2020 (5) TMI 376 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - co-operative registered as Souharda Sahakari cannot be regarded as co-operative societies - HELD THAT - As decided in SIDDARTHA PATTINA SOUHARDA SAHAKARI NIYAMITHA VERSUS THE INCOME TAX OFFICER, WARD 5, RAICHUR. 2019 (7) TMI 1390 - ITAT BANGALORE 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. The above discussion would show that 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. Other conditions for allowing deduction u/s. 80P(2)(a)(i) needs to be examined by the AO. Remand the question of allowing deduction u/s. 80P(2)(a)(i) to the AO, except the issue already decided above. - Decided in favour of assessee for statistical purposes.

Issues:
1. Denial of deduction u/s 80P of the Income Tax Act.
2. Classification of the appellant as a cooperative society.
3. Disallowance of deduction for interest earned from Nationalized banks.
4. Computation of total income by the Assessing Officer.
5. Levying of interest u/s 234B & 234C of the Act.

Issue 1: Denial of deduction u/s 80P:
The appellant, a co-operative providing financial services, filed for deduction u/s 80P for the assessment year 2016-2017. The Assessing Officer disallowed the deduction based on amended provisions of subsection (4) of section 80P, proposing to tax the amount claimed. The CIT(A) upheld this decision. However, the ITAT Bangalore Benches, in a similar case, ruled that co-operatives registered under the Karnataka Souharda Sahakari Act are entitled to deduction u/s 80P. The tribunal emphasized that souharda co-operatives are a form of co-operative societies under the Act, enjoying functional autonomy in business plans and operations. Consequently, the appellant's claim for deduction u/s 80P was deemed valid, and the matter was remanded to the Assessing Officer for further examination.

Issue 2: Classification of the appellant as a cooperative society:
The definition of 'co-operative society' under the Act includes societies registered under any state law for cooperative societies. The tribunal highlighted the historical development of cooperative movements in India, emphasizing the importance of co-operation in society. It explained the evolution of cooperative legislation, such as the Karnataka Souharda Sahakari Act, which recognizes souharda cooperatives as a form of co-operative societies. The tribunal concluded that the appellant, registered under the Karnataka Souharda Sahakari Act, qualifies as a co-operative society entitled to the benefits under section 80P.

Issue 3: Disallowance of deduction for interest earned from Nationalized banks:
The Assessing Officer disallowed deduction u/s 80P for interest earned from Nationalized banks. However, the tribunal's decision in a similar case emphasized that souharda co-operatives are eligible for deduction u/s 80P, indicating that the appellant should be allowed the deduction for such interest income. The tribunal remanded the issue to the Assessing Officer for further examination, except for matters already decided.

Issue 4: Computation of total income by the Assessing Officer:
The Assessing Officer computed the total income of the appellant at a specific amount, which was challenged by the appellant. The tribunal's decision primarily focused on the eligibility of the appellant for deduction u/s 80P, remanding the issue for fresh consideration. The tribunal did not provide a specific ruling on the computation of total income but directed the Assessing Officer to reevaluate the deduction aspect.

Issue 5: Levying of interest u/s 234B & 234C of the Act:
The Assessing Officer levied interest u/s 234B & 234C of the Act, which was not the primary focus of the tribunal's decision. The tribunal allowed the appeal for statistical purposes, remitting the main issues back to the Assessing Officer for reconsideration. The specific issue of interest levied under sections 234B & 234C was not elaborated upon in the tribunal's decision.

In conclusion, the tribunal's judgment favored the appellant on the primary issues related to deduction u/s 80P and the classification as a cooperative society under the Karnataka Souharda Sahakari Act. The decision provided detailed insights into the historical context and legislative framework supporting the appellant's eligibility for tax benefits as a co-operative society.

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