The Commercial Employees Co-operative Society Ltd, Chennai V. Ito Non- Corporate Ward 12(1), Chennai

ITA 619/CHNY/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 4478 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-12-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 16-05-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Co-operative Credit Society; Set aside
• Section: 56; 2; 143(3); 260A; 80P; 22

Judgement Text

आयकर अपीलीय अिधकरण, ‘ए’, ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH : CHENNAI ᮰ी महावीर ᳲसंह, उपा᭟यᭃ एवं ᮰ी मंजुनाथ. जी, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI MANJUNATHA.G, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A. No. 619/CHNY/2023 िनधाᭅरणवषᭅ/Assessment year : 2018-2019 The Commercial Employees Co- Operative Society Limited, No.37C, Sembudoss Street, George Town, Chennai 600 001. [PAN AAHAT 3600M] Vs. The Income Tax Officer, Non Corp Ward 12(1) Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/ Appellant by : Shri. J. Prabhakar, C.A. ᮧ᭜यथᱮ कᳱ ओरसे /Respondent by : Shri. Nilay Baran Som, CIT. सुनवाई कᳱ तारीख/Date of Hearing : 19.12.2023 घोषणा कᳱ तारीख /Date of Pronouncement : 29.12.2023 आदेश/ O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal filed by the assessee is directed against the Revision order passed by the Principal Commissioner of Income Tax, Chennai in Revision No.PCIT, Chennai-8/Revision-263/ 100000469495/2023 dated 30.03.2023. The assessment was framed by the Addl./Joint/Deputy/Asst. Commissioner of Income Tax/Income Tax Officer, National e-Assessment Centre, Delhi for the assessment year ITA No. 619/CHNY/2023 :- 2 -: 2018-19 u/s.143(3) r.w.s 143(3A) & 143(3B) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 02.03.2021. 2. The only issue in this appeal of the assessee is with regard to revision order passed by the PCIT, Chennai u/s.263 of the Act, revising the assessment framed by the Assessing Officer u/s.143(3) r.w.s 143(3A) & 143(3B) of the Act dated 02.03.2021 on the reasoning that the Assessing Officer has erroneously allowed the deduction u/s.80P(2)(a)(i) of the Act in respect of interest income of ₹2,34,56,365/- earned from Co-operative banks and hence it is prejudicial to the interest of Revenue. For this, assessee has raised various grounds which are argumentative and exhaustive, hence need not be reproduced. 3. Brief facts of the case are that assessee is a Co-operative Society extending credit facilities to its employees as well as to its members. Assessee filed return of income for the relevant assessment year 2018-19 on 26.10.2018 and accordingly assessee’s case was selected for scrutiny under CASS to verify the following issues:- (i) Verification of investments/ Advances/ Loans. (ii) Verification of deduction from total income claimed u/s. Chapter VIA ITA No. 619/CHNY/2023 :- 3 -: The Assessing Officer during the course of assessment proceedings noted that assessee has earned interest to the tune of ₹2,69,98,705/-and out of which a sum of ₹35,42,340/- is earned on deposits made with Central Bank of India, Kolathur Branch and balance sum of ₹2,34,56,365/- earned from the Central Co-operative Bank & Tamil Nadu State Apex Co-operative Bank. The Assessing Officer while computing the assessment u/s.143(3) of the Act made verification and disallowed deduction claimed u/s.80P(2)(a)(i) of the Act in respect of interest income earned from the Central Bank of India amounting to ₹35,42,340/- and allowed the claim of deduction in respect of interest income earned from deposits with Central Co-operative Bank & Tamil Nadu State Apex Co-operative Bank amounting to ₹2,34,56,365/-. 4. Subsequently, the PCIT, on perusal of the assessment order noted that the Assessing Officer has wrongly allowed the claim of deduction u/s.80P(2)(a)(i) of the Act in respect of interest income of ₹2,34,56,365/- earned from the Central Co-operative Bank & Tamil Nadu State Apex Co- operative Bank. Hence, he issued show cause notice requiring the assessee to explain as to why assessment order be not set aside and finally, he set aside the assessment order vide para 15 of his order by observing as under:- 15. In view of the above facts of the case and above judicial pronouncements and provisions of the Income tax Act, 1961, I am of the opinion that the Assessing Officer has passed the assessment order in a manner which is erroneous in so far as prejudicial to the interests of Revenue. Accordingly, the order