Tca/786/2015 Of Commissioner Of Income Tax v. Nlc Employees Cooperative

Tax Case Appeal Nos.786 to 789 of 2015 The Commissioner of Income Tax,Puducherry. ...Appellant in all the appeals NLC Employees Co-operative Thrift & Credit Society Ltd12 North Promenade StreetBlock 12Neyveli 607 803....Respondent in all the appeals Prayer: Appeals filed under Section 260A of Income TaxAct, 1961 against the orders of the Income Tax AppellateTribunal Madras 'D' Bench dated 12/12/2014 in I.T.A.Nos.2148to 2151/Mds/2014. These Appeals have been filed by the Revenue against theorder of Madras 'D' Bench dated 12/12/2014 in I.T.A.Nos.2148to 2151/MDS/2014 on the file of the Income Tax AppellateTribunal. 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 tothe members who were undertaking non-agricultural/ non-farmactivities and had received the interest on par withcommercial banks. The Assessing Officers found that sinceinterest is received, non-farm sector loans do not qualify fordeduction u/s 80P (2) (a) (i) of the IT Act, 1961 and that theassessee's activity is purely in the nature of commercialhttps://hcservices.ecourts.gov.in/hcservices/banking activities. Further, the Assessing Officers held that as per 80P (4), deduction is available only if primaryagricultural credit societies are engaged with a primaryobject of providing financial assistance to its members foragricultural activities. Therefore the assessees' claim underSection 80P were rejected. 3. Against the assessement orders, the assessees filedappeals to the Commissioner of Income Tax (Appeal). It issubmitted that on an 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 andClass B members. Class A members are regular members, who havevoting rights and were involved in the running of theassessee's business and can become the members ofAdministrative committee, etc. Class B members are thoseother than Class A member, who had availed loans from theassessee and is necessarily enrolled as Class B member. TheClass B member is not recognized by the assessee for thepurpose of records in statute. Further, the majority of jewelloan and other non-farming loan at a higher interest weregiven to Class B members. Therefore, the Commissioner ofIncome Tax (Appeal) observed that the asseessee cannot claimthe benefit of deduction under Section 80P (2) (a) (i), on theinterest received from Class B non-members of the assessees'society. The deduction was denied, on a further ground thatthe non-members did not undertake any agricultural activity asrequired under Section 80P (4). Therefore, the Commissionerof Income Tax (Appeal) found that the assessees had notprovided credit facilities to its members to assistagricultural activity and thereby confirmed the Assessmentorders and had dismissed the appeals. 4. Aggrieved by the orders of the Commissioner of IncomeTax (Appeal), the assessee filed appeals in I.T.A.Nos.2148 to2151/Mds/2014, before the Income Tax Appellate Tribunal. TheTribunal perceived that as per the definition of a memberunder Section 2(16), the associate member under Section 2(6)is also included as per the State Cooperative Societies Act,1983. Therefore, the Class B members cannot be treated asnon-member and consequently held that the assessee is entitledfor deduction under Section 80P (2)(a)(i). The Tribunal heldthat the assessee will be entitled for deduction under Section80P (2) (a) (iv) eventhough the issue did not arise forconsideration. The Tribunal did not consider the issue as towhether the interest on the loan lent for non-agriculturalactivity could be entitled for deduction as per Section 80P(2) (a) (i) read with 80P (4) and the assessee's violation tolend amount on par with commercial banks at higher interest.The Tribunal following its own order and allowed the appeals. 5. Being not satisfied with the order of the Income TaxAppellate Tribunal, the Revenue has filed the instant appeals,on raising the following substantial questions of law:- https://hcservices.ecourts.gov.in/hcservices/ “1. Whether on the facts and inthe circumstances of the case theTribunal was right in holding that theassessee is to be treated as primaryagricultural society and is carrying onthe business of banking or providingcredit facilities to its members and isentitled for deduction under Section 80P(2) (a) (i) of the Income Tax Act, 1961with respect to the interest receivedfrom Class B members who were involvedin non-agricultural activity. 2. Whether on the facts and inthe circumstances of the case theTribunal was right in holding that theClass B members of the assessee societycan be treated as a member of thesociety for the purpose of Section 80P(2) (a) (i) when Class B members do nothave the right to participate in thevoting and meetings of the board of thesociety? 