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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
O R D E R
Per Shri. Chandra Poojari, AM:
This appeal by the assessee directed against the order of CIT(A) dated 06.03.2020 for the Assessment Year 2015-16. The assessee has raised the following grounds:
Page 3 of 6 2. Brief facts of the case are assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. The assessee filed its return of income for the Assessment Year 2015-16 on 28.10.2015 declaring a total income of Rs. Nil. The case was selected for scrutiny and Notice under section 143(2) dated 28.07.2016 was issued and served on the assessee on 05.08.2016. Subsequently notices under section 142(1) have been issued calling for various details. In response to the notices issued, the assessee filed the details called for. After verification of the details, the assessment is concluded by accepting the total income returned by the assessee.
Learned AR contended that Principal CIT erred in not allowing deduction under section 80P(2)(a)(i) of the Act AO. Learned DR submitted that the assessee had filed the return of income for the Assessment Year 2015-16 on 28.10.2015 declaring the total income of Rs.NIL after claiming deduction u/s 80P(2)(a) at Rs.32,38,7841- which includes profits exempt u/s.80P(2)(d) [Other Co-operative Societies/Dividends/Interest] of Rs.16,15,491/-. Thus an amount of Rs. 16,15,491/- being interest earned from Nationalised banks and Co-operative Banks is liable to be taxed and the deduction claimed U/s. 80P(2)(d) of the IT Act, 1961 amounting to Rs. 16,15,491/- is not allowable for deduction from the total income as the same was not earned from co-operative societies. Further, it is noted that the interest earned is not from the business of banking or lending credit to the members of the society. Thus, the interest earned is also not eligible for deduction U/s. 80P(2)(a)(i) of the IT Act, 1961. Further, as per the ratio of Karnataka High Court decision dated 16.06.2017 in the case of M/s. Totagars Co-operative Sale Society, Sirsi, interest earned from any bank not being a Co- operative Society, is not deductible U/s. 80P(2)(d) of the Act.
After hearing both the parties we are of the view that the Supreme Court has reversed the decision of special Bench of Kerala High Court in the Page 4 of 6 case of Mavilayi Service Co-operative Bank Ltd., Vs. CIT 414 ITR 67 wherein it was held as follows:
"45. To sum up, therefore, the ratio decidendi of Citizen Cooperative 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)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes cooperative banks which are co-operative societies 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 Bench judgment 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 the deduction contained in section 80P(2)(a)(i), 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 nonmembers, 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 U.P. Cooperative Cane Unions' Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (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)(i) 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:
Page 5 of 6 "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)(a)(i).
Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows: "59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank. Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society. (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 subsection (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 nonmembers is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra).
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."
In view of the above, we are inclined to remit this issue to the file of AO to examine the deduction under section 80P(2)(a)(i) of the Act in the light of the decision of the Hon’ble Supreme Court.
In the result, appeal of the assessee is allowed for statistical purposes.