M/S.s.1234 Udayaptti Paccs Ltd.,Salem v. The Income Tax Officer, Ward 1(4),Salem-7

In the High Court of Judicature at MadrasDated : 22.7.2019 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.485 & 486 of 2019 & CMP.No.15232 of 2019 M/s.S.1234 Udayaptti PACCS Ltd.,Salem ...Appellant Vs The Income Tax Officer, Ward 1(4),Salem-7....Respondent in T.C.A. 485/2019. The Income Tax officer, Ward 2(1)Salem 7....Respondent in T.C.A. 486/2019. APPEALS under Section 260A of the Income Tax Act, 1961againsttheorders(i)dated31.8.2018madeinMP.No.90/Chny/2018 in ITA.No.2332/ Chny/2017 and (ii) dated27.3.2018 made in ITA.No.2332/Chny/2017 on the file of theIncome Tax Appellate Tribunal, Chennai 'C' Bench for theassessment year 2014-15 against the order of the Commissioner ofIncome Tax (Appeals) No.3, Gandhi Road, Salem 7 I.T.A.No.207/2016-2017 dated 22.06.2017 PAN/GIR No. for theAssessment year 2014-2015 and against the order of the IncomeTax officer, Ward 2(1), Salem 7 PAN/GIR/No. , Ward 2(1) AOP(CO-OP) Society for the Assessment year 2014-2015. For Appellant :Mr.T.RameshFor Respondent:Mr.M.Swaminathan, SSC & Mrs.V.Pushpa, JSC & Mrs.S.Premalatha, JSC COMMON JUGMENT(Judgment was delivered by T.S.SIVAGNANAM,J) We have heard Mr.T.Ramesh, learned counsel for the appellantand Mr.M.Swaminathan, learned Senior Standing Counsel,Mrs.V.Pushpa,learnedJuniorStandingCounseland https://hcservices.ecourts.gov.in/hcservices/ Mrs.S.Premalatha, Junior Standing Counsel accepting notice forthe respondent. 2. These appeals, filed by the assessee under Section 260A ofthe Income Tax Act, 1961 (for short, the Act), are directedagainsttheorders(i)dated31.8.2018madeinMP.No.90/Chny/2018 in ITA.No.2332/ Chny/2017 and (ii) dated27.3.2018 made in ITA.No.2332/Chny/2017 respectively, on thefile of the Income Tax Appellate Tribunal, Chennai 'C' Bench forthe assessment year 2014-15. 3. The assessee has filed these appeals by raising thefollowing substantial questions of law : “i. In the facts and circumstances of thecase, where the appellant is admittedly aprimary agricultural cooperative creditsociety registered under the Tamil NaduCooperative Societies Act, whether theAppellate Tribunal is correct in rejectingthe deduction claimed by the appellant underSection 80P(2)(a)(i) of the Income Tax Act ?ii. Whether the Tribunal is correct indifferentiating between the Class A membersand the Class B members for the purpose ofclaiming deduction under Section 80P(2)(a)(i) of the Income Tax Act in the absence ofany such discrimination under the saidSection namely Section 80P(2)(a)(i) of theIncome Tax Act?iii. In the facts and circumstances,where Section 80P(2)(a)(i) refers to the'members' and there is no reference todifferent kinds of members, whether theTribunal is correct in holding thatdeduction under Section 80P(2)(a)(i) isapplicable only when there is a transactionbetween the appellant society and the ClassA members ? iv. Whether the Tribunal is correct intraversing beyond the scope of theproceedings and allowing the appeal of theDepartment on entirely a new ground?v. In the facts and circumstances,whether the reassessment under Section 143(3) of the Income Tax Act initiated onchange of opinion is permissible under theAct?vi. Whether the Tribunal is correct inrejecting the application for rectificationof mistake filed under Section 254(2) of the Income Tax Act?” 4. The learned counsel for the appellant submits thatTCA.No.485 of 2019 filed against the order dated 31.8.2018 inMP.No.90/Chny/2018 in ITA. No.2332/Chny/2017 has becomeinfructuous. 5. Recording the said submission, TCA.No.485 of 2019 isdismissed. No costs. 6. TCA.No.486 of 2019 is directed against the substantiveorder passed by the Tribunal dated 27.3.2018 and this appeal isentertained only on the first substantial question of law, whichreads as hereunder : Income Tax Act?” 4. The learned counsel for the appellant submits thatTCA.No.485 of 2019 filed against the order dated 31.8.2018 inMP.No.90/Chny/2018 in ITA. No.2332/Chny/2017 has becomeinfructuous. 5. Recording the said submission, TCA.No.485 of 2019 isdismissed. No costs. 6. TCA.No.486 of 2019 is directed against the substantiveorder passed by the Tribunal dated 27.3.2018 and this appeal isentertained only on the first substantial question of law, whichreads as hereunder : “In the facts and circumstances of thecase, where the appellant is admittedly aprimary agricultural cooperative creditsociety registered under the Tamil NaduCooperative Societies Act, whether theAppellate Tribunal is correct in rejectingthe deduction claimed by the appellant underSection 80P(2)(a)(i) of the Income Tax Act?” 7. It is not disputed by the learned counsel on either sidethat the substantial question of law entertained in this appealwas considered by us in the decision in the case of AA 713 theKodumudi Growers Cooperative Bank Ltd. Kodumudi Vs. ITO, Ward-II(1), Erode [TCA.No.1453 of 2008 dated 31.10.2018] wherein theassessee was a cooperative society and a similar view was takenby the Tribunal as in the impugned order. We allowed the appealfiled by the assessee in the said judgment wherein the relevantportions read thus : “.............. 