2022 (6) TMI 770 - AT - Income Tax

Tribunal recognizes Co-operative Society status, grants tax deduction under Section 80P(2)(a)(i)

The Tribunal allowed the Assessee's appeals, determining that it was a Co-operative Society, not a Co-operative Bank, providing credit facilities to ... Deduction of claim u/s. 80P(2)(a)(i) - claim denied on interest income received from category ‘A’ members and category ‘B’ members, i.e. Associate Members - 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 - HELD THAT:- As per case-laws of the Hon’ble Supreme Court in the case of Mavilayi Service Cooperative Bank Limited vs. Commissioner of Income Tax, Calicut [2021 (1) TMI 488 - SUPREME COURT] we are of the view that the Assessee is a Co-operative Society under the name and style as “Tamil Nadu Co-operative State Agricultural and Rural Development Bank Limited” and it is not engaged in the banking activities. It is also clear that in view of Section 3 read with Section 56 of the Banking Regulation Act, 1949, the Assessee cannot be considered as a Primary Cooperative Bank but it is a Primary Agricultural Credit Society 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 members of the public, which have a license in this behalf from the Reserve Bank of India. Clearly, therefore, the Assessee’s case is out of the provisions of Section 80P(4) of the Act. In relation to the Associate members, we are of the view that the provisions of Section 22 read with Rule 32 of the Tamil Nadu Co-operative Societies Act, 1983 and Tamil Nadu Co-operative Societies Rules clearly determine the procedure to admit Associate members and accordingly in the present case, the Assessee’s Cooperative 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. Issues Involved:1. Condonation of Delay2. Eligibility for Deduction under Section 80P(2)(a)(i) of the Income Tax Act3. Status of the Assessee as a Co-operative Society or Co-operative Bank4. Applicability of the Principle of Mutuality5. Comparison with Relevant Case LawsDetailed Analysis:1. Condonation of Delay:The appeals for the Assessment Years 2010-2011 and 2014-2015 were delayed by 268 days, and for the Assessment Year 2017-2018 by 117 days. The Assessee filed a condonation petition citing the COVID-19 pandemic and the subsequent lockdown as reasons for the delay. The Supreme Court had extended the time limit for filing appeals due to the pandemic. The Tribunal, considering these circumstances, condoned the delay and admitted the appeals for adjudication on merits.2. Eligibility for Deduction under Section 80P(2)(a)(i):The only common issue in all three appeals was the disallowance of the deduction claim under Section 80P(2)(a)(i) regarding interest income received from 'A' and 'B' category members. The Assessee, a Co-operative Society registered under the Tamil Nadu Co-operative Societies Act, 1983, claimed that it provided credit facilities only to its members, which included both 'A' class members (Primary Co-operative Agricultural and Rural Development Banks) and 'B' class members (Associate Members). The Assessing Officer and CIT(A) disallowed the deduction, arguing that 'B' class members did not qualify as members under the Assessee's bye-laws, thus violating the principle of mutuality.3. Status of the Assessee as a Co-operative Society or Co-operative Bank:The Assessing Officer and CIT(A) contended that the Assessee functioned as a Co-operative Bank and thus was not eligible for the deduction under Section 80P(4), which excludes Co-operative Banks from this benefit. The Tribunal, however, noted that the Assessee was registered as a Co-operative Society and not a Co-operative Bank. It did not hold a banking license from the Reserve Bank of India and did not provide banking facilities to the general public. The Tribunal concluded that the Assessee was a Primary Agricultural Credit Society and not a Co-operative Bank.4. Applicability of the Principle of Mutuality:The principle of mutuality was a significant point of contention. The Assessing Officer argued that 'B' class members were essentially non-members, thus violating the mutuality principle. The Tribunal, however, found that the Assessee's transactions were restricted to its members and Associate members, who were admitted following the Tamil Nadu Co-operative Societies Act, 1983. Therefore, the principle of mutuality was upheld.5. Comparison with Relevant Case Laws:The Tribunal compared the case with the Supreme Court's decision in Citizen Co-operative Society Limited vs. ACIT, where the deduction was disallowed due to the society functioning as a bank and providing services to non-members. The Tribunal found significant differences, noting that the Assessee did not provide services to the general public and was not registered as a bank. The Tribunal also considered the Supreme Court's decision in Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, which supported the Assessee's claim for deduction under Section 80P(2)(a)(i).Conclusion:The Tribunal concluded that the Assessee was a Co-operative Society and not a Co-operative Bank. It was engaged in providing credit facilities to its members, including Associate members, in compliance with the Tamil Nadu Co-operative Societies Act, 1983. The principle of mutuality was upheld, and the Assessee was entitled to the deduction under Section 80P(2)(a)(i). The appeals were allowed, reversing the orders of the lower authorities.Final Judgment:The three appeals of the Assessee in I.T.A Nos.31, 32 & 33/CHNY/2021 were allowed, and the order was pronounced on 29th April 2022 at Chennai.