of the Assessing Officer u/s 143(3) dated 02/03/2021 is set aside to the ITA No. 619/CHNY/2023 :- 4 -: extent it relates to the issue of deduction U/s 80P on interest income earned from the Co-operative Banks. The Assessing Officer is directed to pass the order for AY 2018-19 in view of the above findings/conclusions by carrying out necessary verification after giving sufficient opportunity of being heard to the assessee. Aggrieved, now the assessee is in appeal before us. 5. We have heard rival contentions and gone through the facts and circumstances of the case. We note that revision order is restricted to claim of deduction made by the assessee and allowed by the Assessing Officer in respect of assessment order qua interest income earned from the Central Co- operative Bank & Tamil Nadu State Apex Co-operative Bank amounting to ₹2,34,56,365/-. We note that there is no dispute that these interest income earned from Central Co-operative Bank & Tamil Nadu State Apex Co-operative Bank. Before us, ld Counsel for the assessee stated that Central Co-operative Bank & Tamil Nadu State Apex Co-operative Bank are governed by Tamil Nadu State Co-operative Act and registered under Tamil Nadu State Co-operative Act only. According to the Ld. Counsel for the assessee they are not holding license from Reserve Bank of India and not governed under Banking Regulation Act, 1949. Ld Counsel for the assessee submitted that assessee’s case is squarely covered by the decision of Hon’ble Madras High Court in the case of S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd., filed by in T.C.A Nos.484 ITA No. 619/CHNY/2023 :- 5 -: to 487 and 490 of 2016 order dated 02.08.2016, wherein the Hon’ble High Court has held in favour of assessees and the relevant reads as under:- 7....... 3. This issue has been considered by Income Tax Appellate Tribunal, Chennai 'B' Bench in the cases of SL(SLP) 151, Karkudalpatty Primary Agricultural Co-operative Credit Society Ltd and S 1382 Mullukuruchi Primary Agricultural Co-operative Credit Society Ltd in I.T.A. Nos. 292 & 293/Mds/2014 vide common order dated 17.03.2014 and also the decision of 'C' Bench in the cases of M/s. 1915 Vellalapatty Primary Agricultural Co- operative Credit Society Ltd. in I.T.A. Nos. 385 & 386/Mds/2014, M/s.6648 Attur Mulluvadi Primary Agricultural Co-operative Credit Society Ltd. in I.T.A. No. 387/Mds/2014 vide common order dated 01.05.2014. After perusing the relevant provisions of State Co-operative Societies Act, 1983, governing similar assessees, the Tribunal found that definition of 'members' includes 'associate members', as well. The Tribunal found that such nominal members also enjoy statutory recognition as per the State Co-operative Societies Act. The Tribunal further observed that the objections of the Revenue that 'members' defined in sub-clause (i) of Section 80P(2) should only include voting members, would amount to a classification within classification which is beyond the purview of taxing statute; unless provided specifically by the legislature. 4. Therefore, we find that the issue raised in these appeals stands adjudicated by the Tribunal in favour of the assessee. Accordingly, we set aside the orders of the lower authorities on this point and direct the assessing authority to grant the benefit to the assessee available under Section 80P(2)(a)(i). 8. In the case of ITO Vs. M/s. Veerakeralam Primary Agricultural Co- operative Credit Society in ITA No.197/Mds/2013 dated 11.02.2014, the Tribunal dismissed the appeal of the Revenue. Against the order of the Income Tax Appellate Tribunal, the aforesaid Veerakeralam Primary Agricultural Co-operative Credit Society filed an appeal under Section 260A of the Income Tax Act, 1961, in T.C.A. Nos. 735, 755 of 2014 and 460 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 80P of the Income Tax Act, 1961 is extracted below : ITA No. 619/CHNY/2023 :- 6 -: (4) The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation For the purposes of this sub-section --- (a) co-operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. It is seen that the primary object of the society is to provide financial accommodation to its members to meet all the agricultural requirements and to provide credit facilities to the members, as per the bye-laws and as laid down in Section 5 (cciv) of the Banking Regulation Act, 1949. Further, from the CPT Circular dated 12.03.2008, it is evident that a credit co-operative society is not a co-operative bank, as defined in Part V of the Banking Regulation Act, 1949. The object of a 'Co-operative bank' is to accept deposits from the public, for lending or investment of money. On perusal of the findings of the Appellate Authority as well as the Appellate Tribunal, it is categorically made clear that the assessee society will not come under the object of the principal business of a co-operative bank, which is a banking business. The benefit of Section 80P is excluded for deductions by co-operative banks, whereas the primary agricultural credit societies are entitled for the said deduction. 