I Have Had An Occasion To Consider An Identical Issuein A Batch Of Writ Petitions Filed By Several Primaryagricultural Co-Operative Societies, And In The Case O v. The Income Tax Officer (W.p.nos.17 Of 2020 Etc. Batch

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE DR. JUSTICE ANITA SUMANTH Writ Petition Nos.3761, 3763, 3767 & 3771 of 2020and WMP No.4443, 4444, 4449, 4451, 4455, 4457, 4461 & 4464 of 2020 K.441 Brammadesam Primary AgriculturalCo-operative Credit Society Limited,Rep. by its Secretary,G.Sundaram AA 184 Veerappanchatram Primary AgriculturalCo-operative Credit Society Limited,Rep. by its Secretary,R.Ushadevi A.A. 190 B.P. Agraharam Primary AgriculturalCooperative Credit Society Ltd.,Rep. by its Secretary,B.Ravikumar K.809 Udumalai Pappankulam PrimaryAgricultural Co-operative Credit Society Ltd.,Rep. by its Secretary,A.Nagarajan The Income Tax Officer,Ward -2 (5), Erode,Income Tax Office,No.15, Gandhiji Road, Erode - 638 001,Erode District. https://hcservices.ecourts.gov.in/hcservices/ The Income Tax Officer,Ward -1 (4), Erode,Income Tax Office,No.15, Gandhiji Road, Erode - 638 001,Erode District. .... Respondent in W.P. Nos.3763 & 3767 of 2020 The Income Tax Officer,Ward -2(4) TPR, No.121,60 Feet Road, Tiruppur 641 602. Petitions filed under Article 226 of The Constitution ofIndia praying for the issuance of Writ of Certiorari, callingfor the entire records relating to the impugned order passed bythe respondent in No.Nil, dated 13.12.2019, DIN & OrderNo.ITBA/AST/S/143(3)/2019-20/1022804603 (1), dated 21.12.2019,DIN & Order No.ITBA/AST/S/143(3)/2019-20/1023297826(1), dated28.12.2019 & DIN & Order No.ITBA/AST/S/143(3)/2019-20/1023418508(1), dated 30.12.2019 and quash the same. For Petitioner : Mr.C.Prakasam in all WPs. For Respondent : Mr.A.P.Srinivas, Senior Standing Counsel in all WPs. ---------------C O M M O N O R D E R Mr.A.P.Srinivas, learned Senior Standing Counsel acceptsnotice for the respondent. 2. By consent expressed by both learned counsel, these WritPetitions are disposed finally even at the stage of admission.The writ petitions challenge orders of assessment passed interms of the Income Tax Act, 1961 ('Act') for AY 2017-2018. 3. I have had an occasion to consider an identical issuein a batch of writ petitions filed by several PrimaryAgricultural Co-operative Societies, and in the case of K.2058,Saravanmpatti Primary Agricultural Co-operative Credit SocietyLtd., Vs. The Income Tax Officer (W.P.Nos.17 of 2020 etc. batch https://hcservices.ecourts.gov.in/hcservices/ dated 31.01.2020), while dealing with a claim of deduction underSection 80P of the Income Tax Act by the Co-operative Societies,I have stated as follows: 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 theentitlement of the petitioners that claim to be PrimaryAgricultural Co-operative Credit Societies, to deductionunder Section 80P. The petitioners were called upon toproduce various details in support of their claims and aspecific question raised for their response was asfollows: '4. Is the society having associate/nominalmember. If yes, whether the society iscarrying on business with them? If so, pleaseshow cause why the deduction u/s.80P cannot bedenied in view of the decision of theJurisdictional ITAT in the case of M/s S1234Udyapatti PACCS Ltd., Udyapatti P.O, Salem -636 140 in ITA No.2332/Chny/2017. Wherein theITAT followed the decision of Hon'ble SupremeCourt in the case of Citizen Co-operativeSociety Ltd Vs. Assistant Commissioner ofIncome-tax, Circle - 9(1), Hyderabad reportedin [2017] 84 taxmann.com 114 (SC) and denieddeduction u/s.80P.' '4. Is the society having associate/nominalmember. If yes, whether the society iscarrying on business with them? If so, pleaseshow cause why the deduction u/s.80P cannot bedenied in view of the decision of theJurisdictional ITAT in the case of M/s S1234Udyapatti PACCS Ltd., Udyapatti P.O, Salem -636 140 in ITA No.2332/Chny/2017. Wherein theITAT followed the decision of Hon'ble SupremeCourt in the case of Citizen Co-operativeSociety Ltd Vs. Assistant Commissioner ofIncome-tax, Circle - 9(1), Hyderabad reportedin [2017] 84 taxmann.com 114 (SC) and denieddeduction u/s.80P.' 24. We are concerned in these Writ Petitions onlyto the claim of the petitioners for exemption byapplication of the principle of mutuality and therejection of the same. According to the petitioner,credit facilities are offered by it to members in A aswell as B classes. The petitioners argued before theAssessing Authority that their income would be exempt onthe ground of application of mutuality, since theinflows as well as outflows related to one common groupof members with which the Society is in completeidentity. 