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2018 (3) TMI 373

Ltd. [2018 (2) TMI 866 - ITAT COCHIN] 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 Regulation Act are not entitled for banking license. - The assessee had extended credit facilities only to the members. The Revenue does not have a case that such credit facilities are extended to the outsiders. Therefore the income generated in the instant case is only out of the transaction with the members. Deduction u/s. 80P is allowed only for the said income. The assessee had claimed deduction u/s. 80P only in respect of net income which is derived by extending credit facilities to the members. - Decided against revenue - I.T.A. No. 484-486 /Coch/2017 - Dated:- 7-3-2018 - Shri George George K., JM Revenue by Shri A. Dhanaraj, Sr. DR Assessee by Shri George Thomas, CA ORDER Per George George K. Judicial Member T .....

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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 this, is not the decision of the CIT(A) against the 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. 80P on the above lines, when in 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 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 Co- operative Society Limited Vs A .....

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fication. In view of this, is not the decision of the CIT(A) without merit? 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 that of the Assessing Officer restored. 6. The Ld. DR relied on the grounds raised by the Revenue. 7. The Ld. AR in the case of appeal in ITA No. 484/Coch/2017 submitted that the issue in question is squarely covered in favour of the assessee by the judgment of the Hon ble Kerala High Court in the case of Chirakkal Service Co- operative Bank Ltd. vs.CIT reported in 384 ITR 490. 8. I have heard the rival submissions and perused the material on record. An identical issue was considered by this Tribunal in the case of Nannambra Service Co-operative Bank Ltd. in I.T.A. Nos. 436-438/Coch/2016 dated 08/02/2018. 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 also distinguished the judicial pronouncements relied on by the Revenue in its grounds and additional grounds in the case of Nannambra Service Co-operative Bank Ltd. (supra) and decided the issue in favour of the assessee b .....

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edit societies by the competent authority under the provisions of that Act The parliament, having defined the term 'co- 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 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 the 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 co- operative societies under the KCS Act and having its area of operation con .....

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dit society, going by the judgment of the Hon ble jurisdictional 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 are 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 judgment 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 .....

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nd 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 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 As far as the Kerala Co-operative Societies Act which is applicable to the present 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 include .....

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he Supreme Court has further observed that it is necessary to construe the expression "Member" in Section 80P(2)(a)(i) of the Act in the light of the definition of "Member" given under Section 2(n) of the U.P. Co-operative Societies Act, 1965. 18. The definition of "Member" given in 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. 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 The Commissioner of Income Tax, Nasik (cited supra) has also taken a similar view that the definition of &qu .....

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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. 7.1 The facts of the instant cases are identical to the facts considered by the Tribunal in the above cases. Following the order of the Tribunal in the above mentioned cases, we hold that the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s. 80P(2) of the Act. 7.2 Before concluding, it has to be mentioned that the case law relied on by the Revenue in the grounds, additional grounds are not applicable to the facts of the present case. Undisputedly, the assessee is a primary agricultural credit society and is providing credit facilities to its members for agriculture and agriculture allied activities. The competent authority of Co- operative Department of Government of Kerala having been satisfied with the activities of the assessee, has classified the assessee as PACS (primary agricultural credit society). The Hon ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Limited &, Ors. (supra) has elaborately considered the issue and has categorically held that the certificate issued by th .....

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e combined net profit. On the contrary, in the instant case, the assessee had extended credit facilities only to the members. The Revenue does not have a case that such credit facilities are extended to the outsiders. Therefore the income generated in the instant case is only out of the transaction with the members. Deduction u/s. 80P is allowed only for the said income. The assessee had claimed deduction u/s. 80P only in respect of net income which is derived by extending credit facilities to the members. For the aforesaid reasons, the judicial pronouncements relied on by the Revenue in the grounds and the additional grounds does not have application to the instant case. Therefore, we hold that CIT(A) s order is correct and in accordance with law. It is ordered accordingly. 8.1 In view of the above finding of the Tribunal which had elaborately considered the judicial pronouncements on the said issue and had followed the judgment of the Hon ble Jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. (supra), we hold that the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s. 80P(2) of the I.T. Act. It is ordered accordingly. 9. .....

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