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TMI Blog2020 (2) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... This amounts to a fatal flaw as it renders the impugned order entirely non-speaking and passed without application of mind. If the affidavits of the petitioners are looked upon as mechanical and filed in haste and without application of mind, equally so are the impugned orders of assessment that simply rely on Totgars [ 2010 (2) TMI 3 - SUPREME COURT] without discussing the arguments put forth by the petitioners. For this reason the arguments of the revenue based on the lack of pleadings in the affidavit is rejected. I am of the considered view that in a case such as the present, the petitioners should not suffer for lacunae in drafting particularly when the stand of the petitioners is very clear from the materials on record. Thus, to balance the convenience of both parties and in the interests of justice, this issue is set aside for denovo and fresh examination and conclusion by the respondent. Classification of interest generated from deposits made and held as statutory reserve for the grant of deduction under Section 80P of the I.T. Act, they are set aside. The petitioners are directed to appear before their respective Assessing Officers on 14.02.2020 at 10.30 a.m. witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Officer, was ineligible for deduction under Section 80P, since it did not form part of the operational income of the petitioner/assessee and was liable to be taxed in terms of Section 56 of the I.T. Act. The Officer relied on the judgment of the Supreme Court in the case of Totgars' Cooperative Sale Society Limited V. ITO, Karnataka (322 ITR 283). 4. The petitioners were put to notice of the proposal to bring to tax the interest receipts under the head ' other sources '. The petitioners sought to distinguish the judgment in the case of Totgars (supra) on the grounds that Totgars was a Society engaged in sales, whereas, the petitioner was a Primary Agricultural Cooperative Credit Society. That apart, the funds that were deposited giving rise to the interest income did not constitute a surplus, but a mandatory statutory reserve. 5. Reliance was placed on a judgment of the Supreme Court in Commissioner of Income Tax, Jalandhar V. Nawanshahar Central Cooperative Bank Limited ((2007) 15 SCC 611) wherein the Bench has observed that the deposit effected was in the nature of a statutory reserve. According to the petitioners, such statutory reserve woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principle in those cases would cover a situation where a Co-operative Bank carrying on the business of banking is statutorily required to place a part of its funds in approved securities. 11. The distinction I note, at first blush, is that this judgment has been rendered in the case of a Co-operative Bank, whereas, the petitioners before me are Co-operative Societies. The Supreme Court in Citizen Co-operative Society Limited V. Assistant Commissioner of Income-Tax, Circle -9(1), Hyderabad (397 ITR 1) has noted the distinction between a Co-operative Bank that would be governed by the provisions of the Banking Regulation Act, 1949, where its operations would include engagement of the members of the general public, and a co-operative Society, whose operations would be confined to its members. 12. This is the distinction between the two kinds of co-operative societies as set out under Section 80P(2)(a)(i), that is, those carrying on the business of banking and those providing credit facilities to its members. However, a common mandate in both cases, though arising under different enactments, is for such entity to place a part of its funds in/with specific facilities/en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under Section 28 of the Act? In our view, such interest income would come in the category of Income from other sources ,....' 16. The revenue has filed counters in a few writ petitions objecting to the maintainability of writs sought and again relying on the judgement of the Supreme Court in the case of Totgars (supra). Additionally, Mr.Jayapratap points out that the issue in regard to the classification and taxability of interest income has not been specifically raised in the affidavit filed in support of the Writ Petitions. Upon perusal, the affidavits appear to be a cut and paste exercise from Writ Petitions filed by other Co-operative Societies challenging orders of assessment rejecting claims f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry Agricultural Cooperative Credit Society. The former is dealing sale of goods and ours is dealing in credit facility extended to the members. Major difference in both former is dealing sale of something and ours is dealing in money, when money involved in the bank or credit society, definitely a reserve must be maintained for easy liquidation purpose in case of emergency. Also, as per section 80P2A, profits and gains attributable to the business of the society and the word attributable is having elaborate meaning as derived in the COMMISSIONER OF INCOME TAX vs. NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD Civil Appeal Nos.2499 2500 of 2005 8th April, 2005, 2007 208 CTR SC 438:2007 289 ITR 6 SC:2007 160 TAXMAN 48 Also it is to be noted that every Cooperative Society is to be maintained a statutory reserve of 25 percent of the total deposits including savings bank account and current account balances with District Central Cooperative banks to provide proper liquidity to the societies. So, the funds deposited is not a surplus fund as decided in Totgars Cooperative Sale Society Ltd., but a statutory reserve maintained as decided in COMMISSIONER OF INCOME TAX v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceedings by taxing the interest income and accept the returned income. 