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TMI Blog2018 (2) TMI 502X X X X Extracts X X X X X X X X Extracts X X X X ..... stance of the Revenue are directed against the consolidated order of the CIT(A), Kozhikode dated 16/05/2017. The relevant assessment years are 2008-09 and 2013-14. 2. The brief facts of the case are as follows: The assessee is a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969. For the assessment years 2008-09 and 2013-14, the returns of income were filed after claiming deduction u/s. 80P of the I.T. Act amounting to ₹ 73,935/-and ₹ 37,12,052/- respectively. The assessments were completed for the assessment years 2008-09 and 2013-14 by denying the benefit of deduction u/s. 80P(2) of the Act. The reasoning of the Assessing Officer for denying the deduction u/s. 80P of the Act was that the assessee was mainly doing the business of banking and in view of insertion of sub-section (4) to sec. 80P of the Act with effect from 01/04/2007, the assessee was not entitled to deduction u/s. 80P of the Act for the assessment years 2008- 09 and 2013-14. 3. Aggrieved by the order of the assessments, denying the benefit of deduction u/s. 80P(2) of the Act, the assessee preferred appeals before the first appellate authority. The CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant Co-operative Society, held that the appellant could not be treated as a co-operative society meant only for its members and providing credit facilities only to its members. 4. The Honourable Supreme Court had in the case of The Citizen Cooperative Society Limited Vs Assistant Commissioner of Income Tax, Circle-9(1), Hyderabad observed that the depositors and borrowers in the appellant cooperative society are distinct and therefore, in reality, the activities of the appellant are that of a finance business and cannot be termed as those of a co-operative society. The facts in the present case also fall within the same contextual fabric. The categories of resident members, ordinary members and nominal members exist. This invokes the question of whether the instant assessee is merely providing agricultural credit to its members thereby validating the claim of tax exemption u/s 80P(4) or performing activities beyond its approved framework that enables disallowance of such claim. In view of this, is not the decision of the CIT(A) without merits? 5. The learned CIT(Appeals) ought to have seen that the Honourable Supreme Court in the case of Sabarkantha Zilla Kharid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The Tribunal followd the judgment of the Hon ble High Court of Kerala in the case of Chirakkal Service Co-operative Bank Ltd. (supra) The Tribunal held that the judgment of the Hon ble Apex Court in the case of The Citizens Co-Operative Society Limited vs Assistant Commissioner of Income Tax, reported in 397 ITR 1 (SC) is not applicable to the facts of the case. The relevant finding of the Tribunal dated 10/01/2018 is reproduced below: 8. I have heard the rival submission and perused the material on record. The undisputed facts are that the assessees in these cases are all primary agricultural credit society and they are registered as such under the Kerala Cooperative Societies Act. The Hon'ble jurisdictional High Court in the case of Chimkkal Service Co-operative Bank Limited , Ors. (supra) had categorically held in para 17 page 14 of the judgment that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. The Hon'ble High Court was considering the following substantial question of law: a) Whether on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving regard to the primary object or principal business of each of the appellants. It is also clear from the materials on record that the bye-laws of each of the appellants do not permit admission of any other co-operative society as member, except may be, in accordance with the proviso to sub-clause 2 of section 5(cciv) of the BR Act. The different orders of the Tribunal which are impeached in these appeals do not contain any finding of fact to the effect that the bye- laws of any of the appellant or its classification by the competent authority under the KCS Act is anything different from what we have stated herein above. For this reason, it cannot but be held that the appellants are entitled to exemption from the provisions of section SOP of the IT Act by virtue of subsection 4 of that sect; on. In this view of the matter, the appeals succeed. 17. In the light of the aforesaid, we answer substantial question: A in favour of the appellants and hold that the Tribunal erred in law in deciding the issue regarding the entitlement of exemption under section 8OP against the appellants. We hold that the primary agricultural credit societies, registered as such under the KCS Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case considered by the Hon'ble Supreme Court was established on 31-5-1997 and was registered under section 5 of the Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995. Thereafter as the operations of the assessee had increased manifold and spread over states of Erstwhile, Andhra Pradesh, Maharashtra and Karnataka, the assessee-society got itself registered on 26.07.2005 under the Multi State Co-operative Societies Act, 2002 (MACSA) 9.2 The Hon ble Apex Court in the aforementioned case specifically took note of the factual findings of the assessing officer (which was stated in para 15 of the judgment) referring to the bye laws and the provisions of Mutually Aided Cooperative Societies Act, 1995. The assessing officer was of the view that the assessee therein cannot admit 'nominal members' and most of the deposits were taken from such category of person (as they were not members as per the provisions referred). The Apex Court in para 25 of the Judgment has pointed out that the main reason for disentitling the assessee from getting the deduction provided under section 80 P of the Act is not sub-section (4) of the Act. On the contrary, the Hon'ble Ape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers as provided in law and deposits from such nominal members cannot be considered or treated as from the non-members or from public as was noted by the Apex Court judgment cited supra. 9.6 In this context, it is relevant to mention that the Hon ble Supreme Court in the case of U.P. Co-operative Cane Union v. Commissioner of Income-tax (1999) 237 ITR 574 (SC)-para 8 of the judgment has observed as under:- 8. The expression members is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression members in section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption, has been formed. It is, therefore, necessary to construe the expression members in Section80P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Co-operative Societies Act. 9.7 The Bombay High Court ih Jalgaon District Central v. UOI (2004) 265 ITR 423 (Bom) in the light of the above Supreme Court judgment had held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-operative Bank' will have the same meaning as provided in Part V of the Banking Regulation Act, 1949. The explanation provided after clause (ccvi) of section 5 r.w.s 56 of the Banking Regulation Act specifically provides that if any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final. The Reserve Bank of India, which is the competent authority as per the Banking Regulation Act, treats assessee society and similar societies as only Primary Agricultural Credit Society not falling within the ambit of Banking Regulation Act. The Reserve Bank of India has given letters to the societies similar to assessee stating that they are Primary Agricultural Credit Societies and therefore in terms of section 3 of the Banking Regulation Act are not entitled for banking license; (Copies of such letter from RBI are placed on record). 9.9 That being the case, the assessing officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society' or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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