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The Income Tax Officer, Ward-2, Tirur Versus M/s. East Ernad Service Cooperative Bank Ltd.

2018 (2) TMI 502 - ITAT COCHIN

Eligibility of deduction u/s. 80P - whether the assessee was a 'Primary Agricultural Credit Society' or a 'Co-operative bank' - Held that:- CIT(A) is justified in directing the Assessing Officer to grant deduction u/s. 80P(2). See Edanad-Kannur Service Co-operative Bank Ltd. and others [2018 (1) TMI 848 - ITAT COCHIN] wherein as held Assessing officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit .....

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MBER: These appeals at the instance of the Revenue are directed against the consolidated order of the CIT(A), Kozhikode dated 16/05/2017. The relevant assessment years are 2008-09 and 2013-14. 2. The brief facts of the case are as follows: The assessee is a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969. For the assessment years 2008-09 and 2013-14, the returns of income were filed after claiming deduction u/s. 80P of the I.T. Act amounting to &# .....

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he assessment years 2008- 09 and 2013-14. 3. Aggrieved by the order of the assessments, denying the benefit of deduction u/s. 80P(2) of the Act, the assessee preferred appeals before the first appellate authority. The CIT(A), following the judgment of the Hon ble High Court of Kerala in the case of Chirakkal Service Co-operative Bank Ltd. reported in 384 ITR 490 held that primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969 is entitled to deduction u/s .....

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Commissioner of Income Tax (Appeals) against law and the facts and circumstances of the case? 2. The Commissioner of Income Tax (Appeals) had in the instant placing reliance on the decision of the Honourable High Court of Kerala in the case of M/s Chirakkal Service Co-op Bank Ltd. And others in ITA 212 of 2013, held that the assessee is eligible for deduction u/s 8OP of the Income Tax Act solely on the basis that it has been registered and classified as a Primary Agricultural Credit Society by .....

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prevailing positions of law that differentiates between de jure and de facto positions and which permits the principle of penetration of the corporate veil to determine the true nature of the activities of the cooperative society? 3. Whether on the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeals) is right in law in holding that the assessee is eligible for claiming deduction u/s 8OP on the above lines, when in the recent decision in the case of The Citizen Co .....

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cooperative society are distinct and therefore, in reality, the activities of the appellant are that of a finance business and cannot be termed as those of a co-operative society. The facts in the present case also fall within the same contextual fabric. The categories of resident members, ordinary members and nominal members exist. This invokes the question of whether the instant assessee is merely providing agricultural credit to its members thereby validating the claim of tax exemption u/s 80 .....

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agricultural activities should not be 100% of the gross profits of such societies etc. but should be limited to the profits generated from agricultural activities alone performed by such assessees. 6. The learned CIT(Appeals) ought to have seen that the above Apex Court's decision is in sharp contrast to the decision of the Kerala High Court in the case of M/s Chirakkal Service Co-operative Bank & others in ITA 212 of 2013 that held that the authorities under the Income Tax Act cannot pr .....

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gricultural Rural Development Bank Ltd. vs ACIT [ITA No.506/Coch/2010 & S.P. No.67/Coch/2010 hold that carte blanche deductions u/s 8OP are not available to cooperative societies merely on the basis of professed agricultural credits on the basis of mere registration and classification. In view of this, is not the decision of the CIT(A) without merits? 8. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the CIT(A) may be set aside and tha .....

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e was considered by this Tribunal in the case of Edanad-Kannur Service Co-operative Bank Ltd. and others in I.T.A. Nos. 431 to 433/Coch/2017 & others dated 10/01/2018. The Tribunal followd the judgment of the Hon ble High Court of Kerala in the case of Chirakkal Service Co-operative Bank Ltd. (supra) The Tribunal held that the judgment of the Hon ble Apex Court in the case of The Citizens Co-Operative Society Limited vs Assistant Commissioner of Income Tax, reported in 397 ITR 1 (SC) is not .....

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y held in para 17 page 14 of the judgment that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. The Hon'ble High Court was considering the following substantial question of law: a) Whether on the facts and in the circumstances of the case under consideration/ the Tribunal is correct in law in deciding against the assessee/ the issue regardi .....

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e been classified as primary agricultural credit societies by the competent authority under the provisions of that Act The parliament, having defined the term 'coI. operative society' for the purposes of the BR Act with reference to, among other thing the registration of a society under any State law relating to co-operative societies for the time being; it cannot but be taken that the purpose of the societies so registered under the State Law and its objects have to be understood as tho .....

