Income Tax Appellate Tribunal - Ahmedabad
Trapaj Vibhageeya Khet Udyog Mal ... vs Dcit, Circle-2,, Bhavanagar on 1 August, 2018
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD - BENCH 'D'
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 1328/Ahd/2018
नधा रण वष /Assessment Year: 2015-16
Trapaj Vibhageeya Khet Udyog Mal DCIT, Cir.2
Rupantar Food Processing Sahakari Vs Bhavnagar.
Mandali Limited
C/o. Bhati & Associates
A-902, Titanium Square
Thaltej Cross Roads
S.G. Highway
Ahmedabad 380 054.
PAN : AACAT 5510 D.
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : None
Revenue by : Shri V.K. Singh, Sr.DR
सन
ु वाई क तार ख/Date of Hearing : 27/06/2018
घोषणा क तार ख /Date of Pronouncement : 01/08/2018
ORDER
PER RAJPAL YADAV, JUDICIAL MEMBER : Present appeal is
directed at the instance of the assessee against order of ld.CIT(A)-6, Ahmedabad dated 1.3.2018 passed for the assessment year 2015-16.
2. None appeared on behalf of the assessee, therefore, we proceed to dispose of appeal ex parte qua the assessee-appellant after hearing ld.DR and considering material available on record.
ITA No.1328/Ahd/2018 -2-3. Though the assessee has raised five grounds of appeal, effective ground in this appeal is against denial of exemption of Rs.16,41,836/- under section 80P of the Income Tax Act mainly on the ground that credit facilities extended to 'nominal' members far exceeds 'regular' members, and therefore, principle of mutuality has been broken.
4. Brief facts of the case involved in the present appeal is that assessee co-op. credit society registered under Gujarat Cooperative Societies Act, 1961. It is engaged in providing credit facilities to its members. Return of income for the assessment year 2015-16 was filed on 30.10.2015 declaring total income of Rs.NIL. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. During the scrutiny assessment the AO noticed that the assessee has claimed deduction under section 80P for Rs.16,41,836/-. On verification of details, it was observed by the AO that assessee has received interest from regular members as well as nominal members. In the list of members, the AO noted that there were 138 nominal members and 88 regular members, which means, nominal members far exceeded regular members. Assessee has stated that it was providing same facilities to the nominal members as provided to the regular members. AO was of the view that since same type of credit facilities were extended to the nominal members who has no voting power, the concept of principle of mutuality will be broken and consequently benefit under section 80P would stand withdrawn. AO issued a show cause notice to the assessee to justify allowability of deduction under section 80P of the Act. Assessee submitted that assessee society is a primary agricultural credit society and main object was to provide credit facilities to farmers, therefore, interest income ITA No.1328/Ahd/2018 -3- received from farmers are exempt under section 80P of the Act. However, submission of the assessee was not found acceptable to the AO. The ld.AO has harboured a belief that by providing credit facilities to the nominal members who were more than the regular members, assessee was trying to earn maximum profit in the business which are against the object of the society, and therefore, by following judgment of Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. Vs. ACIT dated 8.8.2017 disallowed the claim of the assessee under section 80P and the added the same to the total income of the assessee.
5. Aggrieved by the order of the ld.AO, the assessee went in appeal before the ld.CIT(A). Before the ld.First Appellate Authority the assessee filed written submissions, which are reproduced in the impugned order from page nos.2 to 6. In the written submissions, the assessee inter alia pleaded that assessee-society is primary agriculture credit society as per the Part V of the Banking Regulation Act. A certificate was also issued to this effect by Registrar of Cooperative Societies. It provides various facilities viz. distribution of fertilizers, diesel including credit facilities to its members; whether regular or nominal as per its bye-laws. Assessee has not provided credit facilities to any outsiders. Department has accepted this factum of case, and allowed similar claim under section 80P in scrutiny assessment for asstt.year 2014-15. The AO presumed that assessee with profit motive provided credit facilities to the nominal members who exceeded far more in number than the regular members, and therefore, there was break-down of principle of mutuality for claiming 80P benefits. Judgment of Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. relied upon by the AO was not applicable to the case of the assessee, because, ITA No.1328/Ahd/2018 -4- Hon'ble Supreme Court was not dealing with the case of primary agricultural credit society, but in the context of a Co-operative society. Rather, the Hon'ble Apex Court emphasised that by insertion of sub- section (4) to section 80P of the Act, primary agricultural credit society is eligible for deduction under section 80P. The case before the Hon'ble Supreme Court was that the assessee was receiving deposits mostly from a carved out category of members viz. 'nominal members' who were not members as per the provisions of law, and that most of the business of the assessee therein was with this carved out category of persons, without the approval from the Registrar of Societies. The Hon'ble Apex Court held that the main reason for disentitling the assessee from getting the deduction provided under section 80P is not sub-section (4) of the Act, but activities of the assessee were in violation of provisions of Multi State Co-operative Societies Act. It was submitted that as per the definition provided in section 2(13) of Gujarat Cooperative Societies Act, the expression 'Member' also includes nominal, associate or sympathizer member and they will have such privileges and rights of a member and be subject to such liabilities of a member, as may be specified in the bye-laws of the society. It was further pointed out that expression "member" has not defined in the Income Tax Act and it has to be construed in the context of the provisions law enacted the under the State Legislature. Income Tax Act has not drawn any distinction between 'regular member' and 'nominal member". It has only referred 'member', which in fact broader in meaning. As such, credit facilities extended to nominal members cannot be considered or treated as from the non-members or from public, and reliance placed on the judgment of Hon'ble Supreme Court in the case of ITA No.1328/Ahd/2018 -5- Citizen Cooperative Society Ltd. is clearly distinguishable on the facts of the present case. Assessee also relied upon orders of ITAT Cochin Bench in the case of ITO Vs. Muttom Services Cooperative Bank Ltd., ITA No.451/Coch/2016 dated 15.1.2018 and ITO Vs. Nilambur Services Cooperative Bank Ltd., ITA No.400/Coch/2017 dated 1.2.2018.
