Tca/484/2016 Of Commissioner Of Income Tax v. Tiruchengode Agricultural

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 02.08.2016 CORAM : THE HONOURABLE MR. JUSTICE S.MANIKUMARand THE HONOURABLE MR. JUSTICE D.KRISHNAKUMAR Tax Case Appeal Nos.484 to 487 and 490 of 2016 The Commissioner of Income Tax,Salem. .. Appellant inalltheabove appeals/AppellantVs1. Tiruchengode Agricultural Producers Cooperative Marketing Society Ltd., 9, Katchery Street Velur Road, Tiruchengode Namakkal District. .. Respondent in TCA Nos. 484 to 487/2016/Respondent2. S-1308 Ammapet Primary Agricultural Cooperative Bank Ltd., Ammapet, Salem – 636 003. .. Respondent in TCA No. 490/2016/Respondent Prayer in all TCAs: Appeals filed under Section 260A of IncomeTax Act, 1961 against the orders of the Income Tax AppellateTribunal Madras 'C' Bench dated 17.04.2015 in I.T.A.Nos.27 to30/ Mds/2015 against the Commissioner (Appeals) Salem inAssessment Year 2006-07, 2007-08, 2008-09, 2010-11 order dated31/10/2014 respectively and against the Income Tax Officer, WardII(1) Salem Order dated 27/03/2013 in the Assessment OrderAssessment Year 2006-2007, Assessment Year 2007-08, AssessmentYear 2008-09 and Assessment Year 2010-11 respectively for thePAN No.AAAT2058C. https://hcservices.ecourts.gov.in/hcservices/ TCA 490 of 2016:Appeal filed U/S.260 A of Income Tax Act 1961against the order of the Income Tax Appellate Tribunal, Madras'A' Bench dated 30/10/2015 in ITA No.1845/mds/2015 against theorder of the Commissioner of Income Tax(Appeals)dated 28/5/2015made in ITA No.24/2014-15 and against the order of Income TaxOfficer Ward 1(4) Salem in Assessment Year 2011-12 for the PANNO.AAALS0228A. These Appeals have been filed by the Revenue againstthe orders of the Income Tax Appellate Tribunal Madras 'C' Benchdated 17.04.2015 in I.T.A.Nos.27 to 30/ Mds/2015 and 'A' Benchdated 30.10.2015 in I.T.A. No. 1845/Mds/ 2014. 2. The facts of the case are as follows :-The Assessees are co-operative societies engaged inbanking and trading activities. It admitted 'Nil' return ofincome after claiming deduction u/s 80P (2) (a) (i) of the ITAct, 1961. The Assessing Officer disallowed the claims of theassessee on the ground that the assessees had lent monies to themembers who were undertaking non-agricultural/ non-farmactivities and had received the interest on par with commercialbanks. The Assessing Officers held that since interest isreceived, non-farm sector loans do not qualify for deduction u/s80P (2) (a) (i) of the IT Act, 1961 and that the assessee'sactivity is purely in the nature of commercial bankingactivities. Further, the Assessing Officers held that as per80P (4), deduction is available only if primary agriculturalcredit societies are engaged with a primary object of providingfinancial assistance to its members for agricultural activities.Therefore the assessees' claim under Section 80P were rejected. 3. Aggrieved by the assessement orders, the assesseesfiled appeals to the Commissioner of Income Tax (Appeal). It issubmitted that on identical issue in other cases theCommissioner of Income Tax (Appeal) has found that as per thebye-laws there were two types of members viz., Class A and ClassB members. Class A members are normal members who have voting https://hcservices.ecourts.gov.in/hcservices/ 3. Aggrieved by the assessement orders, the assesseesfiled appeals to the Commissioner of Income Tax (Appeal). It issubmitted that on identical issue in other cases theCommissioner of Income Tax (Appeal) has found that as per thebye-laws there were two types of members viz., Class A and ClassB members. Class A members are normal members who have voting https://hcservices.ecourts.gov.in/hcservices/ rights and were involved in the running of the assessee'sbusiness and can become the members of Administrative committee,etc. Class B members are anyone other than Class A member, whohad availed loans from the assessee and is necessarily enrolledas Class B member. The Class B member is not recognized by theassessee for the purpose of the records in statute. Further,the majority of jewel loan and other non-farming loan at ahigher interest were given to Class B members. Therefore, theCommissioner of Income Tax (Appeal) held that the asseesseescannot claim the benefit of deduction under Section 80P (2) (a)(i) on the interest received from the Class B non-members of theassessees' society. The deduction was also denied on the groundthat the non-members did not undertake any agricultural activityas required under Section 80P (4). Therefore, the Commissionerof Income Tax (Appeal) held that the assessees had not providedcredit facilities to its members to assist agricultural activityand thereby confirmed the Assessment orders. But, in thepresent cases the Commissioner of Income Tax (Appeal) followedthe decision of the Tribunal and had allowed the appeals. 