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TMI Blog2018 (3) TMI 1807X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the assessee is not eligible for deduction u/s. 80P(2)(a)(i) and completed the assessment. Aggrieved, the assessee filed appeals before the CIT(A) . The CIT (A) allowed the appeal. Aggrieved the Revenue filed this appeal. 3. The DR submitted that an assessee would be eligible for relief only if it falls within two categories of co-operative banks i.e., 'primary agricultural cooperative society' and 'primary co- operative agricultural and rural development bank'. From the details furnished by the assesses and on going through the books etc. the following facts emerged: (a). Even though the bank is registered as a primary agriculture co- operative society, it has not carried out any activities in connection with the agriculture activities/purposes as provided under explanations of section 80(P)(4). The activity of the bank is entirely that of commercial banking and it has earned interest income at par with other commercial banks. During the financial year relevant to the above assessment year, the Society has advanced loans, which includes jewel loans, Pay loan, Microcredit loans, deposit loans, consumer loans, Short- term loans, housing loan etc. On peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and liabilities' in the society as specified in the bye-law. 'Associate members' cannot be regarded* as members of the Society. (d) The Co-operative Societies function under the State Co-operative Societies Act. In the State Co-operative Societies Act, the word 'member' is used in various Sections, to mean 'share-holding members' only. Section 2(7) of State Co-operative Societies Act defines 'associate member' as the "one who posses only such privileges and rights and subject to only such liabilities as may be specified in the bye-laws". As per the Bye-law of the society, the difference in right and privilege between the shareholding member and Associate member can be distinguished as below: Particulars Member Associatemember Payment towards share capital YES NO Right to vote YES NO Right to be an office bearer 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing rights and also do not have any right to participate in general administration and to attend any meeting etc. Only A-class members are allowed the above privileges. B-class members are admitted for the limited purpose of availing loans only. Subsequently, on discharging of their loan liability, they simply relinquish their membership and do not have any further role to play in the society. On the other hand, share-holding members are enjoying all theserights 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 assessment. These findings have not been disputed. Thus, when the profits of the assessee are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal sense. Most of the business of the appellant was with this second category of persons who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity 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 Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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