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Income Tax Appellate Tribunal, SMC BENCH, PANAJI
Before: SHRI R.S. SYAL
PER R.S. SYAL, VP: This appeal by the assessee is directed against the order passed by the CIT(A), Belgaum on 22-03-2018 in relation to the assessment year 2015-16. 2. The only issue raised in this appeal is against the denial of deduction u/s.80P(2)(a)(i) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in respect of interest earned from credit facilities provided to nominal members.
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Briefly stated, the facts of the case are that the assessee
furnished Nil return after claiming deduction u/s.80P(2) at
Rs.16,23,481/-. The Assessing Officer (AO) observed that the
deduction was claimed under 80P(2)(a)(i), in respect of credit
facilities provided to two types of categories of members, who are
regular and nominal/associate members. He disallowed the claim
of deduction on the ground that credit facilities provided to non-
members were not eligible for deduction. The ld. CIT(A) echoed
the assessment order on this account.
I have heard both the sides and gone through the relevant
material on record. The assessee Co-operative society is admittedly
engaged in carrying on the business of banking and providing
credit facilities. Section 80P(2)(a)(i) provides that in the case of
co-operative society engaged in carrying on the business of
banking or providing credit facilities to its members, the whole of
the amount of profits and gains of business attributable to such
activities shall be deductible in the computation of total income.
The claim of assessee for deduction has been negated by the
authorities below, inter alia, on the ground that it admitted certain
Members, described as ‘Nominal Members’, who were neither
entitled to dividend nor voting rights. It is relevant to note that the
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term ‘Member’ has been defined in clause 18 of the Karnataka Co-
operative Society Act as under:-
“Nominal or Associate Members : Notwithstanding anything contained in section 16, a co-operative society may admit : a) Any individual as a nominal or associate member; b) Any banking company as a nominal member; c) Any firm, company, co-operative society or anybody or corporation constituted by or under any law for the time being in force, as a nominal or associate members; • A nominal member shall not be entitled to any share in any form whatsoever in the assets or profits of the society and a nominal member who is an individual shall not also be entitled to become an office bearer of the society. • An Associate member may hold shares but shall not be entitled to become an office bearer of the society.”
On going through the above definition of ‘Member’, it
becomes overt that the term ‘Member’ also includes a Nominal
Member. Once it is accepted that the assessee, governed by the
Karnataka Act, made advances to certain Nominal Members from
whom interest income was earned, there can be no doubt
whatsoever that the deduction u/s 80P(2)(a)(i) has to be allowed.
The Department has heavily relied on the judgment of Hon'ble
Supreme Court in the case of Citizen Co-operative Society Ltd. vs.
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ACIT (supra). That was a case in which Andhra Pradesh Mutually
Aided Co-operative Society Act, 1995 was under consideration,
which did not admit `Nominal Member’ within the ambit of the
term ‘Member’. Recently, the Hon'ble Supreme Court in Mavilayi
Service Co-Operative Bank Ltd. vs. CIT (2021) 123 taxmann.com
161 (SC) considered its earlier judgment in Citizen Co-operative
Society Ltd. vs. ACIT (supra) vide para 46 of its order. Taking
note of the fact that the Citizen Co-operative Society Ltd. vs. ACIT
(supra) judgment dealt with the Andhra Act wherein the term
‘Member’ did not include Nominal Member, the Hon'ble Supreme
Court in Mavilayi Service (supra) held that the interest on loans
given to Nominal Members under the Kerala Act was eligible u/s
80P(2)(a)(i) of the Act as the term ‘Member’ under the Kerala Act
included ‘Nominal Members’. In view of the foregoing
discussion, it is evident that when the loans are given to Nominal
Members and the relevant State Act includes, ‘Nominal Member’
within the purview of ‘Member’, there can be no question of
denial of benefit u/s 80P(2)(a)(i). In view of the above discussion, I
overturn the impugned order on this score and direct to allow the
deduction.
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In the result, the appeal is allowed.
Order pronounced in the Open Court on 16th November, 2022.
Sd/- (R.S.SYAL) VICE PRESIDENT पुणे Pune; �दनांक Dated : 16th November, 2022 Satish
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A) concerned 4. The Pr.CIT concerned िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, 5. Panaji / DR, Panaji गाड� फाईल / Guard file 6.
आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
6 ITA No. 194/PAN/2019
Date 1. Draft dictated on 15-11-2022 Sr.PS 2. Draft placed before author 16-11-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *