TMI Blog2018 (7) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in this case is primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969. The assessee was providing credit facilities to its members. The returns of income were filed by the assessee claiming deduction u/s 80P(2)(a)(i) of the I.T.Act. The assessments were completed by denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act. The reasons for denying the benefit of deduction was that the assessee was doing the business of banking, and therefore, in view of insertion of provisions of section 80P(4) of the I.T.Act, the assessee was not entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. 3. Aggrieved by the orders of the Assessing Officer denying the claim of deduction u/s 80P(2)(a)(i) of the Act, the assessee preferred appeals before the first appellate authority. The CIT(A) following the judgment of the Hon ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. and Others [(2016) 384 ITR 490 (Ker.)] held that the assessee was entitled to the benefit of deduction u/s 80P(2) of the Act. 4. Aggrieved by the orders of the CIT(A), the Revenue has preferred these appeals before the Tribunal, rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee is merely providing agricultural credit to its members thereby 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 ITR 1027 (SC) had held that the eligible deduction under Section SOP of the Income Tax Act, 1961 in respect of Co-operative societies/ banks doing both agricultural and non 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited Ors. (supra). The relevant finding of the Tribunal reads as follows:- 7. We have heard the rival submission and perused the material on record. The undisputed facts are that the assessees in these cases are primary agricultural credit societies, registered as such under the Kerala Co-operative Societies Act. The Hon ble jurisdictional High Court in the case of Chirakkal Service Co-operative 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 80P, ignoring the fact that the assessee is a primary agricultural credit society? 7.1 In considering the above question of law, the Hon'ble High Court rendered the following findings: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ached 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 sub-section 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 80P 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. 7.2 In the instant cases, the assessees are primary agricultural credit societies 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulti State Co-operative Societies Act, 2002 (MACSA) 8.2 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 Co-operative 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 80P 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 80P 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 specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Act. Since a co-operative 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 Section80P(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. 8.7 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 80P. [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 supre), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 8.9 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 'Cooperative 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 5 r.w.s Section 56 of the Banking Regulation Act. 8.10 In view of the aforesaid reasoning, we hold that the judgment of the Hon ble Apex Court in Citizen Cooperative Society Ltd. is not applicable to the facts of the present cases. According ..... 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