SRI ANANTHAPADMANABHA CREDIT CO-OPERATIVE SOCIETY LTD,UDUPI vs. ITO,WARD 1 & TPS, UDUPI, UDUPI
Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
These are the appeals filed by the assessee against the orders passed by the NFAC, Delhi dated 20-09-2024 for the different assessment years 2016-17 to 2018-19. ITA No. 2194/Bang/2024 for the AY 2017-18
ITA Nos.2193 - 2195/Bang/2024
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2. The issue raised by the assessee in its grounds of appeal are interconnected and pertains to allowances of deduction under section 80P of the Act.
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 3826 members which are categorized 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
609
14
3202
Right to Vote
Yes
No No Right in share profit
Yes
-
No Right to obtain books of account
Yes
No No Right to participate in administration
Yes
No No Deposit and loan
Yes
=
Yes
The assessee for the year under consideration declared gross total income of Rs. 69,77,720/- and the same was claimed as deduction under section 80P(2)(a)(i) of the Act.
In the assessment proceeding, the AO found that the assessee catered to the different classes of members having different rights with regard to participate in the sharing profit and dividend and administration. Therefore, the essential feature, i.e. the concept of ITA Nos.2193 - 2195/Bang/2024
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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 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 interest income of Rs. 6,14,000/- earned from FD with cooperative bank. The AO held that interest on FD is not attributable to the eligible business, therefore the same is not eligible for deduction under section 80P(2)(a)(i) of the Act and accordingly, the same is taxable as income from other sources. 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.
Furthermore, the AO found that the assessee has debited profit and loss account by sum of Rs. 5 lakh being RBDD provision. The AO found that the impugned provision created are not an expenditure nor an ascertained liability, hence the same is not allowable as deduction. Accordingly, the AO disallowed the same and added to the total income of the assessee. Hence the AO in view of the above, assessed the total income of the assessee at Rs. 74,77,720/- (Rs. 6977720 + Rs. 5,00,000).
ITA Nos.2193 - 2195/Bang/2024
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8. The aggrieved assessee preferred an appeal before the learned
CIT(A).
The learned CIT(A) after considering the facts in totality found that the assessee being a cooperative society registered under The Karnataka Cooperative Societies Act 1959 (KCSA) eligible for deduction under section 80P of the Act irrespective of the type of members it catered. The learned CIT(A) in this regard referred to the judgment of Hon’ble Supreme Court in the case of Mavilayi Service Cooperative Bank CIT(A) noted that provision of section 18 of KCSA was amended restricting the associate member to the extent of 15% of the total membership. Hence, the ld. CIT-A directed the AO to examine the status of member in the context of section 18 of the KCSA and decide the issue in the light of ruling of Hon’ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd(supra).
Regarding the issue of interest income from FD with cooperative bank the learned CIT(A) held that same will be taxable as income from the other sources and the benefit of section 80P(2)(a)(i) of the Act shall not be extended to such income of the assessee.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us argued that the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act should be allowed, as the appellant was a duly registered co-operative society under the ITA Nos.2193 - 2195/Bang/2024
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Karnataka Co-operative Societies Act, 1959 (KCS Act). The AR emphasized that the learned AO erred by questioning the eligibility of the appellant on the grounds of the inclusion of nominal and associate members, relying on the Hon’ble Supreme Court ruling in Citizen Co-
Operative Society Ltd (supra) which was governed under the MACS Act,
1995, where nominal membership is not permitted. However, under the KCS Act, nominal and associate memberships are explicitly allowed, as outlined in section 2(f) and section 18 of such Act. The learned CIT(A), after considering the Hon’ble Supreme Court judgment in Mavilayi
Service Co-Operative Bank Ltd. vs. CIT, directed the AO to verify whether the nominal and associate members were within the prescribed limits, i.e., not exceeding 15% of total membership, and accordingly allowed the deduction.
The learned AR in this regard contended that the AO had no juri iction to examine compliance with the KCS Act, as this falls solely within the purview of the