7. Thus, we are called upon to decide asto whether the assessee is entitled fordeduction under Section 80P(2) of the IT Actin respect of the income earned from the saleunder the PDS. 8. It is not in dispute that the fairprice shops were set up pursuant to thedirection issued by the Government of TamilNadu and communicated through the DistrictCollector. The assessee, while filing theappeal before the CIT (A), specificallycontended that the Assessing Officer erred infixing the income from the sale offertilizers (PDS) without considering thematerial fact that the profit in respect ofthe same is from the supply and purchase offertilizers to its members. Further, the assessee referred to the communicationsreceived from the Government dated 19.2.1995,06.11.1995 and 15.11.1995 and the copy of thecircular of the Registrar of CooperativeSocieties dated 21.1.1992 and also theregistered By-laws of the assessee – bank andin particular, By-law No.63. 9. In addition to the grounds raisedbefore the CIT (A), written submissions werefiled by the assessee wherein the assesseeproduced copies of sample sales bills toprove that the assessee sold fertilizers onlyto members and they contended that in view ofthe same, they are entitled to deduction interms of Section 80P(2)(iv) of the IT Act. 10. Further, it is relevant to note thatthe TNCS Act, 1983 defines the expression'credit society' under Section 2(13) to meana registered society as defined under Section2(22), which has its principal object ofraising funds to be lent to its members forthe purposes of agriculture, animalhusbandry, etc., or for such other purposesas the Government may, by notification,specify in this behalf. Thus, a creditsociety as defined under the provisions ofthe TNCS Act, 1983 is not only confined toextending loans to its members, but also tosuch other members as the Government may, byNotification, specify. 11. The assessee placed materials beforethe CIT (A) to show that the fair price shopsfor sale of fertilizers to the members wereopened based on the directives issued by theGovernment of Tamil Nadu. Therefore, theactivity done by the assessee in the sale ofitems under the PDS to its members woulddefinitely fall within the ambit of a 'creditsociety' defined under Section 2(13) of theTNCS Act, 1983. 11. The assessee placed materials beforethe CIT (A) to show that the fair price shopsfor sale of fertilizers to the members wereopened based on the directives issued by theGovernment of Tamil Nadu. Therefore, theactivity done by the assessee in the sale ofitems under the PDS to its members woulddefinitely fall within the ambit of a 'creditsociety' defined under Section 2(13) of theTNCS Act, 1983. 12. The learned Senior Standing Counselfor the Revenue would contend that there aretwo categories of sales effected by theassessee, one in favour of its members andthe other to non members and that the incomeearned out of sale to non members cannot beheld to be a banking activity of theassessee. 13. To test the correctness of the saidsubmission of the learned Senior Standing Counsel for the Revenue, we have perused theregistered By-laws of the society, fromwhich, we find that under By-law No.3, theactivities of the society are mentioned. By-law No.3 contains two Sub-Clauses namely (a),which deals with main activities of theappellant society and (b), which deals withancillary activities of the appellantsociety. The activity of establishing a fairprice shop clearly falls within the scope ofBy-lawNo.3(b)(2).Furthermore,thedirectives issued by the Government of TamilNadu, as communicated by the Registrar ofCooperative Societies, are binding on theappellant society. Hence, it cannot be saidthat the appellant carried on an activity,which was not authorized to be conducted by acredit society. 14. One more argument is advanced by thelearned Senior Standing Counsel for theRevenue by contending that there were twocategories of people, to whom the items underthe PDS were sold. 15. We find that this argument is whollyunsubstantiated and factually incorrect. Inthis regard, we have earlier referred to thegrounds of appeal as well as the writtensubmissions given by the appellant/assesseebefore the CIT (A) wherein the appellant hadproduced sample sales bills to prove thatthey had sold fertilizers only to themembers. Thus, we are fully convinced thatthe activity done by the appellant cannot besaid to be an activity, which was notauthorized to be done by the society. 16. Our view is strengthened by thedecision of the Division Bench of the BombayHigh Court in the case of CIT, Nasik Vs.Ahmednagar District Central Cooperative BankLimited [reported in 2004 (1) Mh. LJ 853]. Inthe said case, the assessee was a cooperativebank carrying business of banking. Wholeamount of profit and gains attributable tothe business of banking was not included bythe assessee in its income under Section 80P(1) read with Section 80P(2)(a)(i) of the ITAct. During the assessment year in question(1982-83), the assessee earned income by wayof commission from the Maharashtra StateElectricity Board and from Mula Pravara CooperativeSocietyforcollectingelectricity bills from the public on theirbehalf. The assessee contended that thecommission earned from the afore-stated twopublic undertakings was income derived fromthe business of banking and, as such, thesaid income was exempt under Section 80P(2)(a)(i) of the IT Act. The assessee'scontention was that collection of electricitybills was a facility extended by