2021 (2) TMI 497 - HC - Income Tax

Deduction u/s 80P(2)(a)(i) - whether activity of the appellant is that of finance business and cannot be termed as cooperative society? - assessee - society is registered under the provisions of the TNCS Act - definition of the word 'members' - HELD THAT - As decided in M/S. S-1308 AMMAPET PRIMARY AGRICULTURAL COOPERATIVE BANK LTD. 2019 (1) TMI 116 - MADRAS HIGH COURT Definitions of the expressions 'members' and 'associate member' under the TNCS Act held that an 'associate member' is also a 'member' in terms of Section 2(16) of the TNCS Act. Furthermore, the Assessing Officer himself found that the associate members are also admitted as members of the society. In such circumstances, the Assessing Officer fell into an error in not granting any relief to the assessee 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. - Decided against the Revenue.

Summary

Issues:
- Appeal challenging order under Section 260A of the Income Tax Act, 1961 for the assessment year 2014-15.
- Substantial questions of law raised regarding deduction under Section 80P.
- Interpretation of the definitions of 'members' and 'associate members' under the Tamil Nadu Cooperative Societies Act.
- Applicability of Section 80P(4) to the assessee.
- Assessment of principles of mutuality for eligibility under Section 80P(2)(a)(i).

Analysis:

The appellant filed an appeal challenging the order of the Income Tax Appellate Tribunal, Chennai, regarding the deduction under Section 80P of the Income Tax Act, 1961 for the assessment year 2014-15. The substantial questions of law raised by the appellant questioned the Tribunal's decision on the appellant's entitlement to the deduction under Section 80P. The High Court analyzed the definitions of 'members' and 'associate members' under the Tamil Nadu Cooperative Societies Act and referred to a similar case where it was held that an 'associate member' is also a member. The Court emphasized that for the appellant to qualify for relief under Section 80P, it is essential that the cooperative society engages in providing credit facilities to its members. The Court also highlighted the relevance of Section 80P(4), which excludes cooperative banks but includes primary agricultural cooperative credit societies.

In a detailed examination of the case, the Court referred to a Supreme Court decision regarding the eligibility for deduction under Section 80P. The Court noted that the Supreme Court had ruled that a society engaging in activities contrary to cooperative society laws and accepting deposits from non-members for advancing loans would not qualify as a cooperative society for the purposes of Section 80P. The Court emphasized that the insertion of Sub-Section (4) to Section 80P by the Finance Act, 2006, restricted the deduction to primary agricultural credit societies or primary cooperative agriculture and rural development banks, excluding cooperative banks from eligibility.

Based on the above analysis and the precedent set by a similar case, the High Court allowed the appellant's Tax Case Appeals, answering the substantial questions of law in favor of the assessee. Given the favorable decision in the appeals filed against the Tribunal's order, the Court concluded that there was no further consideration required in the present appeal. Consequently, the tax case appeal was closed without costs.