Kombanaipudur Womens Milkproducers Cooperative Society Ltd.,Rep. By Its Secretary,T.thirunavukkarasu v. The Assistant Commissioner Of Income Tax,Income Tax Department,Circle -2, Erode

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 05.03.2020 CORAM THE HONOURABLE DR. JUSTICE ANITA SUMANTH Writ Petition No.5600 of 2020andWMP. Nos.6557 & 6558 of 2020 Kombanaipudur Womens MilkProducers Cooperative Society Ltd.,Rep. by its Secretary,T.Thirunavukkarasu....Petitioner Vs. The Assistant Commissioner of Income Tax,Income Tax Department,Circle -2, Erode. ... Respondent PRAYER: PETITION 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 29.11.2019 and quash the same. For Petitioner : Mr.C.Prakasam for Mr.S.KarthikeyanFor Respondent: Mr.A.P.Srinivas, Senior Standing Counsel Mr.A.P.Srinivas, learned Senior Standing Counsel acceptsnotice and is armed with instructions in the matter. By consentexpressed by both learned counsel, this matter is disposedfinally even at the stage of admission. 2. The challenge is to an order of assessment for theAssessment Year 2012-13, passed in terms of the Income Tax Act,1961 (in short 'Act'). Two issues arise: (i) in relation todisallowance under Section 69A of the Act (ii) in relation tothe claim of deduction under Section 80P of the Act. https://hcservices.ecourts.gov.in/hcservices/ 3. The Petitioner is a Primary Agricultural CooperativeSociety Limited. As regards the first issue, admittedly, nocase has been made out to warrant interference under Article 226of the Constitution of India. The petitioner is thus relegatedto appeal remedy in relation to the same. 4. As regards the second issue, I have had occasion toconsider an identical issue in a batch of writ petitions filedby several Primary Agricultural Co-operative Societies, and inthe case of K.2058, Saravanmpatti Primary Agricultural Co-operative Credit Society Ltd., Vs. The Income Tax Officer(W.P.Nos.17 of 2020 etc. batch dated 31.01.2020), while dealingwith a claim of deduction under Section 80P of the Income TaxAct 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.' 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 group of members with which the Society is in completeidentity. 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 group of 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 donot 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, onidentical facts as in the present case, in the case ofThe Principal Commissioner of Income Tax, Salem V.M/s.S-1303 Ammapet Primary Agricultural Cooperative BankLtd., Ammapet, Salem (T.C.(A)Nos.882 and 891 of 2018dated 06.12.2018) held that the assessee would be entitled to deduction under Section 80P. The reasoningwas that under the TNCS Act, a member and an associatemember are one and the same and an associate member hasalso been held to be holding the character of a member.The Division Bench has taken the view that as far as theState of Tamil Nadu is concerned, the TNCS Act equatesboth members and associate members and places them onpar. Thus, the distinction carved out by the SupremeCourt would not be applicable in these cases. 29. In several of the orders of assessment impugnedbefore me (W.P.Nos.1131, 1136, 1141, 1145 AND 1420 of2020) the Assessing Officer, making reference to theorder of the Division Bench of the Madras High Court,has stated that the orders have not been accepted andhave been challenged by way of Special Leave Petitions. entitled to deduction under Section 80P. The reasoningwas that under the TNCS Act, a member and an associatemember are one and the same and an associate member hasalso been held to be holding the character of a member.The Division Bench has taken the view that as far as theState of Tamil Nadu is concerned, the TNCS Act equatesboth members and associate members and places them onpar. Thus, the distinction carved out by the SupremeCourt would not be applicable in these cases. 29. In several of the orders of assessment impugnedbefore me (W.P.Nos.1131, 1136, 1141, 1145 AND 1420 of2020) the Assessing Officer, making reference to theorder of the Division Bench of the Madras High Court,has stated that the orders have not been accepted andhave been challenged by way of Special 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 the Act, 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 ofSection 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 the Act, 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 ofSection 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 was not 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 Actby 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. not 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 Actby 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 Primary Agricultural 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 theCommissioner 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. 5. In view of the identity of facts and legal position, theaforesaid order is equally applicable to the present case aswell, vis-a-vis, this issue. The petitioner is thus permitted tofile a statutory appeal challenging the order of assessmentbefore the Commissioner of Income Tax (Appeals) within a periodof three (3) weeks from today. No recovery of the demandin relation to issue (ii), that is, in relation to deductionclaimed under Section 80P be enforced till such time the appealis disposed by the first appellate authority. 6. This Writ Petition is disposed in the aforesaid terms.No costs. Connected Miscellaneous Petitions are closed. s/d- Assistant Registrar(CS V) True Copy Sub-Assistant Registrar VBA(CO)SP(12/03/2020) https://hcservices.ecourts.gov.in/hcservices/