6. The ld.DR on the other hand, relied upon the orders of the Revenue authorities and submitted that since orders of both authorities are in line with judgment of the Hon'ble Supreme Court in the case of Citizen's Cooperative Society Ltd. (supra), impugned order be upheld.
7. We have heard ld.DR and gone through the record. We have also gone through case laws cited both the sides before ld.CIT(A). We find that fundamental facts which are not disputed by the Revenue authorities are that the assessee is a primary agricultural credit society registered under the Gujarat Cooperative Societies Act, 1961. It is engaged in providing credit facilities to the farmers in the region of Bhavnagar district. As per the AO, members of the assessee-society consisted of two types viz. regular member and nominal members. It is the case of the Revenue that assessee is doing more business with nominal members than the regular member in order to earn more profit, which is against the law, and therefore, there is a break-down of principle of mutuality resulting disentitlement of exemption under section 80P. The ld.AO relied upon the judgment of Hon'ble Supreme Court in the case of Citizens Cooperative Society Ltd. (supra) to support his view. While the case of the assessee is that being a primary agriculture credit society, it is entitled for exemption under sub-section (4) of section 80P. Judgment of Hon'ble Apex Court relied upon by the ITA No.1328/Ahd/2018 -6- Revenue is distinguishable on facts. In that case assessee was a cooperative society registered under Multi State Cooperative Societies Act, 2002, while in the present case, assessee is a primary agriculture credit society registered under Gujarat State Cooperative Societies Act. The Hon'ble Supreme Court disentitled the assessee from claiming exemption under section 80P due to violation of provisions of MACSA, under which it was formed, and most of the business of the assessee was with carved out category of persons without approval of Registrar of the Societies. Weighing point of view of both sides, we find that balance tilt in favour of the assessee. We find that by virtue of sub-section (4) of section 80P, the assessee is entitled for deduction under section 80P(2). Further, Income Tax Act does not define "member", nor has provided distinction between 'regular member' and 'nominal member' and therefore, its meaning and objects has to be understood in the context of definition given in the State Act. The Revenue authorities are trying to extrapolate the meaning of expression "Member" contrary to the spirit of the Act. It is evident from the definition of "member" provided in section 2(13) of the Gujarat Cooperative Societies Act that "Member" includes nominal, associate or sympathizer member. Therefore, in the present case, the nominal members are members as provided in the Act and that deposits received and loan advanced to the nominal cannot be treated as from non-members or from public and in the nature of banking business. That being so, then, an assessee engaged in primary agriculture activities and providing credit facilities and agriculture facilities to the farmer-members of a particular region, claim of deduction under section 80P(2) cannot be denied. It is not denied by the Revenue that the activities of the assessee society are of primary ITA No.1328/Ahd/2018 -7- agriculture activities. Competent authority has also recognized the assessee as primary agriculture credit society. In the earlier assessment year also, Revenue has accepted this fact and allowed the claim of the assessee. Judgment of Hon'ble Supreme Court in the case of Citizens Co-operative Society Ltd. (supra) is distinguishable on facts. In that case, status of the assessee is that of co-operative bank, whereas assessee in the present case is a primary agriculture credit society and applicability of section 80P(2)(4) of the Act. Considering all these facts, we are not convinced with the reasoning and finding given by the Revenue authority in denying claim of the assessee under section 80P(2). We allow the claim of the assessee and direct the ld.AO to re-compute income of the assessee by allowing claim under section 80P(2)(4) of the Act.
8. In the result, appeal of the assessee is allowed.
Pronounced in the Open Court on 1st August, 2018.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER