TMI Blog2021 (6) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in assessee s own case [ 2015 (3) TMI 317 - ITAT HYDERABAD] directed the AO to delete the disallowance made under the said section. On perusal of the orders of authorities below, we observe from the order of the Assessing Officer that various allegations have been made by the AO regarding the activity of the assessee , without obtaining licence from RBI the assessee carrying out the banking business activity, giving loan to Members and to others and kinds of Members etc which is clear from the assessment order. It is interesting to note here that both the authorities below alleged that the assessee is providing loans to others, but , it is clear from the order of the CIT(A) at para No. 4.3 of his order, the assessee has given loans to only shareholder members. The issue of deduction claimed U/s 80P(2)(d) has been decided by the coordinate bench of Tribunal in assessee s own case as cited supra and in which the decision of Hon ble Supreme Court Totgars Cooperative Sales Society Ltd. [ 2010 (2) TMI 3 - SUPREME COURT] has been discussed. TDS u/s 194A - Addition u/s 40(a)(ia) - HELD THAT:- Issue is covered by section 194A(3)(v) in assessee s favour being a payment ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii. Associate Members and Nominal members do not have any voting rights al1t1 do not participate in dividends. iv. Only permanent members, such as advocates have voting rights. v. The appellant accepts deposits mostly from the associate members and nominal members. vi. Depositors and borrowers are quite distinct and activity is finance business and cannot be termed as cooperative activity. One category of members is getting benefited at the expense of the. other category of members. vii. Assessee is also engaged in the activity of sale of stamps which is nothing to do amongst the cooperation of members. viii. Assessee has purchased' land by entering into transaction with non-members. ix. The principle of mutuality is missing in the society as permanent members are. enjoying the facility of availing loans. While disallowing the claim of deduction U/s.80P(2)(a)(i), the Assessing Officer relied upon the ratio of the decision of Hon'ble Supreme Court in the case of Citizen Cooperative Society Limited, Hyderabad decided in Civil Appeal Jurisdiction in Civil Appeal No.10245 of 2017 (arising out of the SLP(c) No.20044of.2015) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in assessee s own case cited supra, directed the AO to delete the disallowance made under the said section. 8.1 Further, on perusal of the orders of authorities below, we observe from the order of the Assessing Officer that various allegations have been made by the AO regarding the activity of the assessee , without obtaining licence from RBI the assessee carrying out the banking business activity, giving loan to Members and to others and kinds of Members etc which is clear from the assessment order. It is interesting to note here that both the authorities below alleged that the assessee is providing loans to others, but , it is clear from the order of the CIT(A) at para No. 4.3 of his order, the assessee has given loans to only shareholder members as under: Details of Membership Number of Members Amount received from Members Loans paid to Members Share Holder Members 1744 1,13,66,200 (share capital and share application money) 7,29,93,046 Associate Members 1558 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd from other cooperative society. 3. The A.O. while completing the assessment was of the opinion that assessee is not entitled for deduction under section 80P(2)(a)(i) on the reason that assessee has admitted nominal Members in violation of A.P. Cooperative Societies Act /Rules, 1964 as amended on 28.01.2002. He has elaborately discussed the rules and also the so-called violations stated to have been committed by the society. He came to conclusion that activity of the assessee is not 'banking activity' among its Members but finance business of accepting deposits (surety bonds for accused) and investing them in FDs/advancing loans to Members. A.O. noted that assessee is engaged in the activity of sale of stamps etc., to the outside world. AO denied the deduction under section 80P(2)(a)(i). However, A.O. also noted that assessee being a Cooperative Society made deposits with other Cooperative Institutions including Cooperative Banks. After analysing the income on certain parameters which he has considered, he allowed deduction of ₹ 34,57,307 under section 80P(2)(d) thereby, enhancing the 80P deduction but at the same time enhancing the total income also in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i). Revenue in its appeal has raised the following grounds : 1. The CIT(A) erred in overlooking the violation of provisions of A.P. Cooperative Societies Act, 1964 and the finding of A.O. that the activity of assessee is banking business and not carrying on the business of banking or providing credit facilities to its members as it was mobilizing funds from outsiders and doing normal banking business. 2. The observation of CIT(A) is misplaced with regard to deduction u/s.80P(2)(i)(a) is even otherwise given to the assessee even if it accepts deposits from non members. 