Loading judgment…
No AI summary yet for this case.
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), Mangaluru on 30-03-2019 in relation to the assessment year 2016-17. 2. The assessee is aggrieved by the confirmation of disallowance of deduction u/s.80P(2) of the Act. 3. Briefly stated, the facts of the case are that the assessee furnished Nil return after claiming deduction u/s.80P(2) at Rs.38,44,644/-. The Assessing Officer (AO) discussed the issue of deduction in two parts, namely, in relation to advances to
Gopalakrishna Co.op. Society Ltd., nominal members and interest from investments made with various cooperative societies and cooperative banks and refused the deduction. The ld. CIT(A) affirmed the disallowance, against which the assessee has come up in appeal before the Tribunal.
I have heard both the sides and gone through the relevant material on record. The assessee Co-operative society is admittedly engaged in providing financial accommodation/ credit facilities to its members and collected the funds from its members. 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:-
Gopalakrishna Co.op. Society Ltd.,
“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 Gopalakrishna Co.op. Society Ltd., 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.
The second issue is the denial of the deduction on interest from investments made with various cooperative societies and Gopalakrishna Co.op. Society Ltd., cooperative banks. This issue is no more res integra in view of the catena of decisions delivered by the Pune Benches. The Pune Bench in Rena Sahakari Sakhar Karkhana Ltd. Vs. Pr.CIT (ITA No.1249/PUN/2018) has, vide its order dated 07-01-2022, held that though co-operative banks, other than primary agricultural credit society or a primary co-operative agricultural and rural development bank, are not eligible for deduction pursuant to insertion of section 80P(4) w.e.f. 1.4.2007, but this provision does not dent the otherwise eligibility u/s 80P(2)(d) of the Act of a co-operative society on interest income on investments/deposits parked with a co-operative bank, which is a registered co-operative society as per section 2(19) of the Act, defining co-operative society to mean a co-operative society registered under the Co-operative Societies Act, 1912 or under any law for the time being in force. The assessee is also a Co- operative society registered. Ergo, respectfully following the decision of the Division Bench, I overturn the impugned order and direct to grant deduction u/s.80P(2)(d) of the Act on the amount of interest earned from Co-operative Banks.
Gopalakrishna Co.op. Society Ltd.,
In the result, the appeal is allowed. Order pronounced in the Open Court on 16th November, 2022.