Primary Agricultural Cooperative Credit Societies Entitled to Tax Deduction

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Case Name:

Saravanampatti Primary Agricultural Co-Operative Credit Society Ltd. vs. Income Tax Officer (High Court of Madras)

W.P.Nos.17, 20, 22, 23, 26, 29, 1107, 1118, 1121, 1123, 1124, 1125, 1127, 1129, 1131, 1133, 1136, 1138, 1139, 1141, 1143, 1145, 1146, 1149, 1150, 1152, 1155, 1161, 1166, 1169, 1171, 1293, 1299 & 1420 of 2020

Date: 31st January 2020

Key Takeaways:

1. Primary Agricultural Cooperative Credit Societies may be entitled to tax deductions on their interest income under Section 80P (of Income Tax Act, 1961), if the investments are found to be part of their statutory reserve requirements.

2. The court emphasized that the assessing authority must carefully consider the societies' arguments and not simply rely on past precedents without proper analysis.

3. The distinction between a cooperative bank and a cooperative society is an important factor in determining the applicability of Section 80P (of Income Tax Act, 1961).

Issue:

Are the interest incomes earned by the Primary Agricultural Cooperative Credit Societies from their investments eligible for deduction under Section 80P (of Income Tax Act, 1961)?

Facts:

- The petitioners are Primary Agricultural Cooperative Credit Societies that filed returns claiming deduction under Section 80P (of Income Tax Act, 1961).

- The Income Tax Department issued notices to the societies, questioning their eligibility for the deduction, particularly on the interest income earned from investments.

- The societies argued that the investments were not surplus funds, but rather a statutory reserve required under the Tamil Nadu Cooperative Societies Act. They also cited the Supreme Court's decision in Nawanshahar Central Cooperative Bank Ltd. case, which held that such statutory reserve investments should be considered operational income.

- However, the assessing authority rejected the societies' arguments and relied on the Supreme Court's decision in the Totgars' Cooperative Sale Society Ltd. case, which held that interest income from surplus investments should be taxed as "income from other sources."

Arguments:

- The societies argued that their investments were not surplus funds, but rather a statutory reserve required by law, and the interest income should be eligible for deduction under Section 80P (of Income Tax Act, 1961).

- The Income Tax Department relied on the Totgars' case, which held that interest income from surplus investments should be taxed as "income from other sources," not operational income.

Key Legal Precedents:

- Commissioner of Income Tax vs. Nawanshahar Central Cooperative Bank Ltd. (2007) -

The Supreme Court held that interest income from statutory reserve investments should be considered operational income eligible for deduction under Section 80P (of Income Tax Act, 1961).

- Totgars' Cooperative Sale Society Ltd. vs. ITO (2010) -

The Supreme Court held that interest income from surplus investments should be taxed as "income from other sources," not operational income.

- Citizen Cooperative Society Ltd. vs. Assistant Commissioner of Income-Tax (2017) -

The Supreme Court distinguished between cooperative banks and cooperative societies in the context of Section 80P (of Income Tax Act, 1961).

Judgment:

- The court set aside the initial tax assessments and directed the assessing authority to re-examine the issue, taking into account the societies' arguments regarding the statutory reserve nature of their investments.

- The court emphasized that the assessing authority must carefully consider the societies' arguments and not simply rely on past precedents without proper analysis.

- The court also noted the distinction between cooperative banks and cooperative societies in the context of Section 80P (of Income Tax Act, 1961), as established in the Citizen Cooperative Society Ltd. case.

FAQs:

Q1: What is the key issue in this case?

A1: The key issue is whether the interest income earned by the Primary Agricultural Cooperative Credit Societies from their investments should be eligible for deduction under Section 80P (of Income Tax Act, 1961), or if it should be taxed as "income from other sources."

Q2: What were the main arguments made by the societies and the Income Tax Department?

A2: The societies argued that their investments were not surplus funds, but rather a statutory reserve required by law, and therefore the interest income should be eligible for deduction under Section 80P (of Income Tax Act, 1961). The Income Tax Department relied on the Totgars' case, which held that interest income from surplus investments should be taxed as "income from other sources."

Q3: What were the key legal precedents cited in the case?