25. However, the officer draws a distinctionbetween the two classes of members - B class members arenon-shareholding members admitted only for the purposeof availing loans against specified securities. Non-refundable admission fee is remitted by them and theduration of their membership is restricted to a maximumof three years. B class members are not allotted sharesand their membership does not carry with it the right tovote and participate in elections, become office bearersor participate in General Body Meetings. They also do not hold any right to the profits or gains of theSociety, while shareholding members, i.e., A classmembers enjoy all the aforesaid rights denied to the Bclass members. 26. The Assessing Authority was thus of the viewthat the claim of the petitioners is liable to berejected in the light of the judgment of the SupremeCourt in the case of Citizen (supra). Reliance wasspecifically placed on paragraph 24 of the judgement,where a distinction is made between Nominal Members andOrdinary Members. Paragraph 24 reads as follows: 'Undoubtedly, if one has to go by theaforesaid definition of 'co-operative bank',the appellant does not get covered thereby. Itis also a matter of common knowledge that inorder to do the business of a co-operativebank, it is imperative to have a licence fromthe Reserve Bank of India, which the appellantdoes not possess. Not only this, as noticedabove, the Reserve Bank of India has itselfclarified that the business of the appellantdoes not amount to that of a co-operativebank. The appellant, therefore, would not comewithin the mischief of sub-section (4) ofSection 80P.' 27. Thus, though categorised as A and B, there arevital distinctions that were drawn between the membersof the two classes and hence the principle of mutualitythat was relied upon by the petitioners was rejected asbeing inapplicable to its case. 28.A Division Bench of this Court has, on identicalfacts as in the present case, in the case of ThePrincipal Commissioner of Income Tax, Salem V.M/s.S-1303AmmapetPrimaryAgriculturalCooperative Bank Ltd., Ammapet, Salem (T.C.(A)Nos.882 and 891 of 2018 dated 06.12.2018) heldthat the assessee would be entitled to deductionunder Section 80P. The reasoning was that underthe TNCS Act, a member and an associate member areone and the same and an associate member has alsobeen held to be holding the character of a member.The Division Bench has taken the view that as faras the State of Tamil Nadu is concerned, the TNCSAct equates both members and associate members andplaces them on par. Thus, the distinction carvedout by the Supreme Court would not be applicablein these cases. 28.A Division Bench of this Court has, on identicalfacts as in the present case, in the case of ThePrincipal Commissioner of Income Tax, Salem V.M/s.S-1303AmmapetPrimaryAgriculturalCooperative Bank Ltd., Ammapet, Salem (T.C.(A)Nos.882 and 891 of 2018 dated 06.12.2018) heldthat the assessee would be entitled to deductionunder Section 80P. The reasoning was that underthe TNCS Act, a member and an associate member areone and the same and an associate member has alsobeen held to be holding the character of a member.The Division Bench has taken the view that as faras the State of Tamil Nadu is concerned, the TNCSAct equates both members and associate members andplaces them on par. Thus, the distinction carvedout by the Supreme Court would not be applicablein these cases. 29.In several of the orders of assessment impugnedbefore me (W.P.Nos.1131, 1136, 1141, 1145 AND 1420of 2020) the Assessing Officer, making referenceto the order of the Division Bench of the MadrasHigh Court, has stated that the orders have notbeen accepted and have been challenged by way ofSpecial Leave Petitions. 30. No counter has been filed in these writpetitions. Mr.Jayapratap however, fairly produces a copyof the order in SLP filed challenging the order of theDivision Bench in Ammapet (supra) (Special Leave toAppeal (c) No.17745 of 2019 dated 17.01.2020), whereinthe Department has withdrawn the Special Leave Petitionon account of low tax effect. The question of law hasbeen kept open. In such circumstances, the order of theDivision Bench of this Court would hold the field tillsuch time it is modified or reversed. The relevantportion of the order is as follows: '12. Admittedly, the assessee – society isregistered under the provisions of the TNCSAct. It defines the word 'members' underSection 2(16) to mean a person joining in theapplication for the registration of societyand a person admitted to the membership afterregistration in accordance with the provisionsof the Act, the Rules framed