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Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE
Before: Shri Chandra Poojari, AM & Smt.Beena Pillai, JM
O R D E R Per Chandra Poojari, AM These appeals by the assessee are directed against two different orders of the CIT(A) for assessment years 2017-2018 and 2018-2019, dated 25.10.2021 and 02.11.2021, respectively.
The first common ground raised by the assessee reads as under:-
“2. That the ld.CIT(A) erred in confirming the order of AO and denying the deduction under section 80P(2), and in doing so: (a) He failed to appreciate that the business of the appellant consists entirely of extending credit facilities to its members as given under section 80P(2). (b) He failed to appreciate that co-operative society defined under section 2(19) of the Income Tax Act also includes entities registered under “Karnataka Souharda Sahakari Act, 1997” inasmuch as they also operate and adopt the principle of co-operation as required under the Act.
2 M/s.Tungabhadra Pattina Souhardha Sahakari Niyamitha. (c) He misdirected himself in not following the decision of the Jurisdictional High Court decision in the case of Vitthalray Souharda Pattin Sahakari Niyamit v. Union of India (426 ITR 457) and failed to appreciate that the said decision holds the field on the eligibility of Souhardas for claiming benefit under section 80P of the Income Tax Act.”
Briefly stated the facts of the case are that the assessee is a co-operative society registered under the Karnataka Souharda Sahakari Act, 1997 and it is engaged in the business of accepting deposits from members and providing credit facilities. The assessee filed its return of income for A.Y.2017-2018 and 2018-2019 declaring an income of Rs.8,73,967 and Rs.11,85,226 after claiming deduction u/s 80P(2) of Rs.49,72,726 and Rs.51,46,448, respectively. The case was selected for limited scrutiny and the AO did not find any error in the quantum of deduction claimed by the assessee. However, deduction u/s 80P was denied on the ground that the assessee is not a co-operative society under the Karnataka State Co-operative Societies Act, 1959 but a Souharda which is not eligible for deduction u/s 80P. Further, for the A.Y. 2018-2019, the A.O. also made a disallowance u/s 40(a)(ia) of the Act of 30% of interest paid to its members on the reasoning that the assessee should have deducted tax at source u/s 194A of the Act and also disallowed expenses with regard to pigmy commission for failure of the assessee to deduct tax on such commission.
Aggrieved, the assessee filed appeals before the first appellate authority. The learned CIT(A) confirmed the view taken by the Assessing Officer.
3 M/s.Tungabhadra Pattina Souhardha Sahakari Niyamitha. 5. Aggrieved by the order of the CIT(A), the assessee has filed these appeals before the Tribunal. The learned AR relied on the grounds of appeal. On the other hand, the learned Departmental Representative supported the orders of the Income Tax Authorities.
We have heard rival submissions and perused the material on record. Section 2(19) of the Karnataka Souharda Sahakari Act, 1997 reads as follows:- “Co-operative means a co-operative including a cooperative bank doing the busi9ness of banking registered or deemed to be registered under Section 5 and which has the words “Souharda Sahari” in its name 1 [and for the purposes of the Banking Regulation Act, 1934 (Central Act 2 of 1934), the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and the National Bank for Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981)”, it shall be deemed to be a co-operative society;]”
6.1 A plain reading of section 2(19) of the Karnataka Soubarda Sahakari Act, 1997 makes it clear that the a co- operative society registered under the Karnataka Souharda Sahakari Act, 1997 would fit into the definition of `co- operative society’ as enacted in section 2(19) of the Act.
6.2 Further, the Hon’ble jurisdictional High Court in the case of M/s.Swabhimani Souharda Credit Co-operative Ltd. (WP No.48414 of 2018 dated 16.01.2020) is also support the case of the assessee. The Hon’ble jurisdictional High Court, in the above case, held as under:- “A declaration has been made to the effect that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co-operative society” as enacted in section 2(19) of the Income Tax Act, 1961 and therefore subject to all the exemptions, petitioners are entitled to stake their claim for the benefit of section 80P of the said Act.”