A3: The court cited three key legal precedents: the Nawanshahar Central Cooperative Bank Ltd. case, the Totgars' Cooperative Sale Society Ltd. case, and the Citizen Cooperative Society Ltd. case. These cases established important principles regarding the treatment of interest income from statutory reserves and the distinction between cooperative banks and cooperative societies under Section 80P (of Income Tax Act, 1961).

Q4: What was the court's final decision?

A4: The court set aside the initial tax assessments and directed the assessing authority to re-examine the issue, taking into account the societies' arguments regarding the statutory reserve nature of their investments. The court emphasized that the assessing authority must carefully consider the societies' arguments and not simply rely on past precedents without proper analysis.

Q5: What is the significance of the court's decision?

A5: The court's decision highlights the importance of carefully analyzing the specific facts and arguments of each case, rather than relying solely on past precedents. It also underscores the distinction between cooperative banks and cooperative societies in the context of Section 80P (of Income Tax Act, 1961), which can have a significant impact on the eligibility for tax deductions.

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1. This batch of nine (9) Writ Petitions have been filed by entities claiming to be Primary Agricultural Cooperative Credit Societies. Since the issues that arise are common to the petitioners and by consent expressed by all learned counsel, the matters are taken up for adjudication and disposal finally.

2. Returns of income had been filed by the petitioners claiming exemption in terms of Section 80 (of Income Tax Act, 1961) P of the Income Tax Act, 1961 (in short 'I.T.Act'). The respondent - Assessing Officer took the returns up for examination and issued notices and questionnaires calling for details in regard to whether deduction was available under Chapter VIA as claimed, whether the sales receipts/turnover had been correctly offered to tax and calling for explanations of the assessee/petitioner in regard to investments/advances/loans.

3. The petitioners responded to the queries raised by the Officer. One of the issues that arose for consideration was the eligibility to exemption claimed on the interest income received by the petitioner from deposits/investment of funds in banks. Such income, according to the Officer, was ineligible for deduction under Section 80P (of Income Tax Act, 1961), since it did not form part of the operational income of the petitioner/assessee and was liable to be taxed in terms of Section 56 (of Income Tax Act, 1961). The Officer relied on the judgment of the Supreme Court in the case of Totgars' Cooperative Sale Society Limited V. ITO, Karnataka (322 ITR 283).

4. The petitioners were put to notice of the proposal to bring to tax the interest receipts under the head 'other sources'. The petitioners sought to distinguish the judgment in the case of Totgars (supra) on the grounds that Totgars was a Society engaged in sales, whereas, the petitioner was a Primary Agricultural Cooperative Credit Society. That apart, the funds that were deposited giving rise to the interest income did not constitute a surplus, but a mandatory statutory reserve.

5. Reliance was placed on a judgment of the Supreme Court in Commissioner of Income Tax, Jalandhar V. Nawanshahar Central Cooperative Bank Limited ((2007) 15 SCC 611) wherein the Bench has observed that the deposit effected was in the nature of a statutory reserve. According to the petitioners, such statutory reserve would not fall within the ambit of ‘surplus funds’ and the judgment in the case of Totgars (supra) was inapplicable to their cases.

6. In addition, the petitioner also stated that the total amount invested, Rs.15,51,18,027/- in the case of K.2058 Saravanampatti Primary Agricultural Cooperative Credit Society Limited, petitioner in W.P.No.17 of 2020, (whose facts are taken to be illustrative of the facts in other Writ Petitions as well on the basis of the submissions of both learned counsel to the effect that the facts and legalities in all writ petitions are similar excepting for the figures involved), comprised significantly of external borrowings. In this case, a sum of Rs.12,57,23,490/- had been borrowed from the Coimbatore District Central Cooperative Bank. It is not elaborated as to why this borrowal was effected. Perhaps, it was the mandate of the statutory reserve that compelled the petitioner to effect the borrowing to maintain such reserve.

7. It was also the contention of the petitioners before the Assessing Officer that if at all interest earned was to be brought to tax, then, alternatively, interest paid on the loan should be deducted from interest received or in other words, there should be a netting of the interest paid and received and only the resultant figure be brought to tax.

8. The Assessing Authority however rejected the submissions cursorily stating in a single line that ‘statutory reserve can also be considered as surplus funds of the assessee’. The judgement of the Supreme Court in the case of Nawanshahar (supra) has not been considered or discussed and neither has the plea of the petitioner for netting of interest paid and earned.