thereunder andthe By-laws and includes an associate member.The expression 'associate member' is definedunder Section 2(6) of the TNCS Act to mean amember, who possesses only such privileges andrights of a member and who is subject only tosuch liabilities of a member as may bespecified 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 indrawing a distinction between A Class membersand B Class members. For the purpose of beingentitled to a relief under Section 80P of theAct, all that is required is that thecooperative society should answer thedescription of a society engaged in carryingon the business of providing credit facilitiesto its member. Once the description isanswered, then automatically, the benefit of Section 80P of the Act would stand attractedsubject to the provisions contained in Sub-Section (2) of Section 80P of the Act. 13. Thus, the definition of the word 'members'includes an associate member and therefore,the Assessing Officer fell into an error indrawing a distinction between A Class membersand B Class members. For the purpose of beingentitled to a relief under Section 80P of theAct, all that is required is that thecooperative society should answer thedescription of a society engaged in carryingon the business of providing credit facilitiesto its member. Once the description isanswered, then automatically, the benefit of Section 80P of the Act would stand attractedsubject to the provisions contained in Sub-Section (2) of Section 80P of the Act. 14. Further, it is to be pointed out that interms of Sub-Section (4) of Section 80P of theAct, which was inserted vide the Finance Act,2006 with effect from 01.4.2007 i.e from theassessment year 2007-08, the 'primarycooperative agricultural and rural developmentbank' means 'a society having its area ofoperation confined to a taluk, the principalobject of which is to provide for long termcredit for agricultural and rural developmentactivities'. What was excluded was the'cooperative banks' and admittedly, theassessee society is a primary agriculturalcooperative credit society and therefore,would be entitled to the benefit of Section80P of the Act. 15. Further, for the assessment year 2014-15,the decision in the case of CitizenCooperative Society Limited was relied upon bythe Revenue before the Tribunal, which, inparagraph 6.1 of its order dated 28.2.2018 forthe assessment year 2014-15, extracted theoperative portion of that judgment. In thatcase, the Hon'ble Supreme Court found that thesociety carried on certain activities, whichwere contrary to the provisions of the AndhraPradesh Mutually Aided Cooperative SocietiesAct, 1995 and that they accepted deposits fromthird parties, who were not members in thereal sense and were using those deposits toadvance gold loans. Therefore, the Hon'bleSupreme Court pointed out that such anactivity of the said society was that of afinance business and could not be termed as acooperative society and that the loans, whichwere disbursed, were without the approval fromthe Registrar of Mutually Aided CooperativeSocieties, Ranga Reddy District. The Hon'bleSupreme Court found that the said society wasnot entitled to deduction under Section 80P ofthe Act. 16. It is noteworthy to point out that theHon'ble Supreme Court in the decision in thecase of Citizen Cooperative Society Limitedalso observed that in the light of insertionof Sub-Section (4) to Section 80P of the Act by the Finance Act, 2006, such deductionshould not be admissible to a cooperative bankand that if it is a primary agriculturalcredit society or a primary cooperativeagriculture and rural development bank, thededuction would still be provided. 16. It is noteworthy to point out that theHon'ble Supreme Court in the decision in thecase of Citizen Cooperative Society Limitedalso observed that in the light of insertionof Sub-Section (4) to Section 80P of the Act by the Finance Act, 2006, such deductionshould not be admissible to a cooperative bankand that if it is a primary agriculturalcredit society or a primary cooperativeagriculture and rural development bank, thededuction would still be provided. 17. In the preceding paragraphs, we havepointed out the definitions of the expressions'members' and 'associate member' under theTNCS Act and held that an 'associate member'is also a 'member' in terms of Section 2(16)of the TNCS Act. Furthermore, the AssessingOfficer himself found that the associatemembers are also admitted as members of thesociety. In such circumstances, the AssessingOfficer fell into an error in not granting anyrelief to the assessee society, which wasrightly granted by the CIT (A) as confirmed bythe Tribunal. In addition to that, theAssessing Officer has not pointed out thatloans have been disbursed to all and sundry interms of the provisions of the TNCS Act and interms of Clause (b) to Sub-Section (4) ofSection 80P of the Act, the society has anarea of operation, operates within the talukand will provide long term credit foragricultural and rural development activitiesas well. The CIT (A) rightly granted therelief to the assessee as confirmed by theTribunal. We do not find any good ground toentertain these appeals. 