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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 18.02.2019. The relevant assessment year is 2016-2017.
2. The solitary issue raised is whether the CIT(A) is justified in confirming the disallowance of claim of deduction made by the Assessing Officer u/s 80P2(a)(i) of the I.T.Act.
The brief facts of the case are as follow: The assessee is a Society registered under the provisions of Karnataka Souharda Sahakari Act, 1997. It is engaged in the business of providing credit facilities to its members. For the assessment year 2016-2017, the return of income was filed on 12.08.2016 declaring gross total income of Rs.34,84,726 and claimed the entire sum as deduction u/s 80P(2)(a)(i) of the I.T.Act. Thus declaring total income as `NIL’. The assessment was completed vide order dated 13.12.2018 u/s 143(3) of the I.T.Act. In the assessment order completed, the Assessing
Sri.Rama Souharda Credit Co-op Ltd. Officer denied 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) of the I.T.Act, the assessee preferred an appeal to the first appellate authority. The first appellate authority confirmed the A.O.’s action in denying the claim of deduction u/s 80P(2) of the I.T.Act. The first appellate authority was of the view that since the assessee is registered under the Karnataka Souharda Sahakari Act, 1997, the same cannot be termed as a Co-operative Society coming within the definition of section 2(19) of the I.T.Act, and hence, deduction u/s 80P(2) cannot be granted. The relevant finding of the CIT(A) reads as follow:-
“5.4 The submissions of the Appellant (incorporated above) and the copy of certificate of registration granted to the assessee were carefully examined. I found that assessee was registered under Karnataka Souharda Sahakari Act, 1997 under the name of M/s.Sri Rama Credit Souharda Sahakari Niyamitha. 5.5 The provisions of Section 80P of the I.T. Act is extracted below for ready reference: [Deduction in respect of income of co-operative society. 80P.(1) Where, in the case of an assessee being a co- operative society the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in –
Sri.Rama Souharda Credit Co-op Ltd. 5.6. The “Co-operative Society” is defined in the I.T.Act, 1961, u/s 2(19) as under: 2(19) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies; 5.7 In the Karnataka Souharda Sahakari Act, 1997, the word co-operative and co-operative societies are defined in clause 2€ and 2(g) which are extracted hereunder for the sake of reference: (e) “Co-operative” means a Co-operative including a Co- operative bank doing the business of banking registered or deemed to be registered under section 5 and which ha the words “Souharda Sahakari” in its name 1[and for the purposes of the Banking Regulation Act, 1949 (Central Act 10 of 1949), the Reserve Bank of India Act, 1934 (Central Act 2 of 1934), the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and the National Bank for Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981)”, it shall be deemed to be a Co-operative Society]1 (g) “Co-operative Society” means a Co-operative society registered under the Karnataka Co-operative Societies Act, 1959 (Karnataka Act 11 of 1959);” 5.8 It is evident from the above that the Appellant is not registered under the Karnataka Co-operative Societies Act, 1959. As per the provisions of section 80P of the Act, deduction can only be allowed to the Co-operative Societies registered under the Karnataka Co-operative Societies Act, 1959. Without a proper registration under Co-operative Societies Act, nobody can claim it to be Co-operative Society registered under the Co- operative Societies Act. In view of the binding Hon’ble jurisdictional ITAT order in the case of M/s.Udaya Souharda Credit Co-operative Ltd., the claim of deduction under section 80P cannot be allowed.”
Aggrieved by the order of the CIT(A), the assessee has preferred this appeal before the Tribunal, raising the following grounds:-
“1. In the facts and circumstances of the case, the Appellate Authority erred in denying the benefit of deduction under Sri.Rama Souharda Credit Co-op Ltd. sec.80P(2) of the Income Tax Act, 1961 on the ground that the Appellant is a Souharda Co-operative. 2. The Appellate Authority erred in not considering the other grounds of Appeal that were urged in the Memorandum of Appeal filed before him.
3. The Assessing Authority erred in applying the decision rendered by the Hon’ble Apex Court in – The Citizen Co-operative Society Ltd. Hyderabad v. ACIT, Circle 9(1), Hyderabad in Civil Appeal No.10245 of 2017 – for denying the benefit of deduction under sec.80P(2) of the I.T.Act.
4. The Assessing Authority grossly erred and failed to consider that the case of the Appellant is covered – (a) as regards the Interest on Investments earned by it, the entire income is attributable to its business income and exempt u/s 80P of the Act as held by the Hon’ble High Court of Karnataka in ITA 307/2014 – Tumkur Grain Merchants Souharda Co- operative Ltd. Tumkur v. ITO, Tumkur. (b) As regards the transactions with Nominal members, the same is also exempt u/s 80P of the Act as held by the Hon’ble High Court of Karnataka in ITA 32/2014 – The Commissioner of Income Tax v. The Karnataka State Co-operative Housing Federanation Ltd. and also by the Hon’ble High Court of Judicature at Madras in TCA No.259/2016 – The Commissioner of Income Tax v. Ammapet Primary Agricultural Co-operative bank Ltd.
5. The Assessing Authority also erred in making an addition of Rs.35,000/- (being the provision for Audit Fees made in the Profit & Loss A/c) to the Business income of the Appellant unmindful of the fact, that the said addition will again qualify for deduction u/s 80P of the Act and will have `Nil’ tax effect.”
The learned Counsel for the assessee submitted that the issue in question is squarely covered by the judgment of the Hon’ble Karnataka High Court in the case of M/s.Swabhimani Souharda Credit Co-operative Ltd. v. Government of India & Ors. in WP No.48414 of 2018 (T-IT) (judgment dated 16th January, 2020).
Sri.Rama Souharda Credit Co-op Ltd. 7. The learned Standing Counsel relied on the orders passed by the Income Tax Authorities.
