TMI Blog2019 (6) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... i) is restored to the AO. AO shall examine the activities of the assessee and determine whether their activities are in compliance with the activities of a cooperative society functioning under the Kerala Co-operative Societies Act, 1969 and grant deduction u/s 80P(2) in accordance with law. It is ordered accordingly. Appeals filed by the Revenue are allowed for statistical purposes. - ITA No.83/Coch/2019 - - - Dated:- 20-6-2019 - Shri Chandra Poojari, AM And Shri George George K, JM For the Appellant : Smt.A.S.Bindhu, Sr.D For the Respondent : Sri.Hamid Hussain K.P. ORDER PER GEORGE GEORGE K, JM This appeal at the instance of the Revenue is directed against CIT(A) s order dated 17.10.2018. The relevant assessment year is 2015-2016. 2. The solitary issue raised in this appeal is whether the assessee is entitled to deduction u/s 80P of the I.T.Act? 3. Brief facts of the case are as follows: The assessee in this case is a registered as co-operative societies under the Kerala State Co-operative Societies Act, 1969. The assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Class C is governed /co-operative bank / NABARD controlled recognized institutions. No nominal or associate member shall be entitled to dividend or have any interest in the management thereof including right to vote, elect as a director of the board of participate in the general body meetings. No nominal or associate member (Class B D) and Class C members shall be entitled to dividend or have any interest in the management thereof including right to vote, elect as a director of the board or participate in the general body meetings. Only ordinary / resident members have right to dividend and have any interest in the management thereof including right to vote, elect as a director of the board or participate in the general body meetings. Only ordinary / resident members have right to dividend and have any interest in the management thereof including right to vote, elect as a director of the board or participate in the general body meetings. Nominal members are just walk in customers, where the only criter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e surplus must be contributors to the common fund ie there should be complete identity between the contributors and participators. This means identity as a class, so that at any given moment of time, the persons who are contributing are identical with the persons entitled to participate. However in the instant case, the members are differentiated in terms of privileges granted to them. Therefore, the identity of the contributors to the fund is different from that of the participators of the surpluses. Therefore we have a scenario which is the same as in the case of MIs Citizens Co-Operative Society Limited. In this context, hasn't the CIT(A) erred in holding that the decision of the Apex Court in the case of M/s Citizen Service Co-Operative Society is not applicable to the instant case of the assessee? 5. Class C and D members are just nominal members who can take loans against security and do not have any other rights. Majority of income is received by the society from nominal members through non agricultural gold loan interest and majority of such income is used to give agricultural loans to ordinary members. In short, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers. Once the principle of mutuality is defeated, it has been laid down by the Apex Court that the society is not eligible for deduction u/s. 80P. In view of this, is not the decision of the CIT(A) without merits? 7. Co-Operative society is organized to enable the members to improve their economic conditions by helping them in respective pursuits and not to earn profits. However, a cooperative society is not restrained from earning profits. What is to be avoided is not the profit, but profit motive. Even though the bye law of the assessee speaks nothing about profit making, it discusses about dividend distribution and also regarding the other applications of profit earned. Moreover, the assessee is investing in shares of district co-operative bank and also many different societies and earning dividends. Therefore, even though it is not stated explicitly as the objective of the assessee, it is evident that the assessee is profit driven and distributes its dividend to Class - A members. It was explicitly stated by the Supreme Court in its order in the case of M/s Citizen Service Co-Operative Society as two of the conditions p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act cannot probe into any issue or such matter relating to such assesses. However, when the case was again taken for hearing in the case of other assessees, the Hon'ble High Court of Kerala vide order in ITA No : 97 of 2016 dated 09.07.2018 cited has held that since two contrary decisions of benches of equal strength exists for the same issue, the issue should be referred to a larger bench relying on the decision of the Apex Court in the case of M/s Victory Aqua Farm Ltd. Therefore, the issue of deduction u/s. 80P has not attained finality. In this scenario, isn't the order of the CIT(A) relying on the decision of one division bench of the Hon'ble High Court in the case of M/s Chirakkal Service Co-Operative Bank Ltd without merits when there existed another division bench decision of the High Court which was favourable to the revenue? 10. The judicial ratios in the cases of CIT v. Bandipur Club Ltd. [1997] 226 ITR 97 and Wankaner Jain Social Welfare Society v. CIT [2003] 260 ITR 241 (Mad.) wherein it was held that there must be complete identity between the contributors and the participators for the principle of mutuality to hold g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under Section 80P of the IT Act, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under subsection (4) of Section 80P. 33. In Chirakkal [384 ITR 490] the Division Bench held that the appellant societies 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 to be fixed by the Registrar of Co-operative Societies under the KCS Act and having its area of operation confined to a Village, Panchayat or a Municipality and as such, they are entitled for the benefit of sub-section (4) of Section 80P of the IT Act to ease themselves out from the coverage of Section 80P and that, the authorities under the IT Act cannot probe into any issues or such matters relating to such societies and that, Primary Agric ..... X X X X Extracts X X X X X X X X Extracts X X X X
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