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Facts
The assessee, a cooperative society, claimed deduction under Section 80P. The Assessing Officer denied the deduction on the grounds that the assessee was conducting banking business and providing loans to nominal members. The CIT(A) confirmed the AO's order.
Held
The Tribunal held that the assessee, being a cooperative society registered under the Maharashtra Cooperative Societies Act, is eligible for deduction under Section 80P. The Tribunal relied on the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. vs. CIT, stating that Section 80P is a benevolent provision to be read liberally in favour of the assessee.
Key Issues
Whether a cooperative society, not holding a banking license, is eligible for deduction under Section 80P when it provides loans to nominal members.
Sections Cited
80P, 250, 80P(2)(a)(i), 80P(4), 22(1)(b), 80-P(2)(a)(i), 2(n), 80P(2)(4)(1), 80P(2)(3)()
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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
Assessment Year:2017-18 Dr. Hedgewar Nagari V The Income Tax Officer, SahakariPatsansthaMaryadit, s Ward-19(3), Aurangabad. 01, Fulewadi Road, Vajiapur, Auranbabad, Maharashtra – 423701. PAN: AAAAD1087D Appellant/ Assessee Respondent / Revenue Assessee by Shri Shubham N Rathi – AR Revenue by Shri Ramnath P Murkunde,IRS – DR Date of hearing 18/03/2025 Date of pronouncement 21/03/2025 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: Thisappeal filed by the assessee is against the order of ld.Commissioner of Income Tax(Appeals)/NFACpassed under section 250of the Income Tax Act, 1961; dated 19.06.2024for Assessment Year2017-18. The assessee has raised the following grounds of appeal :
1. DISALLOWANCE OF DEDUCTION U/S 80P₹ 82,75,864/- 11 In the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax ['the Ld. CIT(A)'] has grossly erred in confirming the disallowance of deduction u/s 80P(2)(a)(i) of the Act of ₹ 82,75,864/- 1.2 The Ld. CIT(A) erred in confirming the disallowance merely on the ground that interest on loans and advances is also received from the nominal members. Such disallowance being patently illegal, bad in law, arbitrary, perverse and devoid of merits. 1.3 In the facts of the case and in law, it is requested before Your Honour to allow the deduction u/s 80P(2)(a)(i) of the Act. 2 LEAVE The Appellant craves leave to add, alter, amend, delete or substitute any of the above grounds of appeal
.” Submission of ld.AR :
2. Ld.AR submitted that assessee is a cooperative society registered under Maharashtra Cooperative Societies Act. Assessee is eligible for deduction u/s 80P. Assessee do not have any Banking License issued by RBI hence case law relied by AO are not applicable. Ld.AR filed a paper book. 2.1 Assessee has relied on the following case laws : Mavilayi Service Co-operative Bank Ltd. v. CIT ((2021) 123 taxmann.com 161 (SC)] PCIT v. Quepem Urban Co-operative Credit Society Ltd. [(2021) 128 taxmann.com 41 (Bombay))
Nashik Road NagarıSahkariPatsanstha Limited v ITO [ITA No. 1700/PUN/2017, Order dated 27.12.2021] Yuvashakti Nagari Sahkari Path Sanstha Maryadit Rendal v. ITO, Ward-2, Ichalkaranji [ITA No. 476/PUN/2023, Order dated 08.06.2023] Sai Prerana Gramin BigarshetiSahakari Pat SanshtaMaryadit v. ITO ward 10(5), Pune [ITA No. 1431/PUN/2018, Order dated 03.07.2019] The Vainganga Nagari Sahakari Pat Sanstha Ltd v. ITO - Ward Bhandara [ITA No. 49/NAG/2020, Order dated 21.06.2021] (2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit (3) Granting of loans to members or to non-members under sub-section (2) and recovery thereof shall be in the manner as may be specified by the Registrar" Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal, unlike the faca in Citizen Cooperative Society Ltd. (supra) 48. Resultantly, the impugned Full Bench judgment is set aside The appeals and all pending applications are disposed of accordingly These appeals are directed to be placed before appropriate benches of the Kerala High Court for disposal on merits in the light of this judgment.” Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of the AO and CIT(A), Findings & Analysis : 4. We have heard both the parties and perused the records. In this case assessee is a cooperative society. It filed return of Income on 21/10/2017 ,showing gross income of Rs.82,75,864/- and claimed deduction u/s 80P of the Act on the gross total income of Rs.82,75,867/-. The case of the assessee was selected for scrutiny assessment. During the assessment proceedings the Assessing Officer observed that Assessee has given Loans to Members and Nominal Members and earned Interest. In the Assessment Order the Assessing Officer held that Assessee is carrying out banking business . The Assessing Officer denied deduction u/s 80P on the grounds that Loan given to Nominal members and Assessee is doing Banking business, following Hon’ble Supreme Court’s decision in the case of Citizen Cooperative Society Hyderabad and Hon’ble Karnataka High Court’s decision in CIT vs Totagars Cooperative Sale Society 83 taxmann.com 140 respectively. Aggrieved by the Assessment Order the Assessee filed appeal before the Ld.CIT(A) who confirmed the assessment order. Aggrieved by the order of the Commissioner of Income tax (appeal) the assessee filed appeal before this Tribunal. 4.1 Thus, the AO has denied 80P on two grounds that Assessee is doing Banking Business hence not a cooperative society and Assessee has given Loan to nominal members.
