M/S. KANAKADAS PATTIN SAHAKARI SANGH NIYAMIT,BAGALKOT vs. INCOME TAX OFFICER, WARD - 1, BAGALKOT

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ITA 1187/BANG/2019Status: DisposedITAT Bangalore23 December 2019AY 2015-165 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee society had a high percentage of associate members, violating the Karnataka Co-operative Societies Act. Consequently, the Supreme Court's decision in Citizen Co-operative Society became applicable, disallowing the deduction under Section 80P.

What were the facts?

The assessee, a cooperative society, claimed deduction under Section 80P(2)(a)(i). The CIT(A) rejected the claim, relying on the Supreme Court judgment in Citizen Co-operative Society. The assessee argued that the facts of its case were different from the Citizen Society case, particularly regarding the nature of its members and activities.

What were the issues?

Whether the assessee society is eligible for deduction under Section 80P(2)(a)(i) when it has a high percentage of associate members, violating the Karnataka Co-operative Societies Act, and if the Citizen Co-operative Society judgment is applicable.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “SMC-A” BENCH : BANGALORE

Before: SHRI A. K. GARODIA

For Appellant: Shri. Jeevan Kishore P, Advocate
For Respondent: Shri. Ganesh G. R, Standing Counsel
Hearing: 20.11.2019Pronounced: 23.12.2019

Assessment year : 2015-16 M/s. Kanakadas Pattin Sahakari Sangh The Income Tax Officer, Niyamit, Ward – 1, Opp. Tahasildar Office, Vs. Bagalkot. Post : Badami, Dt.Bagalkot. PAN : AABAK 7154 M APPELLANT RESPONDENT Assessee by : Shri. Jeevan Kishore P, Advocate Revenue by : Shri. Ganesh G. R, Standing Counsel Date of hearing : 20.11.2019 Date of Pronouncement : 23.12.2019 O R D E R This appeal is filed by the assessee and the same is directed against the order of learned CIT(A), Belgaum, dated 31.03.2019, for Assessment Year 2015-16. The ground raised by the assessee in this appeal are as under:-