9. In Nawanshahar (supra), the Supreme Court considered the question of whether investments made by a banking concern are part of the business of banking. The conclusion was that the income arising from investments would be attributable to the business of the bank and fall under the head 'profits and gains of business', deductible under Section 80P(2)(a)(i) (of Income Tax Act, 1961). The earlier view in Bihar Coop. BankLtd. V. CIT ((1960) 39 ITR 114, CIT V. Karnataka State Coop. Apex Bank ((2001) 7 SCC 654) and CIT V. Ramanathapuram Distt. Coop.Central Bank Ltd. ((2009) 17 SCC 620) was followed.

10. At paragraph 4 of the short judgment, the Bench has stated that the principle in those cases would cover a situation where a Co-operative Bank carrying on the business of banking is statutorily required to place a part of its funds in approved securities.

11. The distinction I note, at first blush, is that this judgment has been rendered in the case of a Co-operative Bank, whereas, the petitioners before me are Co-operative Societies. The Supreme Court in Citizen Co-operative Society Limited V. Assistant Commissioner of Income-Tax, Circle -9(1), Hyderabad (397 ITR 1) has noted the distinction between a Co-operative Bank that would be governed by the provisions of the Banking Regulation Act, 1949, where its operations would include engagement of the members of the general public, and a co-operative Society, whose operations would be confined to its members.

12. This is the distinction between the two kinds of co-operative societies as set out under Section 80P(2)(a)(i) (of Income Tax Act, 1961), that is, those carrying on the business of banking and those providing credit facilities to its members. However, a common mandate in both cases, though arising under different enactments, is for such entity to place a part of its funds in/with specific facilities/entities.

13. One of the petitioners before me (Kalikkanaickenpalayam Primary Agricultural Cooperative Credit Society Ltd.in W.P.No.29 of 2020) has specifically raised before the Assessing Authority the argument that the Tamil Nadu Co-operative Societies Act, 1983 (in short 'TNCS Act') mandates Co-operative Societies to place a portion of their funds as a statutory reserve with a District Co-operative Bank. The argument appears to be that the statutory reserve forms part of and is an essential feature of the operations and any interest generated therefrom would be operational income entitled to deduction under Section 80P (of Income Tax Act, 1961).

14. The respondent officer has relied on a more recent judgment of the Supreme Court in Totgars' (supra), where the Bench was concerned with surplus funds which the assessee had invested in short term deposits with banks and Government facilities. The question referred for decision was as follows:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income by way of interest on deposits held with scheduled banks, bonds and other securities was chargeable to tax under section 56 (of Income Tax Act, 1961) under the head `Income from other sources' without allowing any deduction in respect of cost of funds and proportionate administrative and other expenses under section 57 (of Income Tax Act, 1961)?'

15. Thus the issue before the Court in Totgars (supra) was on the classification of interest generated by deposits held with scheduled banks, bonds and other securities without providing for a deduction in respect of cost of funds and proportionate administrative and other expenses under Section 57 (of Income Tax Act, 1961). The question of interest generated from deposits made by reason of a statutory mandate was raised and finds reference in the narration of the petitioners' submissions, the Court has, at para 8 of the report (ITR) stated that'At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P(2)(a)(i) (of Income Tax Act, 1961) is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 (of Income Tax Act, 1961) is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under Section 28 (of Income Tax Act, 1961)? In our view, such interest income would come in the category of "Income from other sources",....'

16. The revenue has filed counters in a few writ petitions objecting to the maintainability of writs sought and again relying on the judgement of the Supreme Court in the case of Totgars (supra). Additionally, Mr.Jayapratap points out that the issue in regard to the classification and taxability of interest income has not been specifically raised in the affidavit filed in support of the Writ Petitions. Upon perusal, the affidavits appear to be a cut and paste exercise from Writ Petitions filed by other Co-operative Societies challenging orders of assessment rejecting claims for exemption on the ground of mutuality. Though there is one general ground raised in regard to availability/entitlement to deduction under Section 80P (of Income Tax Act, 1961) itself, 'The respondent failed to consider that the cooperative societies are entitled to seeking deduction u/s.80(P) (of Income Tax Act, 1961), but the same was not considered by the respondent’, all other grounds revolve only around the aspect of mutuality and are entirely irrelevant to the issue arising from the present impugned order. No specific ground has been raised on the classification of interest income and whether the same would fall within the ambit of income from business or other sources.

