TMI Blog2022 (6) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety because Co-operative Bank must be engaged in the business of Banking as defined in the Section 5(b) of the Banking Regulation Act, which means accepting, for the purpose of lending or investment of deposits of money from the public. Similarly, u/s.22(1)(b) of the Banking Regulation Act, as applicable to Cooperative Societies, no Co-operative Society shall carry on in banking business in India, unless it is a Co-operative Bank and holds license issued on this behalf by the Reserve Bank of India. As there is no banking activity and it is not registered as a Bank and it does not hold any license issued by the Reserve Bank of India. The Assessee being a Primary Agriculture Credit Society is a Co-operative Society. The primary object of which is to provide financial accommodation to its members, i.e. members as well as Associate members for agriculture purposes or for purpose connected with the agricultural activities. Further, we are of the view that the provision of Section 80P(4) of the Act is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in the banking business, i.e. engaged in lending money to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Year 2010 2011. As regards to the Assessment Year 2014 2015, the matter was carried originally before the CIT(A) and consequently the Revenue filed an appeal against the order of the CIT(A) before the Tribunal and Tribunal in I.T.A. No.1952/Chny/2017 vide order dated 05.03.2018 remanded the matter back to the file of the Assessing Officer. The Assistant Commissioner of Income Tax, Non-Corporate Circle, Chennai passed the order giving effect to the order of the ITAT vide order dated Nil . The Assessee carried the matter before the CIT(A) and the CIT(A) vide impugned order dismissed the claim of the Assessee. 2. At the outset, it is noticed that the appeals for the Assessment Years 2010 2011 and 2014 2015 in I.T.A. No.31/Chny/2021 I.T.A. No.32/Chny/2021 are barred by limitation by 268 days. The appeal for the Assessment Year 2017 2018 in I.T.A. No.33/Chny/2021 is barred by limitation by 117 days. The Assessee has filed an affidavit along with a condonation petition for condonation of delay for these three appeals. 3. The learned Counsel for the Assessee took us through the condonation petition for the Assessment Year 2010 2011 and 2014 2015 and stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne in all the three appeals of the Assessee and hence they will argue for the Assessment Year 2010 2011 and take the facts from this Assessment Year only. Both had agreed that the same decision can be applied to the Assessment Year 2014 2015 and 2017 2018. 8. The grounds raised are lengthy and argumentative and hence we are not reproducing the grounds. 9. The brief facts are that the Assessee is a Co-operative Society registered under the Tamil Nadu Co-operative Societies Act, 1983 under the name and style as Tamil Nadu Cooperative State Agriculture and Rural Development Bank Limited . The Assessee Society is formed by the state of Tamil Nadu for the purpose of catering to the agricultural needs of the farmers by advancing long term agricultural loans with refinance facility from NABARD. The credit facility to the farmers is being provided to the Primary Co-operative Agricultural and Rural Development Banks, which in turn provides the credit facility to its farmers. The primary objective of the Assessee s Society is to finance 180 Primary Co-operative Agricultural and Rural Development Banks, who are members of the Assessee s Co-operative Society. These 180 Primary Co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mary agricultural cooperative societies which are engaged in agricultural and rural development bank whose business operations are confined to taluk level, the deduction would be available. In the present case, the AO had not gone into the question of verifying whether the Respondent- Assessee-Society is a mere co-operative society or a co-operative bank. In case, it is engaged in the activities of co-operative bank, and activities are not fined to the taluk level, it is clearly hit by provisions of Sub-section-4 of Section 80P of the Act. Further, it is also required to be verified whether the activities of the Respondent-Society are confined to its Members and non-members also. In these circumstances, we are of the considered opinion that the matter should be restored to the file of the AO for the purpose of carrying out exercise of verification of business activities of the appellant on the above lines and accordingly we remit the issue to the file of the AO for examining the applicability of the decision of the Hon ble Apex Court in the case of Citizen Co-operative Society Limited vs. ACIT reported in 397 ITR 1 (SC). 11. The Assessing Officer while giving effect to the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT judgement ties in the fact that since mutuality was not established , the deduction u/s.80P(2)(a)(i) is not allowed. In the Assessee s case also it is sufficiently proved from the aforementioned discussion that mutuality is not established at a structural level and that class B members or Associate members is merely another arrangement for getting deposits from general public without giving them effective Member status as per the bye-laws of the Assessee. 8.. Therefore, from the aforementioned discussions it is amply clear that the Citizen s Co-operative Society Vs. ACIT judgement of Honourable Supreme Court applies to the Assessee. Since principle of mutuality has not been established at a structural level, the deduction u/s.80P is disallowed and added to the total income. Aggrieved, the Assessee preferred an appeal before the CIT(A). 