed to give a clear finding whether the assessee is a cooperative society though it h .....

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ssessee has deposited money in Regional Rural Banks, the status of which is not recognized in the Income Tax Act, as Cooperative Bank, can the interest arising out of the deposit of this Regional Rural Bank would qualify for deduction u/s.80P(2)(d)". 5. As can be seen from the above, the Ground No.1 is mis-placed. Assessee-society is clearly a co-operative society and Assessing Officer herself has stated that assessee is a co-operative society, but violated the provisions of the Co-operativ .....

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s Members. To that extent the Assessing Officer can examine the assessee's transactions. Just because assessee has deposits from Non Members, it does not prevent being a co-operative society nor it prevents claiming deduction u/s.80P(2)(a)(i), if it is otherwise eligible on the said incomes. 7. Ground No.3 raised on principle of mutuality is also does not apply because assessee has not claimed any exemption of income on the principle of mutuality. As far as deduction u/s.80P(2)(d) is concern .....

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s Mutually Aided Coop Society, Hyderabad" pronounced on 20-02-2015 as under: "22.1 The ground No.3 regarding deduction under section 80P(2)(d) is in respect of interest received from Cooperative Societies and the Cooperative Banks. We are unable to understand why the Cooperative Banks are not considered as Cooperative Societies in Banking business. The sub-section (4) introduced by Finance Act, 2006 w.e.f. 1.4.2007 is as under : (4) The provisions of this section shall not apply in rel .....

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uk and the principal object of which is to provide for long term credit for agricultural and rural development activities. 22.1. As per this section, the exemption provided under subsection (2) or sub-section (3) does not apply to the incomes of the Cooperative Bank other than a primary agricultural Cooperative Society or a primary Cooperative Agricultural and Rural Development Bank. However, the above provision applicable in the case of Cooperative Bank is not in respect of interest received fr .....

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pt after 01.04.2007 by virtue of sub-section (4), but assessee is not a Cooperative Bank. Therefore, the Revenue ground is not only illogical but also not supported by the facts of the case. Moreover as seen, the recommendation made by the A.O. to the Ld. CIT in their internal correspondence is extracted as a ground. This also indicates non-application of mind either by the A.O. or by higher authority like CIT. This sorry state of affairs should come to an end and Officers should act responsibly .....

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nsactions with Non-Members also. There seems to be no examination of the above aspect. 9. As can be seen from the order of the Assessing Officer, Members are allowed with admission of minimum number of shares and face value of ₹ 10/-, whereas the Nominal Members/Associate Members are allowed with a share valued at Re.1/-. Moreover, Nominal Members/Associate Members does not have any voting rights. The Ld. Assessing Officer discussed the bye laws of the society but the full text of the bye .....

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nguishes a Member and Nominal Member/Associate Member, the later being not a shareholder of a society, deduction u/s.80P cannot be allowed to the extent of incomes/profits and gains on providing credit facilities to Associate Members and Nominal Members. There may be restrictions that the society shall not induct more than a certain number of Members as Associate Members/Nominal Members. When the bye laws pertain to membership define the Members of the co-operative society and Nominal/Associate .....

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ness of banking is concerned was accepted. However, as rightly pointed out by the Ld.CIT(A), assessee is not involved in business of banking and has only involved in providing credit facilities to the Members of the society. 10. In view of this it is to be examined whether there are incomes from the credit facilities provided to Non-Members i.e., Nominal/Associate Members. If so, assessee is not eligible for deduction on those profits. In the case of 'The Advocates Mutually Aided Coop Societ .....

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Members are not Members of the society, the incomes from them are excluded while calculating deduction u/s.80P(2)(a)(i). 11. In view of this, while accepting in principle that assessee is eligible for deduction u/s.80P(2)(a)(i) and 80P(2)(d), quantification of income ie. income/profits and gains on credit facilities provided to Members, is restored to the file of Assessing Officer for necessary examination of the details of the transactions and quantifying the same. Therefore, while upholding t .....

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