TaxTMI 
TaxTMI 
2022 (7) TMI 113
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....nal members". By following the judgement in the case of Citizen Co-Operative Society Limited v. ACIT in Civil Appeal No. 10245 of 2017 dated 08.08.2017, the Assessing Officer has held that the assessee is not entitled for claiming exemption under section 80P(2)(a)(i) of the Act. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer by observing as under: 7.4 With regard to disallowance of business income of Rs.16,71,658/-, reliance is based on judgement of Hon'ble Supreme Court in the case of 'The Citizen Co-operative Society Limited, Hyderabad vs ACIT, Circle-9(1), Hyderabad in Civil Appeal No. 10245 of 2017 dated 8.8.2017. In para 25 and 26 of the said judgement, it was held that - "....... The assessee is catering to two distinct categories of people. The first category is that of resident members or ordinary members. There may not be any difficulty so far as this category is concerned. However, the assessee had carved out another category of 'nominal members'. These are those members who are making deposits with the assessee for the purpose of obtaining loans etc and in fact, they are not members in real sense. Most of the business of the ....
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.... of 2014). However, the fact remains in this instant case that the contributors to the profit are different from the participators of that profit as is in the case of Citizen Co- Operative Society. Further, it may be noted that Hon'ble Supreme Court has delivered its judgment dated 8.8.2017 in the case of Citizen Co-Operative Society subsequent to the judgment of Hon'ble High Court of Chennai in the case of Commissioner of Income Tax, Chennai Vs Tamil Nadu Co-operative Housing Federation Ltd, Chennai (Tax case Appeal No.685 of 2014) pronounced on 23.11.2016. Hon'ble Supreme Court has clearly stated that an assessee cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members if it has carved out a category called 'nominal members.' When there is provision for unequal rights between different sets of members, the concept of Principle of Mutuality is misplaced. 7.6 Hon'ble Supreme Court in its judgement in the case of CIT Vs Bankipur Club Ltd. (1997) 226 ITR 97 (SC) held that - "....... For this doctrine to apply, it is essential that all the contributories to the common fund are entitled to partic....
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....e Court in the case of The Mavilayi Service Co-operative Bank Ltd., supra and the decision of Hon'ble Madras High Court in the case of S-1308 Ammapet Primary Agricultural Co-operative Bank Ltd., supra, the deduction is allowed u/s.80P(2) of the Act in respect of income earned from associated members. The Tribunal in the case of Tamilnadu Co-operative State Agriculture and Rural Development Bank Limited, supra held as under:- 21. We have heard the rival contentions and had gone through the facts and circumstances of the case. We have perused the case records, including the assessment order and the order of the CIT(A). We have also perused the paper-book filed by the learned Counsel of the Assessee consisting of pages 1 to 120 and pages 1 to 25. The Revenue has also filed a paper-book consisting of 1 to 84 pages and also filed written submissions along with annexures which were considered. We noted that the first objection of the learned CIT-DR is that the Assessee is a Co-operative Bank and not a Co-operative Society. We will deal with this argument of the learned CIT-DR. First of all, we have gone through the bye-laws of the Assessee Society which are placed at page 92. Th....
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...., assist and co-ordinate the work of the affiliated primary land development banks and afford them financial and other help wherever necessary; (i) to do such other things as are incidental to or conducive to the above subject; The Assessee's primary objective as mentioned in the objects is to provide finance to primary land development banks to extend loans for agricultural activities. We noted that the Assessee is a Cooperative Society registered under the Tamil Nadu Co-operative Society Act, 1983 and obtained registration as a Co-operative Society on 12.12.1929 and since then, it has been operating as a Cooperative Society providing finance to the members of the Society. We noted that the Assessee, like other co-operative institutions is a Cooperative Society and was entitled for deduction u/s.80P of the Act, the legislature, through the Finance Act 2006, introduced Section 80P(4) of the Act with a specific intention to exclude co-operative banks from this scope of deduction u/s.80P of the Act. The reasons sighted in the Finance Act, 2006 reads as under: "166. Co-operative Banks, like any other Bank, are lending institutions and should pay tax on their....