4. Aggrieved by the orders of the Commissioner ofIncome Tax (Appeal), Revenue filed appeals before the Income TaxAppellate Tribunal. The Tribunal held that as per thedefinition of a member under Section 2(16), the associate memberunder Section 2(6) is also included as per the State CooperativeSocieties Act, 1983. Therefore, the Class B members cannot betreated as non-member and consequently held that the assessee isentitled for deduction under Section 80P (2)(a)(i). TheTribunal held that the assessees will be entitled for deductionunder Section 80P (2) (a) (iv) eventhough the issue did notarise for consideration. The Tribunal did not consider theissue as to whether the interest on the loan lent for non-agricultural activity could be entitled for deduction as perSection 80P (2) (a) (i) read with 80P (4) and the assessees'violation to lend amount on par with commercial banks at higherinterest. The Tribunal had followed its own order and hadallowed the appeal. 5. Aggrieved by the order of the Income Tax AppellateTribunal, the appellants have filing these appeals, on raisingthe following substantial questions of law:- 1. Whether on the facts and in the circumstances of thecase the Tribunal was right in holding that the assesseeis to be treated as primary agricultural society and iscarrying on the business of banking or providing creditfacilities to its members and is entitled for deductionunder Section 80P (2) (a) (i) of the Income Tax Act, 1961case the Tribunal was right in holding that the assesseeis to be treated as primary agricultural society and iscarrying on the business of banking or providing creditfacilities to its members and is entitled for deductionunder Section 80P (2) (a) (i) of the Income Tax Act, 1961 with respect to the interest received from Class Bmembers who were involved in non-agricultural activity. 2. Whether on the facts and in the circumstances of thecase the Tribunal was right in holding that the Class Bmembers of the assessee society can be treated as amember of the society for the purpose of Section 80P (2)(a) (i) when Class B members do not have the right toparticipate in the voting and meetings of the board ofthe society. with respect to the interest received from Class Bmembers who were involved in non-agricultural activity. 2. Whether on the facts and in the circumstances of thecase the Tribunal was right in holding that the Class Bmembers of the assessee society can be treated as amember of the society for the purpose of Section 80P (2)(a) (i) when Class B members do not have the right toparticipate in the voting and meetings of the board ofthe society. 3. Whether on the facts and in the circumstances of thecase the Tribunal was right in not considering the factthat the assessee was lending monies for non-agriculturalpurpose and the provisions of Section 80P (4) and 2(24)(viia). The contention of the learned counsel for the appellant/ Revenuedepartment, is that Class B members of the respondent societiescannot be treated as members of the assessee societies, as ClassB members were not recognised as per record and bye-laws of theassessee society, for the purpose of voting, attending the boardmeeting etc. Therefore, as per Section 80P (4), the benefitunder Section 80P cannot be extended to any cooperative Bankother than a primary agricultural credit society. The assesseecannot be treated as a credit society for the loan advanced tonon-agricultural purposes and so the assessee societies are notentitled for the benefit under Section 80P (2) (a) (i) read with80P (4). 6. Heard Mr.J. Narayanasamy, learned Senior StandingCounsel for the appellant and perused the material available onrecord. 