VAINGANGA NAGARI SAHAKARI PAT SANSTHA LTD,BHANDARA vs. INCOME TAX OFFICER, WARD-2, BHANDARA

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the order passed by the CIT(Appeals)-2, Nagpur on 31-01-2020 in relation to the assessment year 2016-17. 2. The only issue raised in this appeal is against the denial of deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

operative Societies Act, 1960 (hereinafter called `the Maharashtra Act’). It is engaged in providing credit facilities to its Members. A return of income was filed claiming deduction u/s 80P(2)(a)(i) amounting to Rs.33,41,435. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee was carrying on its activities in violation of provisions of section 80P(2)(a)(i) inasmuch as it had advanced loans to persons who were not Members of the society. On being called upon to explain its stand, the assessee submitted that the loans were advanced only to the Members, be it Regular (ordinary) members or Nominal members. Relying on the judgment of the Hon'ble Supreme Court in Citizen Co-operative Society Ltd. vs. ACIT (2017) 84 taxmann.com 114 (SC), the AO repelled the assessee’s claim and disallowed the deduction by holding that the assessee violated the provisions by accepting deposits from and making advances to such members, who though described as ‘Nominal Members’, were not entitled to dividend or shareholders’ rights. The ld. CIT(A) echoed the assessment order on this point, against which the assessee has come up in appeal before the Tribunal.

by the Maharashtra Act, made advances to certain Nominal Members from whom interest income was earned, there can be no doubt whatsoever that the deduction u/s 80P(2)(a)(i) has to be allowed. The Department has heavily relied on the judgment of Hon'ble Supreme Court in the case of Citizen Co-operative Society Mutually Aided Co-operative Society Act, 1995 was under consideration, which did not admit `Nominal Member’ within the ambit of the term ‘Member’. Recently, the Hon'ble Supreme Court in Mavilayi Service Co-Operative Bank Ltd. vs. CIT (2021) 123 taxmann.com 161 (SC) considered its earlier judgment in Citizen Co-operative Society Ltd. vs. ACIT (supra) vide para 46 of its order. Taking note of the fact that the Citizen Co-operative Society Ltd. vs. ACIT (supra) judgment dealt with the Andhra Act wherein the term ‘Member’ did not include Nominal Member, the Hon'ble Supreme Court in Mavilayi Service (supra) held that the interest on loans given to Nominal Members under the Kerala Act was eligible u/s 80P(2)(a)(i) of the Act as the term ‘Member’ under the Kerala Act included ‘Nominal Members’. In view of the foregoing discussion, it is evident that when the loans are given to Nominal

Members and the relevant State Act includes, ‘Nominal Member’ purview of ‘Member’, there can be no question of denial of benefit u/s 80P(2)(a)(i).

आदेश की प्रतिलिपि अग्रेपिि/Copy of the Order is forwarded to: अपीऱधर्थी / The Appellant; 1. प्रत्यर्थी / The Respondent;

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