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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.
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 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. 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.
In the result, the appeal is allowed.
Order pronounced in the Open Court on 16th November, 2022.