TaxTMI 
TaxTMI 
2020 (2) TMI 214
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.... of 2020 : Mr. V. Elangovan For the Respondent in all WPs Standing Counsel : Mr. ANR. Jaya Prathap COMMON ORDER I. W.P.Nos.17, 20, 22, 23, 26, 29, 1150, 1155 and 1161 of 2020: This batch of nine (9) Writ Petitions have been filed by entities claiming to be Primary Agricultural Cooperative Credit Societies. Since the issues that arise are common to the petitioners and by consent expressed by all learned counsel, the matters are taken up for adjudication and disposal finally. 2. Returns of income had been filed by the petitioners claiming exemption in terms of Section 80 P of the Income Tax Act, 1961 (in short 'I.T.Act'). The respondent - Assessing Officer took the returns up for examination and issued notices and questionnaires calling for details in regard to whether deduction was available under Chapter VIA as claimed, whether the sales receipts/turnover had been correctly offered to tax and calling for explanations of the assessee/petitioner in regard to investments/advances/loans. 3. The petitioners responded to the queries raised by the Officer. One of the issues that arose for consideration was the eligibility to exemption claimed on the interest inco....
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....ively, interest paid on the loan should be deducted from interest received or in other words, there should be a netting of the interest paid and received and only the resultant figure be brought to tax. 8. The Assessing Authority however rejected the submissions cursorily stating in a single line that 'statutory reserve can also be considered as surplus funds of the assessee'. The judgement of the Supreme Court in the case of Nawanshahar (supra) has not been considered or discussed and neither has the plea of the petitioner for netting of interest paid and earned. 9. In Nawanshahar (supra), the Supreme Court considered the question of whether investments made by a banking concern are part of the business of banking. The conclusion was that the income arising from investments would be attributable to the business of the bank and fall under the head 'profits and gains of business', deductible under Section 80P(2)(a)(i) of the I.T. Act. The earlier view in Bihar Coop. BankLtd. V. CIT ((1960) 39 ITR 114, CIT V. Karnataka State Coop. Apex Bank ((2001) 7 SCC 654) and CIT V. Ramanathapuram Distt. Coop.Central Bank Ltd. ((2009) 17 SCC 620) was followed. 10. At paragraph 4 ....
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.... other securities was chargeable to tax under section 56 under the head `Income from other sources' without allowing any deduction in respect of cost of funds and proportionate administrative and other expenses under section 57?' 15. Thus the issue before the Court in Totgars (supra) was on the classification of interest generated by deposits held with scheduled banks, bonds and other securities without providing for a deduction in respect of cost of funds and proportionate administrative and other expenses under Section 57. The question of interest generated from deposits made by reason of a statutory mandate was raised and finds reference in the narration of the petitioners' submissions, the Court has, at para 8 of the report (ITR) stated that 'At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surp....
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....d to the members. Also, as per section 80P2a, profits and gains attributable to the business of the society and the word attributable is having elaborate meaning as derived in Commissioner of Income-tax vs. Nawanshahar Central Co-operative bank Ltd. Civil Appeal Nos.2499, 2500 of 2005 8th April 2005. So, the funds deposited is not a surplus fund as decided in Totgars Cooperative Sale Society Ltd., but a statutory reserve maintained as decided in Commissioner of Income tax Vs. Nanshahar Central Cooperative Bank Ltd. The amount in investments is Rs. 15,51,18,027/- out of this Rs. 12,57,23,490/0 was borrowed from Coimbatore District Central Cooperative Bank. if interest earned is taxed the interest paid to such loans are deducted form the interest on other sources. So, kindly drop the proceeding by taxing the interest income and accept the returned income' W.P.No.29 of 2020: 'Received you show cause notice and noted the contents. In this regard we wish to submit the following for your consideration. The Supreme Court judgement in Totgars Cooperative Sale Society Ltd., not applicable to our society as the above society ....
