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Income Tax Appellate Tribunal, BANGALORE BENCHES “B” , BANGALORE
Before: Shri Chandra Poojari, AM & Smt.Beena Pillai, JM
O R D E R
Per Chandra Poojari, AM :
This appeal filed by the assessee is directed against the order of the CIT(A), dated 23.08.2019. The relevant assessment year is 2016-2017.
2. The assessee has raised the following grounds:- “
1. That the impugned order is opposed to facts and law in so far as it is prejudicial to the interests of the Appellant.
2. That the ld.CIT(A) erred in confirming the order of AO and denying the deduction under section 80P(2), and in doing so: (a) He failed to appreciate that the business of the Appellant consists entirely of extending credit facilities to its members as given under section 80P(2). (b) He failed to appreciate that co-operative society defined under section 2(19) of the Income Tax Act also includes entities registered under “Karnataka Souharda Sahakari Act, 1997” inasmuch as they also operate and adopt the principle of co- operation as required under the Act.
M/s.Saptagiri Pattina Souharda Sahakari Niyamitha.
(c) He misdirected himself in not following the decision of the jurisdictional ITAT in case of Siddartha Patina Souharda Sahakari Niyamitha (ITA No.1234/ Bang/2019) and failed to appreciate that the said decision was given after considering all other decisions on the subject and it currently hold the filed on the eligibility of Souhardas for claiming benefit under section 80P of the Income Tax Act.”
Briefly stated the facts of the case are that the assessee is a Souharda Co-operative registered under The Karnataka Souharda Sahakari Act, 1997 and provides credit facilities to its members. The assessment order u/s 143(3) of the I.T.Act for assessment year 2016-2017 was passed on 17.12.2018 raising a demand of Rs.23,45,495 with total addition of Rs.54,18,036. The assessee has claimed deduction u/s 80P of the I.T.Act, which was disallowed by the Assessing Officer by observing as under:-
“4.1 The AO during the course of scrutiny proceedings has observed that he claimed a deduction ofRs.54,lB,036/- u/s 80P(2).According to the AO, the benefit of deduction u/s.80P(2)(a)(i) of the Act was available only to a co- operative society and since the Assessee is only a Souharda Sahaks registered under the Karnataka Souharda Sahakari Act, 1997 and sinnce under the said Act, Co-operative Societies are not being registered, the Assessee should not be allowed the benefit of deduction u/s.80P(2)(a)(i) the Act. According to the AO, Cooperative and Co-operative Societies are different entities. If the cooperative wants to convert itself into a co- operative society, it has to be converted as per the amended provisions Karnataka Souharda Sahakari Act,1997 as amended by Act 13/2004. Similarly, under the Karnataka Cooperative Societies Act, 1959 'Co-operative' has been defined according to which the co-operative means co-operative registered under the Karnataka Souharda Sahakari Act 1997. The AO has made reference to the fact that under the Karnataka Souharda Sahakari Act, 1997 the word co-operative has been defined clause 2(e) according to which cooperative means a Co-operative including a co-operative bank doing the business of banking registered or deemed be registered under M/s.Saptagiri Pattina Souharda Sahakari Niyamitha. section 5 and which has the word Souharda Sahakari in its name. In Souharda Sahakari Act, the word co-operative society also been defined in clause 2(g), according to which the co-operative society means a cooperative society registered under the Karnataka Co-operative Societies Act, 1959. Thus, according to the AO, if both the Act are read jointly, it would be very clear that the co-operative and co-operative Societies are two different entities. The benefit of deduction cs only be given to the cooperative societies and not to the co- operative. Therefore, the assessee is not eligible to claim deduction under section 80P(2) of the Act.”
The CIT(A) confirmed this view taken by the Assessing Officer by observing that a co-operative society, which is registered under the Karnataka Co-operative Societies Act, 1959 is only entitled to claim deduction u/s 80P(2) and no other society is entitled to claim such deduction. Accordingly, he confirmed the order of the A.O.
