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TMI Blog2013 (9) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P(2)(a)(i) of the Act merits to be allowed. Commissioner Of Income-Tax Versus Pondicherry Co-operative Housing Society Limited [1990 (11) TMI 132 - MADRAS High Court] - various objects of the society were distinct and independent objects - A perusal of clause 2(j) of the bye-laws of the society showed that to obtain a loan from the society, it was not necessary that the member should have constructed the house through the society or under its supervision - The restriction imposed on the user of the credit facilities extended by the assessee-society for house building could not be construed as means intended to secure one of the objects of the society, viz., house building - At best it could be regarded as imposition of a condition for obtaining credit facilities - The activity of the assessee-society in making funds available to its members had to be regarded as one of providing credit facilities to its members - the assessee was entitled to the benefit of special deduction under section 80P(2)(a)(i).” The object of the assessee-society was to give long term loans to its members for its utilization for specific purposes and the assessee was carrying on such activities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e status of Cooperative Society to the appellant on the facts and circumstances of the case is bad in law and needs to be set aside. 4. That the order of the Assessing Officer as upheld by the CIT(A) Patiala disallowing an expenditure of Rs. 2,88,705/- under section 14A of the Income Tax Act on the investment in the share capital on the Punjab State Coop Agricultural Development Bank Ltd. Chandigarh of which the appellant / assessee is a member is bad in law and need to be set aside more so when the dividend income of a cooperative society do not fall within the purview of section 10(36) of the Income Tax Act as the same is not subject to dividend tax. The income of dividend is deductible under the provision of section 80P(2)(d) of the Income Tax Act to which the provision of section 14A is not applicable. 3. The assessee has further filed additional ground of appeal No.3, which reads as under:- That the order of the Assessing Officer as upheld by the CIT(A), Patiala disallowing the status of Cooperative Society to the appellant on the facts and circumstances of the case and thereby denying the deduction claimed u/s 80P(2)(a)(i) of the Income Tax Act is bad in law and needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2008-09 in ITA No. 742/Chd/2011 wherein vide order dated 19.9.2011 in turn relying upon the ratio laid down by the Hon'ble Punjab Haryana High Court in CIT Vs Kings Exports (supra), the order of CIT(A) in deleting the said addition was upheld. The issue raised in the present appeal is identical to issue raised before the Tribunal in assessment year 2008-09 and following the same, we direct the Assessing Officer to delete the disallowance made in view of the provisions of section 14A of the Act. The ground No.4 raised by the assessee is thus allowed. 9. The only issue now remaining for adjudication is raised vide additional ground No.3. The assessee is aggrieved by the orders of the authorities below in not granting the status of Cooperative Society to the assessee and further thereon denying deduction claimed u/s 80P(2)(a)(i) of the Income Tax Act. 10. The brief facts of the case are that assessee is a cooperative society registered under the Punjab Cooperative Society Act, 1961. The claim of the assessee is that it is providing credit facilities to its members within the meaning of section 80P(2)(a)(i) of the Act and the income of the assessee is thus eligible for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons are not members of the assessee s society. The Assessing Officer confronted the said Special Audit report to the assessee and the comments of the assessee to various allegations in the Special Audit Report are reproduced at pages 22 23 of the assessment order. In the said reply, the assessee in addition to other submissions also pointed out that there were no loanees, who were non members, to whom the loans were given. The list of members along with Membership numbers was annexed to the said submissions. It was further pointed out by the assessee that it was not a cooperative bank as it was providing only credit facilities to its members and all types of loans were agricultural and rural development loans under different schemes. The assessee further stressed that no interest was received from non members of the society and / nor any type of loans was given to non members. The Assessing Officer rejected the explanation of the assessee on account of following reasons:- a) As per bye laws of the society, the society meetings were to be held once in two months whereas the assessee held meetings on 7.4.2006, 7.7.2006, 22.9.2006, 5.10.2006, 9.2.2007 and 30.3.3007. In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer and liable to be rejected. The CIT(A) has considered the mandate provisions of the Act and held that the assessee does not answer the description of the society engaged in carrying on the business of providing credit facilities to its members and, therefore, is not entitled to the relief. The activities carried on by the assessee were held to be not as per objectives for which it was set up by the assessee. The CIT(A) thus upheld the order of Assessing Officer in rejecting the claim of deduction u/s 80P of the Act. 14. The assessee is in appeal against the order of CIT(A). The Ld. AR for the assessee pointed out that the society was not engaged in the business of banking but the deduction was claimed u/s 80P (2)(a)(i) for providing credit facilities to its members. The Ld. AR further referred to the observation of the Assessing Officer at page 2 under which activities undertaken by the assessee have been accepted by the Assessing Officer. In respect to the denial of deduction u/s 80P of the Act, the Ld. AR pointed out that the Special Auditor had prepared list of all the members of the society which was around 5000 and out of the said list, few members w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cases, the membership numbers were missing and in case of the person Mr. Onkar Singh, no such membership number was mentioned. In rejoinder, the Ld. AR for the assessee pointed out that as per bye laws placed at paga 4 onwards of the paper book, the Society was engaged in the business of providing credit facilities to its members and the said members could not be any other person but owner/s of cultivated land located in Taluka over which the assessee has jurisdiction. The Ld. AR made reference to the explanation u/s 80P(4) of the Income Tax Act and stressed that it fell within the said definition. In respect of Mr. Onkar Singh, it was explained that the said member was transferred from another society. 