17. However, the petitioners have responded to the show cause notice issued by the officer raising this issue and their response has been extracted in the orders of assessment, as follows:

W.P.No.17 of 2020:

'The Supreme Court judgment in Togars Cooperative Sale Society Ltd no applicable to our society as the above society is a sale society and ours is Primary Agricultural Co-operative Credit Society. The former is dealing sale of goods and ours is dealing in credit facility extended to the members. Also, as per section 80P (of Income Tax Act, 1961)2a, profits and gains attributable to the business of the society and the word attributable is having elaborate meaning as derived in Commissioner of Income-tax vs. Nawanshahar Central Co-operative bankLtd. Civil Appeal Nos.2499, 2500 of 2005 8th April 2005.

So, the funds deposited is not a surplus fund as decided in Totgars Co- operative Sale Society Ltd., but a statutory reserve maintained as decided in Commissioner of Income tax Vs. Nanshahar Central Cooperative Bank Ltd. The amount in investments is Rs.15,51,18,027/- out of this Rs.12,57,23,490/0 was borrowed from Coimbatore District Central Co- operative Bank. if interest earned is taxed the interest paid to such loans are deducted form the interest on other sources.

So, kindly drop the proceeding by taxing the interest income and accept the returned income' W.P.No.29 of 2020:

‘Received you show cause notice and noted the contents. In this regard we wish to submit the following for your consideration.

The Supreme Court judgement in Totgars Cooperative Sale Society Ltd., not applicable to our society as the above society is a sale society and ours is Primary Agricultural Cooperative Credit Society. The former is dealing sale of goods and ours is dealing in credit facility extended to the members. Major difference in both former is dealing sale of something and ours is dealing in money, when money involved in the bank or credit society, definitely a reserve must be maintained for easy liquidation purpose in case of emergency.

Also, as per section 80P (of Income Tax Act, 1961)2A, profits and gains attributable to the business of the society and the word attributable is having elaborate meaning as derived in the COMMISSIONER OF INCOME TAX vs. NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD Civil Appeal Nos.2499 2500 of 2005 8 th April, 2005, 2007 208 CTR SC 438:2007 289 ITR 6 SC:2007 160 TAXMAN 48 Also it is to be noted that every Cooperative Society is to be maintained a statutory reserve of 25 percent of the total deposits including savings bank account and current account balances with District Central Cooperative banks to provide proper liquidity to the societies.

So, the funds deposited is not a surplus fund as decided in Totgars Cooperative Sale Society Ltd., but a statutory reserve maintained as decided in COMMISSIONER OF INCOME TAX vs. NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD.

The following cases are also to be considered by the Honorable Supreme Court of India in the case of interest received on deposits etc., Supreme Court of India Commissioner Of Income-Tax vs Ramanathapuram Distt. Co-Op. ... on 30 October, 2001 Equivalent citations: 2002 255 ITR 423 SC Bench: S Bharucha, Y Sabharwal, B Kumar ORDER

1. The High Court has answered against the Revenue, the following question:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the interest on securities, subsidies received from the Government and dividend business income of the assesse entitled to deduction under Section 80P(2)(a)(i) (of Income Tax Act, 1961) of the Income- tax Act, 1961 ?"

2. The very question was considered by this court in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 and the conclusion was reiterated in Mehsana District Central Co-operative Bank Ltd. v. ITO .

3. It is now contended on behalf of the Revenue that the decision of this court in United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 was not considered.

4. We do not think that it is open to the Revenue to urge, through different counsel, the same thing again and again. We are satisfied that the answer to the question has been correctly given in the decisions aforementioned and in the order under appeal.

