The Commissioner Of Income Tax,Salem v. M/S.s-1308 Ammapet Primary Agricultural Co-Operative Bank Ltdammapet Postsalem 636 003

IN THE HIGH COURT OF JUDICATURE AT MADRAS C O R A M THE HONOURABLE MR. JUSTICE S.MANIKUMARand THE HONOURABLE MR. JUSTICE D.KRISHNAKUMAR Tax Case Appeal Nod.796 to 798 of 2015 The Commissioner of Income Tax,Salem....Appellant in all the appeals Vs M/s.S-1308 Ammapet Primary Agricultural Co-operative Bank LtdAmmapet PostSalem 636 003.... ...Respondent in all the appeals Prayer: Appeals filed under Section 260A of Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'D' Bench dated 6/5/2014 in I.T.A.Nos.904 to906/Mds/2013 against the order of Commissioner of Income Tax(Appeals), Salem dated 28.2.2013 in I.T.A.No.36/2009-10I.T.A.No.253/2011-12 and I.T.A.No.252/ 2001-12 and arising outof the Assessment order of Income tax Officer , ward I (4)Salem dated 22.6.2009 in PAN/GIR.No.AAALSO228A the Assessmentorder of Income tax officer, ward I (5) Salem dated 20.12.2011in PAN/GIR.No. AAALSO228A for the assessment year 2008-09,2009-10. (Judgment of the Court was made by D. KRISHNAKUMAR, J) These Appeals have been filed by the Revenue against theorder of the Income Tax Appellate Tribunal Madras 'D' Benchdated 6/5/2014 in I.T.A.Nos.904 to 906/Mds/2013. https://hcservices.ecourts.gov.in/hcservices/ 2. The facts of the cases are as follows :- a. The Assessee is a co-operative society engaged inbanking and trading activities. It admitted 'Nil' return ofincome, after claiming deduction u/s 80P (2) (a) (i) of theIncome Tax Act, 1961. The Assessing Officer, disallowed theclaim of the assessee on the ground that the assessee had lentmonies to the members, who were undertaking non-agricultural/non-farm activities and had received interest.The Assessing Officer found that since interest is received,non-farm sector loans do not qualify for deduction u/s 80P (2)(a) (i) of the IT Act, 1961 and that the assessee's activityis purely in the nature of commercial banking activities.Further, the Assessing Officer held that as per Section 80 P(4), deduction is available only if primary agriculturalcredit societies are engaged with a primary object ofproviding financial assistance to its members for agriculturalactivities. Therefore the assessee's claim under Section 80Pwas rejected. b. Against the assessement orders, the assessee 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 assessee'ssociety. The deduction was denied on a further ground thatthe non-members did not undertake any agricultural activity asrequired under Section 80 P (4). Therefore, the Commissionerof Income Tax (Appeal) found that the assessee had notprovided credit facilities to its members to assistagricultural activity and thereby confirmed the Assessmentorders. c. Aggrieved by the orders of the Commissioner of IncomeTax (Appeal), the assessee filed appeals in I.T.A.Nos.904 to906/Mds/2013 before the Income Tax Appellate Tribunal. TheTribunal held that as per the definition of a member underSection 2(16), the associate member under Section 2(6) is alsoincluded, as per the State Cooperative Societies Act, 1983.https://hcservices.ecourts.gov.in/hcservices/The Tribunal further held that once the 'nominal' members or non-voting members are themselves included in the definitionof 'members', they satisfy the relevant condition imposed bythe legislature under Section 80P (2)(a)(i). 3. Being not satisfied with the common order of theIncome Tax Appellate Tribunal in Appeal Nos.904 to906/Mds/2013, the appellant has filed the instant appeals, onraising the following substantial questions of law:- “(i). Whether on the facts andin the 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 Section80P (2) (a) (i) of the Income Tax Act,1961 with respect to the interestreceived from Class B members who wereinvolved in non-agricultural activity? (ii). Whether on the facts andin the 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? (iii). Whether on the facts andin the 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)?” 4. 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 Section80P (4), the benefit under Section 80P cannot be extended toany cooperative Bank other than a primary agricultural creditsociety. The assessee cannot be treated as a credit societyhttps://hcservices.ecourts.gov.in/hcservices/for the loan advanced to non-agricultural purposes and so the assessee society is not entitled for the benefit under Section80P (2) (a) (i) read with 80P (4). 5. Heard Mr.J. Narayanasamy, learned Senior StandingCounsel for the appellant and Mr.B.Vasudevan, learned counselfor the respondent and perused the materials available onrecord. 6. On perusal of the order passed by the Tribunal, itis found that the Assessing Officer while completing theassessment 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 assessee filed appeals inI.T.A.Nos.36/2009-10, 253/2011-12 and 252/2011-12 before theCommissioner of Income Tax (Appeal), which were dismissed bythe Commissioner. Hence assessee filed appeals before theIncome Tax Appellate Tribunal, Madras, in I.T.A.Nos.904, 905and 906/Mds/2013. The Tribunal allowed the appeals, based onthe decisions in the case of the Commissioner of Income TaxVs. Punjab State Co-operative Bank Ltd (300 ITR 24) andKarkudalpatty Primary Agricultural Co-operative Credit SocietyLtd. vs. ITO in ITA No.292/Mds/2014 dated 17.03.2014. 