2020 (2) TMI 155 - AT - Income Tax

Entitlement for deduction u/s 80P - entities registered under the Karnataka Souharda Sahakari Act, 1997 - HELD THAT - In view of the latest judgment of the Hon ble jurisdictional High Court in the case of M/s.Swabhimani Souharda Credit Co-operative Ltd. Ors. v. Government of India Ors. 2020 (1) TMI 831 - KARNATAKA HIGH COURT wherein held that entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of co-operative society as enacted in sec.2(19) of the Income Tax Act, 1961, and therefore, subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec.80P of the said Act. Hence, we are inclined to hold that the assessee is entitled for deduction u/s 80P of the I.T.Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of deduction under Section 80P(2) of the Income Tax Act.
2. Eligibility of entities registered under the Karnataka Souharda Sahakari Act, 1997, to be considered as "co-operative societies" under Section 2(19) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80P(2) of the Income Tax Act:
The assessee, a Souharda Co-operative registered under the Karnataka Souharda Sahakari Act, 1997, claimed a deduction under Section 80P(2) of the Income Tax Act, which was disallowed by the Assessing Officer (AO). The AO argued that the deduction under Section 80P(2)(a)(i) is available only to "co-operative societies" registered under the Karnataka Co-operative Societies Act, 1959, and not to entities registered under the Karnataka Souharda Sahakari Act, 1997. The AO's stance was that "co-operative" and "co-operative societies" are distinct entities, and the benefit of deduction could only be extended to the latter.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, confirming that only co-operative societies registered under the Karnataka Co-operative Societies Act, 1959, are entitled to claim the deduction under Section 80P(2).

2. Eligibility of Entities Registered under the Karnataka Souharda Sahakari Act, 1997:
The assessee appealed the CIT(A)'s decision, relying on the judgment of the Hon’ble Karnataka High Court in the case of M/s. Swabhimani Souharda Credit Co-operative Ltd. & Ors. v. Government of India & Ors. The High Court addressed whether entities registered under the Karnataka Souharda Sahakari Act, 1997, fit the definition of "co-operative society" under Section 2(19) of the Income Tax Act, 1961, for the purpose of Section 80P.

The High Court concluded that these entities do fit the definition, emphasizing that Section 80P should be liberally construed to promote the co-operative movement in India. The Court highlighted that the legislative intent behind Section 80P is to encourage and promote the growth of co-operatives, and a restrictive interpretation would defeat this purpose. The Court also noted that both the Karnataka Co-operative Societies Act, 1959, and the Karnataka Souharda Sahakari Act, 1997, aim to govern co-operative societies, despite differences in nomenclature and functionality.

The Court's judgment stated that entities registered under the Karnataka Souharda Sahakari Act, 1997, should be treated as co-operative societies under Section 2(19) of the Income Tax Act, 1961, thereby entitling them to claim benefits under Section 80P.

Tribunal's Decision:
The Tribunal, considering the High Court's judgment, ruled in favor of the assessee. It held that entities registered under the Karnataka Souharda Sahakari Act, 1997, are indeed eligible for deductions under Section 80P of the Income Tax Act. Consequently, the appeal filed by the assessee was allowed, overturning the previous decisions of the AO and CIT(A).

Conclusion:
The appeal filed by the assessee was allowed, affirming that entities registered under the Karnataka Souharda Sahakari Act, 1997, qualify as "co-operative societies" under Section 2(19) of the Income Tax Act, 1961, and are entitled to claim deductions under Section 80P of the said Act.