5. The civil appeals are dismissed with costs.

Also the jurisdictional Madras High Court also looking into the Totgars case and allowed the interest received is allowed under section 80P (of Income Tax Act, 1961) in case of Madras High Court The Commissioner Of Income Tax vs M/S. Veerakeralam Primary ... on 5 July, 2016

18. Though all petitioners have not replied identically to the notices issued by the officer, the above replies are illustrative of the stands adopted by the petitioners at the time of assessment and crystallize the arguments of the petitioners’ to the effect that (i) the investments in question do not comprise surplus funds (ii) that the investments constitute a statutory reserve as mandated by the TNCS Act (iii) the interest generated therefrom was eligible for deduction in the light of Nawanshahar (supra) (iv) at worst the interest received should be netted with interest paid. These arguments ought to have been at least, considered, by the Assessing Authority in deciding the issue but have unfortunately been brushed aside despite being noted in the order itself.

19. In my considered view, this amounts to a fatal flaw as it renders the impugned order entirely non-speaking and passed without application of mind. If the affidavits of the petitioners’ are looked upon as mechanical and filed in haste and without application of mind, equally so are the impugned orders of assessment that simply rely on Totgars (supra) without discussing the arguments put forth by the petitioners. For this reason the arguments of the revenue based on the lack of pleadings in the affidavit is rejected. I am of the considered view that in a case such as the present, the petitioners should not suffer for lacunae in drafting particularly when the stand of the petitioners is very clear from the materials on record. Thus, to balance the convenience of both parties and in the interests of justice, this issue is set aside for denovo and fresh examination and conclusion by the respondent.

20. I make it clear that I have expressed no opinion on the merits of the matter and all that is stated above is only to crystallize the arguments of both sides, as available on record. The officers are at liberty to decide and conclude the issue on merits in any manner as they may think fit, but only after proper discussion. An order of assessment passed by a quasi judicial officer that decides an important question of law, raises a significant demand and has far reaching consequences has to speak for itself and take into account, and meet, the arguments raised by an assessee. Mere reliance on a judgement without reference to the facts involved in both cases, those in the case relied upon and those in the case of the assessee in question, would not justify the conclusion arrived at.

21. For these reasons, the assessments impugned in W.P.Nos.17, 20, 22, 23, 26, 29, 1150, 1155 and 1161 of 2020 are set aside and the matter is remanded to the file of the Assessing Officer for de novo consideration. The petitioners are directed to appear before their respective Assessing Officer on 14.02.2020 at 10.30 a.m. without expecting any further notice in this regard. The petitioners will be heard specifically on the question of classification of interest generated by investments made for the purpose of statutory reserve and the judgments of the Supreme Court in Nawanshahar and Totgars' (supra) as well as other relevant case law shall be taken into account by the Assessing Officer in framing assessments by way of speaking and detailed orders. This exercise shall be completed within a period of six (6) weeks from date of conclusion of personal hearing.

22. W.P.Nos.17, 20, 22, 23, 26, 29, 1150, 1155 and 1161 of 2020 are allowed. No costs. Connected Miscellaneous Petitions are closed. II. W.P.Nos.1124, 1123, 1127, 1131, 1133, 1136, 1138, 1141, 1143, 1145, 1149, 1293, 1299 and 1420 of 2020:

23. The 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 the entitlement of the petitioners that claim to be Primary Agricultural Co-operative Credit Societies, to deduction under Section 80P (of Income Tax Act, 1961). The petitioners were called upon to produce various details in support of their claims and a specific question raised for their response was as follows:

'4. Is the society having associate/nominal member. If yes, whether the society is carrying on business with them? If so, please show cause why the deduction u/s.80P (of Income Tax Act, 1961) cannot be denied in view of the decision of the Jurisdictional ITAT in the case of M/s S1234 Udyapatti PACCS Ltd., Udyapatti P.O, Salem - 636 140 in ITA No.2332/Chny/2017. Wherein the ITAT followed the decision of Hon'ble Supreme Court in the case of Citizen Co- operative 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 (of Income Tax Act, 1961).'

24. We are concerned in these Writ Petitions only to the claim of the petitioners for exemption by application of the principle of mutuality and the rejection of the same. According to the petitioner, credit facilities are offered by it to members in A as well as B classes. The petitioners argued before the Assessing Authority that their income would be exempt on the ground of application of mutuality, since the inflows as well as outflows related to one common group of members with which the Society is in complete identity.

