W.P.No.2222 of 2020 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.02.2020 CORAM HONOURABLE DR. JUSTICE ANITA SUMANTH Writ Petition No.2222 of 2020 M/s NLC Employees Co-Op Thrift and Credit Society Limited 12, North Piraminedu Street Block 12, Neiveli Tamil Nadu Rep. by it President R. Indira Petitioner Vs Income Tax Officer Ward 2 Cuddalore Respondent PRAYER: PETITION filed under Article 226 of Constitution of India praying for issuance of Writ of Certiorari, calling for records of respondent and quash impugned order passed by respondent in DIN & Order No.ITBA/AST/S/144/2019-20/1023483864(1) in PAN AAAAN5694C dated 30.12.2019 passed under Section 144 of Income Tax Act, 1961 for Assessment Year 2017-18. For Petitioner : Mrs.N.V.Lakshmi for Mr.N.V.Balaji For Respondent : Mr.A.P.Srinivas Senior Standing Counsel ORDER petitioner challenges order of assessment dated 30.12.2020 passed in respect of assessment year (AY) 2017-18. Since identical issue that arises in this writ petition has been considered by me in batch of writ petitions in W.P.Nos. 17 of 2020 etc. by order dated 31.01.2020, I propose to follow same order in present matter as well. matter is thus taken up http://www.judis.nic.in 1/10 W.P.No.2222 of 2020 for final hearing even at time of admission by consent expressed by learned counsel for both parties. 2. petitioner claims to be society carrying on activity of providing credit facilities to its members and claimed, in its return of income, exemption under section 80P of Income Tax Act, 1961 (in short 'Act'). return was taken up for scrutiny and show cause notice issued calling upon petitioner to furnish details of its members for purposes of disallowance of deduction claimed under Section 80P. petitioner responded stating that for various assessment years returns have been scrutinized and assessments completed that have travelled in appeal to High Court being concluded in petitioners' favour by orders of Division Benches of this Court dated 10.08.2016 in TC(Appeals).Nos.786 to 789 of 2015, and order dated 16.12.2019 in TC(Appeals).Nos.1028 and 1029 of 2019 as well as Income Tax Appellate Tribunal in ITA.Nos.1028 & 1029 of 2019 order dated 27.02.2019. 3. Assessing Officer, however, applying judgment of Supreme Court in case of Citizen Co-Operative Society Limited Vs. ACIT [(2017) 84 taxmann.com 114] rejected contentions of petitioner and confirmed proposal contained in show cause vide impugned order of assessments. This very issue was considered by me in W.P.Nos.17 of 2020 and batch in following terms: 23. issue that arises in W.P.Nos.1124, 1123, 1127, 1131, 1133, 1136, 1138, 1141, 1143, 1145, 1149, 1293, 1299 and 1420 of 2020 also involves entitlement of petitioners that claim to be Primary Agricultural Co-operative Credit Societies, to deduction under Section 80P. petitioners were called upon to produce various details in support of their claims and specific question raised for their response was as follows: http://www.judis.nic.in 2/10 W.P.No.2222 of 2020 '4. Is society having associate/nominal member. If yes, whether society is carrying on business with them? If so, please show cause why deduction u/s.80P cannot be denied in view of decision of Jurisdictional ITAT in case of M/s S1234 Udyapatti PACCS Ltd., Udyapatti P.O, Salem - 636 140 in ITA No.2332/Chny/2017. Wherein ITAT followed decision of Hon'ble Supreme Court in case of Citizen Cooperative Society Ltd Vs. Assistant Commissioner of Income-tax, Circle - 9(1), Hyderabad reported in [2017] 84 taxmann.com 114 (SC) and denied deduction u/s.80P.' 24. We are concerned in these Writ Petitions only to claim of petitioners for exemption by application of principle of mutuality and rejection of same. According to petitioner, credit facilities are offered by it to members in as well as B classes. petitioners argued before Assessing Authority that their income would be exempt on ground of application of mutuality, since inflows as well as outflows related to one common group of members with which Society is in complete identity. 25. However, officer draws distinction between two classes of members - B class members are non-shareholding members admitted only for purpose of availing loans against specified securities. Non-refundable admission fee is remitted by them and duration of their membership is restricted to maximum of three years. B class members are not allotted shares and their membership does not carry with it right to vote and participate in elections, become office bearers or participate in General Body Meetings. They also do not hold any right to profits or gains of Society, while shareholding members, i.e., class members enjoy all aforesaid rights denied to B class members. 