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....mercial Bank Ltd. v. CIT [1957] 32 ITR 688 was not considered. 4. We do not think that it is open to the Revenue to urge, through different counsel, the same thing again and again. We are satisfied that the answer to the question has been correctly given in the decisions aforementioned and in the order under appeal. 5. The civil appeals are dismissed with costs. Also the jurisdictional Madras High Court also looking into the Totgars case and allowed the interest received is allowed under section 80P in case of Madras High Court The Commissioner Of Income Tax vs M/S. Veerakeralam Primary ... on 5 July, 2016 IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 05.07.2016 CORAM : THE HONOURABLE MR. JUSTICE S.MANIKUMAR and THE HONOURABLE MR. JUSTICE D.KRISHNAKUMAR Tax Case Appeal Nos.735, 755 of 2014 and 460 of 2015 The Commissioner of Income Tax, 63, Race Course Road Coimbatore. .. Appellant in all the above appeals Vs M/s. Veerakeralam Primary Agricultural Co-operative Credit Society No.17, Peria Thottam Colony....
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....e into account, and meet, the arguments raised by an assessee. Mere reliance on a judgement without reference to the facts involved in both cases, those in the case relied upon and those in the case of the assessee in question, would not justify the conclusion arrived at. 21. For these reasons, the assessments impugned in W.P.Nos.17, 20, 22, 23, 26, 29, 1150, 1155 and 1161 of 2020 are set aside and the matter is remanded to the file of the Assessing Officer for de novo consideration. The petitioners are directed to appear before their respective Assessing Officer on 14.02.2020 at 10.30 a.m. without expecting any further notice in this regard. The petitioners will be heard specifically on the question of classification of interest generated by investments made for the purpose of statutory reserve and the judgments of the Supreme Court in Nawanshahar and Totgars' (supra) as well as other relevant case law shall be taken into account by the Assessing Officer in framing assessments by way of speaking and detailed orders. This exercise shall be completed within a period of six (6) weeks from date of conclusion of personal hearing. 22. W.P.Nos.17, 20, 22, 23, 26, 29, 1150, 1....
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....ding members, i.e., A class members enjoy all the aforesaid rights denied to the B class members. 26. The Assessing Authority was thus of the view that the claim of the petitioners is liable to be rejected in the light of the judgment of the Supreme Court in the case of Citizen (supra). Reliance was specifically placed on paragraph 24 of the judgement, where a distinction is made between Nominal Members and Ordinary Members. Paragraph 24 reads as follows: 'Undoubtedly, if one has to go by the aforesaid definition of 'co-operative bank', the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P.' 27. Thus, though categorised as A and B, there are vital distinctions that were drawn between the members of the two cla....
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....rights of a member and who is subject only to such liabilities of a member as may be specified in this Act, the Rules and the Bylaw. 13. Thus, the definition of the word 'members' includes an associate member and therefore, the Assessing Officer fell into an error in drawing a distinction between A Class members and B Class members. For the purpose of being entitled to a relief under Section 80P of the Act, all that is required is that the cooperative society should answer the description of a society engaged in carrying on the business of providing credit facilities to its member. Once the description is answered, then automatically, the benefit of Section 80P of the Act would stand attracted subject to the provisions contained in Sub-Section (2) of Section 80P of the Act. 14. Further, it is to be pointed out that in terms of Sub-Section (4) of Section 80P of the Act, which was inserted vide the Finance Act, 2006 with effect from 01.4.2007 i.e from the assessment year 2007-08, the 'primary cooperative agricultural and rural development bank' means 'a society having its area of operation confined to a taluk, the principal object of which is to ....
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....e society, which was rightly granted by the CIT (A) as confirmed by the Tribunal. In addition to that, the Assessing Officer has not pointed out that loans have been disbursed to all and sundry in terms of the provisions of the TNCS Act and in terms of Clause (b) to Sub-Section (4) of Section 80P of the Act, the society has an area of operation, operates within the taluk and will provide long term credit for agricultural and rural development activities as well. The CIT (A) rightly granted the relief to the assessee as confirmed by the Tribunal. We do not find any good ground to entertain these appeals. 18. Accordingly, the above tax case appeals are dismissed. The substantial questions of law framed are answered against the Revenue. ' 31. Learned counsel for the Revenue states that there are cases of other identically placed Agricultural Cooperative Marketing Societies that the Revenue has carried/intends to carry to the Supreme Court where the stakes involved are significantly higher, such as, Tiruchengode Agricultural Producers Cooperative Marketing Society Ltd. and Veerakeralam Primary Agricultural Cooperative Credit Society, Coimbatore. In such a case, the ques....