ITO, WARD-6(3)(1), BANGALORE, BANGALORE vs. SAHAKARA NAGAR CREDIT CO-OPERATIVE SOCIETY LIMITED, BANGALORE
Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN KAssessment Year: 2017-18
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the Revenue against the order passed by the NFAC, Delhi dated 28/02/2024 in DIN No. ITBA/NFAC/S/
250/2023-24/1061657647(1) for the assessment year 2017-18. 2. The issue raised by the Revenue in its grounds appeal are interconnected and pertains to allowances of deduction claimed under section 80P of the Act.
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3. The relevant facts are that the assessee is a cooperative society carrying out banking business and providing credit facilities to the members. The assessee society has 8606 members which are categories into 3 different classes of members. The numbers of members of each class and their rights are detailed as under:
Particular
Class ‘A’ regular member
Class
‘B’
associate member
Calss
‘C’
nominal member
Total number of members
2197
2522
3663
Right to Vote
Yes
No No Right in share profit
Yes
Yes
No Dividend Right
Yes
Yes
No Right to participate in activity
Yes
Yes
Yes
The assessee for the year under consideration declared gross total income of Rs. 1,76,24,174/- which consist of business income of Rs. 1,75,65,121/- and income from house property of Rs. 59,053/- only. The entire gross total income of Rs. 1,76,24,174/- claimed as deduction under section 80P(2)(a)(i) of the Act.
In the assessment proceeding, the AO found that the assessee is catering to the different classes of members having different rights with regard to participate in the share profit and dividend. Therefore, the essential feature, i.e. the concept of mutuality, is missing in the case of the assessee, hence the assessee is not eligible to claim the benefit of the provision of section 80P(2)(a)(i) of the Act. The AO in this regard referred to and placed heavy reliance on the judgment of Hon’ble Page 3 of 11
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Supreme Court in the case of Citizen Cooperative Society Ltd vs. ACIT, circle- 9(1), reported 84 taxmann.com 114. 6. Besides the above, the AO found that the business income declared by the assessee includes the following receipts:
(i)
E-Stamp Commission
Rs. 35,000/-
(ii)
Other income
Rs. 50,236/-
(iii)
Commission
Rs. 620/-
(iv)
Pickmy Commission
Rs. 65,439/-
Total
Rs. 1,51,295/-
7. The AO held that these receipts are not attributable to the eligible business, therefore the same are not eligible for deduction under section 80P(2)(a)(i) of the Act and accordingly held that these are taxable as income from other sources.
The AO further found that the business income includes interest income of Rs. 79,28,908/- earned from FD with the Cooperative Bank. The AO held that the income earned from the FD with cooperative bank is neither eligible for deduction under section 80P(2)(a)(i) of the Act nor eligible under section 80P(2)(d) of the Act. Thus, the same is taxable as income from other sources.
Likewise, the AO found that the Auditor in the Form 3CD reported expenses amounting to Rs. 2,58,825/- incurred/paid without deducting eligible tax at source (TDS). Therefore, in accordance with the provision of section 40(a)(i) of the Act, an amount of Rs. 77,648/- (30%) was required to be disallowed. However, the assessee instead of disallowing impugned amount has reduced gross total income by Rs. 11,032/- . only. Page 4 of 11
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Hence, the AO made the disallowances of Rs. 88,680/- (77648 +
11,032) only.
Furthermore, the AO found that the assessee has received rent amounting to Rs. 1.1 Lakh and computed income on the same as per the provision applicable to the income from house property. The AO held that the assessee cannot be allowed to compute income as per section 22 of the Act. As such the AO held the receipt covered under section 80P(2)(c) of the Act and accordingly after providing deduction of Rs. 50000/- brought balance amount of Rs. 60,000/- to tax. Accordingly, the AO in view of the above, worked out the total income of the assessee at Rs. 1,77,12,854/- only.
The aggrieved assessee preferred an appeal before the learned CIT(A).
The assessee before the learned CIT(A) submitted that it is a credit co-operative society, and its operations were fully compliant with the provisions of the Karnataka Cooperative Societies Act (KCSA) and the bye-laws of the society. The assessee emphasized that membership, as per the Act (KCSA), includes nominal and associate members, and thus, the restriction on voting rights does not affect their participation in the society’s activities. The assessee contended that there was no violation of the KCSA or any deviations from the bye-laws.
Regarding judgment of Hon’ble Supreme Court in the case of M/s. Citizen Co-operative Society Ltd.(supra), the assessee clarified that the ruling is not applicable on given facts, as that case pertained to a society Page 5 of 11
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formed under a different state Act and involved transactions with the general public, thereby violating the principles of mutuality. In contrast, the assessee society strictly follows the principle of mutuality and engages only with its members. It was also highlighted that the Income
Tax Act has not been amended to reflect any change in the treatment of such co-operative societies, indicating the government's intent not to penalize compliant societies.
Further, the assessee pointed out that the issue of deduction under section 80P(2)(a)(i) had already been settled in its favor for earlier assessment years (AYs 2009-10 and 2010-11) by the ld. CIT (Appeals), with a clear order dated 11.09.2013. It stressed that there has been no change in the legal provisions since then, and therefore, the disallowance of such a deduction by the AO was unwarranted.
On the rental income, the assessee argued that the receipts from renting out two premises, totaling Rs. 1,10,000, were correctly classified under 'income from house property', and a deduction under section 24(a) of the Act for repairs and maintenance had been appropriately claimed. The AO's denial of this deduction and failure to provide the assessee an opportunity to explain its claim was unjustified.
Moreover, the assessee contended that all its income, including e- stamp commission and other miscellaneous receipts, fall within the scope of section 80P(2)(a)(i) of the Act, being integral to its stated objectives. Page 6 of 11
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17. Lastly, the assessee challenged the addition under section 40(a)(ia) of the Act for Rs. 88,680/-, arguing that the discrepancy arose due to timing differences in deduction and remittance of tax, and that the concerned expenses were disallowed in the financial year 2015-16
and claimed correctly in the financial year 2016-17. Therefore, the deduction claimed in the assessment year 2017-18 was valid.
The learned CIT(A) after considering the AO’s finding and submission of the assessee found that the assessee is in the business of providing credit facilities to the members which is carried well within the law and permitted by its byelaws approved by