The Ld. Commissioner of Income Tax (Appeals) erred in law 1. as well as on facts in rejecting the genuine claim of the appellant in respect of deduction u/s 80P(2)(a)(i) to the extent of Rs.9,22,753.00.00 as claimed by the appellant. The appellant prays for grant of the deduction as claimed. The Ld. Commissioner of Income Tax (Appeals) erred in law 2. as well as on facts in applying the Judgment of Hon. Supreme Court of India in the case of Citizen Co —Operative Society, Hyderabad. As the facts of Citizen society & the assessee society is totally different. Difference in facts of the case are as under : Citizen Society is basically registered under Andhra i. Pradesh Mutually Aided Co — Operative Societies Act, 1995 & subsequently registered under Multi State Co — Operative Societies Act, 2002. But the provisions of Page 2 of 5 APMACS Act is applied, while passing an order. Whereas our society is registered under Karnataka Co — Operative Societies act, 1959. Therefore this judgment is not applicable to our society case. Sec 2(f) of the KCS Act, 1959, 'member' means a person ii. joining in the application for the registration of a co — operative society and a person admitted to membership after such registration in accordance with this Act, the rules and the bye laws and includes a nominal and an associate member. Whereas Sec 2(p) of APMACS Act, 1995 'member means a member of a co —operative society. This Act does not say member includes a nominal and associate member. Therefore, any member other than regular member is a non-member. But here in KCS Act, it includes nominal and associate members. iii. Para 15(iii) & (iv) of Supreme Court judgment, second category of persons is neither members nor nominal/associate members. That means deposits are accepted from non — members. Where as in our case deposits are accepted from members of the society. Therefore this case is not applicable. iv. Para 15 (v) & (vi) of Supreme Court judgment, the assessee accepts deposits mostly from the second category these deposits are mostly kept in FDs. Investment with banks to earn maximum returns, a portion of these deposits are utilized to advance gold loans etc. to members of the first category. It means majority of the deposits accepted from non-members and invested in other banks with an intention to earn the interest income. A portion of deposits which are accepted from non-members are used to advance the gold loan to members. Whereas our society has accepted the deposits from members and used to advance the loans to members and portion of deposit is kept in banks & societies. Para 15 (ix) of Supreme Court judgment, the assessee v. society is engaged in the activity of granting loans to general public. Where as in our society, we have sanctioned the loans to members only. As per the KCS Act, to obtain the loan, a person shall be a member of Page 3 of 5 the society. Therefore our society has complied the KCS Act. This judgment is not applicable as loans are not sanctioned to other than members. vi. Para 15(xi) of the judgment, the society both in form and substance, the activity is in violation of the Co operative Societies Act and co operative society rules. Where as our society has complied both the KCS Act & Rules. Para 16 of the judgment, that provisions of Section 80P(2)(a)(i) were grossly violated as the appellant society was found not dealing with its members only but also with general public as well. On that basis, further submission of AR of Dept. was that the principle of mutuality was missing in this case. Where as in our case the Principle of Mutuality is very much exist. Therefore this case is not applicable. vii. Para 18 of the judgment, that Section 80P of the Act is a benevolent provision which is enacted by the Parliament in order to encourage and promote growth of co — operative sector in the economic life of the country. It was done pursuant to declared policy of the Government. Therefore, such a provision has to be read liberally, reasonably and in favour of the assessee (Bajaj Tempo Limited, Bombay Vs. CIT, Bombay City —III, Bombay) Supreme Court judgment. It is also treat that such a provision has to be construed as to effectuate the object of the Legislature and not to defeat it (CIT, Bombay & Ors Vs Mahindra and Mahindra Limited & Ors) Supreme Court judgment. Therefore the same may be applied in our case by considering the main objects & substance of the activities done by the society. ix. Para 27 of the judgment, the appellant cannot be treated as a co — operative society meant only for its members and providing credit facilities to its members. Where as our society has accepted the deposits from members & loans given to members only. Therefore in totality this judgment of Hon. Supreme Court of India is not applicable to our society as the facts & objectives of the society are completely different. On plain reading of the Citizen society judgment, the society is running to earn the profit & not to pay the Page 4 of 5 income tax by taking the shelter under the Income Tax Act through Section 80P(2)(a)(i). Where as our society's main objective is to promote the savings among the members & uplift the financial condition of members by granting the loans on their need basis. The Ld. Commissioner of Income Tax (Appeals) erred in 3. law and on facts in not following the Hon'ble High Court of Karnataka, Dharwad Bench in the case of Tumkur Merchants Souharda Credit Co — Operative Ltd V/s ITO and Guttugedarara Credit Co — Operative Society Ltd., Vs. ITO. The High Court of Karnataka is the jurisdictional high court to the Ld. CIT (Appeal). The Assessee society has made deposits with BDCC Bank & others as a short term deposit. These deposits are made up out of idle funds which are society. Each of the above grounds is without prejudice to one 4. another and the appellant deposit. Therefore investment is attributable to the main activity of the assessee required for lending purpose. As & when the society requires money, it withdraws the craves leave to add, delete, amend or otherwise modify or withdraw one or more of the above grounds either before or at the time of hearing of this appeal.

2.

The learned AR of the assessee made various arguments but at this juncture, it was pointed out by the Bench that it is noted by learned CIT(A) in para 8.2 of his order that the assessee company was having 91.06% nominal / associate members and this is the finding of the learned CIT(A) that as per the provisions of as Karnataka Co-operative Societies Act, there is a limit of 15% of associate members of the total members of the society. The Bench also pointed out that the learned CIT(A) has followed the decision rendered in the case of Citizen Co-operative Society Ltd., Vs. ACIT reported in 391 ITR 1. The Bench wanted to know as to whether any of the findings of the CIT(A) is incorrect. In reply, learned AR of the assessee had nothing to say. As against this, the learned DR of the Revenue supported the order of the CIT(A) and reliance was placed by him on the Tribunal order in M/s. Athmashakthi Multipurpose Co-operative Society Ltd., Vs. ITO in & 1221/Bang/2019 dated 18.10.2019. He submitted a copy of this Tribunal Page 5 of 5 order and pointed out that in this case, the Tribunal held that where the assessee society is having more than 15% Associated Members, there is a violation of the provisions of Karnataka Co-operative Societies Act, 1959 and in that situation, the judgment by Hon’ble Apex Court rendered in the case of Citizen Co-operative Society Ltd., (supra) becomes applicable and the assessee is not eligible for deduction under section 80P of the Income Tax Act, 1961.

3.

I have considered the rival submissions and in view of the facts discussed above, I decide the issue against the assessee by following the tribunal order rendered in the case of M/s. Athmashakthi Multipurpose Co- operative Society Ltd., (supra) and in turn, the judgment of Hon’ble Apex Court in the case of Citizen Co-operative Society Ltd., (supra).

4.

In the result, the appeal of the assessee is dismissed.

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