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TMI Blog2018 (3) TMI 1807X X X X Extracts X X X X X X X X Extracts X X X X ..... NAGING DIRECTOR, HYDERABAD VERSUS ASSISTANT COMMISSIONER OF INCOME TAX [ 2017 (8) TMI 536 - SUPREME COURT] it is clear that the Hon ble Supreme Court rejected the above assessee s claim holding that the principles of mutuality was missing in that case. Although, both the Members to the transactions of this assessee are the contributors towards surplus, however, the Associate Members are not entitled to the benefits of surplus of the assessee and hence, the principles of mutuality is missing in this case. The assessee cannot be treated as a Co-operative Society meant only for its Members and providing credit facility to its Members and hence they are not entitled to the benefit of section 80P(2)(a)(i) of the Act. The Revenue s above appeal is allowed. - I.T.A. No. 2607/Chny/2017 Assessment Year: 2014-15 - - - Dated:- 27-3-2018 - Shri George Mathan, Judicial Member And Shri S. Jayaraman, Accountant Member Revenue by: Shri S. Nataraja, JCIT Assessee by: Shri M. Balu, CA ITP ORDER S. Jayaraman, The Revenue filed this appeal against the order of the CIT(A), Salem in ITA No: 288/2016-17 dated 31.08.2017 for assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prevailing rate is 12% to 14%. (b). The circumstances clearly indicate that the activities of the society are never intended to help the agriculturists by providing cheap money for promotion of agriculture. The activities are clearly carried out with profit motive. Merely naming the society as primary agriculture co-operative society is not sufficient for claiming deduction under section 80P(2)(a)(1), but the principal or predominant activities of the bank should be in connection with agricultural purposes or for purposes connected with agricultural activities. Considering the above discussions, it is held that the bank is not eligible for claiming deductions under the provisions of the section 80P(2)(a)(i). (c) Sec.80P(2)(a)(i) provides for deduction to a society engaged in carrying on the business of providing credit facilities to its 'members'. Here the 'member' means 'share-holding members' (also called A-class member) only. On perusal of the details of interest income, it is seen that a major portion of the interest receipts are on account of jewel loan granted to 'associate members' (also called B-Class members). Anyone ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to insolvency, insanity etc., Membership is valid up to a period of 3 years or till the existence of loan whichever is earlier Renewal of membership YES NO From the above, it is clear that the associate member is admitted in to the society for the purpose of availing loan and don't have any other rights /obligations as endowed to a member . The DR relied on the decision of the Hon ble SC in the case of The Citizen Co-operative Society Limited, Through its Managing Director, Hyderabad vs ACIT dated 08.08.2017 in Civil Appeal No. 10245 of 2017. Per contra, the AR submitted that the CIT(A) is right in holding that the assessee is entitled for deduction u/s. 80P(2)(a)(i). As per section 2(16) of the Tamilnadu Co-operative Societies Act, 1983, Member means a person joining in the application for the registration of a society and a person admitted to the membership after registration in accordance with the provisions of this Act, the rules and by-laws includes an associate members. It envisages the Associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for deduction u/s. 80P(2)(a)(i) and completed the assessment. These findings have not been disputed. Thus, when the profits of the assessee are not shared with Associate Members as is done with the Members, it is clear that these assessee s case fail on the principles of mutuality. Let us examine the relevant portion of the decision of the Supreme Court in the case of The Citizen Co-operative Society Limited, Through its Managing Director, Hyderabad vs ACIT dated 08.08.2017 in Civil Appeal No. 10245 of 2017, relied on by the DR, as under: 23) With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a co-operative bank. However, if it is a primary agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act. 24) Undoubtedly, if one has to go by the aforesaid definition of 'co-operative bank', the appellant does not get covered thereby. It is also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific finding is also rendered that the principle of mutuality is missing in the instant case. Though there is a detailed discussion in this behalf in the order of the Assessing Officer, our purpose would be served by taking note of the following portion of the discussion: As various courts have observed that the following three conditions must exist before an activity could be brought under the concept of mutuality; that no person can earn from him; that there a profit motivation; and that there is no sharing of profit. It is noticed that the fund invested with bank which are not member of association welfare fund, and the interest has been earned on such investment for example, ING Mutual Fund [as said by the MD vide his statement dated 20.12.2010]. [Though the bank formed the third party vis-a-vis the assessee entitled between contributor and recipient is lost in such case. The other ingredients of mutuality are also found to be missing as discussed in further paragraphs]. In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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