TMI Blog2018 (3) TMI 1793X X X X Extracts X X X X X X X X Extracts X X X X ..... s missing in that case. Although, both the Members to the transactions of these assessees are the contributors towards surplus, however, the Associate Members are not entitled to the benefits of surplus of these assessees and hence, the principles of mutuality is missing in these cases. These assessee s cannot be treated as a Co-operative Society meant only for its Members and providing credit facility to its Members and hence they are not entitled to the benefit of section 80P(2)(a)(i) - Decided in favour of revenue - I.T.A. No. 2327/Chny/2017, 2331/Chny/2017, 2332/Chny/2017 & CO No. 180/Chny/2017 Assessment Year: 2011-12 And 2014-15 - - - Dated:- 27-3-2018 - Shri George Mathan, Judicial Member And Shri S. Jayaraman, Accountant Member Revenue by: Shri Shaji P Jacob, Addl. CIT Assessee by: Shri A.S. Sriraman, Shri M. Narayanan, Shri M. Balu, CA ITP ORDER S. Jayaraman, ITA No. 2327/2017 is the appeal filed by the Revenue against the order of the CIT(A), Salem in ITA No: 173/2016-17 dated 20.06.2017 for assessment year 2011-12. ITA No. 2331/2017 is the appeal filed by the Revenue against the order of the CIT(A), Salem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans, consumer loans, Short- term loans, housing loan etc. On perusal of the jewel loan applications, which is the major chunk of lending of the above bank, it is noted that all such loans have been given for the purposes other than agricultural activities. This is purely a commercial banking activity. Further, during the course of hearing, it was stated that the rate of interest during the period relevant to the above assessment year on various loans is 12% to 14% which is at par with other commercial banks. For agricultural activity, the society has to charge interest at the rate not above 7 % whereas the prevailing rate is 12% to 14%. (b). The circumstances clearly indicate that the activities of the society are never intended to help the agriculturists by providing cheap money for promotion of agriculture. The activities are clearly carried out with profit motive. Merely naming the society as primary agriculture co-operative society is not sufficient for claiming deduction under section 80P(2)(a)(1), but the principal or predominant activities of the bank should be in connection with agricultural purposes or for purposes connected with agricultural activities. Consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... YES NO Right to participate in general body YES NO Right to profits or losses YES NO Right over the assets of the society YES NO Right to refund the membership fee paid YES NO Period upto which membership is valid Till the death or till such period the membership is not revoked due to insolvency, insanity etc., Membership is valid up to a period of 3 years or till the existence of loan whichever is earlier Renewal of membership YES NO From the above, it is clear that the associate member is admitted in to the society for the purpose of availing loan and don't have any other rights /obligations as endowed to a member . The DR relied on the decision of the Hon ble SC in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs are enjoying all these rights in addition to other rights and liabilities' in the society as specified in the bye-law. 'Associate members' cannot be regarded as members of the Society etc , as extracted supra , in a table form. The AO examined the books of accounts and found that the society had advanced loans to non-voting/non-profit sharing members and earned profit from them. However, the profit was shared only with the voting members/shareholding members and hence, principles of mutuality did not exist among all the classes of members and accordingly held that the assessee is not eligible for deduction u/s. 80P(2)(a)(i) and completed the respective assessments. These findings have not been disputed. Thus, when the profits of the assessees are not shared with Associate Members as is done with the Members, it is clear that these assessees cases fail on the principles of mutuality. Let us examine the relevant portion of the decision of the Supreme Court in the case of The Citizen Co-operative Society Limited, Through its Managing Director, Hyderabad vs ACIT dated 08.08.2017 in Civil Appeal No. 10245 of 2017, relied on by the DR, as under: 23) With the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a co-operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act. 26) It is in this background, a specific finding is also rendered that the principle of mutuality is missing in the instant case. Though there is a detailed discussion in this behalf in the order of the Assessing Officer, our purpose would be served by taking note of the following portion of the discussion: As various courts have observed that the following three conditions must exist before an activity could be brought under the concept of mutuality; that no person can earn from him; that there a profit motivation; and that there is no sharing of profit. It is noticed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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