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Income Tax Appellate Tribunal, BANGALORE BENCHES “SMC-C”, BANGALORE
Before: Shri George George K
O R D E R This appeal at the instance of the assessee is directed against CIT(A)’s order dated 02.12.2019. The relevant assessment year is 2013-2014.
The solitary issue argued by the learned AR was whether the CIT(A) is justified in confirming the disallowance of claim of deduction u/s 80P(2)(a)(i) of the I.T.Act amounting to Rs.34,70,813.
The brief facts of the case are as follow: The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. For the assessment year 2013-2014, the return of income was filed on 26.09.2013 declaring `Nil’ income, after claiming deduction u/s 80P(2)(a)(i) of the I.T.Act amounting to Rs.34,70,813. The assessment was taken up for scrutiny by issuance of notice u/s 143(2) of the I.T.Act. The assessment was passed u/s 143(2) of Shri Gayatri Pattin Sahakari Sangh Niyamit. the I.T.Act vide order dated 29.12.2015. The Assessing Officer denied the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act for the reason that assessee was primarily doing the business of banking and was essentially a co-operative bank. Therefore, in view of the provisions of section 80P(4) of the I.T.Act, the assessee was not entitled to the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act.
Aggrieved by the order of the Assessing Officer in denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act, assessee preferred an appeal to the first appellate authority. The CIT(A) partly allowed the appeal of the assessee. The CIT(A) held that the assessee is a co-operative society, eligible for claim of deduction u/s 80P(2)(a)(i) of the I.T.Act with regard to income derived from business of providing credit facilities to its members. However, the CIT(A) held that income earned from persons other than regular members of the assessee was not eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act.
Aggrieved by the order of the CIT(A), the assessee has preferred this appeal before the Tribunal. The learned Counsel for the assessee submitted that the assessee was accepting deposits and providing loans only to nominal / associate members, who are not outsiders but are members of the assessee-society. Therefore, it was contended that the Assessing Officer and CIT(A) was not justified in partly denying the claim of deduction u/s 80P(2) of the I.T.Act. The learned AR relied on the recent judgment of the Hon’ble Apex Court in the Shri Gayatri Pattin Sahakari Sangh Niyamit. case of The Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT reported in 431 ITR 1 (SC).
The learned Standing Counsel for the Department submitted that the assessee has not cooperated with the CIT(A) in providing necessary details, such as, copies of bye-laws, details of investment and deposits, details of income earned from non-members, etc. The learned Standing Counsel relied on the orders of the Bangalore Benches of the Tribunal in the case of M/s.Athmashakthi Multipurpose Co-operative Society Ltd. v. ITO [ITA Nos.1220 & 1221/Bang/2019 – order dated 18.10.2019] and in the case of M/s.Vikasha Vividhoddesha Sahakara Sangha Niyamitha v. ITO [ITA No.1424/Bang/2019 – order dated 08.11.2019].
I have heard rival submissions and perused the material on record. Section 18 of the Karnataka Co-operative Societies Act, 1959, defines nominal or associate members as under:-
“Nominal or Associate members : Not with standing anything contained in section 16, a co-operative society may admit, (a) Any individual as a nominal or associate member; (b) Any banking company as a nominal member; (c) Any firm, company, co operative society or any body or corporation constituted by or under any law for the time being in force, as a nominal or associate member. A nominal member shall not be entitled to any share in any form whatsoever in the assets or profits of the society and a nominal member who is an individual shall not also be entitled to become an office bearer of the society.
Shri Gayatri Pattin Sahakari Sangh Niyamit. An associate member may hold shares but shall not be entitled to become an office bearer of the society.” 7.1 Section 18 of the Karnataka Co-operative Societies Act, 1959 was amended whereby the following proviso was inserted with effect from 01.06.2014:-
“Provided that the number of associate and nominal members under clause (a) in any Co-operative Society shall not exceed fifteen percent of the total membership of the society. However, in case of Co-operative societies already having more than 15% of their total membership as associate & nominal members, the excess associate & nominal members shall be either made as member, if eligible under the section 16 or shall be removed from the associate & nominal membership within six months from the date of commencement of the Karnataka Co- operative Societies (Amendment) Act, 2014.”
7.2 As per the above amendment with effect from 01.06.2014, the Co-operative Societies registered under the Karnataka Co- operative Societies Act, 1959 is allowed to do have nominal / associate members up to 15% for its total membership. In the instant case, the assessee has not provided the details sought by the CIT(A), namely, copies of bye-laws, details of investments, details of income derived from non-members, etc. The Hon’ble Apex Court in the case of The Mavilayi Service Co- operative Bank Ltd. & Ors. (supra) had clearly stated that when assessee is accepting deposits and providing credit facilities to non-members, the respective State Coo-operative Act will have application. Since the assessee has not provided the details, in the interest of justice and equity, I am of the view that one more opportunity should be granted to the assessee to provide the Shri Gayatri Pattin Sahakari Sangh Niyamit. same. For the aforesaid reasons, the issues raised in this appeal are restored to the files of the CIT(A). The assessee shall cooperate with the Department and furnish the necessary evidences sought by the CIT(A). It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.