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it activities and to provide loans and advances for agricultural purposes; the rate of interest on such loans and advances to be at the rate fixed by the Registrar of cooperative societies under the KCS Act and having its area of operation confined to a village, panchayat or a municipality. This is the consequence of the definition clause in section 2(oaa) of the KCS Act. The authorities under the IT Act cannot probe into any issue or such matter relating to such applicants. 16. The position of .....

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e with the proviso to sub-clause 2 of section 5(cciv) of the BR Act. The different orders of the Tribunal which are impeached in these appeals do not contain any finding of fact to the effect that the bye- laws of any of the appellant or its classification by the competent authority under the KCS Act is anything different from what we have stated herein above. For this reason, it cannot but be held that the appellants are entitled to exemption from the provisions of section SOP of the IT Act by .....

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uch exemption. 8.2 In the instant case, the assessee's are all primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969. The certificate has been issued by the Registrar of Cooperative Societies to the above said effect and the same is on record. The Hon ble High Court, in the case cited supra, had held that primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969, is entitled to the benefit of deduction u/s 80P(2 .....

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eneral public / nominal members, the assessee would be doing the business of banking and therefore, would not be entitled to deduction u/s 80P(2) of the Income-tax Act. In the context of the submission made by the Revenue let me examine whether the judgment of the Hon ble Apex Court in the case of Citizens Co-operative Society Ltd. (supra) has application to the facts of the present case. 9. The Hon'ble Apex Court judgment in the case of Citizen Co-operative Society (supra) Ltd. was rendered .....

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of the aforesaid judgment had emphasized that even after the amendment made to the provisions of section 80 P of the Act by insertion of section 80P(4) of the Income-tax Act, the Primary Agricultural Credit Society is eligible for deduction under section 80 P of the Act. 9.1 The assessee society in the case considered by the Hon'ble Supreme Court was established on 31-5-1997 and was registered under section 5 of the Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995. Thereafter .....

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ive Societies Act, 1995. The assessing officer was of the view that the assessee therein cannot admit 'nominal members' and most of the deposits were taken from such category of person (as they were not members as per the provisions referred). The Apex Court in para 25 of the Judgment has pointed out that the main reason for disentitling the assessee from getting the deduction provided under section 80 P of the Act is not sub-section (4) of the Act. On the contrary, the Hon'ble Apex .....

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f 'nominal members' who are infact not the members in the real-sense. Therefore the deposits received from the carved out category viz nominal members who are not the members as per the provisions of the law referred to therein and without the permission of the Registrar of Societies was held to be violative of the provisions and were treated/ proceeded with as deposits from the Public. In other words, in the case before the Hon ble Supreme Court, the finding on the principle of mutualit .....

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esent cases are concerned, the definition of a 'member' as provided in Section 2(1) of the Kerala Cooperative Societies Act includes a nominal member. Section 2 (1) of the said Act is as follows: Member means a person joining in the application for the registration of a co-operative society or a person admitted to membership after such registration in accordance with this Act, the Rules and the Bye law and includes a nominal or associate member 9.4 The 'nominal member' is defined .....

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the Apex Court judgment cited supra. 9.6 In this context, it is relevant to mention that the Hon ble Supreme Court in the case of U.P. Co-operative Cane Union v. Commissioner of Income-tax (1999) 237 ITR 574 (SC)-para 8 of the judgment has observed as under:- 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 80P(2)(a)(i) must, there .....

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Court judgment had held that nominal member is also member under the Maharashtra Co-operative Societies Act and entitled for benefits under section SOP. [Para 17 to 20 of the judgment], as under:- 17. In case of M/s U. P. Co-op. Cane Union Federation Ltd., Lucknow (cited supra), the Supreme Court has held that the expression Member is not defined in the Income Tax Act. Since the Co-operative Society has to be established under the provisions of law made by the State Legislature in that regard, t .....

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Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 takes within its sweep even a nominal member, associate member and sympathizer member. There is no distinction made between duly registered member and nominal, associate and sympathizer member. 19. In the case of K.K.Adhikari (cited supra), Division Bench of this Court has held that the definition of a Member under Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 includes a nominal member or a sympathizer member. .....

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rther held by the Division Bench that there is nothing in Section 80P(2)(iii) of the Income Tax Act to the contrary. 9.8 As per section 3 of the Banking Regulation Act, 1949 the provisions of Banking Regulation Act shall not apply to Primary Agricultural Credit Societies. The explanation to section 80P(4) states that 'Primary Agricultural Credit Society' and 'Co-operative Bank' will have the same meaning as provided in Part V of the Banking Regulation Act, 1949. The explanation p .....

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