7. Following the decision of the Hon'ble Punjab andHaryana High Court, in the case of CIT Vs. Punjab State Co-operative Bank Ltd., reported in 300 ITR 24, the Income TaxAppellate Tribunal, has passed the order impugned, herein . 7. Following the decision of the Hon'ble Punjab andHaryana High Court, in the case of CIT Vs. Punjab State Co-operative Bank Ltd., reported in 300 ITR 24, the Income TaxAppellate Tribunal, has passed the order impugned, herein . 8. 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: “(4) The provisions of this section shall notapply in relation to any co-operative bankother than a primary agricultural creditsociety or a primary co-operative agriculturaland rural development bank.” Explanation – For the purposes of this sub-https://hcservices.ecourts.gov.in/hcservices/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. 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 undersub section (4) of Section 80P. Byconsidering the fact that the assessee is ahttps://hcservices.ecourts.gov.in/hcservices/primary agricultural society, the Kerala High Court 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.” 9. In the instant case, while allowing the appeal filedby the assessee, the Tribunal, had relied upon, the followingportion of the decision of the Tribunal arrived in ITANo.292/Chny/2014:- 9. In the instant case, while allowing the appeal filedby the assessee, the Tribunal, had relied upon, the followingportion of the decision of the Tribunal arrived in ITANo.292/Chny/2014:- “ 7. We have heard both partiesand gone through the case file. As stated inthe preceding paragraphs, the CIT (A) hasproceeded to enhance the assessment (supra)only on the ground that the assessee's creditand various other loan, facilities have beenallowed to be availed by 'B' class 'nominal'members whose liability is limited, at thebest; to the extent of loan repayable insteadof 'A' class members who have voting rightsand dividend claim, and also that the lattermembers are jointly and severely liable. Inthis backdrop, when we peruse the relevantprovisions of the State Co-operativeSocieties Act, 1983, governing the assessee-society, it is evident from the definition of'member' u/s 2(16) that the same includes an'associate member' recognition as per theAct. The net result is that once the'nominal' members also enjoy statuarycondition imposed by the legislature u/s 80P(2) (a) (i). We make it clear that we aredealing with the deduction provision to beinterpreted liberally. In our consideredopinion, the objections of the revenue thatthe 'members' defined in sub clause (i) ofSection 80P should only include votingmembers would amount to a classification https://hcservices.ecourts.gov.in/hcservices/ within classification which is beyond thepurview of tax statute; unless providedspecifically by the legislature. Moreover,we find that the case law of Hon'ble Punjaband Haryana High Court (Supra) also supportsthe assessee's case wherein it has been heldunder the very provision that for the purposeof impugned deduction, it is irrelevant sofar as classification of the members in 'A'or 'B' category is concerned. ” 10. The appellate authority, namely, the Commissionerof Income Tax (Appeal) and the Income Tax Appellate Tribunalhas clearly perceived that the assessee is not a co-operativebank and that the activities of the Bank is in the nature ofaccepting deposits, advancing loans etc., carried on by theassessee, but is confined to its members only and that too ina particular geographical area. Therefore, the respondentSociety is eligible for deduction under Section 80P (2) (a)(i) of the Act. The contention of the appellant that themembers of the assessee society is not entitled to receive anydividend or having any voting right or no right to participatein the general administration or to attend any meeting etc.,because they are admitted as associate member for availingloan only and was also charging a higher rate of interest, isnot a ground to deny the exemption granted under Section 80P(2)(a) (i) of the Act. 11. In view of the facts and circumstances of the casesand the decision rendered by this Court in T.C.A.Nos.735, 755of 2014 and 460 of 2015, dated 5/7/2016, which covers thepresent facts of the case, so far as it relates to theeligibility of the respondent society, under Section 80P (2)(a)(i), we are of the view that the substantial questions oflaw raised by the Revenue in the instant appeals are answeredagainst the Revenue. To 1. The Commissioner of Income Tax, Salem. 2. The Income Tax Appellate Tribunal Madras 'D' Bench,Chennai. 3. The Commissioner of Income Tax, Appeals Salem 4. The Income Tax OfficerWard I (4)Salem 5. The Assistant RegistrarIncome Tax Appellate TribunalNo.121 Rajaji Bhavan, Besant Nagar,Chennai-90 1 cc to Mr.B. Vasudevan, Advocate, Sr. 45656 1 cc to Mr.J. Narayanasamy, SSC for IT, Sr. 46347 Tax Case Appeal Nos.796 to 798 of 2015 MP (CO)kk 25/11