26. Assessing Authority was thus of view that claim of petitioners is liable to be rejected in light of judgment of Supreme Court in case of Citizen (supra). Reliance was specifically placed on paragraph 24 of judgement, where distinction is made between Nominal Members and Ordinary Members. Paragraph 24 reads as follows: http://www.judis.nic.in 3/10 W.P.No.2222 of 2020 'Undoubtedly, if one has to go by aforesaid definition of 'co-operative bank', appellant does not get covered thereby. It is also matter of common knowledge that in order to do business of co-operative bank, it is imperative to have licence from Reserve Bank of India, which appellant does not possess. Not only this, as noticed above, Reserve Bank of India has itself clarified that business of appellant does not amount to that of co-operative bank. appellant, therefore, would not come within mischief of sub-section (4) of Section 80P.' 27. Thus, though categorised as and B, there are vital distinctions that were drawn between members of two classes and hence principle of mutuality that was relied upon by petitioners was rejected as being inapplicable to its case. 28. Division Bench of this Court has, on identical facts as in present case, in case of Principal Commissioner of Income Tax, Salem V. M/s.S-1303 Ammapet Primary Agricultural Cooperative Bank Ltd., Ammapet, Salem (T.C.(A)Nos.882 and 891 of 2018 dated 06.12.2018) held that assessee would be entitled to deduction under Section 80P. reasoning was that under TNCS Act, member and associate member are one and same and associate member has also been held to be holding character of member. Division Bench has taken view that as far as State of Tamil Nadu is concerned, TNCS Act equates both members and associate members and places them on par. Thus, distinction carved out by Supreme Court would not be applicable in these cases. 29. In several of orders of assessment impugned before me (W.P.Nos.1131, 1136, 1141, 1145 AND 1420 of 2020) Assessing Officer, making reference to order of Division Bench of Madras High Court, has stated that orders have not been accepted and have been challenged by way of Special Leave Petitions. 30. No counter has been filed in these writ petitions. Mr.Jayapratap however, fairly produces copy of order in SLP filed challenging order of Division Bench in Ammapet (supra) (Special Leave to Appeal (c) No.17745 of 2019 dated 17.01.2020), wherein Department has withdrawn Special Leave Petition on http://www.judis.nic.in 4/10 W.P.No.2222 of 2020 account of low tax effect. question of law has been kept open. In such circumstances, order of Division Bench of this Court would hold field till such time it is modified or reversed. relevant portion of order is as follows: '12. Admittedly, assessee society is registered under provisions of TNCS Act. It defines word 'members' under Section 2(16) to mean person joining in application for registration of society and person admitted to membership after registration in accordance with provisions of Act, Rules framed thereunder and By-laws and includes associate member. expression 'associate member' is defined under Section 2(6) of TNCS Act to mean member, who possesses only such privileges and rights of member and who is subject only to such liabilities of member as may be specified in this Act, Rules and Bylaw. 13. Thus, definition of word 'members' includes associate member and therefore, Assessing Officer fell into error in drawing distinction between Class members and B Class members. For purpose of being entitled to relief under Section 80P of Act, all that is required is that cooperative society should answer description of society engaged in carrying on business of providing credit facilities to its member. Once description is answered, then automatically, benefit of Section 80P of Act would stand attracted subject to provisions contained in Sub-Section (2) of Section 80P of Act. 14. Further, it is to be pointed out that in terms of Sub-Section (4) of Section 80P of Act, which was inserted vide Finance Act, 2006 with effect from 01.4.2007 i.e from assessment year 2007-08, 'primary cooperative agricultural and rural development bank' means 'a society having its area of operation confined to taluk, principal object of which is to provide for long term credit for agricultural and rural development activities'. What was excluded was 'cooperative banks' and admittedly, assessee society is primary agricultural cooperative credit http://www.judis.nic.in 5/10 W.P.No.2222 of 2020 society and therefore, would be entitled to benefit of Section 80P of Act. 15. Further, for assessment year 2014-15, decision in case of Citizen Cooperative Society Limited was relied upon by Revenue before Tribunal, which, in paragraph 6.1 of its order dated 28.2.2018 for assessment year 2014-15, extracted operative portion of that judgment In that case, Hon'ble Supreme Court found that society carried on certain activities, which were contrary to provisions of Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995 