the assesseebank to its customers and it was part ofbanking business. This contention was notaccepted by the Assessing Officer and hisorder was confirmed by the CIT (A) on theground that the income earned by way ofcommission was not income from business andheld that the assessee was not entitled toexemption under Section 80P(2)(a)(i) of theIT Act. The assessee filed an appeal beforethe Tribunal and it was allowed. On appeal bythe Revenue to the High Court, the question,which was referred to the Court forconsideration, was as to whether the incomeearned by way of commission from theElectricity Board and other organizations isattributable to business of banking and assuch, the relief under Section 80P(1) readwith Section 80P(2)(a)(i) of the IT Act wasallowable to the assessee. The Division Benchof the Bombay High Court pointed out that theword 'banking' was not restricted only toaccepting deposits from the customers for thepurpose of lending, that the word 'banking'has been interpreted by the Hon'ble SupremeCourt to cover even the rent charged by thebanks for hiring out safe deposit vaults toits customers and that in the circumstances,income earned by the assessee bank by way ofcommission/fees from its customers, beingpublic sector undertakings, would be exemptunder Section 80P(2)(a)(i) of the IT Act.Further, the Division Bench pointed out thatsuch view was supported by Section 6(1)(b) ofthe Banking Regulation Act, 1949, whichstated that in addition to the business ofbanking, a banking company may engage itselfas agent for Government or Local Authority orany other person for giving receipts anddischarges that is to say for collectingelectricity bills from the customers for and on behalf of the Electricity Board and otherorganizations. 17. The case on hand is factually abetter case since the By-laws themselvesprovide for such an activity as an ancillaryactivity by the cooperative society.Furthermore, the appellant society is boundby the directives issued by the Government aswell as the Registrar of CooperativeSocieties. In the instant case, the Revenuehas not disputed the fact that the fair priceshops were opened based on the directionsissued by the Government of Tamil Nadu ascommunicated by the Registrar of CooperativeSocieties and the District Collector. 18. The learned Senior Standing Counselfor the Revenue has referred to the decisionof the Hon'ble Supreme Court in the case ofCitizen Cooperative Society Limited Vs. ACIT,Circle 9(1), Hyderabad [reported in (2017) 88Taxmann.com 279]. By the said order, thereview petition filed by the said society toreview the judgment reported in (2017) 84Taxmann.com 114 was rejected. 19. From the facts given in the copy ofthe judgment handed over to us by the learnedSenior Standing Counsel for the Revenue, wefind that in the decision in CitizenCooperative Society Limited, the assessee wasengaged in granting loans to general publicwithout any approval from the Registrar ofSocieties. Therefore, the Court held that theassessee could not be treated as acooperative society meant only for providingcredit facilities to its members andaccordingly, would not be entitled to claimthe benefit under Section 80P of the IT Act.This decision can, in no manner, advance thecase of the Revenue, as factually we foundthat the assessee herein is entitled todistribute the items under the PDS, as it isone of the allied activities of the societyand is bound by the directives of theGovernment. 20. Apart from that, the definition of'credit society' is wider in import toinclude any activity that the Government may,by Notification, specify. Further, we findfrom By-law No.12(a) that if the societycarries on an activity, which is not authorized under the By-laws or with theapproval of the Registrar, the society isliable to strike off the Rules and themembers engaged in the same are liable to beremoved. Furthermore, in terms of By-lawNo.51, the society is entitled to purchase,in bulk, articles and materials required forits members and distribute the same. 21. Therefore, viewed from any angle, theactivity done by the appellant society cannotbe truncated from the activity as a creditsociety and we are of the considered viewthat the Authorities below as well as theTribunal committed an error in rejecting thestand taken by the appellant/ assessee. 22. For the above reasons, the above taxcase appeal is allowed, the orders passed bythe Authorities below are set aside and thesubstantial question of law framed isanswered in favour of the assessee. TheAssessing Officer is directed to extend thebenefit of deduction under Section 80P(1)read with Section 80P(2)(a)(i) of the IT Actto the appellant/assessee.” 8. As there is no dispute raised by the Revenue with regardto the applicability of the said decision rendered by us,TCA.No.486 of 2019 needs to be allowed in favour of theassessee. 9. In the result, TCA.No.486 of 2019 is allowed and thesubstantial question of law entertained by us in this appeal isanswered in favour of the assessee. Consequently, the connectedCMP is closed. No costs. Assistant Registrar(CS VI) True Copy Sub-Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai 'C' Bench.2.The Income Tax Officer, Ward 1(4), Salem-7.+1 CC to Mr.M.Swaminathan, Advocate sr 62675. TCA.Nos.485 & 486 of 2019and CMP.No.15232 of 2019 AD(CO)SP(28/08/2019)