7. On perusal of the order passed by the Tribunal,it is found that the Assessing Officer while completing theassessments had denied deduction under Section 80P (2) (a) (i)of the Income Tax Act, in respect of interest income towardsjewel loan and other loans, on the ground that the purpose ofloan issued was for commercial activities and not foragricultural purposes. Hence, the assessees filed appeals beforethe Commissioner of Income Tax (Appeal), which were allowed bythe Commissioner, based on the decisions of the Co-ordinateBench of the Tribunal in the case of ITO Vs. M/s. VeerakeralamPrimary Agricultural Co-operative Credit Society in ITANo.197/Mds/2013 dated 11.02.2014 and the case of Karkudalpatty https://hcservices.ecourts.gov.in/hcservices/ Primary Agricultural Co-operative Credit Society Ltd. vs. ITO inITA No.292/Mds/2014 dated 17.03.2014. Further, in anotherdecision of the Tribunal in the case of the Salem AgriculturalProducers Co-operative Marketing Society Ltd. vs. ITO in ITANos.730 to 732/Mds/2014 dated 30.06.2014, it has been held asfollows :- “2. The common issue raised inall these appeals is that the Commissioner ofIncome Tax (Appeals) has erred in confirming theorder of the Assessing authority in denying theclaim of benefits available under section 80P (2)(a)(i) of the Income Tax Act, 1961. The case ofthe assessee is that the bye-laws of the societyallow the assessee to lend/advance loans to itsmembers on agricultural produce loan and on thepledge of gold jewels and silver articles, earnedinterest income only as per the objects andsubmitted before the lower authorities that theclaim of the assessee has to be considered underSection 80P(2)(a)(i) of the Act. “2. The common issue raised inall these appeals is that the Commissioner ofIncome Tax (Appeals) has erred in confirming theorder of the Assessing authority in denying theclaim of benefits available under section 80P (2)(a)(i) of the Income Tax Act, 1961. The case ofthe assessee is that the bye-laws of the societyallow the assessee to lend/advance loans to itsmembers on agricultural produce loan and on thepledge of gold jewels and silver articles, earnedinterest income only as per the objects andsubmitted before the lower authorities that theclaim of the assessee has to be considered underSection 80P(2)(a)(i) of the Act. 3. This issue has been consideredby Income Tax Appellate Tribunal, Chennai 'B'Bench in the cases of SL(SLP) 151, KarkudalpattyPrimary Agricultural Co-operative Credit SocietyLtd and S 1382 Mullukuruchi Primary AgriculturalCo-operative Credit Society Ltd in I.T.A. Nos.292 & 293/Mds/2014 vide common order dated17.03.2014 and also the decision of 'C' Bench inthe cases of M/s. 1915 Vellalapatty PrimaryAgricultural Co-operative Credit Society Ltd. inI.T.A. Nos. 385 & 386/Mds/2014, M/s.6648 AtturMulluvadi Primary Agricultural Co-operativeCredit Society Ltd. in I.T.A. No. 387/Mds/2014vide common order dated 01.05.2014. Afterperusing the relevant provisions of State Co-operative Societies Act, 1983, governing similarassessees, the Tribunal found that definition of'members' includes 'associate members', as well.The Tribunal found that such nominal members alsoenjoy statutory recognition as per the State Co-operative Societies Act. The Tribunal furtherobserved that the objections of the Revenue that'members' defined in sub-clause (i) of Section80P(2) should only include voting members, wouldamount to a classification within classificationwhich is beyond the purview of taxing statute;unless provided specifically by the legislature. 4. Therefore, we find that theissue raised in these appeals stands adjudicatedby the Tribunal in favour of the assessee.Accordingly, we set aside the orders of thelower authorities on this point and direct theassessing authority to grant the benefit to theassessee available under Section 80P(2)(a)(i). ” 8. In the case of ITO Vs. M/s. Veerakeralam PrimaryAgricultural Co-operative Credit Society in ITA No.197/Mds/2013dated 11.02.2014, the Tribunal dismissed the appeal of theRevenue. Against the order of the Income Tax AppellateTribunal, the aforesaid Veerakeralam Primary Agricultural Co-operative Credit Society filed an appeal under Section 260A ofthe Income Tax Act, 1961, in T.C.A. Nos. 735, 755 of 2014 and460 of 2015 before this Court. By judgment dated 05.07.2016,the appeals were dismissed, on the following reasoning: “13. Sub-section (4) of Section 80Pof the Income Tax Act, 1961 is