and that they accepted deposits from third parties, who were not members in real sense and were using those deposits to advance gold loans. Therefore, Hon'ble Supreme Court pointed out that such activity of said society was that of finance business and could not be termed as cooperative society and that loans, which were disbursed, were without approval from Registrar of Mutually Aided Cooperative Societies, Ranga Reddy District. Hon'ble Supreme Court found that said society was not entitled to deduction under Section 80P of Act 16. It is noteworthy to point out that Hon'ble Supreme Court in decision in case of Citizen Cooperative Society Limited also observed that in light of insertion of Sub-Section (4) to Section 80P of Act by Finance Act, 2006, such deduction should not be admissible to cooperative bank and that if it is primary agricultural credit society or primary cooperative agriculture and rural development bank, deduction would still be provided. 17. In preceding paragraphs, we have pointed out definitions of expressions 'members' and 'associate member' under TNCS Act and held that 'associate member' is also 'member' in terms of Section 2(16) of TNCS Act. Furthermore, Assessing Officer himself found that associate members are also admitted as members of society. In such circumstances, Assessing Officer fell into error in not granting any relief to assessee society, which was rightly granted by CIT (A) as confirmed by Tribunal. In addition to that, Assessing http://www.judis.nic.in 6/10 W.P.No.2222 of 2020 Officer has not pointed out that loans have been disbursed to all and sundry in terms of provisions of TNCS Act and in terms of Clause (b) to Sub-Section (4) of Section 80P of Act, society has area of operation, operates within taluk and will provide long term credit for agricultural and rural development activities as well. CIT (A) rightly granted relief to assessee as confirmed by Tribunal. We do not find any good ground to entertain these appeals. 18. Accordingly, above tax case appeals are dismissed. substantial questions of law framed are answered against Revenue. ' 31. Learned counsel for Revenue states that there are cases of other identically placed Agricultural Cooperative Marketing Societies that Revenue has carried/intends to carry to Supreme Court where stakes involved are significantly higher, such as, Tiruchengode Agricultural Producers Cooperative Marketing Society Ltd. and Veerakeralam Primary Agricultural Cooperative Credit Society, Coimbatore. In such case, questions of law would be decided in those cases. 32. In light of fact that questions of law in this regard are still at large, petitioners are directed to file statutory appeal before Commissioner of Income Tax (Appeals) within period of three(3) weeks from today. However, let no recovery of demand relating to this issue be enforced till disposal of appeals. 33. W.P.Nos.1124, 1123, 1127, 1131, 1133, 1136, 1138, 1141, 1143, 1145, 1149, 1293, 1299 and 1420 of 2020 are disposed in aforesaid terms. No costs. Connected Miscellaneous Petitions are closed. 4. Mr.A.P.Srinivas, learned Senior Standing Counsel also points out specifically that order of this Court dated 16.12.2019 passed by Division Bench in TC(A).Nos.1028 and 1029 of 2019 is proposed to be challenged and time is as yet available for filing SLP. This is recorded. http://www.judis.nic.in 7/10 W.P.No.2222 of 2020 5. specific argument raised by learned counsel for petitioner is that that ratio of said decisions of Division Bench should be applicable in petitioners' case to assessment for present year as well. 6. Though Supreme Court in case of Parashuram Pottery Works Co. Ltd. Vs Income Tax Officer [106 ITR 1] has stated that there should be finality in matters of assessment and stale issues should not be reactivated beyond particular stage, learned Senior Standing Counsel points out that orders of appellate authorities for previous years have not been challenged on account of low monetary effect. 7. In light of specific plea of Standing Counsel to effect that issue is now being agitated further before Supreme Court, I am of view that matter should be permitted to reach its logical conclusion and should not be nipped at bud, at stage of assessment. 8. This writ petition is dismissed though granting liberty to petitioner to file statutory first appeal within period of three weeks from today. Let recovery of demand not be enforced till disposal of appeals by Commissioner of Income Tax (Appeals). No costs. 04.02.2020 Index : Yes Speaking Order ska http://www.judis.nic.in 8/10 W.P.No.2222 of 2020 To Income Tax Officer Ward 2 Cuddalore http://www.judis.nic.in 9/10 W.P.No.2222 of 2020 DR. ANITA SUMANTH, J. ska Writ Petition No.2222 of 2020 04.02.2020 http://www.judis.nic.in 10/10 NLC Employees Co.-Op. Thrift And Credit Society Limited v. Income-tax Officer, Ward-2, Cuddalore