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TMI Blog2018 (9) TMI 1462X X X X Extracts X X X X X X X X Extracts X X X X ..... o resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society' or a 'Co-operative bank', within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section 5 r.w.s Section 56 of the Banking Regulation Act. Interest received on investments with sub-treasury is part of banking activities of the assessee and the same is entitled to deduction u/s 80P(2)(a)(i)- Decided in favour of assessee. Trade income entitled to deduction u/s 80P(2)(a)(iii) / 80P(2)(a)(iv)- Held that:- There is no specific reasons given by the A.O. nor CIT(A) for denying the deduction claimed u/s 80P(2) for trade income derived by the assessee. Therefore, we restore the issue of trade income whether it is entitled to deduction u/s 80P(2) of the I.T.Act, to the file of the A.O. It is ordered according Income from house property is not entitled to deduction under any of the clauses of Sec.80P(2)(a) of the I.T.Act. - ITA No.547/Coch/2017, ITA No.548/Coch/2017, ITA No.549/Coch/2017, ITA No.550/Coch/2017, ITA No.551/Coch/2017, ITA No.627/Coch/2017, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Society limited vs Assistant Commissioner of Income Tax, Circle- 9(1), Hyderabad dated 8th August 2017, is not the order of the learned Commissioner of Income Tax (Appeals) against law and the facts and circumstances of the case? 2. The Commissioner of Income Tax (Appeals) had in the instant case placing reliance on the decision of the Honourable High Court of Kerala in the case of M/s Chirakkal Service Co-op Bank ltd. And others in ITA 212 of 2013, held that the assessee is eligible for deduction u/s 80P of the Income Tax Act solely on the basis that it has been registered and classified as a Primary Agricultural Credit Society by the Competent Authority under the Kerala Co-operative Societies (KCS) Act. As against this, the Honourable Supreme Court has while deciding in the case of The Citizen Co-Operative Society limited vs Assistant Commissioner of Income Tax, Circle- 9(1), Hyderabad 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at held that the authorities under the Income Tax Act cannot probe into the question of whether the assessee Cooperative society is a primary agricultural credit society once it is registered and classified as primary agricultural credit society by the competent authorities under the provisions of the Kerala Co operative Societies Act,1969. 7. The judicial ratios in the cases of Rodier Mill Employees Co-op Stores Ltd. vs CIT 135 ITR 355 (Mad), CIT vs Kerala State Co-operative Marketing Federation Ltd.[1998] 234 ITR 301(Ker) and Kerala State Co-operative Agricultural Rural Development Bank Ltd. vs ACIT [ITA No.506/Coch/2010 S.P. No.67/Coch/2010 hold that carte blanche deductions u/s 80P are not available to cooperative societies merely on the basis of professed agricultural credits on the basis of mere registration and classification. In view of this, is not the decision of the CIT(A) without merits? 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. 5. The learned Departmental Representative relied on the grounds raised. The learned AR, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to, among other thing the registration of a society under any State law relating to co-operative societies for the time being; it cannot but be taken that the purpose of the societies so registered under the State Law and its objects have to be understood as those which have been approved by the competent authority under such State law. This, we visualize as due reciprocative legislative exercise by the Parliament recognizing the predominance of decisions rendered under the relevant State Law. In this view of the matter, all the appellants having 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court in the case of Citizens Co-operative Society Ltd. (supra) categorically decided when deposits are received from general public / nominal members or loans are disbursed to general public / nominal members, the assessee would be doing the business of banking and therefore, would not be entitled to deduction u/s 80P(2) of the Income-tax Act. In the context of the submission made by the Revenue, let us examine whether the judgment of the Hon ble Apex Court in the case of Citizens Co-operative Society Ltd. (supra) has application to the facts of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court, the finding on the principle of mutuality was arrived at interalia; on the factual finding that the assessee was receiving deposits mostly from a carved out category of member viz `nominal member who are not members as per the provisions of law referred, and that most of the business of the assessee therein was with this carved out category of person and also granting loans to public and without the approval from the Registrar of the Societies. 8.3 As far as the Kerala Co-operative Societies Act which is applicable to the present case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given in Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 takes within its sweep even a nominal member, associate member and sympathizer member. There is no distinction made between duly registered member and nominal, associate and sympathizer member. 19. In the case of K.K.Adhikari (cited supra), Division Bench of this Court has held that the definition of a Member under Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 includes a nominal member or a sympathizer member. It is further held that notwithstanding the 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, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he I.T.Act. It is ordered accordingly. 