2020 (5) TMI 44 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) denied - assessee-society was catering to lending of credit facilities to non-members which was in violation - as per assessee it is a cooperative society even though it is registered under the Karnataka Souharda Sahakari Act 1997 - HELD THAT - As decided in M/S. SINDHU CREDIT SOUHARDA SAHAKARI NIYAMITA 2019 (12) TMI 1277 - ITAT BANGALORE Assessee s claim regarding deduction u/s. 80P(2)(a)(i) cannot be rejected on this basis that assessee is a Souharda Sahakari and therefore cannot be regarded as a co-operative society. But after holding so set aside the order of CIT(A) and restore the matter back to the AO for fresh decision regarding allowability of deduction u/s. 80P(2)(a)(i) after examining other conditions for allowing such deduction because those conditions are not examined by the AO till now. - Appeal filed by the assessee is allowed for statistical purposes.

Issues Involved:
1. Disallowance of deduction claimed under Section 80P of the Income Tax Act.
2. Applicability of the judgment in the case of Citizen Co-operative Society Ltd. v. ACIT.
3. Eligibility of interest earned from Co-operative Banks and Nationalised Banks for deduction under Section 80P.
4. Compliance with the Karnataka Souharda Sahakari Act, 1997.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Claimed Under Section 80P:
The primary issue in the appeal was the disallowance of the deduction claimed by the assessee under Section 80P(2)(a)(i) of the Income Tax Act amounting to Rs. 20,18,933. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed this deduction on the grounds that the assessee-society was providing credit facilities to non-members, which was considered a violation of the Supreme Court's judgment in the case of Citizen Co-operative Society Ltd. v. ACIT. The assessee contended that it is a cooperative society registered under the Karnataka Souharda Sahakari Act, 1997, and therefore, entitled to the deduction under Section 80P(2)(a)(i).

2. Applicability of the Judgment in Citizen Co-operative Society Ltd. v. ACIT:
The AO and CIT(A) relied on the Supreme Court's decision in Citizen Co-operative Society Ltd. v. ACIT to deny the deduction. However, the Tribunal found that this judgment was not applicable in the present case. The Tribunal referred to a similar case, M/s. Sindhu Credit Souharda Sahakari Niyamita v. ITO, where it was held that the judgment in Citizen Co-operative Society Ltd. was not applicable because the facts of the case were different. The Tribunal emphasized that the assessee had not violated any provisions of the Karnataka Souharda Sahakari Act, 1997, unlike in the Citizen Co-operative Society case.

3. Eligibility of Interest Earned from Co-operative Banks and Nationalised Banks for Deduction Under Section 80P:
The assessee argued that the interest earned from Co-operative Banks and Nationalised Banks should be eligible for deduction under Section 80P. The AO did not appreciate this argument, relying instead on the Supreme Court's decision in Totgars Cooperative Sales Society Ltd. However, the Tribunal found that the AO and CIT(A) had not examined this issue in light of the provisions of the Karnataka Souharda Sahakari Act, 1997. The Tribunal remanded the matter to the AO for fresh examination of the eligibility of the interest income for deduction under Section 80P.

4. Compliance with the Karnataka Souharda Sahakari Act, 1997:
The Tribunal noted that the assessee is a cooperative society registered under the Karnataka Souharda Sahakari Act, 1997. The Tribunal referred to its earlier decision in the case of Siddartha Pattina Souharda Sahakari Niyamitha v. ITO, where it was held that souharda cooperatives are also a form of cooperative societies registered under a law in force in Karnataka for the registration of cooperative societies. Therefore, the conclusion of the revenue authorities that cooperative societies and cooperatives are different and that a cooperative registered as Souharda Sahakari cannot be regarded as a cooperative society was found to be unsustainable. The Tribunal directed the AO to re-examine the matter and decide on the allowability of the deduction under Section 80P after considering the compliance with other conditions for such deduction.

Conclusion:
The Tribunal allowed the appeal for statistical purposes and remitted the matter to the AO for fresh adjudication. The AO was directed to re-examine the eligibility of the deduction under Section 80P(2)(a)(i) and the interest income from Co-operative Banks and Nationalised Banks, considering the provisions of the Karnataka Souharda Sahakari Act, 1997, and the compliance with other conditions for the deduction. The Tribunal's order emphasized the need for a detailed examination of the facts and the applicability of relevant legal provisions before denying the deduction under Section 80P.

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