6.3 In the aforesaid case, i.e., in the case of M/s.Swabhimani Souharda Credit Co-operative Ltd. (supra), the Department had preferred an appeal against the above- mentioned order and the Hon’ble High Court vide its order dated 20.12.2021 in WA No.406/2020 held that the provisions of section 80P offers tax deduction in respect of income of Co-operative Societies which is enacted with a laudable object of promoting Co-operating moment and such benefit cannot be denied to the so-called Co-operatives under the Souharda Act merely on hyper technicalities.
6.4 In views of the above reasoning and the judicial pronouncement, cited supra, we are inclined to hold that the assessee, though it is registered under the Karnataka Souharda Sahakari Act, 1997, has to be considered as a co- operative society and the claim of deduction u/s 80P of the Act to be examined by the A.O. afresh in the light of the above judgment of the Hon’ble jurisdictional High Court (supra). Accordingly, we remit this issue to the files of the A.O. for fresh consideration, for both the assessment years.
For assessment year 2017-2018 ( ), the assessee has raised another ground, which reads as follows:-
“3. That the action of the ld.CIT(A) and ld.AO in making disallowance u/s 40(a)(ia) towards non-deduction of TDS on interest on deposit paid to members is unwarranted and untenable inasmuch as the provisions of section 194A(3)(v) clearly states that the Co-operative Societies are not required to withhold tax if the payment is made to members or any other co-operative society.
4. That the ld.CIT(A) has erred in confirming the disallowance of pigmy commission for non-deduction of TDS and in doing so he failed to appreciate that the appellant was not required to deduct tax on such commission in terms of the letter issued by the Ministry of Finance pursuant to the judgment of the Hon’ble Supreme Court.”
7.1 It was submitted by the learned AR that provisions of section 194A(3)(v) of the Act mandates that co-operative societies are not required to withhold tax if the payment is made to members or any other co-operative societies. Accordingly, the learned AR submitted that the interest paid to the depositors are members of the assessee society and as such section 194A(3)(v) of the Act is applicable. In this context, the learned AR relied on the order of the Tribunal in the case of The Mandya District Co-operative Central Bank Ltd. v. ACIT in (order dated 10.02.2021), wherein it was held as under:-
“14. We have perused submissions advanced by both sides in light of records placed before us.
The CBDT circular relied by the Ld.AR has been clarified vide letter dated 12/12/2007 by CBDT treating the remuneration (commission) earned by the pigmy deposit collectors as salary and subject to TDS under section 192 of the Act. The same has been placed at page 78 of paper book No.2. Vide letter dated 03/03/2008 the position has been reiterated and confirmed by CBDT followed by 01/12/2011 and 14/12/2011. The subsequent clarifications by CBDT States applicability of provisions of section 192 of the Act on the remuneration earned by pigmy deposit collectors, and that, the same will be treated as salary. In the light of the Circulars and subsequent clarifications issued by CBDT, in our view the authorities below could not have treated the payment made by assessee to the pigmy deposit collectors as commission for making disallowance under section 40(a)(ia) of the Act for non deduction of TDS under section 194H of the Act.
We are therefore of the opinion that the disallowance deserves to be deleted. Accordingly these grounds raised by assessee stands allowed.”
7.2 The learned Departmental Representative supported the orders of the Income Tax Authorities.
7.3 After hearing both the sides and perusing the material on record, we find that this issue is squarely covered in favour of the assessee by the order of the co-ordinate Bench order of the Bangalore Tribunal in the case of The Mandya District Co- operative Central Bank Ltd. v. ACIT (supra). Accordingly, by placing reliance on the above order of the Tribunal, we hold that the assessee is not liable to deduct TDS on the payment of interest to fixed depositors, if they are members of the assessee-society. It is ordered accordingly.
In the result, the appeals filed by the assessee are partly allowed for statistical purposes.