The order of the Bench was delivvered by
All these appeals filed by different assessees are taken up together for hearing as the issue involved in all these appeals is common, i.e., denying deduction under section 80P(2)(a)(i) of the Act.
The Assessing Officer while completing the assessment denied deduction under section 80P of the Act on the entire income of the assessees on the ground that the assessees did not fulfil the conditions of being primary agricultural co-operative societies extending credit facilities to its members. The Assessing Officer further held that the assessees are not banks eligible for deduction under section 80P(2) of the Act. However, the Assessing Officer restricted the deduction under section 80P to the income earned from farm sector out of banking business and to the income from the credit facilities extended to its members. The Assessing Officer also denied the claim of the assessees that the entire income is exempt from taxation under the principles of mutuality. On appeal, the learned Commissioner of Income-tax (Appeals) in all these cases held that the assessees is not a bank and they are primary agricultural credit societies and should be considered whether they are correct in making the claim for deduction under section 80P(2)(a)(i) of the Act. The learned Commissioner of Income-tax (Appeals) held that the assessees is a primary agricultural credit society and its claim is allowable under section 80P(2)(a)(i) of the Act. However, the Commissioner of Income-tax (Appeals) held that the assessees are not engaged in the business of providing credit facilities to its members only but extending loans to class "B" members who are all nominal members and not recognising them as members for audit. Hence, the assessees does not qualify for deduction under section 80P(2)(a)(i) of the Act.
Counsel for the assessees reiterating the submissions made before the Commissioner of Income-tax (Appeals) submits that there is no bar in the provisions of the Act that if credit facilities are provided to class B members deduction under section 80P(2) is not allowable. In other words, he submits that there is no distinction between class A or class B members, so for as the claim for deduction under section 80P(2) is concerned. Counsel further submits that the issue under appeal is squarely covered by the decision of the co-ordinate Bench of this Tribunal in the case of S-6608 Narasingapuram PACB Ltd. v. ITO in I.T.A. No. 919/Mds/2013 dated May 23, 2014 [2014] 3 ITR (Trib.)-OL 246 (Chennai). Counsel also relied on the decision of this Tribunal in the case of S-1145 Perarignar Anna Primary Agricultural Co-operative Credit Society v. ITO in I.T.A. Nos. 402 to 417/Mds/2014 dated May 8, 2014 in support of his contentions.
This Tribunal in the case of S-6608 Narasingapuram PACB Ltd. v. ITO in I.T.A. No. 919/Mds/2013 dated May 23, 2014 [2014] 3 ITR (Trib.)-OL 246 (Chennai) considered a similar issue and held that definition of member as per section 2(16) of the Societies Act under which assessees are registered, the term "member" includes "associate member" and reference to class "B" members by the appellate authority is with respect to associate member. Therefore, credit facilities provided to associate member is also eligible for deduction under section 80P(2) of the Act.
The Departmental representative supported the orders of the lower authorities.
Heard both sides. Perused orders of the lower authorities and the decisions relied on. The co-ordinate Bench of this Tribunal in the case of S6608 Narasingapuram PACB Ltd. v. ITO in I.T.A. No. 919/Mds/2013 dated May 23, 2014 [2014] 3 ITR (Trib.)-OL 246 (Chennai) considered a similar issue and allowed the claim of the assessees under section 80P(2)(a)(i) of the Act holding as under (page 247) :
"5. Shri M. Narayanan, appearing on behalf of the assessees submitted that, the Commissioner of Income-tax (Appeals) has disallowed deduction under section 80P(2)(a)(i) on the ground that the assessees has extended credit facilities to associate members, i.e., 'class B' members and the income earned from them is not eligible for deduction. The learned authorised representative contended that the assessees is engaged in the business of providing credit facilities to its members. The assessees has two types of members 'class A and class B'. The class A members or normal members they enjoy certain privileges such as voting rights, etc. The other members are classified as class B members or associate members. Both class-A and class-B members are shareholders of the society. Section 2(16) of the Tamil Nadu Co-operative Societies Act, 1983 defines 'member' which includes associate member. The learned authorised representative further submitted that the case of the assessees is squarely covered by the decision of the co-ordinate Bench of the Tribunal in I.T.A. No. 292/Mds/2014 in the case of SL(SPL) 151,Karkudalpatty Primary Agricultural Co-operative Credit Society Ltd. v. ITO decided on March 17, 2014. In the said case, the Tribunal has held that for availing of deduction under section 80P, classification of members in 'A' and 'B' is irrelevant. The learned authorised representative also placed on record a copy of the order of the Tribunal in I.T.A. No. l97/Mds/2013 in the case of ITOv. Veerakeralam Primary Agricultural Co-operative Credit Society decided on February 11, 2014, wherein the Tribunal had held that the activities of primary agricultural co-operative credit societies are not at par with co-operative banks.
