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The Income Tax Officer Versus M/s. Nilambur Service Cooperative Bank Ltd.

2018 (2) TMI 590 - ITAT COCHIN

Denying the benefit of deduction u/s. 80P(2) - 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) as primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969 is entitled to deduction u/s. 80P(2). See Edanad-Kannur Service Co-operative Bank Ltd. and others [2018 (1) TMI 848 - ITAT COCHIN]. - Decided in favour of assesse .....

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or the assessment year 2013-14, the return of income was filed after claiming deduction u/s. 80P of the I.T. Act amounting to ₹ 35,97,750/-. The assessment was completed for the assessment year 2013-14 by denying the benefit of deduction u/s. 80P(2) of the Act. The reasoning of the Assessing Officer for denying the deduction u/s. 80P of the Act was that the assessee was mainly doing the business of banking and in view of insertion of sub-section (4) to sec. 80P of the Act with effect from .....

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rala Co-operative Societies Act, 1969 is entitled to deduction u/s. 80P(2) of the I.T. Act. 4. Aggrieved by the order of the CIT(A) in allowing the claim of deduction u/s. 80P(2)of the Act, the Revenue has filed the present appeals before the Tribunal. The grounds are raised by the Revenue read as follows: 1. In view of the recent decision of the Hon'ble Supreme Court in the case of The Citizens Co-Operative Society Limited vs Assistant Commissioner of Income Tax, Circle- 9(1), Hyderabad dat .....

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sified as a Primary Agricultural Credit Society by the Competent Authority under the Kerala Cooperative Societies (KCS) Act. As against this, the Honourable Supreme Court has while deciding in the case of The Citizen Co-Operative Society Limited vs Assistant Commissioner of Income Tax, Circle- 9(1), Hyderabad taken into consideration the activities of the assessee society and not relied only on the certificate of registration issued by the Central Registrar of Co-operative societies. In view of .....

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n the recent decision in the case of The Citizen Co-Operative Society, the Honourable Supreme Court has, after taking into account the activities of the appellant Co-operative Society, held that the appellant could not be treated as a co-operative society meant only for its members and providing credit facilities only to its members. 4. The Honourable Supreme Court had in the case of The Citizen Cooperative Society Limited Vs Assistant Commissioner of Income Tax, Circle-9(1), Hyderabad observed .....

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hereby validating the claim of tax exemption u/s 80P(4) or performing activities beyond its approved framework that enables disallowance of such claim. In view of this, is not the decision of the CIT(A) without merits? 5. The learned CIT(Appeals) ought to have seen that the Honourable Supreme Court in the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd Vs CIT reported in 203 ITR1027 (SC) had held that the eligible deduction under Section 8OP of the Income Tax Act, 1961 in respect of Co-operati .....

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the authorities under the Income Tax Act cannot probe into the question of whether the assessee Cooperative society is a primary agricultural credit society once it is registered and classified as primary agricultural credit society by the competent authorities under the provisions of the Kerala Co operative Societies Act, 1969 . 7. The judicial ratios in the cases of Rodier Mill Employees Co-op Stores Ltd. vs CIT 135 ITR 355 (Mad), CIT vs Kerala State Co-operative Marketing Federation Ltd.[199 .....

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at the order of the CIT(A) may be set aside and that of the Assessing Officer restored. 9. Even though the tax effect is below the prescribed limit, appeal is being filed as the tax effect exceeds the prescribed limit for filing further appeal in the other assessment year in the combined order. 5. The Ld. DR relied on the grounds raised in the Memorandum of Appeal. None was present on behalf of the assessee. However, I proceed to dispose of the appeals on merit after hearing the Ld. DR. 6. I hav .....

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ner of Income Tax, reported in 397 ITR 1 (SC) is not applicable to the facts of the case. The relevant finding of the Tribunal dated 10/01/2018 is reproduced below: 8. I have heard the rival submission and perused the material on record. The undisputed facts are that the assessees in these cases are all primary agricultural credit society and they are registered as such under the Kerala Cooperative Societies Act. The Hon'ble jurisdictional High Court in the case of Chimkkal Service Co-operat .....

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in law in deciding against the assessee/ the issue regarding entitlement for exemption under section 8OP, ignoring the fact that the assessee is a primary agricultural credit society?" 8.1 In considering the above question of law, the Hon'ble High Court rendered the following findings: "15. Appellants in these different appeals are indisputably societies registered under the Kerala Cooperative societies Act 1969, for short, KCS Act and the bye-laws of each of them, as made availab .....

