KUVEMPU CO OPERATIVE CREDIT SOCIETY ,BANGALORE vs. INCOME TAX OFFICER, WARD-2(2)(2) , BANGALORE

This appeal at the instance of the assessee is directed against the order of CIT(A), passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2020-21.

The solitary issue that is raised is whether CIT(A) is justified in confirming the Assessment Order wherein the claim of deduction under section 80P(2)(a)(i) of the Act, amounting to Rs.2,05,53,500/- was denied.

Brief facts of the case are as follows:

Aggrieved by the Order of the AO denying the claim of deduction under section 80P(2)(a)(i) of the Act, assessee preferred appeal before the First Appellate Authority (FAA). The CIT(A) confirmed the view taken by the AO. The relevant finding of the CIT(A) reads as follows:

Aggrieved by the above order of the CIT(A), assessee has filed the present appeal before the Tribunal. The learned AR submitted that section 18 of the Karnataka Co-operative Societies Act, 1959, permits the assessee to have nominal / associate members upto 15% of regular members. It was submitted by the assessee that associate / nominal members are within 15% of the total members for the relevant Assessment Year. In this context, the learned AR had referred to the audit report detailing the total number of members and the associate / nominal members. The learned AR, relying on the judgment of the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., & Ors. Vs. CIT reported in 431 ITR 1, submitted that even assuming that associate / nominal members exceeded 15% of the total membership, assessee ought to be provided with proportionate deduction under section 80P(2)(a)(i) of the Act, for its dealing with its regular members.

The learned DR supported the orders of the Income Tax authorities.

We have heard the rival submissions and perused the material on record. The Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., & Ors. Vs. CIT (supra) had held that expression of the word “members”, since it is not defined under the Income Tax Act, 1961, must be considered in the context of the law enacted by the state legislature under which the Co-operative Society claiming exemption under section 80P of the Act has been instituted. Therefore, it is necessary to consider the expression “member” in light of the definition as contained in section 18 of the Karnataka Co-operative Societies Act, 1959. The aforesaid section permits the Co-operative Societies registered under the Karnataka Co-operative Societies Act, 1959 to have nominal / associate members upto 15% of the total regular membership (subsequent to the amendment to section 18 w.e.f. 06.09.2014). Moreover, the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., & Ors. Vs. CIT (supra) had categorically held that assessee is entitled to proportionate deduction under section 80P of the Act, in respect of the profits it has derived from the regular members. The dictum laid down by the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., & Ors. Vs. CIT (supra) has not been considered by the AO nor the CIT(A). Therefore, in the interest of justice and equity, we are of the view that the matter needs to be restored to the files of the AO. The AO is directed to grant deduction under section 80P(2)(a)(i) of the Act, in respect of profits derived by the assessee on the dealings it had with regular members. It is ordered accordingly.

In the result, appeal filed by the assessee is allowed for statistical purposes.