16. We have heard the rival contentions and perused the records. The assessee is a society and registered under the Punjab Cooperative Society Act, 1961 vide Registration No. 992 dated 24.8.1995. The copy of the original letter of Assistant Register (Cooperative Society, Punjab) in Punjabi is enclosed at page 2 of the paper book and its English translation is placed at page 1 of the paper book No.1. The registered office of the assessee is at P.O. Khamano, Tehsil Khamano, Distt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ab and the said Audit Report is placed at pages 1 to 81 of the paper book No.2. The assessee during the year under consideration had furnished return of income declaring nil income by claiming deduction u/s 80P of the Income Tax Act. The copy of the audit report furnished u/s 44AB of the Income Tax Act is placed at pages 48 to 59 of the paper book No.1. During the course of appeal, the Assessing Officer had made a reference to Special Audit u/s 142(2A) of the Act. The copy of the report of Special Auditor is placed at pages 1 to 167 of the paper book No.2. The Special Auditor while computing its report u/s 142(2A) had pointed out several defects vis a vis claim of the assessee for deduction u/s 80P of the Act. The said defects are enlisted by us in the paras hereinabove. The assessee had furnished the explanation in respect of said defects, which is incorporated at pages 22 23 of the assessment order. The Assessing Officer found discrepancies in the claim of the assessee u/s 80P of the Act and the said deduction claimed by the assessee was rejected. The CIT(A) upheld the order of Assessing Officer on two counts i.e. activities undertaken by the assessee were not as per the true n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts members to- (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business;] (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as [does not exceed,- (i) where such co-operative society is a consumers co-operative society, [one hundred] thousand rupees; and (ii) in any other case, [fifty] thousand rupees. Explanation.-In this clause, consumers co-operative society means a society for the benefit of the consumers;] (d) in respect of any income by way of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative bank other than a primary agricultural credit society or a primary co-operative and rural development bank. The Finance Act, 2006 further defines the expressions co-operative bank , primary agricultural credit society and primary co-operative agricultural and rural development bank . The Finance Act, 2006 also inserted sub-clause (viia) to section 2(24) so as to provide that the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of income . This amendment was effective from 1st April 2007 and accordingly, applied in relation to the assessment year 2007-2008 and subsequent years. 20. Section 80P of the Act exempts certain categories of income of co-operative societies. The income arising from the said specified activities are exempt from tax and not the whole receipts of the previous year. In order to avail the exemption provided u/s 80P of the Act, onus is upon the assessee to prove that it is engaged in carrying on of one or more of the activities specified in 80P(2) of the Act. The exemption u/s 80P of the Act is not to be denied where the socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per clause 3. The objects of the assessee s society are to promote economic interest of its members and to provide loans to its A- class members on surety of immovable property for undermentioned reasons as per clause 5 of bye laws: (i) Redemption of mortgages on ordinary on agricultural land; (ii) Purchase of land for cultivation; (iii) Construction and repair of ordinary wells tube-wells. (iv) Installation of pumps and other water lifting appliance; (v) Construction of bounds; (vi) Fencing of Agricultural lands against wild animals; (vii) Raising of fruit gardens, (viii) Reclamation of banjar land, (ix) Purchase or repair of tractor, its allied implement and other agricultural implements, such as chaff cutter, cane crusher; winnowing machine, rice husking equipment etc. It would not include implements such as ordinary piough, wooden cart etc. (x) Construction of godowns and cattle shed, (xi) Such other purpose relating to improvement of land and methods of cultivation as may be approved by the Board from time to time. (xii) Liquidation of prior debts. 24. Further Clause 7 of the bye laws reads as under: (a) Nothing in bylaw 7 shall apply to perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to provide long term loans to its members for specified purposes and the assessee admittedly is doing so. Once the primary activity of providing loans to its members has been undertaken by the assessee society, its entitlement for exemption u/s 80P(2)(a)(i) of the Act merits to be allowed. 27. We find support from the ratio laid down by the Hon'ble Madras High Court in 188 ITR 671 (Mad), wherein it has been held as under: Under section 80P (2)(a)(i) of the Income Tax Act, 1961, in order to claim the benefit of deduction under section 80P(1) of the Act, the co-operative society should be engaged in carrying on the business of banking or providing credit facilities to its members. As the provision is intended to encourage co-operative societies, a liberal construction should be given to the language employed in the provision. Hence, if a co-operative society is engaged in carrying on the business of providing credit facilities to its members, that would suffice to attract the benefit of deduction under section 80P(1) and (2)(a)(i). Held, that the various objects of the society were distinct and independent objects. A perusal of clause 2(j) of the bye-laws of the society showe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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