I have heard the rival submissions and perused the material on record. The sole reason for the first appellate authority to decide the appeal against the assessee was that the assessee was registered under the Karnataka Souharda Sahakari Act, 1997, and therefore, was not a co-operative society within the purview of section 2(19) of the I.T.Act. The Hon’ble Karnataka High Court in the case of M/s.Swabhimani Souharda Credit Co-operative Ltd. (supra) had decided an identical issue and held that the entities registered under the Karnataka Souharda Sahakari Act, 1997, fit into the definite term “Co-operative Society”. The relevant finding the Hon’ble Karnataka High Court reads as follow:-
“In the above circumstances, these writ petitions succeed; a declaration is made to the effect that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co- operative society” as enacted in sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec.80P of the said Act, a Writ of Certiorari issues quashing the impugned notice dated 30.03.2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow.”
9. Similar view has been taken by the Tribunal in the case of Siddartha Pattina Souharda Sahakari Niyamitha v. ITO in (order dated 26.07.2019). The relevant finding of the Tribunal reads as follow:-
Sri.Rama Souharda Credit Co-op Ltd. “6. I have considered the rival submissions. Sec.2(19) defines cooperative societies for the purpose of the Act and the same is as follows: “Definitions.
In this Act, unless the context otherwise requires,— (19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;”
As can be seen from the aforesaid definition of ‘Co-operative society’ under the Act, any co-operative society registered under any other law of any State for registration of co-operative society is also regarded as co- operative society under the Act. Souhardas’ also operate on the principle of co-operation and adopt the principles of co-operation. Cooperative Societies and Co-operatives are all founded on the principle of cooperation.
8. Since the beginning of mankind the concept of ‘co-operation’ has been the foundation for harmonious existence In India, the Co-operative Societies Act 1912 regulated formation, management, winding up and other supervision by the Government etc. This Act became the model for the provincial governments to form their own Cooperative Acts. Post Independence, various state governments framed their own independent Cooperative Acts and the Central Government its Multi-State Cooperative Act. Accordingly, Karnataka State Cooperative Societies Act, 1959 (KSCS Act, 1959) regulates Co-operative societies in the state of Karnataka. A Panchayat, a Cooperative society and a School for every village were considered as the three pillars of the integrated community development. As time passed by, other aspects were included into the Cooperative act thus heralding the resurgence of a new era in cooperative movement. The state and the central governments were investing millions of rupees in the form of shares, grants, subsidy, contributions, government support, etc., but the expected results couldn’t be achieved in cooperative movements. This condition continued almost until early 1980s.
Keeping this in mind, the Central Government setup a committee under the Chairmanship of Shri Ardhanarishwaran, which submitted its report in 1987. It attributed the failure of the cooperative movement to the excessive interference of the governments. It is also true that the unabated party politics in the co-operative movement is also a big hindrance to its progress. Realizing the vital role of the cooperative movement in the progress of the society, the Central Planning Commission set up a committee by appointing Shri Chaudari Brahmaprakash as its head & with a task of drafting a ‘Model Cooperative Act’ which will prevent interference of the governments. This committee, after a detailed study of the Cooperative Acts of various states, drafted a ‘Model Cooperative Act’ in 1991 and Central Government recommended the state governments to adopt this. Accordingly, in 1997 a bill on parallel cooperative act was tabled in the state legislature of Karnataka. Demanding an early approval of this bill by both the houses of Karnataka Legislature, a committee ‘Souharda Samvardhana Samithi’ under the chairmanship of Justice Rama Jois came Sri.Rama Souharda Credit Co-op Ltd. into existence. It was due to the combined efforts of Sahakara Bharathi Karnataka and Souharda Samvardhana Samithi, “The Karnataka Souharda Sahakari Act–1997 (KSSA, 1997)” was passed in the legislature. With the consent of The President of India, it was enforced from January 2001. Preamble to the Act reads thus:- “An Act to provide for recognition, encouragement and voluntary formation of Co-operatives based on self-help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles and matters connected therewith; WHEREAS it is expedient to provide for recognition encouragement and voluntary formation of co-operatives based on self- help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive self-reliant and economic enterprises guided by co-operative principles and for matters connected therewith; BE it enacted by the Karnataka State Legislature in the Forty-eighth Year of Republic of India as follows:- “ 10. The Souharda Cooperatives enjoy functional autonomy in design and implementation of their Business plans, customer service activities, etc., based on the needs of their members. Unlike other forms of cooperatives in India, the interference of State / Central in day-to-day operations of Souharda Cooperatives is almost minimal. \ 11. The above discussion would show that souharda co-operatives are also one form of co-operative societies registered under a law in force in the State of Karnataka for registration of co-operative societies. Therefore the conclusion of the revenue authorities that co-operative societies and co- operatives are different and that co-operative registered as Souharda Sahakari cannot be regarded as co-operative societies is unsustainable. We therefore hold that the Assessee should be allowed deduction u/s.80P(2)(a)(i) of the Act, as the ground on which the same was denied to the Assessee is held to be incorrect. However, the other conditions for allowing deduction u/s. 80P(2)(a)(i) of the Act needs to be examined by the AO. I, therefore, remand the question of allowing deduction u/s. 80P(2)(a)(i) of the Act to the AO, except the issue already decided above.
In the result, appeal by the Assessee is allowed for statistical purposes.”
Since in this case the CIT(A) has decided the appeal against the assessee solely on the basis that the assessee is not a co-operative society because it is registered under the Karnataka Souharda Sahakari Act, 1997, I am of the view that the matter needs to be examined afresh by the CIT(A) with regard to the other grounds raised by the assessee before him. It is ordered accordingly.