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TaxTMI 
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2022 (6) TMI 770
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....19 respectively. In regard to the Assessment Year 2010 - 2011, the matter was carried before the CIT(A) to allow the appeal of the Assessee in regard to the claim of deduction u/s.80P(2)(a)(i) of the Act and Revenue carried the matter to the Tribunal and the Tribunal had set aside the matter and remitted to the file of the Assessing Officer. The Tribunal had set aside the matter in I.T.A. No.1552/Chny/2017 vide order dated 02.01.2019. The Assessing Officer passed given effect to the order of the ITAT order, i.e. ACIT, Non-Corporate Circle, Chennai-1 vide order dated 'Nil'. The matter was carried before the CIT(A) and that is the impugned order for the Assessment 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....
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....f the directions issued by the Hon'ble Supreme Court in Miscellaneous Application No.21/2022 in Suo Motu Writ Petition No.3 of 2020, we condone the delay in all these three appeals and admit these appeals for adjudication on merits. 7. The only common issue in all these three appeals is as regards to the order of the CIT(A) confirming the action of the Assessing Officer in disallowing the deduction of claim u/s. 80P(2)(a)(i) of the Act in regard to the interest income received from category 'A' members and category 'B' members, i.e. Associate Members. The learned Counsel for the Assessee as well as the CIT DR fairly agreed that the issue is only one 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 Cooperati....
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.... Tribunal remanded the matter back to the file of the Assessing Officer for re-doing the matter by observing in paragraph no.7, as under: "7. The only issue in the present appeal is that whether the Respondent-society is entitled for deduction u/s.80P of the Act. The provisions of Section 80P envisages exemption of income from tax for a cooperative society in the case of co-operative societies engaged in the business by providing credit facility to its members and the sub-section 4 of the Section 80P carves out an exception to this provision by providing that the exemption u/s.80P shall not be available to a Co-operative Bank. However, primary 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. Furth....
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....are utilized to provide loans to B as well as A class members, mutually is not established at a structural level. Structurally class A members alone are members as per bye-law and class B members are not members at all. Therefore, the contention of the Assessee that "The depositors are borrowers are not distinct but mutual" is not valid. 7.4: The Assessee states that "it is quite clear that the mutuality concept is well established in our case and as such, the Citizens Co-operative Society case is squarely not applicable to us". This contention of the Assessee is not acceptable. The core edifice of the Citizen's Cooperative Society vs. ACIT 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 Citize....
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...., the claim of deduction u/s.80P is upheld." Aggrieved, the Assessee is now before the Tribunal. 13. Before us, the learned Counsel for the Assessee argued that the Assessee is a Co-operative Society registered under the Tamil Nadu Co-operative Societies Act, 1983 and duly obtained registration certificate as a Co-operative Society on 12.12.1929. Since 12.12.1929, it is operating as a Co-operative Society providing finance to the members of the Society. The learned Counsel for the Assessee explained the two categories of members and also relied on the provisions of the Tamil Nadu Co-operative Societies Act, 1983 and the Tamil 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 on....
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....) as ........... "means a State Co-operative Bank, the Central Co-operative Bank and a Primary Co-operative Bank." The Central Cooperative Bank and the State Co-operative Bank shall have the meanings respectively assigned to them in the National Bank for Agricultural and Rural Development Bank Act 1981 as laid down in Section 56(c) read with section (5)(ccvii) of Banking Regulation Act. The State Co-operative society is defined in clause (u) of Section 2 of NABARD Act as ......... "means the "Principal Co-operative Society" in a state, the primary object of which is the financing of other co-operative societies in the State." In the light 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 Rur....
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....0 branches all over Tamil Nadu and they were the "A" category members. List of those branches were also placed before the Hon'ble Bench. A separate line of argument on this crucial fact was also placed before the Bench by the Senior AR. With the facts and circumstances, it was demonstrated that the Assessee was a Co-operative Bank and that they are not eligible for any deduction u/s 80 P of the Act, as this section gives deduction only to the Co-operative Societies. 16. He further argued that from the perusal of the computation of income for the Assessment Year 2010-2011, it is noticed that the Assessee had claimed deduction u/s 80-P (2)(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, Sec....
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....monstrated that fixed deposits were accepted from those Associate members and it was utilized to provide loans to "B" as well as "A" category members. This was available from their written reply submitted to Faceless Assessment Unit dated 11.01.2021 at page No.5. It is placed in paper book at page No. 33. Hence, it was argued that the borrowers and depositors were distinct. On account of these facts, it was also demonstrated that the concept of principle of mutuality is completely violated. It was also argued that the Assessee Bank had given general finance to that category of members, without providing the list of those Associate or 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 Member....
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....nance 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 were unable to extend credit facility to poor agriculturists who would be put into much hardship in the event of denial of genuine loan. The point to be noted is that they are giving finance to general public. In the last paragraph, the Managing Director of the bank also mentioned that if the office lifts the bank attachment, they will be able to continue their banking operations. 20. The learned CIT-DR finally summarized h....
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....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 any Co-operative Bank, subject to such conditions as the Registrar may, by general or special order, specify; (e) to acquire such immovable properties and construct such buildings as it may consider necessary for the proper conduct of its business; (f) to appoint what staff it considers necessary to conduct the affairs of the bank; (g) to inspect the primary land development banks and the lands mortgaged to them and to appoint the ....
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.... 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 the concerned Registrar of the Co-operative Societies; VI. They had claimed to be a Co-operative Society for the claim of deduction u/s.80P of the Act and Banking Company / Cooperative Bank for the purpose of Section 269SS and 269T. 23. Now, we have gone through the facts of the Assessee and that, what is the difference as in the case-law of the Hon'ble Supreme Court, in the case of Citizen Co-operative Society Limited (supra) and that of the presen....
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....ety 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 Associate Member shall not be entitled to participate in the general meeting of the registered Society, or in the elections to the Board of such Society or to become an Officer of the registered Society or to any share in any form whatsoever in the assets or profits of the registered Society. II. Rule 32 : - Admission of Associate members : - (1) Persons possessing the qualifications specified in sub-rule (2) may, if the bye-laws so provide, be admitted as Associate Members....
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....ement 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/2013, dated 01.05.2014 that the Assessee is a Cooperative Society and is not engaged in the business of Banking and hence the provisions of Section 80P(4) of the Act does not apply to the Assessee's case. However, this matter was carried before the Hon'ble Madras High Court by the Revenue in T.C.A. No.540 of 2015, which was dismissed by the Hon'ble High Court in view of the monetary....
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....n 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, in favour of the Assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the world "agriculture" into Section 80P(2)(a)(i) when it is not there. Further, Section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business, i.e. engaged in le....
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....embers 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 - 2018 while framing the scrutiny assessment and now the Revenue cannot go back from its stand because there is no change in the facts. 30. In view of the above facts discussed and the case-laws of the Hon'ble Supreme Court in the case of Mavilayi Service Cooperative Bank Limited vs. Commissioner of Income Tax, Calicut (supra), 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 Limite....