SHRI GOPALKRISHNA CO-OPERATIVE CREDIT SOCIETY LIMITED,BHATKAL vs. INCOME TAX OFFICER, WARD - 1, KARWAR

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

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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.

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:-

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“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.”

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

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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.

from investments made with various cooperative societies and

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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.

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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

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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. *