18. Though all petitioners have not replied identically to the notices issued by the officer, the above replies are illustrative of the stands adopted by the petitioners at the time of assessment and crystallize the arguments of the petitioners to the effect that (i) the investments in question do not comprise surplus funds (ii) that the investments constitute a statutory reserve as mandated by the TNCS Act (iii) the interest generated therefrom was eligible for deduction in the light of Nawanshahar (supra) (iv) at worst the interest received should be netted with interest paid. These arguments ought to have been at least, considered, by the Assessing Authority in deciding the issue but have unfortunately been brushed aside despite being noted in the order itself. 19. In my considered view, this amounts to a fatal flaw as it renders the impugned order entirely non-speaking and passed without application of mind. If the affidavits of the petitioners are looked upon as mechanical and filed in haste and without application of mind, equally so are the impugned orders of assessment that simply re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed. II. W.P.Nos.1124, 1123, 1127, 1131, 1133, 1136, 1138, 1141, 1143, 1145, 1149, 1293, 1299 and 1420 of 2020: 23. The issue that arises in W.P.Nos.1124, 1123, 1127, 1131, 1133, 1136, 1138, 1141, 1143, 1145, 1149, 1293, 1299 and 1420 of 2020 also involves the entitlement of the petitioners that claim to be Primary Agricultural Co-operative Credit Societies, to deduction under Section 80P. The petitioners were called upon to produce various details in support of their claims and a specific question raised for their response was as follows: '4. Is the society having associate/nominal member. If yes, whether the society is carrying on business with them? If so, please show cause why the deduction u/s.80P cannot be denied in view of the decision of the Jurisdictional ITAT in the case of M/s S1234 Udyapatti PACCS Ltd., Udyapatti P.O, Salem - 636 140 in ITA No.2332/Chny/2017. Wherein the ITAT followed the decision of Hon'ble Supreme Court in the case of Citizen Cooperative Society Ltd Vs. Assistant Commissioner of Income-tax, Circle - 9(1), Hyderabad reported in [2017] 84 taxmann.com 114 (SC) and denied deduction u/s.80P.' 24. We are concerned in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners was rejected as being inapplicable to its case. 28. A Division Bench of this Court has, on identical facts as in the present case, in the case of The Principal Commissioner of Income Tax, Salem V. M/s.S- 1303 Ammapet Primary Agricultural Cooperative Bank Ltd., Ammapet, Salem (T.C.(A)Nos.882 and 891 of 2018 dated 06.12.2018) held that the assessee would be entitled to deduction under Section 80P. The reasoning was that under the TNCS Act, a member and an associate member are one and the same and an associate member has also been held to be holding the character of a member. The Division Bench has taken the view that as far as the State of Tamil Nadu is concerned, the TNCS Act equates both members and associate members and places them on par. Thus, the distinction carved out by the Supreme Court would not be applicable in these cases. 29. In several of the orders of assessment impugned before me (W.P.Nos.1131, 1136, 1141, 1145 AND 1420 of 2020) the Assessing Officer, making reference to the order of the Division Bench of the Madras High Court, has stated that the orders have not been accepted and have been challenged by way of Special Leave Petitions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities'. What was excluded was the 'cooperative banks' and admittedly, the assessee society is a primary agricultural cooperative credit society and therefore, would be entitled to the benefit of Section 80P of the Act. 15. Further, for the assessment year 2014-15, the decision in the case of Citizen Cooperative Society Limited was relied upon by the Revenue before the Tribunal, which, in paragraph 6.1 of its order dated 28.2.2018 for the assessment year 2014-15, extracted the operative portion of that judgment. In that case, the Hon'ble Supreme Court found that the society carried on certain activities, which were contrary to the provisions of the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995 and that they accepted deposits from third parties, who were not members in the real sense and were using those deposits to advance gold loans. Therefore, the Hon'ble Supreme Court pointed out that such an activity of the said society was that of a finance business and could not be termed as a cooperative society and that the loans, which were disbursed, were without the approval from the Registrar of Mutually Aided Cooperative Societies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the questions of law in this regard are still at large, the petitioners are directed to file a statutory appeal before the Commissioner of Income Tax (Appeals) within a period of three(3) weeks from today. However, let no recovery of the demand relating to this issue be enforced till the disposal of the appeals. 33. W.P.Nos.1124, 1123, 1127, 1131, 1133, 1136, 1138, 1141, 1143, 1145, 1149, 1293, 1299 and 1420 of 2020 are disposed in the aforesaid terms. No costs. Connected Miscellaneous Petitions are closed. III. W.P.Nos.1107, 1118, 1121, 1125, 1129, 1139, 1146, 1152, 1166, 1169 and 1171 of 2020: 34. This batch of eleven (11) Writ petitions involves two questions, viz., i) exemption claimed on the ground of principle of mutuality, wherein the Assessing Authority has relied upon the judgment of the Supreme Court in the case of Citizen (as supra) and ii) the classification of interest generated by deposits made as statutory reserve, as being either ' income from business' or 'income from other sources' , wherein the Assessing Officer has relied upon the judgment of the Supreme Court in the case of Totgars' (supra). 35. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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