3. Whether on the facts and inthe circumstances of the case theTribunal was right in not consideringthe fact that the assessee was lendingmonies for non-agricultural purpose andthe provisions of Section 80P (4) and 2(24) (viia)? 4. Whether on the facts and in thecircumstances of the case, the Tribunalwas right in holding that the assesseeco-operative Credit Society, it is not aco-operative Bank and Section 80 P (4)is not attracted, without consideringthe explanation to the Section belowSection 80 P (4) of the Income Tax Actread with provisions of Section 56 (cci)and 56 (ccv) in part V of BankingRegulation Act?” 6. The contention of the learned counsel for theappellant/ Revenue, that Class B members of the respondentsocieties cannot be treated as members of the assesseesocieties, as Class B members were not recognised as per thebye-laws of the assessee society, for the purpose of voting,attending the board meeting etc. Therefore, as per Sectionhttps://hcservices.ecourts.gov.in/hcservices/80P (4), the benefit under Section 80P cannot be extended to any cooperative Bank other than a primary agricultural creditsociety. The assessee cannot be treated as a credit societyfor the loan advanced to non-agricultural purposes and so theassessee societies are not entitled for the benefit underSection 80P (2) (a) (i) read with 80P (4). 7. Heard Mr.J. Narayanasamy, learned Senior StandingCounsel for the appellant, Mr.N.V.Balaji for the respondentand perused the material available on record. any cooperative Bank other than a primary agricultural creditsociety. The assessee cannot be treated as a credit societyfor the loan advanced to non-agricultural purposes and so theassessee societies are not entitled for the benefit underSection 80P (2) (a) (i) read with 80P (4). 7. Heard Mr.J. Narayanasamy, learned Senior StandingCounsel for the appellant, Mr.N.V.Balaji for the respondentand perused the material available on record. 8. On perusal of the order passed by the Tribunal, itis 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 the loans, on the groundthat the purpose of loan issued was for commercial activitiesand not for agricultural purposes. Hence, the assessee filedappeals before the Commissioner of Income Tax (Appeal), whichwere dismissed by the Commissioner. Hence the assessee filedappeals before the ITAT in I.T.A.Nos.2148 to 2151/Mds/2014and the Tribunal had allowed the appeals. 9. Following the decision of Gujarat High Court in thecase of CIT Vs. Jafari Momin Vikas Co-operative Credit SocietyLtd (supra) and the decisions of Bangalore Bench in the casesof Bangalore Commercial Transport Credit Co-operative SocietyLtd., and Yashwanthpur Credit Co-operative Society Ltd., theIncome Tax Appellate Tribunal, has passed the order impugned. 10. Further, in another decision of the Tribunal in thecase of the Salem Agricultural Producers Co-operativeMarketing Society Ltd. vs. ITO in ITA Nos.730 to 732/Mds/2014dated 30.06.2014, it has been held as follows :- “2. The common issue raised in allthese appeals is that the Commissioner ofIncome Tax (Appeals) has erred in confirmingthe order of the Assessing authority indenying the claim of benefits available undersection 80P (2)(a)(i) of the Income Tax Act,1961. The case of the assessee is that thebye-laws of the society allow the assessee tolend/advance loans to its members onagricultural produce loan and on the pledge ofgold jewels and silver articles, earnedinterest income only as per the objects andsubmitted before the lower authorities thatthe claim of the assessee has to be consideredunder Section 80P(2)(a)(i) of the Act. https://hcservices.ecourts.gov.in/hcservices/ 3. This issue has been considered byIncome Tax Appellate Tribunal, Chennai 'B'Bench in the cases of SL(SLP) 151,KarkudalpattyPrimaryAgriculturalCo-operative Credit Society Ltd and S 1382Mullukuruchi Primary Agricultural Co-operativeCredit Society Ltd in I.T.A. Nos. 292 &293/Mds/2014videcommonorderdated17.03.2014 and also the decision of 'C' Benchin the cases of M/s. 1915 Vellalapatty PrimaryAgricultural Co-operative Credit Society Ltd.in I.T.A. Nos. 385 & 386/Mds/2014, M/s.6648Attur Mulluvadi Primary Agricultural Co-operative Credit Society Ltd. in I.T.A. No.387/Mds/2014videcommonorderdated01.05.2014. After perusing the relevantprovisions of State Co-operative SocietiesAct, 1983, governing similar assessees, theTribunal found that definition of 'members'includes 'associate members', as well. TheTribunal found that such nominal members alsoenjoy statutory recognition as per the StateCo-operative Societies Act. The Tribunalfurther observed that the objections of theRevenue that 'members' defined in sub-clause(i) of Section 80P(2) should only includevotingmembers,wouldamounttoaclassification within classification which isbeyond the purview of taxing statute; unlessprovided specifically by the legislature. 