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Income Tax Appellate Tribunal, PANAJI BENCH, PANAJI – VIRTUAL COURT
Before: SHRI INTURI RAMA RAO
ORDER
PER INTURI RAMA RAO, AM:
This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals), Hubballi [‘the CIT(A)’] dated 26.11.2018 for the assessment year 2012-13.
The appellant raised the following grounds of appeal :-
1. On the facts and circumstances of the case and in law the learned CIT(A) erred in disallowing the deduction u/s 80P(2)(a)(i) of the Act, in respect of income earned from Associate member s/ Nominal members. The CIT(A) erred in not appreciating that — i) the Citizen’s case is distinguishable on facts as in the present case the dealings are with members and there are no dealings with public at large.
2 ii) regular, associate and nominal members are recognised as valid members as per The Karnataka Co-op Societies Act 1959 and as per bye- laws of the society and there is no violation of the governing law. iii) The learned CIT(A) erred in adopting the figure of interest from loans to associate members as Rs.1,23,57,903/- instead of actual amount as per records of Rs.12,14,536/- 2. The learned CIT (A) erred in holding that the interest from deposits with banks is liable to be taxed as income from other sources. The CIT(A) erred in not appreciating that — i) The assessee is in the business of providing credit facilities to its members and interest on deposits arising out of regular activities with members is attributable to the business of providing credit facilities and entitled for deduction u/s 80P(2)(a)(i) of the Act. ii) Totagar’s co-operative Sale Society's case is distinguishable on facts. iii) The learned CIT(A) erred in adopting the figure of interest from loans as Rs.4,40,55,950/- instead of actual amount as per records of Rs.57,07,735/-.
The Appellant craves leave to add, alter, amend or modify any of the grounds of appeal
.”
3. Briefly, the facts of the case are as under : The appellant is a cooperative society formed with object of providing credit facilities to its members. The return of income for the assessment year 2012-13 was filed on 31.03.2014 decaling at Nil income after claiming exemption of Rs.13,87,164/- u/s 80P(2)(a)(i) of the Income Tax Act, 1961 (‘the Act’). Against the said return of income, the assessment was completed by Income Tax Officer, Ward-2, Bagalkot vide order dated 12.03.2015 passed u/s 143(3) at a total income of Rs.13,87,160/- denying the claim for exemption of income u/s 80P(2)(a)(i) by holding that the appellant society is a cooperative bank 3 and, therefore, hit by provisions of sub-section (4) of section 80P of the Act.
Being aggrieved by the order of assessment, an appeal was preferred before the ld. CIT(A), who vide impugned order held that the appellant society is not a cooperative bank but merely a cooperative society engaged in the business of providing credit facilities to its members. However, ld. CIT(A) directed the Assessing Officer to restrict the claim for exemption of income u/s 80P(2)(a)(i) in respect of interest earned on the loans advanced only to the regular members alone.
Being aggrieved by the decision of the ld. CIT(A), the appellant is in appeal before this Tribunal in the present appeal.
It is contended before me that the nominal members are treated as members (regular members) under the provisions of the Karnataka Co- operative Societies Act, 1959 as well as bye-laws of the society and, therefore, it is prayed that the direction of the ld. CIT(A) be reversed.
On the other hand, ld. Sr. DR placed reliance on the order of the ld. CIT(A).
I heard the rival submissions and perused the material on record. The issue in the present appeal relates to the exemption of interest 4 ITA No.09/PAN/2019 earned from nominal members qualifies for exemption under the provisions of section 80P(2)(a)(i) of the Act. The question whether nominal members are treated on par with the members is to be decided with reference to the provisions of State Legislation under which this appellant society was formed and the bye-laws governing the appellant society. I have carefully gone through the orders of the lower authorities and find that the lower authorities had failed to decide the issue with reference to the provisions of the Statute under which the appellant society was formed and the bye-laws of the appellant society. Therefore, I remit the matter to the file of the Assessing Officer to decide the issue whether a nominal member also falls under the category of a “member” as provided in the Karnataka Co-operative Societies Act, 1959 and bye-laws of the society, if so, allow the exemption u/s 80P(2)(a)(i) as held by the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT, 431 ITR 1 (SC). Thus, the matter stands remanded to the file of the Assessing Officer for fresh adjudication in accordance with law. Hence, the grounds of appeal raised by the appellant stand partly allowed for statistical purposes.