2021 (4) TMI 861 - AT - Income Tax

Deduction under section 80P(2)(a)(i) - assessee submitted that assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959 - AO contended that as per the details furnished by the bye laws, it is observed that the assessee is dealing with non members termed as associate members termed as associate members and claimed to have admitted as per the provisions of the Karnataka Co-operative Societies Act, 1959 - HELD THAT - After hearing both the parties we are of the view that the Supreme Court has reversed the decision of special Bench of Kerala High Court in the case of Mavilayi Service Co-operative Bank Ltd., Vs. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT We are inclined to remit this issue to the file of AO to examine the deduction under section 80P(2)(a)(i) of the Act in the light of the decision of the Hon ble Supreme Court- Appeal of the assessee is allowed for statistical purposes.

Issues:
1. Rejection of deduction claim under section 80P(2)(a)(i)
2. Applicability of judgment of Hon. Supreme Court of India
3. Non-following of High Court judgment in a similar case
4. Examination of deduction under section 80P(2)(a)(i) based on Supreme Court decision

Issue 1: Rejection of deduction claim under section 80P(2)(a)(i):
The assessee appealed against the CIT(A)'s order for the Assessment Year 2016-17, challenging the rejection of a genuine claim for a deduction under section 80P(2)(a)(i) amounting to ?61,09,525. The society, registered under the Karnataka Co-operative Societies Act, 1959, primarily accepted deposits from members and provided credit facilities to them. The dispute arose as the society was dealing with non-members, termed as associate members, as per the bye laws. The Tribunal noted the Supreme Court's stance on interpreting section 80P liberally, favoring the assessee, and remitted the issue back to the Assessing Officer for reevaluation in light of the Supreme Court's decision.

Issue 2: Applicability of judgment of Hon. Supreme Court of India:
The assessee argued against the applicability of a judgment of the Hon. Supreme Court of India in the case of Citizen Co-Operative Society, Hyderabad, contending that the facts and objectives of their society were distinct. They highlighted key differences, such as the acceptance of deposits from members and granting loans only to members, in contrast to the scenario in the mentioned judgment. The Tribunal agreed that the principles of mutuality were maintained in the society's operations, distinguishing it from the case cited, and deemed the Supreme Court judgment not directly applicable.

Issue 3: Non-following of High Court judgment in a similar case:
The assessee also contended that the CIT(A) failed to follow a judgment of the Hon'ble High Court of Karnataka, Dharwad Bench, in a case involving Tumkur Merchants Souharda Credit Co-Operative Ltd. and Guttugedarara Credit Co-Operative Society Ltd. The Tribunal acknowledged the jurisdictional relevance of the High Court's decision and noted the society's short-term deposits made from idle funds for lending purposes, attributing the investments to the main activity of the society.

Issue 4: Examination of deduction under section 80P(2)(a)(i) based on Supreme Court decision:
The Tribunal referenced the Supreme Court's reversal of a Kerala High Court decision in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT, emphasizing the need to interpret section 80P liberally in favor of cooperative societies. The Tribunal highlighted the importance of understanding the definition of 'members' under the relevant state legislation and directed a reevaluation by the Assessing Officer to ensure compliance with the Supreme Court's interpretation.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a thorough reassessment by the Assessing Officer in alignment with the Supreme Court's directives regarding the deduction under section 80P(2)(a)(i).

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