TaxTMI 
TaxTMI 
2018 (3) TMI 1671
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....ion u/s. 80P(2) of the I.T. Act. The Assessing Officer denied the claim of deduction u/s. 80P(2) of the Act for the reason that the assessees cannot be considered as Primary Agricultural Credit Society as they were engaged in the business of banking and only negligible percentage of loans disbursed by the assessees was for agricultural purposes. 4. Aggrieved by the denial of deduction u/s. 80P(2) of the Act, the assessees preferred appeals to the first appellate authority. The CIT(A) decided the issue in favour of the assessees by following the judgment of the Hon'ble Jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. vs.CIT reported in 384 ITR 490. 5. Aggrieved by the orders of the CIT(A), the Revenue has filed the present appeals before the Tribunal. Identical grounds are raised in these five appeals and they read as follows: 1 In view of the recent decision of the Hon'ble Supreme Court in the case of the Citizens Co-operative Society Limited vs. Assistant Commissioner of Income-tax, Circle-9(1), Hyderabad dated 8th August, 2017, is not the order of the learned Commissioner of Income Tax(Appeals) against law and the facts and circumstances of th....
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....ax exemption u/s. 80P(4) or performing activities beyond its approved framework that enables disallowance of such claim. In view of this, is not the decision of the CIT(A) without merits? 5. The learned CIT(Appeals) ought to have seen that the Honourable Supreme Court in the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd Vs CIT reported in 203 ITR 1027 (SC) had held that the eligible deduction under Section 80P of the Income Tax Act, 1961 in respect of Co-operative societies/banks doing both agricultural and non agricultural activities should not be 100% of the gross profits of such societies etc. but should be limited to the profits generated from agricultural activities alone performed by such assesses. 6. The learned CIT(Appeals) ought to have seen that the above Apex Court's decision is in sharp contrast to the decision of the Kerala High Court in the case of M/s. Chirakkal Service Co-operative Bank & others in ITA 212 of 2013 that held that the authorities under the Income Tax Act cannot probe into the question of whether the assessee Co-operative society is a primary agricultural credit society once it is registered and classified as primary agricultural credit society....
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....e of Edanad-Kannur Service Co-operative Bank Ltd. and others in I.T.A. Nos. 431 to 433/Coch/2017 & others dated 10/01/2018. The Tribunal followed the judgment of the Hon'ble High Court of Kerala in the case of Chirakkal Service Co-operative Bank Ltd. (supra). The Tribunal held that the judgment of the Hon'ble Apex Court in the case of The Citizens Co- Operative Society Limited vs Assistant Commissioner of Income Tax, reported in 397 ITR 1 (SC) is not applicable to the facts of the case. The relevant finding of the Tribunal dated 10/01/2018 is reproduced below: "8. I have heard the rival submission and perused the material on record. The undisputed facts are that the assessees in these cases are all primary agricultural credit society and they are registered as such under the Kerala Cooperative Societies Act. The Hon'ble jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Limited &, Ors. (supra) had categorically held in para 17 page 14 of the judgment that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax ....
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.... primary agricultural credit societies in terms of clause (cciv) of section 5 of the BR Act having regard to the primary object or principal business of each of the appellants. It is also clear from the materials on record that the bye-laws of each of the appellants do not permit admission of any other co-operative society as member, except may be, in accordance with the proviso to sub-clause 2 of section 5(cciv) of the BR Act. The different orders of the Tribunal which are impeached in these appeals do not contain any finding of fact to the effect that the bye- laws of any of the appellant or its classification by the competent authority under the KCS Act is anything different from what we have stated herein above. For this reason, it cannot but be held that the appellants are entitled to exemption from the provisions of section 8OP of the IT Act by virtue of subsection 4 of that sect; on. In this view of the matter, the appeals succeed. 17. In the light of the aforesaid, we answer substantial question: 'A' in favour of the appellants and hold that the Tribunal erred in law in deciding the issue regarding the entitlement of exemption under section 8OP against the appellants. We ....
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....for deduction under section 80 P of the Act. 9.1 The assessee society in the case considered by the Hon'ble Supreme Court was established on 31-5-1997 and was registered under section 5 of the Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995. Thereafter as the operations of the assessee had increased manifold and spread over states of Erstwhile, Andhra Pradesh, Maharashtra and Karnataka, the assessee-society got itself registered on 26.07.2005 under the Multi State Co-operative Societies Act, 2002 (MACSA) 9.2 The Hon'ble Apex Court in the aforementioned case specifically took note of the factual findings of the assessing officer (which was stated in para 15 of the judgment) referring to the bye laws and the provisions of Mutually Aided Cooperative Societies Act, 1995. The assessing officer was of the view that the assessee therein cannot admit 'nominal members' and most of the deposits were taken from such category of person (as they were not members as per the provisions referred). The Apex Court in para 25 of the Judgment has pointed out that the main reason for disentitling the assessee from getting the deduction provided under section 80 P of the A....
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....e present cases, the nominal members are members as provided in law and deposits from such nominal members cannot be considered or treated as from the non-members or from public as was noted by the Apex Court judgment cited supra. 9.6 In this context, it is relevant to mention that the Hon'ble Supreme Court in the case of U.P. Co-operative Cane Union v. Commissioner of Income-tax (1999) 237 ITR 574 (SC)-para 8 of the judgment has observed as under:- "8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption, has been formed. It is, therefore, necessary to construe the expression "members" in Section 80P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Co-operative Societies Act." 9.7 The Bombay High Court in Jalgaon District Central v. UOI (2004) 265 ITR 423 (Bom) in the light of the above ....
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.... 'Co-operative Bank' will have the same meaning as provided in Part V of the Banking Regulation Act, 1949. The explanation provided after clause (ccvi) of section 5 r.w.s 56 of the Banking Regulation Act specifically provides that if any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final. The Reserve Bank of India, which is the competent authority as per the Banking Regulation Act, treats assessee society and similar societies as only "Primary Agricultural Credit Society" not falling within the ambit of Banking Regulation Act. The Reserve Bank of India has given letters to the societies similar to assessee stating that they are Primary Agricultural Credit Societies and therefore in terms of section 3 of the Banking Regulation Act are not entitled for banking license; (Copies of such letter from RBI are placed on record). 9.9 That being the case, the assessing officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society'....
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....enging the order passed by the ITAT upholding the validity of the order passed by the Commissioner u/s 263 of the Act. In the said judgment, the Hon'ble High Court upheld the order of the ITAT, after directing the Assessing Officer to pass a fresh assessment order untrammeled by any of the views expressed by the revisionary authority. Whereas the judgment of the Hon'ble Jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. (supra) was in respect of the assessment order passed by the Assessing Officer denying the deduction u/s. 80P and is identical to the facts of the present case. 7.4 Further the Reserve Bank of India, which is the authority under the Banking Regulations Act to decide as to whether a Co-operative Society is a Primary Agricultural Credit Society or not, has vide letter UBD(T) No. 438/12-01-008/2013-14 dated 25/10/2013 informed The Secretary, The Madai Co-operative Rural Bank Ltd. No. F.1233, Head Office, Payangadi Kannur-670303 and vide letter No. UBD(T) No.440/12-01-008/2013-14 dated 25/10/2013, The Kadirur Service Co-operative Bank Ltd. No.F 1262 HO - Kadirur, Kannur-670 642 that an institution registered as a Primary Agricultural Cre....