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TMI Blog2020 (2) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... y reserve and the judgments of the Supreme Court in Nawanshahar [ 2005 (8) TMI 28 - SC ORDER] and Totgars' [ 2010 (2) TMI 3 - SUPREME COURT] as well as other relevant case law shall be taken into account by the Assessing Officer in framing assessment by way of a speaking and detailed order. This exercise shall be completed within a period of six (6) weeks from date of conclusion of personal hearing. - Writ Petition Nos.3761, 3763, 3767 & 3771 of 2020 And WMP No.4443, 4444, 4449, 4451, 4455, 4457, 4461 & 4464 of 2020 - - - Dated:- 17-2-2020 - Dr. Justice Anita Sumanth For the Petitioner : Mr.C.Prakasam in all WPs. For the Respondent : Mr.A.P.Srinivas, Senior Standing Counsel in all WPs. COMMON ORDER Mr.A.P.Srinivas, learned Senior Standing Counsel accepts notice for the respondent. 2. By consent expressed by both learned counsel, these Writ Petitions are disposed finally even at the stage of admission. The writ petition challenges orders of assessment passed in terms of the Income Tax Act, 1961 ('Act') for AY 2017-2018. W.P. Nos.3761, 3763 and 3771 of 2020: 3. I have had an occasion to consider an identical issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not carry with it the right to vote and participate in elections, become office bearers or participate in General Body Meetings. They also do not hold any right to the profits or gains of the Society, while shareholding members, i.e., A class members enjoy all the aforesaid rights denied to the B class members. 26. The Assessing Authority was thus of the view that the claim of the petitioners is liable to be rejected in the light of the judgment of the Supreme Court in the case of Citizen (supra). Reliance was specifically placed on paragraph 24 of the judgement, where a distinction is made between Nominal Members and Ordinary Members. Paragraph 24 reads as follows: 'Undoubtedly, if one has to go by the aforesaid definition of 'cooperative bank', the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, the Rules framed thereunder and the By-laws and includes an associate member. The expression 'associate member' is defined under Section 2(6) of the TNCS Act to mean 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 this Act, the Rules and the By-law. 13. Thus, the definition of the word 'members' includes an associate member and therefore, the Assessing Officer fell into an error in drawing a distinction between A Class members and B Class members. For the purpose of being entitled to a relief under Section 80P of the Act, all that is required is that the cooperative society should answer the description of a society engaged in carrying on the business of providing credit facilities to its member. Once the description is answered, then automatically, the benefit of Section 80P of the Act would stand attracted subject to the provisions contained in Sub-Section (2) of Section 80P of the Act. 14. Further, it is to be pointed out that in terms of Sub-Section (4) of Section 80P of the Act, which was inserted vide the Finance Act, 2006 with effect from 01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer himself found that the associate members are also admitted as members of the society. In such circumstances, the Assessing Officer fell into an error in not granting any relief to the assessee society, which was rightly granted by the CIT (A) as confirmed by the Tribunal. In addition to that, the Assessing Officer has not pointed out that loans have been disbursed to all and sundry in terms of the provisions of the TNCS Act and in terms of Clause (b) to Sub-Section (4) of Section 80P of the Act, the society has an area of operation, operates within the taluk and will provide long term credit for agricultural and rural development activities as well. The CIT (A) rightly granted the relief to the assessee as confirmed by the Tribunal. We do not find any good ground to entertain these appeals. 18. Accordingly, the above tax case appeals are dismissed. The substantial questions of law framed are answered against the Revenue. ' 31. Learned counsel for the Revenue states that there are cases of other identically placed Agricultural Cooperative Marketing Societies that the Revenue has carried/intends to carry to the Supreme Court where the stakes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 would not fall within the ambit of surplus funds and the judgment in the case of Totgars (supra) was inapplicable to their cases. 6. In addition, the petitioner also stated that the total amount invested, ₹ 15,51,18,027/- in the case of K.2058 Saravanampatti Primary Agricultural Cooperative Credit Society Limited, petitioner in W.P.No.17 of 2020, (whose facts are taken to be illustrative of the facts in other Writ Petitions as well on the basis of the submissions of both learned counsel to the effect that the facts and legalities in all writ petitions are similar excepting for the figures involved), comprised significantly of external borrowings. In this case, a sum of ₹ 12,57,23,490/- had been borrowed from the Coimbatore District Central Cooperative Bank. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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/entities. 13. One of the petitioners before me (Kalikkanaickenpalayam Primary Agricultural Cooperative Credit Society Ltd.in W.P.No.29 of 2020) has specifically raised before the Assessing Authority the argument that the Tamil Nadu Co-operative Societies Act, 1983 (in short 'TNCS Act') mandates Cooperative Societies to place a portion of their funds as a statutory reserve with a District Co-operative Bank. The argument appears to be that the statutory reserve forms part of and is an essential feature of the operations and any interest generated therefrom would be operational income entitled to deduction under Section 80P of the I.T.Act. 14. The respondent officer has relied on a more recent judgment of the Supreme Court in Totgars' (supra), where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 for exemption on the ground of mutuality. Though there is one general ground raised in regard to availability/entitlement to deduction under Section 80P itself, 'The respondent failed to consider that the cooperative societies are entitled to seeking deduction u/s.80(P) of Income Tax Act, but the same was not considered by the respondent , all other grounds revolve only around the aspect of mutuality and are entirely irrelevant to the issue arising from the present impugned order. No specific ground has been raised on the classification of interest income and whether the same would fall within the ambit of income from business or other sources. 17. However, the petitioners have responded to the show cause notice issued by the officer raising this issue and their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety 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 vs. NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD. The following cases are also to be considered by the Honorable Supreme Court of India in the case of interest received on deposits etc., Supreme Court of India Commissioner Of Income-Tax vs Ramanathapuram Distt. Co-Op. ... on 30 October, 2001 Equivalent citations: 2002 255 ITR 423 SC Bench: S Bharucha, Y Sabharwal, B Kumar ORDER 1. The High Court has answered against the Revenue, the following question : Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the interest on securities, subsidies received from the Government and dividend business income of the assesse entitled to deduction under Section 80P(2)(a)(i) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed 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 rely on Totgars (supra) 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. 20. I make it clear that I have expressed no opinion on the merits of the matter and all that is stated above is only to crystallize the arguments of both sides, as available on record. The officers are at liberty to decide ..... 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