18. Accordingly, the above tax case appealsare dismissed. The substantial questions oflaw framed are answered against the Revenue. ' 31. Learned counsel for the Revenue states thatthere are cases of other identically placed AgriculturalCooperative Marketing Societies that the Revenue hascarried/intends to carry to the Supreme Court where thestakes involved are significantly higher, such as,TiruchengodeAgriculturalProducersCooperativeMarketing Society Ltd. and Veerakeralam PrimaryAgricultural Cooperative Credit Society, Coimbatore. Insuch a case, the questions of law would be decided inthose cases. 32. In the light of the fact that the questions oflaw in this regard are still at large, the petitionersare directed to file a statutory appeal before the https://hcservices.ecourts.gov.in/hcservices/ Commissioner of Income Tax (Appeals) within a period ofthree(3) weeks from today. However, let no recovery ofthe demand relating to this issue be enforced till thedisposal of the appeals. 4. In view of the identity of facts and legal position inthe present matter as well, the aforesaid order is followed inthis case also. The petitioners are permitted to file statutoryappeals before the Commissioner of Income Tax (Appeals) withina period of three (3) weeks from today. There shall be an orderof interim stay of recovery in relation to this issue only tillsuch time the appeal is disposed by the first appellateauthority. 5. W.P.Nos.3761, 3763 and 3771 of 2020 are disposed in theaforesaid terms. No costs. Connected Miscellaneous Petitionsare closed. W.P. No.3767 of 2020: 6. In addition to the issue as aforesaid, an additionalissue that arises in W.P. No.3767 of 2020 is the eligibility toexemption claimed on interest income received by the petitionerfrom deposits/investments of funds in Banks. Such income,according to the Officer, was ineligible for deduction underSection 80P, since it did not form part of the operationalincome of the petitioner/assessee and was liable to be taxed interms of Section 56 of the I.T. Act. The Officer relied on thejudgment of the Supreme Court in the case of Totgars'Cooperative Sale Society Limited V. ITO, Karnataka (322 ITR 283). 7. The above issue has also been considered in the aforesaidbatch of Writ Petitions, wherein I have stated as follows: W.P. No.3767 of 2020: 6. In addition to the issue as aforesaid, an additionalissue that arises in W.P. No.3767 of 2020 is the eligibility toexemption claimed on interest income received by the petitionerfrom deposits/investments of funds in Banks. Such income,according to the Officer, was ineligible for deduction underSection 80P, since it did not form part of the operationalincome of the petitioner/assessee and was liable to be taxed interms of Section 56 of the I.T. Act. The Officer relied on thejudgment of the Supreme Court in the case of Totgars'Cooperative Sale Society Limited V. ITO, Karnataka (322 ITR 283). 7. The above issue has also been considered in the aforesaidbatch of Writ Petitions, wherein I have stated as follows: '4. The petitioners were put to notice of theproposal to bring to tax the interest receipts under thehead 'other sources'. The petitioners sought todistinguish the judgment in the case of Totgars (supra)on the grounds that Totgars was a Society engaged insales, whereas, the petitioner was a PrimaryAgricultural Cooperative Credit Society. That apart, thefunds that were deposited giving rise to the interestincome did not constitute a surplus, but a mandatorystatutory reserve. 5. Reliance was placed on a judgment of the SupremeCourt in Commissioner of Income Tax, Jalandhar V.Nawanshahar Central Cooperative Bank Limited ((2007) 15SCC 611) wherein the Bench has observed that the deposit effected was in the nature of a statutory reserve.According to the petitioners, such statutory reservewould not fall within the ambit of ‘surplus funds’ andthe judgment in the case of Totgars (supra) wasinapplicable to their cases. 