TMI Blog2022 (8) TMI 1270X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 80P(2)(a)(i) and such income earned from business with persons other than the regular members would be taxable as income from business. Similar issue was placed for adjudication before ITAT, Chennai Bench, Chennai in the case of Varathappam Palayam Primary Agricultural Co-op. Credit Society [ 2022 (7) TMI 113 - ITAT CHENNAI] wherein held that irrespective of the fact that whether the assessee is having A class Members or B class Members, the assessee is entitled for claiming exemption under section 80P(2)(a)(i). Thus we are compelled to held that the assessee is eligible for exemption under section 80P(2)(a)(i) of the I.T. Act, 1961 from the income earned from its regular members as well as from Associate/Other members. Therefore, the A.O. was not right in making disallowance and the Ld. CIT(A) has also erred in confirming the baseless and unsustainable disallowance. Therefore, grounds of assessee are allowed and A.O. is directed to allow the deduction under section 80P(2)(a)(i) - Appeal of assessee allowed. - ITA.No.18/PAN/2019 - - - Dated:- 17-8-2022 - Shri Chandra Mohan Garg, Judicial Member And Shri Girish Agrawal, Accountant Member For the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing credit facility to members. The A.O, accordingly held that the income of a Co-operative Society, including the profits and gains of banking or providing credit facility carried on by such Co-operative Society, is not eligible for deduction, if they are a Co-operative Bank within the meaning of part -V of the Banking Regulation Act, 1949. The A.O, therefore, disallowed the claim of exemption under section 80P(2)(a) of the I.T. Act, 1961, by holding that the assessee-society fulfils all conditions that are required to treat the assessee society as a Co-operative Bank/Primary Co-operative Bank, and the provisions of Section 80P(4) of the I.T. Act, 1961, are applicable. Accordingly, the A.O. computed the total income of assessee-society at Rs.1,86,26,310/- under section 143(3) of the I.T. Act, 1961. 2.2. Aggrieved by the order of the A.O. the assessee society carried the matter in appeal before the Ld. CIT(A). Despite several opportunities/adjournments provided to the assessee-society to put-forth its submissions, the assessee society did not appear before the Ld. CIT(A) nor filed any documentary evidences in support of its claim of deduction under section 80P(2)(a)(i) of the I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gular members would not be eligible for deduction under section 80P(2)(a)(i) of the I.T. Act, 1961 and such income earned from business with persons other than the regular members would be taxable as income from business. Similar issue was placed for adjudication before ITAT, Chennai Bench, Chennai in the case of Varathappam Palayam Primary Agricultural Co-op. Credit Society vs. ITO u/s 270 order dated 29.06.2022 in ITA No.282/Chny/2021 for AY 2016-17, wherein the Coordinate Bench of the Tribunal after considering the Judgment of ITAT, Chennai Bench in the case of AA-435 Velankattuvalasu Primary Agricultural Cooperative Credit Society Ltd. v. ACIT in I.T.A. Nos. 600 601/Chny/2021 for the assessment years 2011-12 2017-18 dated 29.04.2022, held as under:- 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Similar issue on identical facts was subject matter in appeal before the Tribunal in the case of AA-435 Velankattuvalasu Primary Agricultural Cooperative Credit Society Ltd. v. ACIT (supra), wherein, the Coordinate Benches of the Tribunal has observed and held as under: 8. We have heard the riva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 theDR 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 any Cooperative Bank, subject to such conditions as the Registrar may, by general or special order, specify; (e) to acquire such immovable properties and construct such b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vily 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 Cooperative 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 Co-operative Society into an Urban Bank; V. They had lent money to general public without obtaining permission from the concerned Registrar of the Cooperative Societies; VI. They had claimed to be a Co-operative Society for the claim of deduction u/s.80P of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 Co-operative Societies Act, 1983 and Rule 32 of the Tamil Nadu Co-operative 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 Associate Member shall not be entitled to participate in the general meeting of the registered Society, or in the election ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 non-members. 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 categorically held that, in Assessment Year 2009 2010 in Assessee s own case, in I.T.A. No.1318/Mad/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cooperative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the Assessee. A deduction that is given without any reference to any restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Cooperative 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 2018 while framing the scrutiny assessment and now the Revenue cannot go back from its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooperative Society has admitted the same. In view of the above finding, we hold that the Assessee is entitled for the claim of deduction u/s.80P(2)(a)(i) of the Act. Thus, we reverse the orders of the lower authorities and allow these three appeals of the Assessee. Accordingly, we find the issue is squarely covered and hence, in this case also we allow the claim of deduction u/s.80P(2) of the Act. 5.1 Respectfully following the above decision of the Coordinate Benches of the Tribunal, we hold that irrespective of the fact that whether the assessee is having A class Members or B class Members, the assessee is entitled for claiming exemption under section 80P(2)(a)(i) of the Act. Thus, the ground raised by the assessee is allowed. 6.1. In view of the above, we are compelled to held that the assessee is eligible for exemption under section 80P(2)(a)(i) of the I.T. Act, 1961 from the income earned from its regular members as well as from Associate/Other members. Therefore, the A.O. was not right in making disallowance and the Ld. CIT(A) has also erred in confirming the baseless and unsustainable disallowance. Therefore, grounds of assessee are allowed and A.O. is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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