4. Therefore, we find that the issueraised in these appeals stands adjudicated bythe 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 tothe assessee available under Section 80P(2)(a)(i). ” 4. Therefore, we find that the issueraised in these appeals stands adjudicated bythe 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 tothe assessee available under Section 80P(2)(a)(i). ” 11. As the appeal of the revenue in the case of ITO Vs.M/s. Veerakeralam Primary Agricultural Co-operative CreditSociety was dismissed, the Revenue filed an appeal underSection 260A of the Income Tax Act, 1961, in T.C.A. Nos. 735,755 of 2014 and 460 of 2015 before this Court. Vide judgmentdated 05.07.2016, the appeals were dismissed, on the followingreasoning: “13. Sub-section (4) of Section 80P ofthe Income Tax Act, 1961 is extracted below: “(4) The provisions of this section shall notapply in relation to any co-operative bankhttps://hcservices.ecourts.gov.in/hcservices/other than a primary agricultural credit society or a primary co-operative agriculturaland rural development bank.” Explanation – For the purposes of this sub-section --- (a) “co-operative bank” and“primary agricultural credit society”shall have the meanings respectivelyassigned to them in Part V of the BankingRegulation 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 providefor long-term credit for agricultural andrural development activities.” It is seen that the primary object of thesociety is to provide financial accommodationto its members to meet all the agriculturalrequirements and to provide credit facilitiesto the members, as per the bye-laws and aslaid down in Section 5 (cciv) of the BankingRegulation Act, 1949. Further, from the CPTCircular dated 12.03.2008, it is evident thata credit 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 ofmoney. On perusal of the findings of theAppellate Authority as well as the AppellateTribunal, it is categorically made clear thatthe assessee society will not come under theobject of the principal business of a co-operative bank, which is a banking business. The benefit of Section 80P is excluded fordeductions by co-operative banks, whereas theprimary agricultural credit societies areentitled 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 oflaw (Issue No.A) raised by the assessee,regarding the entitlement for exemption under https://hcservices.ecourts.gov.in/hcservices/ sub section (4) of Section 80P. Byconsidering the fact that the assessee is aprimary agricultural society, the Kerala HighCourt has answered the substantial question oflaw in favour of the assessee and held thatthe primary agricultural credit societies,registered as such under the KCS Act andclassified so under that Act, including theappellants, are entitled to such exemption.Therefore, the aforesaid decisions isapplicable 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 creditsociety. Hence, the appeals are accordinglydismissed.” 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 creditsociety. Hence, the appeals are accordinglydismissed.” 12. The appellate authority, namely, the Commissionerof Income Tax (Appeal) and the Income Tax Appellate Tribunalhas clearly held that the assessee is not co-operative bankand the provisions of Section 80 P (4) are not attracted.Therefore, the respondent Society is eligible for exemptionunder Section 80P (2) (a) (i) of the Act. The contention ofthe appellant that the members of the assessee societies arenot entitled to receive any dividend or having any votingright or no right to participate in the general administrationor to attend any meeting etc., because they are admitted asassociate members for availing loan only and was also charginga higher rate of interest, is not a ground to deny theexemption granted under Section 80P (2)(a) (i) of the Act. 13. In view of the facts and circumstances of the caseand the decision rendered by this Court in T.C.A.Nos. 735, 755of 2014 and 460 of 2015 dated 05.07.2016, which covers thepresent facts of the case, so far as it relates to theeligibility of the respondent societies, under Section 80P(2)(a)(i), we are of the view that the substantial questionsof law raised by the Revenue in the instant appeals areanswered against the Revenue. 14. In view of the above, the TCA Nos. 786 to 789 of2015 are dismissed. There shall be no order as to costs. Sd/- Assistant Registrar(CCC) //True Copy// mvs. https://hcservices.ecourts.gov.in/hcservices/ Sub Assistant Registrar To 1. The Assistant REgistrar, The Income Tax Appellate TribunalMadras D Bench, IIIrd Floor, Rajaji Bhavan, Chennai- 600 009. 2. The Commissioner of Income Tax (Appeals)-VI, 121, Mahatma Gandhi Road, Chennai 600 034. 3. The Income Tax Officer,Ward 1(2), Cuddalore. + 1 cc to MR.J. Narayanasamy, Advocate SR.46348+ 3 ccs to Mr.N.V.Balaji, Advocate SR.45677Tax Case Appeal Nos.786 to 789 of 2015CP(CO)EU 12.11.16