2019 (1) TMI 1007 - AT - Income Tax

Claim for deduction u/s 80P(2)(a)(i) denied - nominal / associate members numbering 309 was in excess of 15% of the regular members, section 18 of the Karnataka Co-operative Societies Act, 1959 is violated - scope of Karnataka Co-operative Societies Act, 1959 as amended in 2014 - Held that - CIT(A) has not dealt with the assessee s contention raised before him that the decision of the Hon ble Apex Court in Citizen Co-operative Society Ltd., (2017 (8) TMI 536 - SUPREME COURT) is distinguishable as the Karnataka Co-operative Societies Act, 1959 permits a Co-operative Society to admit nominal members and the assessee s claims that the amendments of 2014 and 2016 to the Karnataka Co-operative Societies Act, 1959 refers only to associate members and therefore would not negatively affect the allowability of the assessee s claim for deduction u/s 80P(a)(i) of the Act. In these circumstances, as narrated above the authorities below have not examined or considered whether the amendments to section 18 of the Karnataka Co-operative Societies Act, 1959 impacts the claim of deduction u/s 80 - set aside the orders of the authorities below and remand the matter of allowability of the assessee s claim for deduction u/s 80P of the Act to the file of the AO for denovo examination and consideration and adjudication as per law in the light of the above observations. - decided in favour of assessee for statistical purposes

Summary

Issues:
- Disallowance of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 based on the ratio of nominal and associate members exceeding 15% of regular members.
- Interpretation of Karnataka State Co-operative Societies Act, 1959 in relation to deduction u/s 80P(2)(a)(i) of the Act.
- Impact of amendments in 2014 and 2016 to section 18 of the Karnataka Co-operative Societies Act, 1959 on the allowability of deduction u/s 80P of the Act.

Analysis:

Issue 1: Disallowance of deduction u/s 80P(2)(a)(i):
The Assessing Officer (AO) disallowed the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act, citing that the assessee, a Co-operative Society, was not eligible for the deduction as it was dealing with nominal and associate members exceeding 15% of regular members. This disallowance was based on the decision of the Hon'ble Apex Court in a specific case. The CIT(A) upheld the disallowance, emphasizing the violation of the Karnataka State Co-operative Societies Act, 1959 due to the excess of nominal members. The Tribunal noted that the CIT(A) did not address the argument that the amendments to the Karnataka Co-operative Societies Act, specifically in 2014 and 2016, focused on associate members and did not impact the deduction u/s 80P. Consequently, the Tribunal set aside the orders and remanded the matter to the AO for a fresh examination.

Issue 2: Interpretation of Karnataka State Co-operative Societies Act, 1959:
The learned AR argued that the Karnataka Co-operative Societies Act, 1959 allowed Co-operative Societies to admit nominal members, which the CIT(A) did not consider. The CIT(A) held that the violation of the Act occurred due to the excess of nominal/associate members compared to regular members. The AR further pointed out the amendments in 2014 and 2016, clarifying the distinction between associate and nominal members under section 18 of the Act. However, the Tribunal found that the authorities did not analyze the impact of these amendments on the deduction u/s 80P of the Income Tax Act, leading to the decision to remand the matter for further examination.

Issue 3: Impact of amendments in 2014 and 2016:
The amendments to section 18 of the Karnataka Co-operative Societies Act, 1959 in 2014 and 2016 were highlighted by the AR to support the claim for deduction u/s 80P(2)(a)(i) of the Act. The AR argued that these amendments did not affect the allowance of the deduction under section 80P. However, the Tribunal observed that the authorities had not considered the effect of these amendments on the deduction claim. As a result, the Tribunal directed a fresh examination by the AO to determine the allowability of the deduction in light of the mentioned amendments.

In conclusion, the Tribunal refrained from commenting on the merits of the deduction claim and treated the appeal as allowed for statistical purposes, emphasizing the need for a thorough examination by the AO considering the relevant legal provisions and amendments.