6. In addition, the petitioner also stated that thetotal amount invested, Rs.15,51,18,027/- in the case ofK.2058 Saravanampatti Primary Agricultural CooperativeCredit Society Limited, petitioner in W.P.No.17 of 2020,(whose facts are taken to be illustrative of the factsin other Writ Petitions as well on the basis of thesubmissions of both learned counsel to the effect thatthe facts and legalities in all writ petitions aresimilar excepting for the figures involved), comprisedsignificantly of external borrowings. In this case, asum of Rs.12,57,23,490/- had been borrowed from theCoimbatore District Central Cooperative Bank. It is notelaborated as to why this borrowal was effected.Perhaps, it was the mandate of the statutory reservethat compelled the petitioner to effect the borrowing tomaintain such reserve. 7. It was also the contention of the petitionersbefore the Assessing Officer that if at all interestearned was to be brought to tax, then, alternatively,interest paid on the loan should be deducted frominterest received or in other words, there should be anetting of the interest paid and received and only theresultant figure be brought to tax. 8. The Assessing Authority however rejected thesubmissions cursorily stating in a single line that‘statutory reserve can also be considered as surplusfunds of the assessee’. The judgement of the SupremeCourt in the case of Nawanshahar (supra) has not beenconsidered or discussed and neither has the plea of thepetitioner for netting of interest paid and earned. 7. It was also the contention of the petitionersbefore the Assessing Officer that if at all interestearned was to be brought to tax, then, alternatively,interest paid on the loan should be deducted frominterest received or in other words, there should be anetting of the interest paid and received and only theresultant figure be brought to tax. 8. The Assessing Authority however rejected thesubmissions cursorily stating in a single line that‘statutory reserve can also be considered as surplusfunds of the assessee’. The judgement of the SupremeCourt in the case of Nawanshahar (supra) has not beenconsidered or discussed and neither has the plea of thepetitioner for netting of interest paid and earned. 9. In Nawanshahar (supra), the Supreme Courtconsidered the question of whether investments made by abanking concern are part of the business of banking. Theconclusion was that the income arising from investmentswould be attributable to the business of the bank andfall under the head 'profits and gains of business',deductible under Section 80P(2)(a)(i) of the I.T. Act.The earlier view in Bihar Coop. BankLtd. V. CIT ((1960)39 ITR 114, CIT V. Karnataka State Coop. Apex Bank((2001) 7 SCC 654) and CIT V. Ramanathapuram Distt.Coop.Central Bank Ltd. ((2009) 17 SCC 620) was followed.10. At paragraph 4 of the short judgment, the Benchhas stated that the principle in those cases would cover a situation where a Co-operative Bank carrying on thebusiness of banking is statutorily required to place apart of its funds in approved securities. 11. The distinction I note, at first blush, is thatthis judgment has been rendered in the case of a Co-operative Bank, whereas, the petitioners before me areCo-operative Societies. The Supreme Court in Citizen Co-operative Society Limited V. Assistant Commissioner ofIncome-Tax, Circle -9(1), Hyderabad (397 ITR 1) hasnoted the distinction between a Co-operative Bank thatwould be governed by the provisions of the BankingRegulation Act, 1949, where its operations would includeengagement of the members of the general public, and aco-operative Society, whose operations would be confinedto its members. 12. This is the distinction between the two kindsof co-operative societies as set out under Section 80P(2)(a)(i), that is, those carrying on the business ofbanking and those providing credit facilities to itsmembers. However, a common mandate in both cases, thougharising under different enactments, is for such entityto place a part of its funds in/with specificfacilities/entities. 13. One of the petitioners before me(Kalikkanaickenpalayam Primary Agricultural CooperativeCredit Society Ltd.in W.P.No.29 of 2020) hasspecifically raised before the Assessing Authority theargument that the Tamil Nadu Co-operative Societies Act,1983 (in short 'TNCS Act') mandates Co-operativeSocieties to place a portion of their funds as astatutory reserve with a District Co-operative Bank. Theargument appears to be that the statutory reserve formspart of and is an essential feature of the operationsand any interest generated therefrom would beoperational income entitled to deduction under Section80P of the I.T.Act. 14. The respondent officer has relied on a morerecent judgment of the Supreme Court in Totgars'(supra), where the Bench was concerned with surplusfunds which the assessee had invested in short termdeposits with banks and Government facilities. Thequestion referred for decision was as follows: 'Whether, on the facts and in the circumstancesof the case, the Tribunal was right in law inholding that the income by way of interest ondeposits held with scheduled banks, bonds andother securities was chargeable to taxunder section 56 under the head `Income from other sources' without allowing any deductionin respect of cost of funds and proportionateadministrative and other expenses under section57?' 