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Facts
The assessee, a co-operative credit society, claimed deduction under Section 80P(2)(a)(i) for income earned from associate members. The Assessing Officer denied the deduction, holding that the principle of mutuality does not apply as income was earned from both members and non-members. This was upheld by the CIT(A).
Held
The Tribunal noted that the NFAC had not considered relevant Supreme Court decisions. The Tribunal also observed that the Supreme Court, in a subsequent decision, analyzed the applicability of Section 80P(2)(d) for interest income from deposits. Therefore, the Tribunal remanded the case back to the NFAC/CIT(A).
Key Issues
Whether the assessee is eligible for deduction under Section 80P(2)(a)(i) for income earned from associate members, and whether the NFAC/CIT(A) correctly considered relevant Supreme Court judgments.
Sections Cited
80P(2)(a)(i), 80P(2)(d), 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC-‘B’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
Page 2 of PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order passed by the NFAC, Delhi dated 12.09.2023 for A.Y. 2020-21 on following grounds of appeal: “1. The Ld. Commissioner of Income Tax (Appeals) erred in law as well as on facts in rejecting the genuine claim of deduction of the appellant in respect of income earned from Associate Members u/s 80P(2)(a)(i) to the extent of Rs.17,50,465.00 as claimed by the appellant. The appellant prays for grant of the deduction as claimed.
2. The Ld. CIT Appeal has held that "category of member" is vital for allowing the claim of deduction u/s 80P. Plain reading of the provisions of S.80 P shows that it simply refers to "members". It does not make any bifurcation of members. When the statute does not differentiate between different categories of members, for allowing or otherwise of claim of deduction u/s 80P(2)(a)(i), it is not within the powers of AO to make such bifurcation and disallow the deduction claimed u/s 80P.
3. The CIT(A) erred in not applying the ratio of the decision of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Co Operative Ltd., Vs ITO W(1) Tumkur & Lalitamba Pattin Souharda Sahakari Niyamit Vs ITO W(1) Gadag
4. The CIT(A) erred in holding that charging of interest under sections 234B and 234C is consequential in nature and mandatory,
5. Each of the above grounds is without prejudice to one another and the appellant 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. Brief facts of the case are as under: 2.1 The assessee is a co-operative credit society and is engaged in the activity of accepting deposits and providing credit facilities to its members and making investments.
Page 3 of 2.2 The Ld.AO observed that, the assessee is providing credit facilities to regular members, as well as nominal/Associate members, and has earned interest income from them. The Ld.AO denied the deduction claimed by the assessee u/s. 80P(2)(a)(i)/80P(2)(d) by holding that, the principle of mutuality does not exist, as the interest income has been earned by the assessee by providing credit facility to its both members and non- members. The Ld.AO thus relying on the decision of Hon’ble Supreme Court in case of Citizen Co-operative Society Ltd. reported in (2017) 397 ITR 1 disallowed the deduction claimed by the assessee u/s. 80P(2)(a)(i) amounting to Rs. 17,50,465/-.
2.3 Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A).
2.4 Before the Ld.CIT(A), the assessee relied on various decisions including the decision of Hon’ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT reported in 431 ITR 1, however disallowed the claim of assessee by upholding the observations of the Ld.AO.
2.5 Aggrieved by the order of the Ld.CIT(A) / NFAC, the assessee is in appeal before this Tribunal.
The Ld.AR submitted that the NFAC did not consider the decisions of Hon’ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT reported in 431 ITR 1 and various other decisions which has been passed subsequent to the Page 4 of Hon’ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. in Civil Appeal Nos. 10069 of 2016 dated 14.09.2023. He therefore submitted that the issue needs to be readjudicated based on the observations of Hon’ble Supreme Court in the above referred cases.
3.1 On the contrary, the Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us.
Coming to the merits of the case, as rightly submitted by the Ld.AR that the directions of Hon’ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra) is not considered by the NFAC insofar as the deduction u/s. 80P(2)(a)(i) is concerned. Further in a subsequent decision of Hon’ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. (supra), Hon’ble Supreme Court analysed applicability of section 80P(2)(d) deduction to an assessee in great detail regarding the interest / dividend income earned from deposits. The NFAC / Ld.CIT(A) is directed to consider the claims by the assessee in the light of the aforestated decisions by Hon’ble Supreme Court. In the interest of justice, we remand these appeals back to NFAC / Ld.CIT(A) for readjudication on merits. The Ld.AR is directed to fill all relevant
Page 5 of NFAC / Ld.CIT(A) and the NFAC/Ld.CIT(A) shall pass a detailed order on merits. In the result, the appeal filed by the assessee stands allowed for statistical purposes. Order pronounced in the open court on 22nd March, 2024.