4.2 Both these issues have been decided by the subsequent decisions of Hon’ble Supreme Court. Hon’ble Supreme Court of India in the case of Mavilayi Service Co-operative Bank Ltd. vs CIT [2021] 431 ITR 1, hasobserved vide order dated 12 Jan 2021 as under :
Quote, “Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable toco-operative societies, no co-operative society shall carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by the RBI.” …………… …………..
To sum up, therefore, the ratio decidendi of Citizen Co-operative Society Ltd. (supra), must be given effectto. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promotethe credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity,in favour of the assessee. A deduction that is given without any reference to any restriction or limitationcannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case byadding the word "agriculture" into section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to beread as a proviso, which proviso now specifically excludes co- operative banks which are co-operativesocieties engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Benchjudgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore,once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of thededuction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to theirmembers which are not related to agriculture. Also, in case it is found that there are instances of loans beinggiven to non-members, profits attributable to such loans obviously cannot be deducted.”(emphasis supplied) Unquote. 4.3In the case of the assessee it is not the claim of the Assessing Officer that Assessee is having Banking License issued by Reserve bank of India. Rather the Ld.AR submitted that Assessee do not have any banking License issued by RBI. It is noted that Assessee is duly registered under Maharashtra Co-operative Societies Act. Therefore , as observed by Hon’ble Supreme Court (supra) the assessee will be eligible for deduction u/s 80P of the Act .
4.4 As far as Loan given to Nominal members is concerned it is noted that as per Maharashtra Cooperative Societies Act Members include Nominal Members.
4.5The Hon'ble Supreme Court in the case of Mavilayi Service Co- operative Bank Ltd. Vs. CIT 431 ITR 1 dated 12/01/2021,held as under : “45. To sum up, therefore, the ratio decidendi of Citizen Co- operative Society Ltd. (supra), must be given effect to Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into section 80P(2)(4)(1) when it is not there. Further, section 80P(4) s to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative swocieties engaged in banking business in engaged in lending money to members of the public, which have a licence in this behalf from the RBL. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in is reading of Citizen Cooperative Society Ltd. (napra) Clearly, therefore, once section ROPY 4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(3)(), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted
It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, 'nominal members' are 'members as defined under the Kerala Act. This Court in UP Cooperative Cane Unions' Federation Lid CIT (1997) 11 SCC 287 referred to section 80P of the IT Act and then held "8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(1) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: "2. (n) Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty,"" Considering the definition of 'member under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(4)(1). 4.6 Thus, since as per Maharashtra Cooperative Societies Act, members include Nominal members , respectfully following the decision of Hon’ble Supreme Court (supra) it is held that assessee is eligible for deduction u/s 80P of the Act. Accordingly, the AO is directed to allow the deduction u/s 80P of the Act. 4.7 Accordingly, grounds of appeal
raised by the assessee are allowed.
5. In the result appeal of the assessee is allowed. Order pronounced in the open Court on 21st March, 2025.