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The Commissioner of Income Tax Versus Tiruchengode Agricultural Producers Cooperative Marketing Society Ltd., S-1308 Ammapet Primary Agricultural Cooperative Bank Ltd.

2016 (8) TMI 560 - MADRAS HIGH COURT

Entitlement to claim under Section 80P - AO disallowed the claims of the assessee on the ground that the assessees had lent monies to the members who were undertaking non-agricultural/ non-farm activities and had received the interest on par with commercial banks - Held that:- Commissioner of Income Tax (Appeal) and the Income Tax Appellate Tribunal has clearly held that the assessees are not co-operative bank and that their activities in the nature of accepting deposits, advancing loans etc., c .....

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ling loan only and was also charging a higher rate of interest at the rate of 14%, is not a ground to deny the exemption granted under Section 80P (2)(a) (i) of the Act. - Decided against the Revenue. - Tax Case Appeal Nos. 484 to 487 and 490 of 2016 - Dated:- 2-8-2016 - S. Manikumar And D. Krishnakumar, JJ. For the Appellant : Mr. J. Narayanasamy Senior Standing Counsel for I.T JUDGMENT ( Judgement of the Court was made by D. Krishnakumar, J ) These Appeals have been filed by the Revenue agains .....

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nd that the assessees had lent monies to the members who were undertaking non-agricultural/ non-farm activities and had received the interest on par with commercial banks. The Assessing Officers held that since interest is received, non-farm sector loans do not qualify for deduction u/s 80P (2) (a) (i) of the IT Act, 1961 and that the assessee's activity is purely in the nature of commercial banking activities. Further, the Assessing Officers held that as per 80P (4), deduction is available .....

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viz., Class A and Class B members. Class A members are normal members who have voting rights and were involved in the running of the assessee's business and can become the members of Administrative committee, etc. Class B members are anyone other than Class A member, who had availed loans from the assessee and is necessarily enrolled as Class B member. The Class B member is not recognized by the assessee for the purpose of the records in statute. Further, the majority of jewel loan and other .....

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hat the assessees had not provided credit facilities to its members to assist agricultural activity and thereby confirmed the Assessment orders. But, in the present cases the Commissioner of Income Tax (Appeal) followed the decision of the Tribunal and had allowed the appeals. 4. Aggrieved by the orders of the Commissioner of Income Tax (Appeal), Revenue filed appeals before the Income Tax Appellate Tribunal. The Tribunal held that as per the definition of a member under Section 2(16), the assoc .....

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-agricultural activity could be entitled for deduction as per Section 80P (2) (a) (i) read with 80P (4) and the assessees' violation to lend amount on par with commercial banks at higher interest. The Tribunal had followed its own order and had allowed the appeal. 5. Aggrieved by the order of the Income Tax Appellate Tribunal, the appellants have filing these appeals, on raising the following substantial questions of law:- 1. Whether on the facts and in the circumstances of the case the Trib .....

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the assessee society can be treated as a member of the society for the purpose of Section 80P (2) (a) (i) when Class B members do not have the right to participate in the voting and meetings of the board of the society. 3. Whether on the facts and in the circumstances of the case the Tribunal was right in not considering the fact that the assessee was lending monies for non-agricultural purpose and the provisions of Section 80P (4) and 2(24) (viia). The contention of the learned counsel for the .....

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or the loan advanced to non-agricultural purposes and so the assessee societies are not entitled for the benefit under Section 80P (2) (a) (i) read with 80P (4). 6. Heard Mr.J. Narayanasamy, learned Senior Standing Counsel for the appellant and perused the material available on record. 7. On perusal of the order passed by the Tribunal, it is found that the Assessing Officer while completing the assessments had denied deduction under Section 80P (2) (a) (i) of the Income Tax Act, in respect of in .....

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alpatty Primary Agricultural Co-operative Credit Society Ltd. vs. ITO in ITA No.292/Mds/2014 dated 17.03.2014. Further, in another decision of the Tribunal in the case of the Salem Agricultural Producers Co-operative Marketing Society Ltd. vs. ITO in ITA Nos.730 to 732/Mds/2014 dated 30.06.2014, it has been held as follows :- 2. The common issue raised in all these appeals is that the Commissioner of Income Tax (Appeals) has erred in confirming the order of the Assessing authority in denying the .....

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by Income Tax Appellate Tribunal, Chennai 'B' Bench in the cases of SL(SLP) 151, Karkudalpatty Primary Agricultural Co-operative Credit Society Ltd and S 1382 Mullukuruchi Primary Agricultural Co-operative Credit Society Ltd in I.T.A. Nos. 292 & 293/Mds/2014 vide common order dated 17.03.2014 and also the decision of 'C' Bench in the cases of M/s. 1915 Vellalapatty Primary Agricultural Co-operative Credit Society Ltd. in I.T.A. Nos. 385 & 386/Mds/2014, M/s.6648 Attur Mul .....

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objections of the Revenue that 'members' defined in 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 taxing statute; unless provided specifically by the legislature. 4. Therefore, we find that the issue raised in these appeals stands adjudicated by the Tribunal in favour of the assessee. Accordingly, we set aside the orders of the lower authorities on this point and direct the assess .....

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and 460 of 2015 before this Court. By judgment dated 05.07.2016, the appeals were dismissed, on the following reasoning: 13. Sub-section (4) of Section 80P of the Income Tax Act, 1961 is extracted below : (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation For the purposes of this sub-section - (a) co-operative bank and primary agric .....

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l the agricultural requirements and to provide credit facilities to the members, as per the bye-laws and as laid down in Section 5 (cciv) of the Banking Regulation Act, 1949. Further, from the CPT Circular dated 12.03.2008, it is evident that a credit co-operative society is not a co-operative bank, as defined in Part V of the Banking Regulation Act, 1949. The object of a 'Co-operative bank' is to accept deposits from the public, for lending or investment of money. On perusal of the find .....

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ative Bank Ltd., Kannur vs. the Commissioner of Income Tax, reported in (2016) 68 taxmann.com.298 (Kerala), the High Court considered similar substantial questions of law (Issue No.A) raised by the assessee, regarding the entitlement for exemption under sub section (4) of Section 80P. By considering the fact that the assessee is a primary agricultural society, the Kerala High Court has answered the substantial question of law in favour of the assessee and held that the primary agricultural credi .....

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sessee credit society. Hence, the appeals are accordingly dismissed. 9. In the instant cases, while allowing the appeals filed by the assessee, the Commissioner of Income Tax (Appeal), had relied upon, the following portion of the decision of the Tribunal arrived in ITA No.292/Chny/2014:- 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 .....

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ion of 'member' u/s 2(16) that the same includes an 'associate member' recognition as per the Act. The net result is that once the 'nominal' members also enjoy statuary condition imposed by the legislature u/s 80P (2) (a) (i). We make it clear that we are dealing with the deduction provision to be interpreted liberally. In our considered opinion, the objections of the revenue that the 'members' defined in sub clause (i) of Section 80P should only include voting me .....

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