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Income Tax Appellate Tribunal, ‘C’ SMC BENCH : BANGALORE
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals have been filed by assessee against order dated 06/01/2020 passed by Ld. CIT (A), Bangalore for assessment years 2015-16 and 2016-17. 2. At the outset Ld. AR submitted that assessee is a co- operative society registered under Karnataka co-operative societies act 1959 and is engaged in the business of providing credit facilities to its members. Assessee during Page 2 of 6 & 283/Bang/2020 S.P Nos.63 & 64/Bang/2020 the years under consideration filed an ill return of income after claiming deduction of Rs. 25, 06, 874/-and 27, 68, 927/-under section 80 P of the act. The return was selected for scrutiny and during assessment proceedings, Ld. AO noticed that principles of new brutality were violated by assessee. Ld. AO thus denied the deduction claimed under section 80 P of the act by following decision of Hon’ble Supreme Court in case of Citizen co-operative society Ltd., reported in (2017)84 taxman.com114. Ld. AO disallowed the entire deduction by observing as under: a) interest income earned out of investment with co- operative banks was treated as income from other sources not eligible for deduction under section 80 P (2) (d) relying on Hon’ble Karnataka High Court decision in case of M/sTotgar’s Co-operative sale Society Ltd dated 16/06/2017. b) The principles of maturity were violated relying on the decision of orderable apex court in case of M/s.Citizen Co-operative society Ltd Hydrabad dated 08/09/2017 3. Aggrieved by addition made by Ld.AO, assessee preferred appeal before Ld.CIT(A).
Ld.CIT(A) observed that, nominal members do not contribute to share capital and pays Rs.50 words admission fee which is credited to P&L account. It was also recorded by Ld.CIT(A) that assessee has 279 nominal members and their not reflected in the balance sheet as members at all. Ld.CIT (A) noted that, loans have been advanced to nominal Page 3 of 6 ITA Nos.282 & 283/Bang/2020 S.P Nos.63 & 64/Bang/2020 members, against which interest has been earned by assessee.
He thus upheld observations by Ld.AO and confirmed the addition made therein.
Aggrieved by orders of Ld.CIT(A), assessee is in appeal before us now.
Ld.AR referred to a chart reproduced by Ld.CIT(A) at page 10 of his order. Ld. A.R. submitted that, there are 3198 regular members and 279 nominal members thus forming less than 10% of the regular members. He submitted that assessee is into credit only to its members whereas in case of Citizen co-operative society Ltd., (Supra) it was a multistate registered society that dealt with nonmembers and advanced loans to general public as well which was in gross violated of bye laws and provisions of the act and as such, exemption under section 80 P was denied. He submitted that, ratio of Hon’ble Supreme Court in case of Citizen Co-operative Society Ltd., (supra), therefore will not be applicable to the facts of the present case. Ld. AR submitted that decision of Hon’ble Karnataka High Court in case of PCIT Vs. Totgars Co-operative Sale Society reported in 395 ITR 611 relied by Ld.CIT(A) is also not applicable to present facts of the case. Ld.AR submitted that, assessee’s facts are more similar with facts in case of Tumkur Co- operative society Ltd., Merchants Souhards Co-operative Society Ltd., reported in 230 Taxman 309 he also submitted that there has been various decisions of this tribunal Page 4 of 6 & 283/Bang/2020 S.P Nos.63 & 64/Bang/2020 wherein the issue has been remanded to Ld.AO for due verification of facts.
On the contrary Ld.Sr.DR submitted that, issue may be remanded to Ld.AO for due verification of facts in the light of decisions of Hon’ble jurisdictional High Court, as well as Hon’ble Apex Court referred to herein.
We have perused submissions advanced by both sides in light of records placed before us.
The grievance of assessee is that, in its case test of mutuality is satisfied however, Ld.CIT(A) did not spell out as to how the said test fails. We are of the view that, such grievance of the assessee would be addressed by setting aside the issue of deduction u/s.80P(2)(a)(i) of the Act to Ld.AO for consideration afresh, with a direction to the Assessee to produce a certificate from RBI that it does not possess license from it for doing banking business and further that business carried on by Assessee is not akin to business of a co-operative bank. Further the first part of Sec.80P(2)(a)(i) allows deduction in respect of income derived by a co- operative Society from business of banking. Even the claim of the Assessee for deduction requires to be examined under the first part of Sec.80P(2)(a)(i) of the Act. Hon'ble Supreme Court in case of Citizen Co- operative Society Ltd. (supra) has also held that, it is also important to ascertain as to what is the nature of income which is claimed as exempt and as to how the principle of mutuality is not violated in respect of such income. An examination of Page 5 of 6 ITA Nos.282 & 283/Bang/2020 S.P Nos.63 & 64/Bang/2020 (i)the memorandum of association, the articles of association, (ii) the byelaws and other documents explaining the rules and regulations of the society is necessary, so as to clearly understand the purpose and the nature of business done by it. An examination of the facts in light of discussion cited by Ld.CIT(A) as well as decision of Hon’ble Karnataka High Court in case of Tumkur (Supra) is to be carried out.
We, therefore, remand the issue back to Ld.AO for re adjudicating it afresh on the basis of above direction.
Accordingly, appeals filed by assessee stands allowed for statistical purposes.
As a result , stay petitions stands infurctuous and dismissed.