14. .... 15. In the recent decision of the Kerala High Court, in the case of Chirakkal Service Co-operative Bank Ltd., Kannur vs. the Commissioner of Income Tax, reported in (2016) 68 taxmann.com.298 (Kerala), the High Court considered similar substantial questions of law (Issue No.A) raised by the assessee, regarding the entitlement for exemption under sub section (4) of Section 80P. By considering the fact that the assessee is a primary agricultural society, the Kerala High Court has answered the substantial question of law in favour of the assessee and held that the primary agricultural credit societies, registered as such under the KCS Act and classified so under that Act, including the appellants, are entitled to such ITA No. 619/CHNY/2023 :- 7 -: exemption. Therefore, the aforesaid decisions is applicable to the instant case. 16. In the light of the aforesaid facts and circumstances of the case, we are of the view, that the substantial question of law framed in the instant appeals, is answered against the Revenue. The exception barred out in 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 appeals filed by the assessee, the Commissioner of Income Tax (Appeal), had relied upon, the following portion of the decision of the Tribunal arrived in ITA No.292/Chny/2014:- 7. We have heard both parties and gone through the case file. As stated in the preceding paragraphs, the CIT (A) has proceeded to enhance the assessment (supra) only on the ground that the assessee's credit and various other loan, facilities have been allowed to be availed by 'B' class 'nominal' members whose liability is limited, at the best; to the extent of loan repayable instead of 'A' class members who have voting rights and dividend claim, and also that the latter members are jointly and severely liable. In this backdrop, when we peruse the relevant provisions of the State Co- operative Societies 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 the Act. The net result is that once the 'nominal' members also enjoy statuary condition imposed by the legislature u/s 80P (2) (a) (i). We make it clear that we are dealing with the deduction provision to be interpreted liberally. In our considered opinion, the objections of the revenue that the 'members' defined in sub clause (i) of Section 80P should only include voting members would amount to a classification within classification which is beyond the purview of tax statute; unless provided specifically by the legislature. Moreover, we find that the case law of Hon'ble Punjab and Haryana High Court (Supra) also supports the assessee's case wherein it has been held under the very provision that for the purpose of impugned deduction, it is irrelevant so far as classification of the members in 'A' or 'B' category is concerned. Following the decision of the Punjab and Haryana High Court, the appellate authority as well as the Income Tax Appellate Tribunal, has passed the order impugned. ITA No. 619/CHNY/2023 :- 8 -: 10. The appellate authority, namely, the Commissioner of Income Tax (Appeal) and the Income Tax Appellate Tribunal has clearly 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 confined to its members only and that too in a particular geographical area. Therefore, the respondent Societies are eligible for deduction under Section 80P (2) (a) (i) of the Act. The contention of the appellants that the members of the assessee societies are not entitled to receive any dividend or having any voting right or no right to participate in the general administration or to attend any meeting etc., because they are admitted as associate members for availing loan only and was also charging a higher rate of interest at the rate of 14%, is not 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 covers the present facts of the case, so