2019 (5) TMI 1654 - AT - Income Tax

Deduction u/s 80P (2) (a) - whether allowable only in respect of income earned from regular members and not on income earned from others - HELD THAT - As per the facts of the present case, the interest income from nominal members is ₹ 36,90,730/- out of the total interest earned ₹ 133,14,319/- and hence although it is substantial, it cannot be said that most of the business of the assessee was with nominal members. There was one more objection in that case that the depositors and borrowers are quite distinct and because of this, this was the observation in that case that such activity of the assessee is that of finance business and cannot be termed as co operative society. There was one more objection in that case that the assessee is engaged in the activity of granting loans to general public as well. These various objections were considered cumulatively and it was held that the assessee is not eligible for deduction u/s 80P at all and his was not a ratio of this judgment that deduction is to be allowed in respect of earning from regular member but to be disallowed in respect of income from nominal members. In fact, in the present case, apart from this objection that about 28% of interest income is from nominal members, there is no observation about any other aspect of various objection raised in the case of Citizen Co Operative Society Limited vs. ACIT 2017 (8) TMI 536 - SUPREME COURT and it is held by CIT (A) that deduction should be disallowed in respect of interest earned from nominal members by stating that this is the ratio of this judgment of Hon ble Supreme Court rendered in the case of Citizen Co Operative Society Limited vs. ACIT (Supra) but in my considered opinion as evident from relevant paras of this judgment reproduced above, this is not the ratio of this judgment. Thus the mater should go back to the file of CIT (A) for a fresh decision - restore this matter back to his file for a fresh decision with the direction that sufficient opportunity should be provided by him to both sides and the assessee should provide complete detail with cogent evidence in respect of business carried out by the assessee with nominal members and general public, if any. The assessee should also demonstrate about the difference in facts of the present case and facts in the case of Citizen Co Operative Society Limited vs. ACIT (Supra) - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Interpretation of judgment of Hon'ble Supreme Court in the case of Citizen Co-Operative Society, Hyderabad for deduction u/s 80P (2) (a) of IT Act on interest income from nominal members.

Analysis:
The appeal was filed against the order of CIT (A) for AY 2012-13. The CIT (A) had allowed deduction u/s 80P (2) (a) only in respect of interest earned from regular members, not on income from others, citing the judgment in the case of Citizen Co-Operative Society. The assessee contended that the judgment was not applicable in their case as the facts differed significantly. The assessee argued that the order of CIT (A) lacked a detailed comparison of facts between the cases. The tribunal noted that the interest income from nominal members was substantial but not the majority of the total income, unlike in the Citizen Co-Operative Society case. The tribunal found that the various objections raised in the Citizen Co-Operative Society case were not present in the current case, and the judgment did not mandate disallowing deduction for income from nominal members while allowing it for regular members.

The tribunal referred to specific findings in the Citizen Co-Operative Society case where the principle of mutuality was found missing due to various violations by the society. The tribunal highlighted that in the present case, there was no evidence of similar violations or activities that would disqualify the assessee from claiming deduction u/s 80P. The tribunal concluded that the judgment did not support disallowing deduction for income from nominal members if the majority of business was not conducted with them, as in the present case. The tribunal set aside the order of CIT (A) and directed a fresh decision, emphasizing the need for a detailed comparison of facts between the cases and providing both parties with sufficient opportunity to present evidence.

In summary, the tribunal allowed the appeal for statistical purposes, emphasizing the importance of a thorough analysis of facts and evidence to determine the applicability of the judgment in the case of deduction u/s 80P (2) (a) for interest income from nominal members.