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TMI Blog2018 (4) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.12.2016. The relevant assessments year are 2012-2013 and 2013-2014. 2. Since common issues are raised in these appeals and cross objections, they were heard together and are being disposed off by this consolidated order. 3. We shall first adjudicate the common issue raised in both the appeals. The common issue that is raised in both the appeals is whether the CIT(A) is justified in directing the Assessing Officer to grant the benefit of deduction u/s 80P2)(a)(i) of the I.T.Act. 3.1 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 2012-2013 and 2013-2014, the assessee had claimed deduction u/s 80P(2)(a)(i) of the I.T.Act amounting to ₹ 1,04,53,398 and ₹ 3,37,43,805, respectively. The assessments were completed by denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act. The Assessing Officer concluded that since the assessee was doing the business of banking, it was not entitled to deduction u/s 80P(2) of the I.T.Act in view of insertion of section 80P(4) of the I.T.Act, with effect from 01.04.2007. 3.2 Aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns Co-Operative Society Limited vs Assistant Commissioner 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 Chirakkal Service Cooperative Bank Limited , Ors. (supra) had categorically 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 regarding entitlement for exemption under section 8OP, ignoring the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety as member, except may be, in accordance 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 8OP 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 classified so, under that Act including the appellants are entitled to such exemption. 8.2 In the instant case, the assessee's are all primary agricultural credit society registered under the Kerala Cooperativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 judgment) referring to the bye laws and the provisions of Mutually Aided Cooperative 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, 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 Section 80P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Co-operative Societies Act. 9.7 The Bombay High Court in 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 8OP. [Para 17 to 20 of the judgment], as under:- 17. In case of M/s U. P. Co-op. Cane Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination 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 Regulation Act are not entitled for banking license; (Copies of such letter from RBI are placed on record). 9.9 That being the case, the 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 Society' or a 'Co-operative bank', within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to pass a fresh assessment order untrammeled by any of the views expressed by the revisionary authority. Whereas the judgment of the Hon ble Jurisdictional High Court in the case of Chirakkal Service Cooperative Bank Ltd. (supra) was in respect of the assessment order passed by the Assessing Officer denying the deduction u/s. 80P and is identical to the facts of the present case. 7.4 Further the Reserve Bank of India, which is the authority under the Banking Regulations Act to decide as to whether a Co-operative Society is a Primary Agricultural Credit Society or not, has vide letter UBD(T) No. 438/12-01-008/2013-14 dated 25/10/2013 informed The Secretary, The Madai Co-operative Rural Bank Ltd. No. F.1233, Head Office, Payangadi Kannur-670303 and vide letter No. UBD(T) No.440/12-01-008/2013-14 dated 25/10/2013, The Kadirur Service Co-operative Bank Ltd. No.F 1262 HO Kadirur, Kannur-670 642 that an institution registered as a Primary Agricultural Credit Society (PACS) is not entitled to obtaining a Banking License, which implies that an entity which is registered as a Primary Agricultural Credit Society cannot be a Bank. A copy of said letter is on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P(2) with regard to the interest receipt of ₹ 2,33,750, by observing as under:- 3.1 For the year under consideration the assessee received an interest of ₹ 2,33,750 from Kaduthuruthy Urban Co-op. Bank Ltd. 3.2 As for the plain reading of section 80P(2)(d) of the Act, it derives that the deduction is to encourage investments in similar co-operative societies and not in banks or treasuries. Moreover, the term cooperative society is defined in the Income-tax Act itself vide section 2(19) as a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of cooperative societies; On the other hand, the Act specifies under explanation to section 80P that (a) co-operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949) and accordingly co-operative bank means a state co-operative bank, a central cooperative bank and a primary co-operative bank. Hence the distinction is evident and the intention- is specific so that the receipt become ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tments with sub-treasury is liable to be assessed under the head income from other sources or income from business . If the same is to be assessed under the head income from business , the assessee would be entitled to deduction u/s 80P(2) of the I T Act, in respect of interest received on such investments. The assessee admittedly is providing credit facilities to its members. Section 5(b) of the banking regulation Act 1948 defines banking as the accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order, otherwise. Now the question is whether a cooperative society or a primary agricultural society can do banking business and whether by doing such an activity, it loses the eligibility for deduction u/s 80P(2) of the Income-tax Act. The Hon ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamamitha vs ITO has clearly answered the issue. The Hon ble High Court, after considering the amendment introduced by Finance Act 2006 w.e.f 1.4.2007 (insertion of section 80P(4) of the income-tax Act, had rendered the following findings: Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility; but it is carrying on business of lending money to its members and therefore is covered u/s 80P(2) of the Act. The judgment of the Hon ble Apex Court in the case of M/s Totgars Cooperative Sales Society Ltd. (supra) relied by the CIT(A) is distinguishable on facts. The Hon ble Apex Court in the case of M/s Totgars Cooperative Sales Society Ltd (supra) was dealing with the case where the assessee apart from providing credit facilities to its members was also marketing agricultural produces grown by its members. Sale consideration received from the marketing of agricultural produce of its members was retained by the assessee in that case and was invested in short term deposits/securities. Such amount retained by assessee s society was shown as a liability in the balance sheet and therefore, to that extent interest income cannot be attributable neither to the activity mentioned in section 80P(2)(a)(i) or u/s 80P(2)(a)(iii) of the Act. This distinguishable feature has been taken note by the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd in ITA No.307 of 2014 ( judgment dated 28th Oct 2014). The Hon ble Karnataka High Court was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of banking and therefore it is liable to be deducted in terms of Section 80P(l) of the Act. In tact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME- TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., reported in (2011) 200 TAXMAN 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order: Appeal is allowed. 7.4 The Cochin Bench of the Tribunal in the case of the Kizhathadiyoor Service Coop Bank Ltd., on identical facts has rendered a decision in favour of the assessee. The relevant finding of the Cochin Bench of the Tribunal in the case of Kizhathadiyoor Service Cooperative Bank (supra) in ITA No. 525/Coch/2014, read as follows: 7.2 As regards the interest from treasury and banks, we find on identical facts, the Cochin Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd in ITA No. 372/Coch/2010 had decided the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative Bank. The investment in treasury/banks and earning interest on the same is part of the banking activity of the assessee s cooperative bank. Therefore, the said income is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, the Income Tax Authorities were not justified in treating interest income received by the assessee as income from other source and denying the benefit of section 80P(2) of the Act. It is ordered accordingly. 7.5 In view of the judgment of the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Coop Ltd (supra)and Cochin Bench of the Tribunal in the case of Service Coop Bank Ltd.,(supra), we are of the view that the assessee is entitled to the benefit of deduction u/s 80P(2) of the income-tax Act, with regard to interest received on deposits made by the assessee with sub treasury amounting to ₹ 3,30,866 for assessment year 2007-2008. It is ordered accordingly. 4.4 In view of the decision of the co-ordinate Bench of the Tribunal in the case of The Padne Service Co-operative Bank Ltd. (supra), we hold that the CIT(A) is justified in directing the A.O. to grant the benefit of deduction u/s 80P(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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