far as it relates to the ineligibility of the respondent societies, under Section 80P (2)(a)(i). In the light of the above discussion and the decisions, we are of the view that the substantial questions of law raised in the instant appeals are answered against the Revenue. Further, this issue is now covered by the Co-ordinate Bench decision in the case of Tamilnadu Co-operative State Agriculture and Rural Development Bank Limited, in ITA Nos.31 to 33/Chny/2021, order dated 29.04.2022, wherein we have already considered the decision of Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited vs. CIT, Calicut reported in [2021] 123 Taxmann.com 161 (SC) and held as under:- 30. In view of the above facts discussed and the case-laws of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, Calicut (supra), we are of the view that the Assessee is a Co-operative Society under the name and style as “Tamil Nadu Co-operative State Agricultural and Rural Development Bank Limited” and it is not engaged in the banking activities. It is also clear that in view of Section 3 read with Section 56 of the Banking Regulation Act, 1949, the Assessee cannot be considered as a Primary Co-operative Bank but it is a ITA No. 619/CHNY/2023 :- 9 -: Primary Agricultural Credit Society because Co-operative Bank must be engaged in the business of Banking as defined in the Section 5(b) of the Banking Regulation Act, which means accepting, for the purpose of lending or investment of deposits of money from the public. Similarly, u/s.22(1)(b) of the Banking Regulation Act, as applicable to Co-operative Societies, no Co-operative Society shall carry on in banking business in India, unless it is a Co-operative Bank and holds license issued on this behalf by the Reserve Bank of India. In the present case also, there is no banking activity and it is not registered as a Bank and it does not hold any license issued by the Reserve Bank of India. The Assessee being a Primary Agriculture Credit Society is a Co- operative Society. The primary object of which is to provide financial accommodation to its members, i.e. members as well as Associate members for agriculture purposes or for purpose connected with the agricultural activities. Further, we are of the view that the provision of Section 80P(4) of the Act is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in the banking business, i.e. engaged in lending money to members of the public, which have a license in this behalf from the Reserve Bank of India. Clearly, therefore, the Assessee’s case is out of the provisions of Section 80P(4) of the Act. In relation to the Associate members, we are of the view that the provisions of Section 22 read with Rule 32 of the Tamil Nadu Co-operative Societies Act, 1983 and Tamil Nadu Co-operative Societies Rules clearly determine the procedure to admit Associate members and accordingly in the present case, the Assessee’s Co-operative Society has admitted the same. In view of the above finding, we hold that the Assessee is entitled for the claim of deduction u/s.80P(2)(a)(i) of the Act. Thus, we reverse the orders of the lower authorities and allow these three appeals of the Assessee. 6. As the issue is squarely covered and the facts are identical to the above referred case laws, respectfully following the Hon’ble Supreme Court decision in the case of Mavilayi Service Co-operative Bank Limited, (supra), Hon’ble Madras High Court decision in the case of S-1308, Ammapet Primary Agricultural Co- operative Bank Ltd., and the Co-ordinate Bench decision in the case of ITA No. 619/CHNY/2023 :- 10 -: Tamilnadu Co-operative State Agriculture and Rural Development Bank Limited, (supra), and in view of the above findings that the assessee had earned interest income from deposits from Central Co-operative Bank & Tamil Nadu State Apex Co-operative Bank, we are of the view that the Assessing Officer had rightly allowed the claim of deduction u/s.80P(2)(a)(i) of the Act and hence the revision order is reversed and the appeal of the assessee is allowed. 7. In the result, the appeal of the assessee is allowed. Order pronounced on 29 th day of December, 2023 at Chennai. Sd/- Sd/- (मंजुनाथ. जी) (MANJUNATHA.G) लेखासद˟/ACCOUNTANT MEMBER (महावीरिसंह ) (MAHAVIR SINGH) उपाȯƗ/VICE PRESIDENT चे᳖ई/Chennai ᳰदनांक/Dated:. 29.12.2023. KV आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant2.ᮧ᭜यथᱮ/Respondent 3..आयकर आयुᲦ/CIT4.िवभागीय ᮧितिनिध/DR 5.गाडᭅ फाईल/GF