12. The CIT(A) vide order dated 18.03.2020 confirmed the action of the Assessing Officer and denied the claim of deduction u/s.80P(2)(a)(i) of the Act. The CIT(A) by following the decision of the Hon ble Supreme Court in the case of Citizen Co-operative Society Limited vs. ACIT reported in 397 ITR 1 (SC) disallowed the claim of deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nadu Cooperative Societies Rules. The learned Counsel for the Assessee stated that the main members are State Government and the Primary Co-operative Agricultural Rural Development Banks and also individual members who are admitted with the prior approval of the Registrar of the Co-operative Societies as an Associated Member in view of Section 2(6) of the Tamil Nadu Co-operative Societies Act and also Rule 22 of the Tamil Nadu Co-operative Societies Rules. It was contended by the learned Counsel for the Assessee that all the transactions are restricted to only the members and therefore the Assessee cannot be construed to carry on the business of banking as defined u/s.5(b) of the Banking Regulation Act, 1949. It was contended that the Assessee s Society is neither registered as a Banker under the Banking Regulation Act nor has obtained any license from the Reserve Bank of India. The learned Counsel for the Assessee argued that the proviso to Section 80P(4) of the Act specifically excludes the Co-operative Bank out of the ambit of Section 80P of the Act, since they have stated to function as any normal Bank and hence at no point it could be stated that the Assessee was brought into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above definitions; reverting to the facts and circumstances of the assessee s case, being the Principal Co-operative Society in the state of Tamil Nadu, the principle object of which is the financing of Primary Land Development Banks in the state; fits into the definition of State Co-operative Bank and therefore fits into the definition of Cooperative Bank. Now, that the Assessee being a Co-operative Bank, needs to be examined, if the assessee is a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank entitled for claiming the deduction u/s.80P of the Act. As per the definition in explanation (b) to Section 80P(4) of the Income Tax Act, the Primary Co-operative Agricultural and Rural Development Bank means a society having its area of operation confined to a Taluk .. . As the area of operation of the Assessee Society is entire state of Tamilnadu, it does not fit into the definition of Primary Co-operative Agricultural and Rural Development Bank . The Primary Agricultural Credit Society is defined in Section 56 read with Section (5)(cciv) of Banking Regulation Act as (1) The Primary object or principal busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(i) and 80P(2)(d) of the Act. In order to claim deduction u/s 80P(2)(a)(i) of the Act, the Assessee should be a Cooperative Society engaged in carrying on the business of banking or providing credit facilities to its members. This is a touch stone, as the principle of mutuality comes into operation for Co-operative Societies. In order to claim deduction in respect of 80P(2)(d) of the Act, the Assessee should have earned interest income or dividend income from its investment with any other Co-operative Society. It was argued that prima facie, Section 80P of the Act deals with deduction in respect of income of Co-operative Societies and not Co-operative Banks. The Assessee had claimed that they are Co-operative Society. They furnished only the details of A category members who were PCARD Banks located all over Tamil Nadu. They never gave the list of B category members or Associate members as they were general public. It was established that the B category members were general public, derived the facilities of the Assessee Bank without having any voting rights in the Bank. These B category members only gave the maximum business support to the Assessee Bank. In this conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nominal members. A broad comparison between Citizens Co-operative Society Limited (supra) and the Assessee was also placed on record and the learned CIT-DR argued that the decision of Hon ble Supreme Court in the case of Citizens Cooperative Society Limited (supra) is squarely applicable, as under: Broad comparison between Citizen Co-operative Society Limited and Assessee: Sl. No Particulars Citizen Co-operative Appellant [1] How many categories of members Two A B Two A B [2] Categories Ordinary Members Nominal Members Ordinary Members Nominal Members [3] Voting Right for Ordinary members given Yes Yes [4] Whether nominal member or Associate member had voting right ? No No Answer to Q.No.5 of the Assessment Order A.Y 2018-2019 [5] Deposits were accepted from nominal members Yes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mavilayi Appellant Object as per Bye Laws At Clause 5 of the Bye Law At Clause 3 of the Bye Law Object:- There were more than 43 objects; Refer paragraph 14 of the decision of the Supreme Court Shall primarily to Finance Primary Land Development Banks Refer page:93 of the paper book given by the Appellant Some of the objects go well beyond and include performing banking operations Refer paragraph-15 of the decision of the Supreme Court No such objects for the Appellant 19. During the course of hearing, the learned CIT-DR referred to a letter dated 28.01.2022 written by the MD of the Bank to the Principal Commissioner of Income Tax in connection with the recovery proceedings that was placed before the Bench and argued that the Assessee is a Bank and not a co-operative society, to entitle the deduction of 80P of the Act. The letter categorically mentioned that their banking operations came to a grinding halt on account of recovery proceedings. It says that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in respect of loans granted by Tamil Nadu Co-operative State Land Development Bank to any institution approved by the Government by general or special order in writing, for such period and on such conditions as may be laid down by the provisions of the Act and the regulations made there under by the Board.