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....imited (supra) and that of the present case is noted as follows: I. That the Assessee is registered as a Co-operative Society under Tamil Nadu Co-operative Societies Act, 1983. II. That the Assessee provides services only to its members and not to the public and hence the principle of mutuality applies, III. That the Society has a record of the name and address of all the members are identifiable and available; IV. That the Society has not obtained any authorization or License from RBI to operate as a Banking Institution. Added to that, there is no inspection by the Reserve Bank of India [RBI], no reports are sent to RBI, there is no cheque withdrawal facility, the Society is not allowed to issue Demand Drafts and finally, the deposits are only from members and no non-members are involved; V. That the Society has taken due approval for admission of members from the Registrar of Co-operative Societies and with members' capital only, it has been lending and conducting its business transactions; 24. Now, coming to an another objection of the learned CIT-DR that the Assessee never gave the list of "B" category members or Associate m....
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....: - (1) Persons possessing the qualifications specified in sub-rule (2) may, if the bye-laws so provide, be admitted as Associate Members in the following class of Societies namely: (9) An Associate Member shall not be required to contribute to the share capital of the Society but shall pay such admission fee as may be specified in the bye-laws, which shall not in any case exceed one hundred rupees. The admission fee shall not be refundable. 26. Before us, the learned Counsel for the Assessee explained the procedure and argued that an individual member, to become an Associate member of the Assessee Society, they will have to get the approval from the Registrar of the Co-operative Society. He agreed that the bye-laws of the Assessee Society clearly states that all the members are required to hold shares but Associate members are exempted from holding such shares, in view of the Section 22(2) of the Tamil Nadu Co-operative Societies Act, 1983 and the Rules as amended from time to time. We noted that the Assessee's transactions are restricted only to the members or Associate members and not to the general public as alleged by the learned CIT-DR. According to....
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....ever, 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 limit fixed by the CBDT for maintainability of appeal before the Hon'ble High Court but the substantial question of law framed with respect of the Section 80P(4) of the Act was left open and the Tribunal became final on the same. 28. Now, we have noted that the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited (supra) considering the earlier decision in the case of Citizen Co-operative Society Limited (supra) has considered exactly an identical issue on exactly identical facts and held in paragraph nos.39 and 40, as under: "39. The above material would clearly indicate that the limited object of Section 80P(4) is to exclude co-operative banks that function at par with other commercial banks, i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is not to be seen, what is clear from Section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank mus....
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....)(i) when it is not there. Further, Section 80P(4) is to be read as a proviso, which proviso now specifically excludes cooperative banks which are co-operative societies engaged in banking business, i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench Judgement is wholly incorrect in its reading of Citizen Co-operative Society Limited (supra). Clearly, therefore, once Section 80P(4) is out of harm's way, all the Assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. 46. It must also be mentioned here that unlike the Andhra Act that Citizen Co-operative Society Limited (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Co-operative Cane Unions' Federation Limited vs. Commissioner of Income Tax [....
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.... Mavilayi Service Co-operative 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 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 Co-operative 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 Co-operative Societies, no Cooperative 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. In the present case also, 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 ....
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....sessment years 2007-08, 2009-10 & 2010-11 dated 30.06.2014, which was confirmed by the Hon'ble Jurisdictional High Court in T.C.A. No. 5 of 2015 dated 10.08.2016, wherein, the Tribunal has held that the interest income received by the assessee is eligible for claiming exemption under section 80P(2)(d) of the Act and prayed for following the same. 6.2 On the other hand, the ld. DR relied on the orders of authorities below. 6.3 We have heard the rival contentions. The assessee has claimed deduction of interest income received under section 80P of the Act. However, the Assessing Officer has denied the same and held that the interest income falls in the category of "Other Income" and brought to tax, which was confirmed by the ld. CIT(A). Similar issue on identical facts was subject matter in appeal before the Tribunal in the case of The Salem Agricultural Producers Co-operative Marketing Society Ltd. v. ITO (supra), wherein, the Tribunal has observed and held as under: "8. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The case of the assessee is that the income by way of interest and dividend earned by the ass....