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tered under the State Law and its objects have to be understood as those which have been approved by the competent authority under such State law. This, we visualize as due reciprocative legislative exercise by the Parliament recognizing the predominance of decisions rendered under the relevant State Law. In this view of the matter, all the appellants having been classified as primary agricultural credit societies by the competent authority under the KCS Act it has necessarily to be held that th .....

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issue or such matter relating to such applicants. 16. The position of law being as above with reference to the statutory provisions, the appellants had shown to the authorities and the Tribunal that they are primary agricultural credit societies in terms of clause (cciv) of section 5 of the BR Act having regard to the primary object or principal business of each of the appellants. It is also clear from the materials on record that the bye-laws of each of the appellants do not permit admission of .....

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tled to exemption from the provisions of section SOP of the IT Act by virtue of subsection 4 of that sect; on. In this view of the matter, the appeals succeed. 17. In the light of the aforesaid, we answer substantial question: A in favour of the appellants and hold that the Tribunal erred in law in deciding the issue regarding the entitlement of exemption under section 8OP against the appellants. We hold that the primary agricultural credit societies, registered as such under the KCS Act; and cl .....

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ative Societies Act, 1969, is entitled to the benefit of deduction u/s 80P(2). Since there is a certificate issued by the Registrar of Cooperative Societies, stating that the assessee is a primary agricultural credit society, going by the judgment of the Hon ble jurisdictions! High Court, assessee is entitled to deduction u/s 80P(2). However, the Revenue's contention is that the Hon ble Apex Court in the case of Citizens Cooperative Society Ltd. (supra) categorically decided when deposits ar .....

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dgment in the case of Citizen Co-operative Society (supra) Ltd. was rendered in the context of eligibility of a Credit Co-operative Society for deduction under section 80 P of the Act. The Apex Court, referring to the specific facts of the case held that the assessee therein is not entitled for deduction under section 8OP of the Income-tax Act. In the aforesaid case, the Hon'ble Apex Court was not dealing with a case of eligibility of a Primary Agricultural Credit Society for deduction under .....

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Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995. Thereafter as the operations of the assessee had increased manifold and spread over states of Erstwhile, Andhra Pradesh, Maharashtra and Karnataka, the assessee-society got itself registered on 26.07.2005 under the Multi State Co-operative Societies Act, 2002 (MACSA) 9.2 The Hon ble Apex Court in the aforementioned case specifically took note of the factual findings of the assessing officer (which was stated in para 15 of the judgm .....

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ct is not sub-section (4) of the Act. On the contrary, the Hon'ble Apex Court held that the Credit Co-operative Society was not entitled for deduction u/s 8OP of the Act for the reason of categorical finding of the A.O. that the activities of the assessee are in violation of the Provisions of the MACSA under which it is formed as the substantial deposits were from 'nominal members' who are actually non-members as per the provisions of law referred. The Hon ble Apex Court specifically .....

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e before the Hon ble Supreme Court, the finding on the principle of mutuality was arrived at interalia; on the factual finding that the assessee was receiving deposits mostly from a carved out category of member viz 'nominal member' who are not members as per the provisions of law referred,, and that most of the business of the assessee therein was with this carved out category of person and also granting loans to public and without the approval from the Registrar of the Societies. 9.3 A .....

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w and includes a nominal or associate member" 9.4 The 'nominal member' is defined under 2(M) of the Kerala Cooperative Societies Act, 1969, which reads as follow: - "(m) nominal or associate member' means 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 the bye-laws;" 9.5 Therefore, in the present cases, the nominal members are members as provided in law and deposits from s .....

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ovisions of the law made by the State Legislature in that regard, the expression "members" in section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption, has been formed. It is, therefore, necessary to construe the expression "members" in Section80P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the .....

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quot; 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, the expression "Member" in Section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of law enacted by the State Legislature under which the co-operative society claiming exemption has been formed. The Supreme Court has further observed that it is necessary to construe the expression "Me .....

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.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. It is further held that notwithstanding the fact that a nominal member does not enjoy all the rights and privileges which are available to an ordinary member, his status is that of a member as defined in Section 2(19) of the Act. 20. Division Bench of this Court in the case of Th .....

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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 provided after clause (ccvi) of section 5 r.w.s 56 of the Banking Regulation Act specifically provides that if any dispute arises as to the primary object or principal business of any cooperative society referred to in clauses (cciv), (ccv) and (ccvi), a determin .....

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