14. The respondent officer has relied on a morerecent judgment of the Supreme Court in Totgars'(supra), where the Bench was concerned with surplusfunds which the assessee had invested in short termdeposits with banks and Government facilities. Thequestion referred for decision was as follows: 'Whether, on the facts and in the circumstancesof the case, the Tribunal was right in law inholding that the income by way of interest ondeposits held with scheduled banks, bonds andother securities was chargeable to taxunder section 56 under the head `Income from other sources' without allowing any deductionin respect of cost of funds and proportionateadministrative and other expenses under section57?' 15. Thus the issue before the Court in Totgars(supra) was on the classification of interest generatedby deposits held with scheduled banks, bonds and othersecurities without providing for a deduction in respectof cost of funds and proportionate administrative andother expenses under Section 57. The question ofinterest generated from deposits made by reason of astatutory mandate was raised and finds reference in thenarration of the petitioners' submissions, the Courthas, at para 8 of the report (ITR) stated that 'At the outset, an important circumstance needsto be highlighted. In the present case, theinterest held not eligible for deduction underSection 80P(2)(a)(i) of the Act is not theinterest received from the members forproviding credit facilities to them. What issought to be taxed under Section 56 of the Actis the interest income arising on the surplusinvested in short-term deposits and securitieswhich surplus was not required for businesspurposes. Assessee(s) markets the produce ofits members whose sale proceeds at times wereretained by it. In this case, we are concernedwith the tax treatment of such amount. Sincethe fund created by such retention was notrequired immediately for business purposes, itwas invested in specified securities. Thequestion, before us, is - whether interest onsuch deposits/securities, which strictlyspeaking accrues to the members' account, couldbe taxed as business income under Section 28 ofthe Act? In our view, such interest incomewould come in the category of "Income fromother sources",....' 16. The revenue has filed counters in a few writpetitions objecting to the maintainability of writssought and again relying on the judgement of the SupremeCourt in the case of Totgars (supra). Additionally,Mr.Jayapratap points out that the issue in regard to theclassification and taxability of interest income has notbeen specifically raised in the affidavit filed insupport of the Writ Petitions. Upon perusal, theaffidavits appear to be a cut and paste exercise from Writ Petitions filed by other Co-operative Societieschallenging orders of assessment rejecting claims forexemption on the ground of mutuality. Though there isonegeneralgroundraisedinregardtoavailability/entitlement to deduction under Section 80Pitself, 'The respondent failed to consider that thecooperative societies are entitled to seeking deductionu/s.80(P) of Income Tax Act, but the same was notconsidered by the respondent’, all other grounds revolveonly around the aspect of mutuality and are entirelyirrelevant to the issue arising from the presentimpugned order. No specific ground has been raised onthe classification of interest income and whether thesame would fall within the ambit of income from businessor other sources. 17. However, the petitioners have responded to theshow cause notice issued by the officer raising thisissue and their response has been extracted in theorders of assessment, as follows: W.P.No.17 of 2020: 17. However, the petitioners have responded to theshow cause notice issued by the officer raising thisissue and their response has been extracted in theorders of assessment, as follows: W.P.No.17 of 2020: 'The Supreme Court judgment in TogarsCooperative Sale Society Ltd no applicable toour society as the above society is a salesociety and ours is Primary Agricultural Co-operative Credit Society. The former is dealingsale of goods and ours is dealing in creditfacility extended to the members. Also, as per section 80P2a, profits and