Against the same, the assessee is in appeal before us. The learned AR strongly placed reliance on the judgment of the Hon’ble Karnataka High Court in th case of M/s.Swabhimani Souharda Credit Co-operative Ltd. & Ors. v. Government of India & Ors. in Writ Petition No.48414 of 2018 (T-IT) dated 16th January, 2020, wherein the following question was considered by the Hon’ble High Court of Karnataka :-
Whether an entity registered under the Karnataka Souharda Sahakari Act, 1997 fits into the definition of “co-operative society as enacted by sec. 2(19) of the Income Tax Act, 1961 for the purpose of section 80P thereof?”
4.1 The Hon’ble High Court answered the above question as follows:-
M/s.Saptagiri Pattina Souharda Sahakari Niyamitha.
5. Having heard the learned counsel for the parties and having perused the petition papers, this Court is of a considered' opinion that the answer to the above question needs to be in the affirmative for the following reasons: (a) sec.80P of the I.T. Act provides for deduction in respect of income of Co-operative Societies is obvious going by its' very text; sub-section (1) of said section reads as under: “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.
The other provisions of this section being not of much relevance to the question being treated, are not reproduced, although they too have been looked into. Sec. 2( 19) which finds a place in the Dictionary Clause of the 1961 Act reads as under: '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;' The provisions of sec. 80P are enacted by the Parliament for promoting the co-operative movement in the Country in tune with what Father of the Nation Mahatma Gandhi preached to the countrymen; this Section needs to be liberally construed ' to effectuate the legislative object of encouraging & promoting the growth of co-operative movement vide Kanga: & Palkhivala's The Law and Practice of Income Tax, 10th Edition, LexixNexis at page 1956; 'it is more so because the right to form a co-operative society itself is made a Fundamental Right, now enshrining in Article 19( 1 )(i) by virtue of 97th Amendment to the Constitution of India w.e.f. 15.10.2013;
(b) the object of enacting sec.80P of the 1961 Act may be defeated if a restrictive meaning is assigned to the definition of "co-operative society" as given u/s.2(19) inasmuch as the invokability of the provisions of sec.80P is dependent upon the entity seeking the benefit thereunder being a co-operative
M/s.Saptagiri Pattina Souharda Sahakari Niyamitha. society; going by the text and context of these provisions, one can safely conclude that all entities that are registered under the enactments relating to co-operative societies, regardless of their varying nomenclatures need to be treated as co-operative societies; this view accords with the purposive construction of sec.80P r/w sec.2(19) of the 1961 Act; (c) in the State of Karnataka, there have been two statutes enacted by the State Legislature' that relate to registration & regulation of co-operative societies viz., the Karnataka Co- operative Societies Act, 1959 ie., Karnataka Act No. 1-1 of 1959 and the Karnataka Souharda Sahakari Act, 1997 ie., Karnataka Act Nu.17 of 2000; both these Acts are enacted pursuant to Article 246(3) r/w Entry 32, List-II of Schedule VII of the Constitution of India; there is no other Entry to which this Act is relatable; the Legislative Entries being only the fields of legislation need to be very broadly interpreted, is the settled position of constitutional jurisprudence vide UJAGAR PRINTS, ETC. vs. UNION OF INDIA, AIR 1989 SC 516; Chapter X of 1997 Act containing sec.67 enacts important co-operative principles that animate and brood through almost all the provisions of this Act;
(d) the Karnataka Souharda Sahakari Bill, 1997 has the following as the Statement of Objects & Reasons: «1. the recognition, encouragement and voluntary formation of co-operatives based on self help, mutual aid, wholly owned, manaqed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles specified therein; 2. removing all kinds of restrictions that have come to clog the free-functioninq of the co-operatives and the controls and interference by the Government except registration and cancellation; 3. promotion of subsidiary orqanization, partnership between co-operatives and also collaboration between co-operatives and other institutions; 4. registration of' co-operatives, union co-operatives and Federal Co-operative in furtherance of the objectives specified above; 5. Conversion of co-operative societies registered under the Karnataka Co-operative Societies Act, 1959 as a co-operative
M/s.Saptagiri Pattina Souharda Sahakari Niyamitha. under the proposed legislation. Hence the Bill."
