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TMI Blog2018 (7) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) had not given any specific reasons for denying the benefit of deduction u/s 80P(2) of the I. T. Act as regards the claim of the assessee on the trade income, we deem it appropriate to remand the matter to the A. O. for fresh consideration. The assessee shall prove with necessary evidence the trade income it had earned was entitled to deduction u/s 80P(2)(a) X X X X Extracts X X X X X X X X Extracts X X X X ..... ad taken into consideration the activities of the assessee society and not relied only on the certificate of registration issued by the Central Registrar of Cooperative societies. In view of this, is not the decision of the CIT(A) against the prevailing positions of law that differentiates between de jure and de facto positions and which permits the principle of penetration of the corporate veil to determine the true nature of the activities of the cooperative society? 3. Whether on the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeals) is right in law in holding that the assessee is eligible for claiming deduction u/s 80P on the above lines, when in the recent decision in the case of The Citizen Co-Operative Society, the Honourable Supreme Court has, after taking into account the activities of the appellant Co-operative Society, held that the appellant could not be treated as a cooperative 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 Co-Operative Society limited Vs Assistant Commissioner of Income Tax, Circle- 9(1), Hyderabad observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rits? 8. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the CIT(A) may be set aside and that of the Assessing Officer restored. 9. Even though the tax effect is below the prescribed limit, appeal is being filed as the tax effect exceeds the prescribed limit for filing further appeal in the other assessment year in the combined order. " 6. The learned Departmental Representative relied on the grounds raised. The learned AR, on the other hand, submitted that the issue in question is covered in favour of the assessee by the judgment of the Hon'ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. and Others (supra). 7. We have heard the rival submissions and perused the material on record. We find that an identical issue was considered in the case of ITO v. The Chengala Service Cooperative Bank Limited [ITA No. 434/Coch/2017 & Ors. - order dated 05th April, 2018]. In that case, identical grounds have been raised to that of the grounds raised in the present appeals. The Tribunal after considering the judicial pronouncements, held that the assessee is entitled to deduction u/s 80P(2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g been classified as primary agricultural credit societies by the competent authority under the KCS Act it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes; the rate of interest on such loans and advances to be at the rate fixed by the Registrar of co-operative societies under the KCS Act and having its area of operation confined to a village, panchayat or a municipality. This is the consequence of the definition clause in section 2(oaa) of the KCS Act. The authorities under the IT Act cannot probe into any issue or such matter relating to such applicants. 16. The position of law being as above with reference to the statutory provisions, the appellants had shown to the authorities and the Tribunal that they are primary agricultural credit societies in terms of clause (cciv) of section 5 of the BR Act having 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present cases. 8. The Hon'ble Apex Court judgment in the case of Citizen Co-operative Society (supra) Ltd. was rendered in the context of eligibility of a Credit Cooperative Society for deduction under section 80 P of the Act. The Apex Court, referring to the specific facts of the case held that the assessee therein is not entitled for deduction under section 80P of the Income-tax Act. In the aforesaid case, the Hon'ble Apex Court was not dealing with a case of eligibility of a Primary Agricultural Credit Society for deduction under section 80P of the Income-tax Act. The Hon'ble Supreme Court at Para 23 of the aforesaid judgment had emphasized that even after the amendment made to the provisions of section 80P of the Act by insertion of section 80P(4) of the Income-tax Act, the Primary Agricultural Credit Society is eligible for deduction under section 80P of the Act. 8. 1 The assessee society in the 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 were spread over states ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase is concerned, the definition of a 'member' as provided in Section 2(1) of the Kerala Co-operative Societies Act includes a nominal member. Section 2 (1) of the said Act is as follows: "Member" means a person joining in the application for the registration of a co-operative society or a person admitted to membership after such registration in accordance with this Act, the Rules and the Bye law and includes a nominal or associate member" 8. 4 The 'normal member' is defined under 2(M) of the Kerala Co-operative Societies Act, 1969, which reads as follow:- "(m) 'nominal or associate member' means a member who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in the bye-laws;" 8. 5 Therefore, in the present cases, the nominal members are members 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. 8. 6 In this context, it is relevant to mention that the Hon'ble Supreme Court in the case of U. P. Cooperative Cane Union v. Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that a nominal member does not enjoy all the rights and privileges which are available to an ordinary member, his status is that of a member as defined in Section 2(19) of the Act. 20. Division Bench of this Court in the case of The Commissioner of Income Tax, Nasik (cited supra) has also taken a similar view that the definition of "Member" under section 2(19)(a) of the Maharashtra Co-operative Societies Act, 1960 includes a nominal member. It is further held by the Division Bench that there is nothing in Section 80P(2)(iii) of the Income Tax Act to the contrary. " 8. 8 As per section 3 of the Banking Regulation Act, 1949, the provisions of Banking Regulation Act shall not apply to Primary Agricultural Credit Societies. The explanation to section 80P(4) states that 'Primary Agricultural Credit Society' and 'Co-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 (c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 2008-2009 and 2009-2010, the assessee has raised two issues before the Tribunal, viz. , (i) Interest on treasury deposit whether it was entitled to deduction u/s 80P(2)(a)(i) of the I. T. Act; and (ii) Whether trade income was entitled to deduction u/s 80P(2) of the I. T. Act. As regards to the issue whether the assessee was entitled to deduction u/s 80P(2)(a)(i) of the I. T. Act for the interest received on investment made with sub-treasuries, the same is covered in favour of the assessee by the various orders of the Tribunal. In the following cases, the Tribunal have decided the issue in favour of the assessee:- (i) Padne Service Co-operative Bank Limited v. ITO (ITA No. 584/Coch/2017 - order dated 11. 01. 2018) (ii) Kizhathadiyoor Service Cooperative Bank (ITA No. 525/Coch/2014 - order dated 20. 07. 2016) (iii) Mundakkayam Service Co-operative Bank Ltd. vs. ITO (ITA No. 106/Coch/2018 - order dated 31. 10. 2016). 10. 1 The Tribunal in the above mentioned cases have held that interest earned from investments with sub-treasuries is part of the banking activities, and therefore, the said income was entitled to deduction u/s 80P(2)(a)(i) of the I. T. Act. Therefore, followi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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