gainsattributable to the business of the society andthe word attributable is having elaboratemeaning as derived in Commissioner of Income-tax vs. Nawanshahar Central Co-operative bankLtd. Civil Appeal Nos.2499, 2500 of 2005 8thApril 2005. So, the funds deposited is not a surplus fundas decided in Totgars Co-operative Sale SocietyLtd., but a statutory reserve maintained asdecided in Commissioner of Income tax Vs.Nanshahar Central Cooperative Bank Ltd. The amount in investments is Rs.15,51,18,027/-out of this Rs.12,57,23,490/0 was borrowed fromCoimbatore District Central Co-operative Bank.if interest earned is taxed the interest paid to such loans are deducted form the interest onother sources. So, kindly drop the proceeding by taxing theinterest income and accept the returned income' W.P.No.29 of 2020: ‘Received you show cause notice and noted thecontents. In this regard we wish to submit thefollowing for your consideration. The Supreme Court judgement in TotgarsCooperative Sale Society Ltd., not applicableto our society as the above society is a salesociety and ours is Primary AgriculturalCooperative Credit Society. The former isdealing sale of goods and ours is dealing incredit facility extended to the members. Majordifference in both former is dealing sale ofsomething and ours is dealing in money, whenmoney involved in the bank or credit society,definitely a reserve must be maintained foreasy liquidation purpose in case of emergency.Also, as per section 80P2A, profits and gainsattributable to the business of the society andthe word attributable is having elaboratemeaning as derived in the COMMISSIONER OFINCOME TAX vs. NAWANSHAHAR CENTRAL COOPERATIVEBANK LTD Civil Appeal Nos.2499 2500 of 2005 8[th]April, 2005, 2007 208 CTR SC 438:2007 289 ITR 6SC:2007 160 TAXMAN 48Also it is to be noted that every CooperativeSociety is to be maintained a statutory reserveof 25 percent of the total deposits includingsavings bank account and current accountbalances with District Central Cooperativebanks to provide proper liquidity to thesocieties.So, the funds deposited is not a surplus fundas decided in Totgars Cooperative Sale SocietyLtd., but a statutory reserve maintained asdecided in COMMISSIONER OF INCOME TAX vs.NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD.The following cases are also to be consideredby the Honorable Supreme Court of India in thecase of interest received on deposits etc., Supreme Court of India Commissioner Of Income-Tax vs RamanathapuramDistt. Co-Op. ... on 30 October, 2001 Equivalent citations: 2002 255 ITR 423 SCBench: S Bharucha, Y Sabharwal, B KumarORDER 1. The High Court has answered against theRevenue, the following question :"Whether, on the facts and in the circumstancesof the case, the Appellate Tribunal was correctin law in holding that the interest onsecurities, subsidies received from theGovernment and dividend business income of theassesse entitled to deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961 ?" 2. The very question was considered by thiscourt in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 and theconclusion was reiterated in Mehsana DistrictCentral Co-operative Bank Ltd. v. ITO . 3. It is now contended on behalf of the Revenuethat the decision of this court in UnitedCommercial Bank Ltd. v. CIT [1957] 32 ITR 688was not considered. 1. The High Court has answered against theRevenue, the following question :"Whether, on the facts and in the circumstancesof the case, the Appellate Tribunal was correctin law in holding that the interest onsecurities, subsidies received from theGovernment and dividend business income of theassesse entitled to deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961 ?" 2. The very question was considered by thiscourt in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 and theconclusion was reiterated in Mehsana DistrictCentral Co-operative Bank Ltd. v. ITO . 3. It is now contended on behalf of the Revenuethat the decision of this court in UnitedCommercial Bank Ltd. v. CIT [1957] 32 ITR 688was not considered. 4. We do not think that it is open to theRevenue to urge, through different counsel, thesame thing again and again. We are satisfiedthat the answer to the question has beencorrectly given in the decisions aforementionedand in the order under appeal. 