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2018 (2) TMI 590

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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01/04/2007, the assessee was not entitled to deduction u/s. 80P of the Act for the assessment year 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 Ke .....

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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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that the depositors and borrowers in the appellant 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 t .....

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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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e perused the material on record. An identical issue 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 followed 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 Commissio .....

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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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e principal object of such societies is to undertake agricultural credit 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 .....

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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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e received from general public / nominal members or loans are disbursed to general 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 ju .....

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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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took note of the fact that the assessee therein has carved out a category of '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 cas .....

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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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Co-operative Societies Act." 9.7 The Bombay High Court ih Jalgaon District Central v. UOI (2004) 265 ITR 423 (Bom) in the light of the above Supreme 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& .....

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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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ation thereof by the Reserve Bank shall be final. The Reserve Bank of India, which is the competent authority as per the Banking Regulation Act, treats assessee society and similar societies as only "Primary Agricultural Credit Society" not falling within the ambit of Banking Regulation Act. The Reserve Bank of India has given letters to the societies similar to assessee stating that they are Primary Agricultural Credit Societies and therefore in terms of section 3 of the Banking Regul .....

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in the above cases and I uphold the orders of the CIT(A). It is ordered accordingly. 10. In the result, these appeals filed by the Revenue are dismissed. 6.1. The facts of the instant case are identical to the facts considered by the Tribunal in the above cases. Following the order of the Tribunal in the above mentioned cases, I hold that the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s. 80P(2) of the Act. It is ordered accordingly. 7. In the result, the appeal f .....

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