25. However, the officer draws a distinction between the two classes of members - B class members are non-shareholding members admitted only for the purpose of availing loans against specified securities. Non-refundable admission fee is remitted by them and the duration of their membership is restricted to a maximum of three years. B class members are not allotted shares and their membership does not carry with it the right to vote and participate in elections, become office bearers or participate in General Body Meetings. They also do not hold any right to the profits or gains of the Society, while shareholding members, i.e., A class members enjoy all the aforesaid rights denied to the B class members.

26. The Assessing Authority was thus of the view that the claim of the petitioners is liable to be rejected in the light of the judgment of the Supreme Court in the case of Citizen (supra). Reliance was specifically placed on paragraph 24 of the judgement, where a distinction is made between Nominal Members and Ordinary Members. Paragraph 24 reads as follows:

'Undoubtedly, if one has to go by the aforesaid definition of 'co-operative bank', the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P (of Income Tax Act, 1961).'

27. Thus, though categorised as A and B, there are vital distinctions that were drawn between the members of the two classes and hence the principle of mutuality that was relied upon by the petitioners was rejected as being inapplicable to its case.

28. A Division Bench of this Court has, on identical facts as in the present case, in the case of The 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 the assessee would be entitled to deduction under Section 80P (of Income Tax Act, 1961). The reasoning was that under the TNCS Act, a member and an associate member are one and the same and an associate member has also been held to be holding the character of a member.

The Division Bench has taken the view that as far as the State of Tamil Nadu is concerned, the TNCS Act equates both members and associate members and places them on par. Thus, the distinction carved out by the Supreme Court would not be applicable in these cases.

29. In several of the orders of assessment impugned before me (W.P.Nos.1131, 1136, 1141, 1145 AND 1420 of 2020) the Assessing Officer, making reference to the order of the Division Bench of the Madras High Court, has stated that the 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 a copy of the order in SLP filed challenging the order of the Division Bench in Ammapet (supra) (Special Leave to Appeal (c) No.17745 of 2019 dated 17.01.2020), wherein the Department has withdrawn the Special Leave Petition on account of low tax effect. The question of law has been kept open. In such circumstances, the order of the Division Bench of this Court would hold the field till such time it is modified or reversed. The relevant portion of the order is as follows:

'12. Admittedly, the assessee – society is registered under the provisions of the TNCS Act. It defines the word 'members' under Section 2(16) (of Income Tax Act, 1961) to mean a person joining in the application for the registration of society and a person admitted to the membership after registration in accordance with the provisions of the Act, the Rules framed thereunder and the By-laws and includes an associate member. The expression 'associate member' is defined under Section 2(6) (of Income Tax Act, 1961) of the TNCS Act to mean a member, who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in this Act, the Rules and the By-law.

13. Thus, the definition of the word 'members' includes an associate member and therefore, the Assessing Officer fell into an error in drawing a distinction between A Class members and B Class members. For the purpose of being entitled to a relief under Section 80P (of Income Tax Act, 1961), all that is required is that the cooperative society should answer the description of a society engaged in carrying on the business of providing credit facilities to its member. Once the description is answered, then automatically, the benefit of Section 80P (of Income Tax Act, 1961) would stand attracted subject to the provisions contained in Sub-Section (2) of Section 80P (of Income Tax Act, 1961).

14. Further, it is to be pointed out that in terms of Sub-Section (4) of Section 80P (of Income Tax Act, 1961), which was inserted vide the Finance Act, 2006 with effect from 01.4.2007 i.e from the assessment year 2007-08, the 'primary cooperative agricultural and rural development bank' means 'a society having its area of operation confined to a taluk, the principal object of which is to provide for long term credit for agricultural and rural development activities'. What was excluded was the 'cooperative banks' and admittedly, the assessee society is a primary agricultural cooperative credit society and therefore, would be entitled to the benefit of Section 80P (of Income Tax Act, 1961).

15. Further, for the assessment year 2014-15, the decision in the case of Citizen Cooperative Society Limited was relied upon by the Revenue before the Tribunal, which, in paragraph 6.1 of its order dated 28.2.2018 for the assessment year 2014-15, extracted the operative portion of that judgment.