6. On the other hand, Shri Anirudh Rai, appearing on behalf of the Revenue vehemently supported the impugned order and prayed for the dismissal of the appeal of the assessees.
7. We have heard the submissions made by the representatives of both sides and have perused the orders of the authorities below as well as the decisions of the co-ordinate Bench of the Tribunal relied upon by the learned authorised representative of the assessees. In appeal, the assessees has impugned the findings of the Commissioner of Income-tax (Appeals) for rejecting the claim of deduction under section 80P(2)(a)(i) to the assessees. The Commissioner of Income-tax (Appeals) in his order has held that the assessee-society is not a co-operative bank, therefore, the provisions of section 80P(4) are not attracted. However, the Commissioner of Income-tax (Appeals) has denied the deduction on the ground that the assessee has extended credit facilities to class B members, who are not regular members of the society and thus the assessee is not eligible for claiming deduction under section 80P(2)(a)(i) and (iv).
8. Section 2(16) of the Societies Act, 1983 defines 'member' as under :
'Member means a person joining in the application for the registration of society and a person admitted to membership after registration in accordance with the provisions of this Act, the rules and bylaws and includes an associate member.'
A perusal of definition of the term 'member' clearly shows that 'member' includes 'associate member'. The reference of class 'B' members by the Commissioner of Income-tax (Appeals) is with respect to associate members. The Commissioner of Income-tax (Appeals) has denied deduction to the assessees only for the reason, that credit facilities have been extended to a particular class of members, who are not normal members of the society. We do not agree with the Commissioner of Income-tax (Appeals) on the issue. The authorities under the Act cannot go beyond their jurisdiction and make classification within a classification of members to deny the benefit of deduction. The co-ordinate Bench of the Tribunal in the case of SL(SPL) 151,Karkudalpatty Primary Agricultural Co-operative Credit Society Ltd. v. ITO (supra) has dealt with this issue. The findings of the Tribunal are as under :
9. We have heard both parties and gone through the case file. As stated in the preceding paragraphs, the Commissioner of Income-tax (Appeals) 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 severally 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" under section 2(16) that the same includes an "associate member" under section 2(6) appended therein. In other words, the "nominal" members also enjoy statutory recognition as per the Act. The net result is that once the "nominal" members or non-voting members are themselves included in the definition of "members", they satisfy the relevant condition imposed by the Legislature under section 80P(2)(a)(i). We make it clear that we are dealing with a 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(2)(a) 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 the hon'ble Punjab and Haryana High Court 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. We follow the same and accept contentions of the assessees.'
10. A similar issue had come up before the hon'ble Punjab and Haryana High Court in the case of CIT v. Punjab State Co-operative Bank Ltd. reported as [2008] 300 ITR 24 (P&H), wherein the hon'ble High Court had decided the issue in favour of the assessees. The learned Departmental representative has not been able to controvert the contentions of the authorised representative.
11. The issue in appeal is similar to the one adjudicated by the coordinate Bench in the case of SL(SPL) 151, Karkudalpatty Primary Agricultural Co-operative Credit Society Ltd. v.ITO (supra). Accordingly, we hold that the assessees are eligible to claim benefit of deduction under section 80P(2)(a)(i) and (iv) of the Act.
12. In the result, the appeal of the assessees are allowed."
As the issue is identical, respectfully following the decision of the coordinate Bench of this Tribunal, we hold that the assessees are entitled for deduction under section 80P(2)(a)(i) of the Act.
In the result, all the appeals of the assessees are allowed.
The order pronounced in the open court on Friday the 20th day of June, 2014 at Chennai.