extractedbelow : “(4) The provisions of this section shall notapply in relation to any co-operative bank otherthan a primary agricultural credit society or aprimary co-operative agricultural and ruraldevelopment bank.” Explanation – For the purposes of this sub-section --- (a) “co-operative bank” and “primaryagricultural credit society” shall have themeanings respectively assigned to them inPart V of the Banking Regulation Act, 1949 (10 of 1949); (b) “primaryco-operativeagricultural and rural development bank” means a society having its area ofoperation confined to a taluk and theprincipal object of which is to provide forlong-term credit for agricultural and ruraldevelopment activities.” It is seen that the primary object of thesociety is to provide financial accommodation toits members to meet all the agriculturalrequirements and to provide credit facilities tothe members, as per the bye-laws and as laid Explanation – For the purposes of this sub-section --- (a) “co-operative bank” and “primaryagricultural credit society” shall have themeanings respectively assigned to them inPart V of the Banking Regulation Act, 1949 (10 of 1949); (b) “primaryco-operativeagricultural and rural development bank” means a society having its area ofoperation confined to a taluk and theprincipal object of which is to provide forlong-term credit for agricultural and ruraldevelopment activities.” It is seen that the primary object of thesociety is to provide financial accommodation toits members to meet all the agriculturalrequirements and to provide credit facilities tothe members, as per the bye-laws and as laid down in Section 5 (cciv) of the BankingRegulation Act, 1949. Further, from the CPTCircular dated 12.03.2008, it is evident that acredit co-operative society is not a co-operative bank, as defined in Part V of theBanking Regulation Act, 1949. The object of a'Co-operative bank' is to accept deposits fromthe public, for lending or investment of money. On perusal of the findings of the AppellateAuthority as well as the Appellate Tribunal, itis categorically made clear that the assesseesociety will not come under the object of theprincipal business of a co-operative bank, whichis a banking business. The benefit of Section80P is excluded for deductions by co-operativebanks, whereas the primary agricultural creditsocieties are entitled for the said deduction. 14. .... 15. In the recent decision of theKerala High Court, in the case of ChirakkalService Co-operative Bank Ltd., Kannur vs. theCommissioner of Income Tax, reported in (2016)68 taxmann.com.298 (Kerala), the High Courtconsidered similar substantial questions of law(Issue No.A) raised by the assessee, regardingthe entitlement for exemption under sub section(4) of Section 80P. By considering the factthat the assessee is a primary agriculturalsociety, the Kerala High Court has answered thesubstantial question of law in favour of theassessee and held that the primary agriculturalcredit societies, registered as such under theKCS Act and classified so under that Act,including the appellants, are entitled to suchexemption. Therefore, the aforesaid decisionsis applicable to the instant case. 16. In the light of the aforesaidfacts and circumstances of the case, we are ofthe view, that the substantial question of lawframed in the instant appeals, is answeredagainst the Revenue. The exception barred outin Section 80P (4) of the Income Tax Act, 1961,is applicable to the assessee credit society.Hence, the appeals are accordingly dismissed.” 9. In the instant cases, while allowing the appealsfiled by the assessee, the Commissioner of Income Tax (Appeal),had relied upon, the following portion of the decision of theTribunal arrived in ITA No.292/Chny/2014:- 16. In the light of the aforesaidfacts and circumstances of the case, we are ofthe view, that the substantial question of lawframed in the instant appeals, is answeredagainst the Revenue. The exception barred outin Section 80P (4) of the Income Tax Act, 1961,is applicable to the assessee credit society.Hence, the appeals are accordingly dismissed.” 