2019 (7) TMI 1390 - AT - Income Tax

Deduction u/s 80P(2) - Whether co-operative societies and co-operatives are different and that co-operative registered as Souharda Sahakari cannot be regarded as co-operative societies? - HELD THAT - Realizing the vital role of the cooperative movement in the progress of the society the Central Planning Commission set up a committee by appointing Shri Chaudari Brahmaprakash as its head with a task of drafting a Model Cooperative Act which will prevent interference of the governments. This committee after a detailed study of the Cooperative Acts of various states drafted a Model Cooperative Act in 1991 and Central Government recommended the state governments to adopt this. Accordingly in 1997 a bill on parallel cooperative act was tabled in the state legislature of Karnataka. Demanding an early approval of this bill by both the houses of Karnataka Legislature a committee Souharda Samvardhana Samithi under the chairmanship of Justice Rama Jois came into existence. It was due to the combined efforts of Sahakara Bharathi Karnataka and Souharda Samvardhana Samithi The Karnataka Souharda Sahakari Act 1997 (KSSA 1997) was passed in the legislature. The Souharda Cooperatives enjoy functional autonomy in design and implementation of their Business plans customer service activities etc. based on the needs of their members. Unlike other forms of cooperatives in India the interference of State / Central in day-to-day operations of Souharda Cooperatives is almost minimal. Souharda co-operatives are also one form of co-operative societies registered under a law in force in the State of Karnataka for registration of co-operative societies. Therefore the conclusion of the revenue authorities that co-operative societies and co-operatives are different and that co-operative registered as Souharda Sahakari cannot be regarded as co-operative societies is unsustainable. Assessee should be allowed deduction u/s.80P(2)(a)(i) of the Act as the ground on which the same was denied to the Assessee is held to be incorrect. However the other conditions for allowing deduction u/s. 80P(2)(a)(i) of the Act needs to be examined by the AO. Therefore remand the question of allowing deduction u/s. 80P(2)(a)(i) to the AO except the issue already decided above. - Appeal by the Assessee is allowed for statistical purposes.

Summary

Issues:
Interpretation of Sec.80P(2)(a)(i) of the Income Tax Act, 1961 for co-operative societies providing credit facilities.

Analysis:
1. The primary issue in this case revolves around the interpretation of Sec.80P(2)(a)(i) of the Income Tax Act, 1961 concerning the eligibility of a co-operative society, specifically a Souharda Sahakari, to claim deduction for providing credit facilities to its members. The Assessing Officer (AO) contended that only co-operative societies registered under specific acts are entitled to this deduction, distinguishing between cooperatives and co-operative societies. The AO argued that since the Assessee was registered under the Karnataka Souharda Sahakari Act, 1997, and not under the Karnataka Cooperative Societies Act, 1959, they were ineligible for the deduction.

2. Upon appeal, the Commissioner of Income Tax (Appeals) (CIT(A)) upheld the AO's decision, leading to the Assessee's appeal to the Tribunal. The Assessee argued that Souharda Sahakaris registered under the Karnataka Souharda Sahakari Act, 1997 should be considered co-operative societies under the Income Tax Act, citing precedents from the ITAT Bangalore Bench. The Tribunal noted that the AO and CIT(A) had already considered the issue but disagreed with their interpretation, leading to the Tribunal's independent analysis.

3. The Tribunal delved into the definition of 'co-operative society' under Sec.2(19) of the Income Tax Act, which includes societies registered under any state law for co-operative societies. Emphasizing the cooperative principles underlying Souhardas, the Tribunal highlighted the historical evolution of cooperative movements in India, from the Co-operative Societies Act, 1912 to the development of state-specific cooperative acts. The Tribunal recognized the role of Souharda Sahakari Act, 1997 in promoting co-operative principles and functional autonomy for Souharda Cooperatives.

4. Ultimately, the Tribunal concluded that Souharda co-operatives registered under the Karnataka Souharda Sahakari Act, 1997 should be considered as co-operative societies eligible for deduction under Sec.80P(2)(a)(i) of the Income Tax Act. The Tribunal overturned the previous decisions, remanding only the examination of other conditions for deduction to the AO. The Assessee's appeal was allowed for statistical purposes, with the judgment pronounced on July 26, 2019.