5. The civil appeals are dismissed with costs.Also the jurisdictional Madras High Court alsolooking into the Totgars case and allowed theinterest received is allowed under section 80Pin case of Madras High Court The Commissioner Of Income Tax vs M/S.Veerakeralam Primary ... on 5 July, 2016IN THE HIGH COURT OF JUDICATURE AT MADRASDated: 05.07.2016CORAM :THE HONOURABLE MR. JUSTICE S.MANIKUMARandTHE HONOURABLE MR. JUSTICE D.KRISHNAKUMARTax Case Appeal Nos.735, 755 of 2014 and 460 of2015The Commissioner of Income Tax,63, Race Course RoadCoimbatore .. Appellant in all the .. Appellant in all the above appeals Vs M/s. Veerakeralam Primary Agricultural Co-operative Credit SocietyNo.17, Peria Thottam ColonyVeerakeralamCoimbatore 641 007. So, on the basis of the above kindly drop theproceedings by taxing the interest income andaccept the returned income.’ 18. Though all petitioners have not repliedidentically to the notices issued by the officer, theabove replies are illustrative of the stands adopted bythe petitioners at the time of assessment andcrystallize the arguments of the petitioners’ to theeffect that (i) the investments in question do notcomprise surplus funds (ii) that the investmentsconstitute a statutory reserve as mandated by the TNCSAct (iii) the interest generated therefrom was eligiblefor deduction in the light of Nawanshahar (supra) (iv)at worst the interest received should be netted withinterest paid. These arguments ought to have been atleast, considered, by the Assessing Authority indeciding the issue but have unfortunately been brushedaside despite being noted in the order itself. 19. In my considered view, this amounts to a fatalflaw as it renders the impugned order entirely non-speaking and passed without application of mind. If theaffidavits of the petitioners’ are looked upon asmechanical and filed in haste and without application ofmind, equally so are the impugned orders of assessmentthat simply rely on Totgars (supra) without discussingthe arguments put forth by the petitioners. For thisreason the arguments of the revenue based on the lack ofpleadings in the affidavit is rejected. I am of theconsidered view that in a case such as the present, thepetitioners should not suffer for lacunae in draftingparticularly when the stand of the petitioners is veryclear from the materials on record. Thus, to balance theconvenience of both parties and in the interests ofjustice, this issue is set aside for denovo and freshexamination and conclusion by the respondent. 20. I make it clear that I have expressed noopinion on the merits of the matter and all that isstated above is only to crystallize the arguments ofboth sides, as available on record. The officers are atliberty to decide and conclude the issue on merits inany manner as they may think fit, but only after properdiscussion. An order of assessment passed by a quasijudicial officer that decides an important question of law, raises a significant demand and has far reachingconsequences has to speak for itself and take intoaccount, and meet, the arguments raised by an assessee.Mere reliance on a judgement without reference to thefacts involved in both cases, those in the case reliedupon and those in the case of the assessee in question,would not justify the conclusion arrived at. ' 8. For the aforesaid reasons, as applicable in this matteras it was in the above writ petitions, the assessment impugnedin W.P.No.3767 of 2020 is set aside to this extent and thematter are remanded to the file of the Assessing Officer fordenovo consideration. For this purpose, the petitioner inW.P.No.3767 of 2020 shall appear before the Assessing Officer on26.02.2020 at 10.30. a.m. without expecting any further notice.The petitioner will be heard specifically on the question ofclassification of interest generated by investments made for thepurpose of statutory reserve and the judgments of the SupremeCourt in Nawanshahar and Totgars' (supra) as well as otherrelevant case law shall be taken into account by the AssessingOfficer in framing assessment by way of a speaking and detailedorder. This exercise shall be completed within a period of six(6) weeks from date of conclusion of personal hearing. 9. W.P.No.3767 of 2020 is disposed in the aforesaid terms. No costs. Connected Miscellaneous Petitions are closed. Sd/-Assistant Registrar(CS-VII)Sub Assistant Registrar Assistant Registrar(CS-VII) // True Copy// rkp To 1. The Income Tax Officer, Ward -2 (5), Erode, Income Tax Office, No.15, Gandhiji Road, Erode - 638 001, Erode District. 2. The Income Tax Officer, Ward -1 (4), Erode, Income Tax Office, No.15, Gandhiji Road, Erode - 638 001, Erode District. 3.The Income Tax Officer,Ward -2(4) TPR, No.121,60 Feet Road, Tiruppur 641 602. 4.The Commissioner of Income Tax (Appeals),Erode. +1cc to Mr.C.Pakasam, Advocate, SR.No.13441.+4ccs to Mr.A.P.Srinivas, Advocate, SR.Nos.13828 to 13831. PA(CO)CSR: 24.02.2020 Writ Petition Nos.3761, 3763, 3767 & 3771 of 2020and WMP No.4443, 4444, 4449, 4451, 4455, 4457, 4461 & 4464 of 2020