8. The Cross Objections filed by the assessee are only supportive of the CIT(A) s order for grant of deduction u/s 80P(2). Since we have already dismissed the Revenue s appeals, the COs filed by the assessee become infructuous and the same are dismissed as infructuous. ITA Nos.627 to 631/Coch/2017 9. In these appeals filed by the assessee, three issues are raised, viz., (i) whether the assessee is entitled to the benefit of deduction u/s 80P in respect of interest received on subtreasury; (ii) whether the assessee is entitled to deduction u/s 80P in respect of trade income; and (iii) whether rental income received by the assessee, the CIT(A) is justified in holding that the assessee is not entitled to deduction u/s 80P(2) of the I.T.Act. 10. Interest received on sub-treasury 10.1 The CIT(A) has decided the issue against the assessee by observing as under:- 7. The appellant earned interest amounting to ₹ 356/- in A.Y.2007-08, ₹ 483/- in A.Y.2008-09, ₹ 580/- in A.Y. 2009-10, ₹ 1,004/- in A.Y.2012-13 and ₹ 1,091/- in A.Y. 2013-14 on treasury deposits and claimed these amounts as deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced by Finance Act 2006 w.e.f 1.4.2007 (insertion of section 80P(4) of the income-tax Act, had rendered the following findings: Therefore, the intention of the legislature is clear. If a cooperative bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Cooperative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary cooperative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary cooperative agricultural and rural development bank. They did not want to extend the said benefit to a Co-operative bank which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, as the assessee is not a Co- operative bank carrying on excursively banking business and as it does not possess a licence from Reserve Bank of India to carry on business, it is not a Cooperative bank. It is a Co-operative society which also carries on the business of lending money to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tumkur Merchants Souharda Credit Cooperative Ltd in ITA No.307 of 2014 ( judgment dated 28th Oct 2014). The Hon ble Karnataka High Court was considering the following substantial question of law: Whether the Tribunal failed in law to appreciate that the interest earned on short term deposits were only investment in the course of activity or providing credit facilities to members and that the same cannot be considered as investment made for the purpose of earning interest income and consequently passed a perverse order? 7.3 In answering the above question of law, the Hon ble Karntaka High Court distinguished the judgment of the Apex Court in the case of Totgars Cooperative Sales Society Ltd (supra) and rendered the following findings: 9. In this context when we look at the judgment of the Apex Court in the case of M/s Totgars Cooperative Sales society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we find on identical facts, the Cochin Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd in ITA No. 372/Coch/2010 had decided the matter in favour of the assessee. The Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Bank Ltd (supra) has distinguished the judgment of the Hon ble Apex Court in the case of Totgar s Cooperative Sale Society Ltd (supra). The relevant finding of the coordinate Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd (supra) read as follows: 5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totgar s Co-operative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co-operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar s Co-operative Sale Society Ltd vs ITO (supra), the assessee co-operative society was to provide credit facility to its members and market the agricultural produce. The assessee is not in the business of ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received on investments with sub-treasury is part of banking activities of the assessee and the same is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. It is ordered accordingly. 10.5 In the result, ground No.2 filed in ITA No.627 to 631/Coch/2017 is allowed. 11. Trade Income 11.1 The CIT(A) had decided the above issue by observing as under:- The appellant derived trade income amounting to ₹ 89,529/- in A.Y.2007-08, ₹ 99,459/- in A.Y. 2008-09, ₹ 84,768 in A.Y. 2009-10, ₹ 1,88,844/- in A.Y. 2012-13 and ₹ 86,956/- in A.Y. 2013-14. These amounts are not eligible for deduction under section 80P(2)(a) and hence, may be dealt with in accordance with the provisions of Income Tax Act, 1961. 11.2 The assessee being aggrieved has filed the present appeals before the Tribunal. The learned AR submitted that an identical issue was considered by the Tribunal in the case of The Secretary, The Panathady Service Co-operative Bank Ltd. v. ITO [ITA Nos.574 to 578/Coch/2017 order dated 23.07.2018] wherein the Tribunal has restored the issue to the A.O. for de novo consideration. The learned Departmental Representative present was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduction u/s 80P(2)(a)(iii) / 80P(2)(a)(iv) of the I.T.Act. There is no specific reasons given by the A.O. nor CIT(A) for denying the deduction claimed u/s 80P(2) for trade income derived by the assessee. Therefore, we restore the issue of trade income whether it is entitled to deduction u/s 80P(2) of the I.T.Act, to the file of the A.O.. It is ordered accordingly. 12. Rental Income 12.1 The CIT(A) had held rental income received by the assessee was not entitled to deduction u/s 80P(2) of the I.T.Act. The relevant finding of the CIT(A) reads as follows:- The appellant derived rental income amounting to ₹ 24,400/- in A.Y. 2007-08, ₹ 21,950/- in A.Y. 2008-09, ₹ 16,700/- in A.Y. 2009-10, ₹ 28,550/- in A.Y. 2012-13 and ₹ 15,200/- in A.Y. 2013-14. These amounts are not eligible for deduction under section 80P and hence, may be dealt with in accordance with the provisions of Income Tax Act, 1961. 12.2 The assessee being aggrieved has filed the present appeals before the Tribunal. The learned AR stated that the rental income has been taken as income of the assessee in the returns of income filed. It was submitted by the learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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