3. The facts and issue involved in this case is similar for A.Y. 2008-09 also. The concept of mutuality and violation of banking regulation act, which are essential in determining the status and activity of assessee and whether assessee is eligible for deduction u/s.80P(2)(a)(i) was discussed elaborately in the assessment order for A.Y. 2008-09. This issue for A.Y. 2008-09 is also in appeal before ITAT. The A.O., though not discussed these issues in the assessment order for A.Y. 2007-08 is very much relevant in deciding the issue. Therefore, the same are applicable for this assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'business of banking or providing credit facilities to its Members'. This ground raised is also misplaced. Assessee by its bye laws has two types of Members. Vide bye law 3(iv)(a) Member means, Member/shareholder of the society. Bye-Law 3(iv)(b) defines Associate Member and Nominal Member means other than shareholder of the society. Therefore, the bye-laws itself distinguishes between Member and a Nominal Member/Associate Member, the later being not a shareholder of the society. As far as the objective is concerned, the objective of the society is to make economic and social upliftment and welfare of its Members and their families through the activities of the society in general and promote and protect the interest of the Advocates in particular, through mutually aid, thrift and self-help in accordance with the principle of cooperative, as enunciated in section 3 of the Act. The bye law 8 which define Membership clearly indicates that in case an applicant is admitted as a Member of the Society, the applicant has to remit the value of 50 shares at ₹ 100 each and non-refundable admission fees as decided by the Board from time to time. Bye law 8(vii) empowers the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0P on the activities with its Members only, while offering income to tax on the activities with non- Members/outside world, Revenue grounds raised in this regard are misconceived. We do not find any merit in the contentions raised by the Revenue in ground No.2. 8. With reference to ground No.3, also since assessee is not involved in business of banking and it is only a Cooperative Society registered under Mutually Aided Cooperative Societies Act, ground No.3 is also has no merit. However, the issue of ground No.3 is decided separately in A.Y. 2008-09. Therefore, as far as issues raised in A.Y. 2007-08 are concerned, we confirm the order of Ld. CIT(A) to that extent and reject the Revenue ground. 9. Coming to assessee's main contention about disallowance of an amount of ₹ 20,68,583, it was submitted that medi-claim and insurance claim was paid on behalf of the Members for their welfare. It is one of the objectives of the society to consider the welfare of its Members. As part of it, assessee has taken policies to protect the interests of the Members. This cannot be considered as a personal in nature. Assessee being a Cooperative Society there cannot be any ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. Explanation - For the purposes of this sub-section,- (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). (b) Primary Cooperative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long term credit for agricultural and rural development activities. 22.1. As per this section, the exemption provided under sub-section (2) or sub-section (3) does not apply to the incomes of the Cooperative Bank other than a primary agricultural Cooperative Society or a primary Cooperative Agricultural and Rural Development Bank. However, the above provision applicable in the case of Cooperative Bank is not in respect of interest received from Cooperative Banks by a Cooperative Credit Society/Cooperative Society. Section 80P(2)(d) is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anking or providing credit facilities to its members. What is important qua sub-clause (2)(a)(i) is the fact that the co-operative society must be 'engaged in' the providing credit facilities to its members. [Para 30] The statutory provision involved does not require the appellants to be primary agricultural credit societies to claim a deduction under section 80P(2)(a)(i) in the first place. [Para 31] The burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under section 80P. Therefore, the Assessing Officer under the IT Act cannot be said to be going behind any registration certificate when he engages in a fact-finding enquiry as to whether the co-operative society concerned is in fact providing credit facilities to its members. Such fact finding enquiry (see section 133(6)) would entail examining all relevant facts of the co-operative society in question to find out whether it is, as a matter of fact, providing credit facilities to its members, whatever be its nomenclature. Once this task is fulfilled by the assessee, by placing reliance on such facts as would show that it is engaged in providing credit faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cap of INR 50,000/- to be found in sub-clause (c)(ii). This puts paid to any argument that in order to avail of a benefit under section 80P, a co-operative society once classified as a particular type of society, must continue to fulfil those objects alone. If such objects are only partially carried out, and the society conducts any other legitimate type of activity, such co-operative society would only be entitled to a maximum deduction of ₹ 50,000/- under sub-clause (c). [Para 34] Sub-clause (d) also points in the same direction, in that interest or dividend income derived by a co-operative society from investments with other co-operative societies, are also entitled to deduct the whole of such income, the object of the provision being furtherance of the co-operative movement as a whole. [Para 35] Coming to the provisions of section 80P(4), it is important to advert to speech of the Finance Minister dated 28-2-2006, which reflects the need for introducing section 80P(4). [Para 36] Likewise, a circular dated 28-12-2006, containing explanatory notes on provisions contained in the Finance Act, 2006, is also important. [Para 37] The above material wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. [Para 45] It must also be mentioned here that 'nominal members' are 'members' as defined under the Kerala Act. Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). [Para 46] 8.5 We find that in the said case, the Hon ble Supreme Court has considered its case of Citizen Cooperative Society Ltd., on which reliance placed by both the authorities below, while disallowing the assessee s claim of deduction u/s 80P(2)(a)(i) of the Act. The issue of deduction claimed U/s 80P(2)(d) has been decided by the coordinate bench of Tribunal in assessee s own case as cited supra and in which the decision of Hon ble Supreme Court Totgars Cooperative Sales Society Ltd. Vs. ITO, 322 ITR 283 has been discussed. Respectfully following the above judgements cited supra, we allow the appeals of the assessee and dism ..... X X X X Extracts X X X X X X X X Extracts X X X X
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