In that case, the Hon'ble Supreme Court found that the society carried on certain activities, which were contrary to the provisions of the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995 and that they accepted deposits from third parties, who were not members in the real sense and were using those deposits to advance gold loans. Therefore, the Hon'ble Supreme Court pointed out that such an activity of the said society was that of a finance business and could not be termed as a cooperative society and that the loans, which were disbursed, were without the approval from the Registrar of Mutually Aided Cooperative Societies, Ranga Reddy District. The Hon'ble Supreme Court found that the said society was not entitled to deduction under Section 80P (of Income Tax Act, 1961).

16. It is noteworthy to point out that the Hon'ble Supreme Court in the decision in the case of Citizen Cooperative Society Limited also observed that in the light of insertion of Sub-Section (4) to Section 80P (of Income Tax Act, 1961) by the Finance Act, 2006, such deduction should not be admissible to a cooperative bank and that if it is a primary agricultural credit society or a primary cooperative agriculture and rural development bank, the deduction would still be provided.

17. In the preceding paragraphs, we have pointed out the definitions of the expressions 'members' and 'associate member' under the TNCS Act and held that an 'associate member' is also a 'member' in terms of Section 2(16) (of Income Tax Act, 1961) of the TNCS Act. Furthermore, the Assessing Officer himself found that the associate members are also admitted as members of the society. In such circumstances, the Assessing Officer fell into an error in not granting any relief to the assessee society, which was rightly granted by the CIT (A) as confirmed by the Tribunal. In addition to that, the Assessing Officer has not pointed out that loans have been disbursed to all and sundry in terms of the provisions of the TNCS Act and in terms of Clause (b) to Sub-Section (4) of Section 80P (of Income Tax Act, 1961), the society has an area of operation, operates within the taluk and will provide long term credit for agricultural and rural development activities as well. The CIT (A) rightly granted the relief to the assessee as confirmed by the Tribunal. We do not find any good ground to entertain these appeals.

18. Accordingly, the above tax case appeals are dismissed. The substantial questions of law framed are answered against the Revenue. '

31. Learned counsel for the Revenue states that there are cases of other identically placed Agricultural Cooperative Marketing Societies that the Revenue has carried/intends to carry to the Supreme Court where the stakes involved are significantly higher, such as, Tiruchengode Agricultural Producers Cooperative Marketing Society Ltd. and Veerakeralam Primary Agricultural Cooperative Credit Society, Coimbatore. In such a case, the questions of law would be decided in those cases.

32. In the light of the fact that the questions of law in this regard are still at large, the petitioners are directed to file a statutory appeal before the Commissioner of Income Tax (Appeals) within a period of three(3) weeks from today. However, let no recovery of the demand relating to this issue be enforced till the disposal of the 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 the aforesaid terms. No costs. Connected Miscellaneous Petitions are closed. III. W.P.Nos.1107, 1118, 1121, 1125, 1129, 1139, 1146, 1152, 1166, 1169 and 1171 of 2020:

34. This batch of eleven (11) Writ petitions involves two questions, viz., i) exemption claimed on the ground of principle of mutuality, wherein the Assessing Authority has relied upon the judgment of the Supreme Court in the case of Citizen (as supra) and ii) the classification of interest generated by deposits made as statutory reserve, as being either 'income from business' or 'income from other sources', wherein the Assessing Officer has relied upon the judgment of the Supreme Court in the case of Totgars' (supra).

35. I have decided both these issues separately in the paragraphs as aforesaid. In the light of my decision in the preceding paragraphs, the impugned assessments in so far as they relate to Issue I, the principle of mutuality, are disposed directing the petitioners to file statutory appeals before the Commissioner of Income Tax (Appeals) within a period of three weeks from today. There shall be an interim stay of recovery of the demand relating to this issue till the disposal of the appeal by the first Appellate Authority.

36. In so far as impugned orders in this batch relate to Issue II, i.e, on the classification of interest generated from deposits made and held as statutory reserve for the grant of deduction under Section 80P (of Income Tax Act, 1961), they are set aside. The petitioners are directed to appear before their respective Assessing Officers on 14.02.2020 at 10.30 a.m. without expecting any further notice and my directions in this regard as set out in paragraph No.21 will apply equally in these cases.

37. W.P.Nos.1107, 1118, 1121, 1125, 1129, 1139, 1146, 1152, 1166, 1169 and 1171 of 2020 are disposed in the aforesaid terms. No costs. Connected Miscellaneous Petitions are closed.