JANAKHANDI TALUKA SHREE PARSHWANATH ALPASAN KYATAR PATTINA SAHAKARI SANGHA NIYAMITHA ,BAGALKOT vs. INCOME TAX OFFICER WARD-2 , BAGALKOT

O R D E R PER A. K. GARODIA, A.M.: This appeal is filed by the assessee and it is directed against the order of CIT (A) – Belgaum dated 24.08.2018 for A. Y. 2015 – 16. 2. The grounds raised by the assessee are as under:- “1. The learned Commissioner of Income Tax (Appeals),Belgaum has erred in upholding the learned Assessing Officer order disallowing the appellant's claim u/s 80P(2)(a)(i) of the Income Tax Act 1961 which is opposed to law and facts of the case.

2. The learned Commissioner of Income Tax (Appeals), Belgaum has erred in applying Citizen Coop Society Ltd, Hyderabad (SC) case which facts are different than that of the appellant wherein there are no loans to general public but only to members eligible under the state Act.

3. The learned Commissioner of Income Tax (Appeals) erred in bringing new dimension to the meaning of "member" by drawing distinction between General members, Associate members and Nominal members which the Income Tax Act ,1961 does not. The appellants draw support from The Jalagaon District Central Cooperative Bank Ltd & Anr Vs Union of India & Ors (2004) 265 ITR 423 (Born)

5. The appellants craves leave to add/alter any of the grounds of appeal

on or before the date of final hearing.”

3. Learned AR of the assessee submitted that the AO and CIT (A) had applied the judgment of Hon’ble Apex Court rendered in the case of Citizen Co-Operative Society limited vs. ACIT, 397 ITR 1 without comparing the facts of that case with the facts of the present case. He also submitted that there is a The Karnataka Co – Operative Societies (Amendment) Act, 2014 effective from 06.09.2014 and he pointed out that as per this, section 18 of The Karnataka Co – Operative Societies, 1959 was amended and this section deals with Nominal & Associate Members. He also submitted that as per this amendment, there is a cap of 15% for Associate members and foe excess of such members, it is prescribed that either those associate members should be made regular members or shall be removed within 6 months. He also submitted that the amended provisions of section 18 of The Karnataka Co – Operative Societies, 1959 can be given effect to in next year only. Learned DR of the revenue supported the orders of the lower authorities and placed reliance on the judgment of Hon’ble Apex Court rendered in the case of Citizen Co- Operative Society limited vs. ACIT (Supra).

4. I have considered the rival submissions and I find that Para 25 of this judgment of Hon’ble Apex Court rendered in the case of Citizen Co- Operative Society limited vs. ACIT (Supra) is relevant and therefore, the same is reproduced herein below:-

“25. So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P of the Act is not sub-section (4) thereof. What has been noticed by the Assessing Officer, after discussing in detail the activities of the appellant, is that the activities of the appellant are in violations of the provisions of the MACSA under which it is formed. It is pointed out by the Assessing Officer that the assessee is catering to two distinct categories of people. The first category is that of resident members or ordinary members. There may not be any difficulty as far as this category is concerned. However, the assessee had carved out another category of ‘nominal members’. These are those members who are making deposits with the assessee for the purpose of obtaining loans, etc. and, in fact, they are not members in real sense. Most of the business of the appellant was with this second category of persons who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a co-operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act.”

Order pronounced in the open court on the date mentioned on the caption page.