[R.D. is 938/90C, dated 14.05.1990] (aa) TO OBTAIN LOANS WITH GOVERNMENT GUARANTEE FROM ANY FINANCING AGENCIES OR FROM GOVERNMENT WITHOUT FLOATATION OF DEBENTURE ON SUCH CONDITIOONS AS MAY BE LAID DOWN BY THE GOVERNMENT. (1) Enbloc amendments from 1 to 35 and 43 to 54 registered by the DR of CS(c) vide his letter No.Rc.4673/71-k, dated 21.05.1971 (2) Enbloc amendments from 36 to 42 registered by the DR of CS(c) vide his letter No.Rc.4673/71-k, dated 19.04.1971. (b) to receive deposits; (c) to grant loans to Primary Land Development Banks and other institutions referred to in by law 2(c) for the purpose specified in Rule 13 of the Tamil Nadu Co-operative Land Development Banks (Miscellaneous provisions) Rules 1970 and on such terms consistent with their bylaws as the Board shall decide; [No.Rc.1636/77K, dated 26.02.1977) (d) to function as the agent of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank Limited , but it is a cooperative Society registered under the Tamil Nadu Co-operative Societies Act, 1983. 22. We noted that the learned CIT-DR heavily relied on the decision of the Hon ble Supreme Court in the case of Citizen Cooperative Society Limited (supra); wherein the Hon ble Supreme Court has upheld the disallowance of the claim of deduction u/s.80P of the Act. We noted the facts that the Hon ble Supreme Court has discussed the following crucial aspects: I. The Society was originally formed under the mutually aided co-operative Societies Act, 1995 [MACSA] and subsequently had got registered under the Multi-State Co-operative Societies Act 2002 and their activities were in violations of the provisions of the Multi-State Co-operative Societies Act 2002 under which it had been functioning; II. The persons from whom deposits were received were not traceable; III. Additions were proposed u/s.68 of the Income Tax Act, 1961; IV. They had approached the Reserve Bank of India [RBI] vide letter dated 19.10.1997 requesting for conversion of the Cooperative Society into an Urban Bank; V. They had lent money to general public without obtaining permission from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociate Member as provided in Section 2(6) and in Section 2(16) reads as under: a. Definitions as in the Act: I. Section 2(6) of the Act defines Associate Member as member who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in this Act and the bye-laws. II. Section 2(16) of the Act defines a Member as a person joining in the application for the registration of a Society and a person admitted to membership after registration in accordance with the provisions of this Act, the Rules and Bye-laws and includes an Associate Member. We also noted that the Section 22 of the Tamil Nadu Cooperative Societies Act, 1983 and Rule 32 of the Tamil Nadu Cooperative Societies Rules describe the procedure for admission of Associate Member and the relevant Rule reads as under: I. Section 22 Admission of Associate Members: - (1) Notwithstanding anything contained in Section 21, every registered society of such class as may be prescribed may admit any person possessing such qualifications as may be prescribed, as an associate member. (2) Except as otherwise provided in the Rules, an Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reserve Bank of India [RBI]. The Assessee in the present case does not hold any license from the Reserve Bank of India or it is neither registered as a Banker under the Banking Regulation Act and as such, the Assessee is not allowed cheque or withdrawal facility and not allowed to issue Demand Draft and finally the deposits are only from the members or Associate members but not from nonmembers. 27. Before us, the learned Counsel for the Assessee has categorically made statement at the bar and produced evidences that the Assessee has records of the names and addresses of the members and all the members are identifiable and available. Further, it was contended that the Assessee has always submitted all relevant documents as and when sought for and it is not the case of the Assessing Officer that the Assessee has not submitted the relevant documents or any particular depositor is not an Associate member. Further, we also noted that the applicability of the provisions of Section 80P(4) of the Act was first raised by the Revenue for the Assessment Year 2009 2010, as the Assessee had adopted the same deduction and had filed his return of income accordingly. The Tribunal has cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on of the business of banking,. This was turned down by the RBI in a letter dated 25.10.2013 as follows: Application for license Please refer to your application dated April 10, 2013 requesting for a banking license. On a scrutiny of the application, we observe that you are registered as a Primary Agricultural Credit Society [PACS]. In this connection, we have advised RCS vide letter dated UBD (T) No.401/10.00/16A/2013-14 dated October 18, 2013 that in terms of Section 3 of the Banking Regulation Act, 1949 [AACS], PACS are not entitled for obtaining a banking license. Hence, your society does not come under the purview of the Reserve Bank of India, RCS will issue the necessary guidelines in this regard. After considering these, the Hon ble Supreme Court has summed up the issue in paragraph nos.45 and 46 as under: 45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Limited (supra), must be given effect to Section 80P of the Income Tax Act, being a benevolent provision enacted by the Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Act, the rules and the bye-laws for the time being force but a reference to members anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power have no such liability or duty; 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). 29. Another aspect highlighted by the learned Counsel for the Assessee is that the Revenue while framing the assessment u/s.143(3) of the Act for the Assessment Year 2017 2018, vide order dated 25.12.2019 has accepted the above stated position that the Assessee is a Co-operative Society and is not engaged in any banking business and therefore eligible for claim of deduction u/s.80P(2) of the Act and further the Revenue has followed the decision of the Hon ble Supreme Court in the case of Mavilayi Cooperative Society Limited (supra). It means that the Revenue has accepted the position in the Assessment Year 2017 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