(e) the preamble to the 1959 Act reads as under: '((Whereas it is expedient (to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies) in the State of Karnataka; Be it enacted by the Karnataka State Legislature in the Tenth Year of the Republic of India as follows-“ Similarly, the preamble to the 1997 Act reads as follows: «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-". A perusal of these two preambles and various provisions of these two Acts leads one to an irresistible conclusion that both these Acts are cognate statutes that deal with co-operative societies, regardless of some difference in their nomenclature and functionality, the subject matter being the same; (e) the word 'co-operative' is defined by sec.2(d-2) of 1959 Act as under: "2 (d-2): `Co-operative' means a Co-operative registered under the Karnataka Souharda Sahakari Act, 1997 (Karnataka Act 17 of 2000), and includes the Union Co-operative and the Federal Co-operative" Similarly, the word 'co-operative' is defined by Sec. '2(e) of 1997 Act as follows: “2(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 has the words 'Souharda Sahakari' in its name (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),
M/s.Saptagiri Pattina Souharda Sahakari Niyamitha. 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". A close examination of these two definitions shows that they have abundant proximity with each other in terms of content and contours; it hardly needs to be stated that in both these definitions the word (co-operative' is employed not as an adjective but as a noun; the definition of other relative concepts in. the dictionary clauses of these Acts strengthens this view: this apart, sec.7 of the 1997 Act provides that the entity registered as a 'co-operative' shall be a body corporate, notwithstanding the conspicuous absence of the word 'society' as a postfix; sec.9 of the 1959 Act makes the entity once registered u/s.8 thereof a body corporate; both the entities have perpetual succession by operation of law; thus on registration be it under the 1959 Act or the 1997 Act, a legal personality is donned by them, so that inter alia they can own and possess the property;
(f) the employment of the word "Sahakari" in the very title of the 1997 Act is also not sans any significance; Kannada which means 'co-operation'; as already mentioned above both the 1959 Act and the 1997 Act employ this terminology; the 1997 Act is woven with the principles of co-operation; sec.4 of this Act bars registration of an entity unless its main objects are to serve the interest of the members in the area of co-operation and its bye-laws provide for economic and social. betterment of its members through self-help and mutual in accordance with the co-operative principles; this apart, even sub-section (2) of sec.4 is heavily loaded with co-operative substance. 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 other legal consequences accordingly do follow. It is needless to mention that the other provisions of sec.80P of 1961 Act and their effect on the claim of the petitioner-like- societies have been left to be addressed by the concerned authorities.”
M/s.Saptagiri Pattina Souharda Sahakari Niyamitha.
The learned Departmental Representative, on the other hand, strongly opposed the granting of section 80P of the Act. The learned DR also submitted that the assessee has relied on the judgment of the Hon’ble Karnataka High Court dated 16.01.2020 (supra), however, the Hon’ble Court quoted in the last paragraph as “It is needless to mention that the other provisions of section 80P of 1961 Act and their effect on the claim of the petitioner-like-societies have been left to be addressed by the concerned authorities.” The learned DR submitted that keeping in view the above finding of Hon’ble Karnataka High Court, the matter may kindly be set aside and restored back to the file of the Assessing Officer for fresh assessment as per the provisions of section 80P of the I.T.Act, 1961, in the light of the decision of the Hon’ble Apex Court in the case of The Citizen Co-operative Society Limited and the decision of Hon’ble Karnataka High Court and Hon’ble Apex Court in the case of Totgars Co-operative Sale Society.
We have heard the rival submissions and perused the material on record. In view of the latest judgment of the Hon’ble jurisdictional High Court in the case of M/s.Swabhimani Souharda Credit Co-operative Ltd. & Ors. v. Government of India & Ors. in Writ Petition No.48414 of 2018 (T-IT) dated 16th January, 2020, wherein held that 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 M/s.Saptagiri Pattina Souharda Sahakari Niyamitha.
sec.80P of the said Act. Hence, we are inclined to hold that the assessee is entitled for deduction u/s 80P of the I.T.Act. Accordingly, the appeal filed by the assessee on this issue is allowed.
In the result, the appeal filed by the assessee is allowed.