9. In the instant cases, while allowing the appealsfiled by the assessee, the Commissioner of Income Tax (Appeal),had relied upon, the following portion of the decision of theTribunal arrived in ITA No.292/Chny/2014:- “ 7. We have heard both parties andgone through the case file. As stated in thepreceding paragraphs, the CIT (A) has proceededto enhance the assessment (supra) only on theground that the assessee's credit and variousother loan, facilities have been allowed to beavailed by 'B' class 'nominal' members whoseliability is limited, at the best; to theextent of loan repayable instead of 'A' classmembers who have voting rights and dividendclaim, and also that the latter members arejointly and severely liable. In this backdrop,when we peruse the relevant provisions of theState Co-operative Societies Act, 1983,governing the assessee-society, it is evidentfrom the definition of 'member' u/s 2(16) thatthe same includes an 'associate member'recognition as per the Act. The net result isthat once the 'nominal' members also enjoystatuary condition imposed by the legislatureu/s 80P (2) (a) (i). We make it clear that weare dealing with the deduction provision to beinterpreted liberally. In our consideredopinion, the objections of the revenue that the'members' defined in sub clause (i) of Section80P should only include voting members wouldamount to a classification within classificationwhich is beyond the purview of tax statute;unless provided specifically by the legislature.Moreover, we find that the case law of Hon'blePunjab and Haryana High Court (Supra) alsosupports the assessee's case wherein it has beenheld under the very provision that for thepurpose of impugned deduction, it is irrelevantso far as classification of the members in 'A'or 'B' category is concerned. ” Following the decision of the Punjab and Haryana High Court, theappellate authority as well as the Income Tax AppellateTribunal, has passed the order impugned. 10. The appellate authority, namely, the Commissionerof Income Tax (Appeal) and the Income Tax Appellate Tribunal hasclearly held that the assessees are not co-operative bank and that their activities in the nature of accepting deposits,advancing loans etc., carried on by the assessees are confinedto its members only and that too in a particular geographicalarea. Therefore, the respondent Societies are eligible fordeduction under Section 80P (2) (a) (i) of the Act. Thecontention of the appellants that the members of the assesseesocieties are not entitled to receive any dividend or having anyvoting right or no right to participate in the generaladministration or to attend any meeting etc., because they areadmitted as associate members for availing loan only and wasalso charging a higher rate of interest at the rate of 14%, isnot a ground to deny the exemption granted under Section 80P (2)(a) (i) of the Act. 11. The decision rendered by this Court in TCA 735,755 of 2014 and 460 of 2015 dated 05.07.2016, squarely coversthe present facts of the case, so far as it relates to theineligibility of the respondent societies, under Section 80P(2)(a)(i). In the light of the above discussion and thedecisions, we are of the view that the substantial questions oflaw raised in the instant appeals are answered against theRevenue. 12. In view of the above, the TCA Nos. 484 to 487 and490 of 2016 are dismissed, at the admission stage itself. Noorder as to costs. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar To 11. The decision rendered by this Court in TCA 735,755 of 2014 and 460 of 2015 dated 05.07.2016, squarely coversthe present facts of the case, so far as it relates to theineligibility of the respondent societies, under Section 80P(2)(a)(i). In the light of the above discussion and thedecisions, we are of the view that the substantial questions oflaw raised in the instant appeals are answered against theRevenue. 12. In view of the above, the TCA Nos. 484 to 487 and490 of 2016 are dismissed, at the admission stage itself. Noorder as to costs. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal "C" Bench, Chennai. Chennai. 2.The Income Tax Appellate Tribunal, "A" Bench, Chennai. "A" Bench, Chennai. 3.The Commissioner of Appeals, Income Tax Department, Salem-07. Income Tax Department, Salem-07. 4.The Income Tax Officer, Ward II(1), Salem-07. Ward II(1), Salem-07. 5.The Income Tax Officer, Ward 1 (4), Salem-07. Ward 1 (4), Salem-07. +1cc to Mr.J.Narayanasamy, Advocate Sr.40741 +1cc to Mr.J.Narayanasamy, Advocate Sr.43970 Tax Case Appeal Nos.484 to 487 and 490 of 2016vgi[co]srg 24/08/2016