2021 (4) TMI 992 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - AO denied the deduction on the ground that income of a co-op. society, including the profits and gains of banking or providing credit facility carried on by such co-op. society is not eligible for deduction if it is a co-op. bank within the meaning of section 80P(4) - HELD THAT - As decided in M/s. The Karnataka Alpsankyatar Pattin Sahakari Sangh Niyamit 2019 (12) TMI 1481 - ITAT BANGALORE restore this aspect of the matter back to his file for fresh decision with the direction that he should examine the facts of the present case in the light of these two judgments of Hon'ble apex court rendered in the case of Totgars Co - Operative Sale Society Limited vs. ITO 2010 (2) TMI 3 - SUPREME COURT and in the case of Tumkur Merchants Souhadra Credit Cooperative Ltd. Vs. ITO 2015 (2) TMI 995 - KARNATAKA HIGH COURT to find out which judgment is applicable in the facts of the present case. If it is found that the judgment of Hon'ble apex court rendered in the case of Totgars Co-Operative Sale Society Limited vs. ITO (Supra) is applicable in the facts of the present case then it should be held that the assessee is not entitled to deduction u/s. 80P in respect of interest from bank but if it is found that the judgment of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souhadra Credit Cooperative Ltd. Vs. ITO (Supra) is applicable then it should be held that the assessee is entitled to deduction u/s. 80P in respect of interest from bank Disallowance of pigmy commission paid to pigmy agents u/s. 40(a)(ia) - HELD THAT - As before the lower authorities the assessee has not furnished details of payment and whether it is liable for TDS. Hence this issue is remitted to the AO for fresh consideration with a direction to the assessee to furnish the details of TDS.

Issues Involved:
1. Deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Application of the Supreme Court judgment in the Citizen Co-operative Society case.
3. Non-application of Karnataka High Court judgments in similar cases.
4. Disallowance of Pigmy Commission under Section 40(a)(ia).
5. Double disallowance of Audit Fees.
6. TDS on interest payments to associate members under Section 194A(3)(v).

Issue-wise Detailed Analysis:

1. Deduction under Section 80P(2)(a)(i):
The assessee, a co-operative society, claimed a deduction under Section 80P(2)(a)(i) amounting to ?46,97,003. The Assessing Officer (AO) denied the deduction, arguing that the income of a co-operative society engaged in banking or providing credit facilities is not eligible if it functions as a co-operative bank per Section 80P(4). The CIT(A) agreed with the assessee that it is a co-operative society, not a bank, and thus eligible for the deduction. However, the CIT(A) restricted the deduction to income from regular members, citing the Supreme Court's judgment in the Citizen Co-operative Society case, which limits deductions to income from regular members who have full voting and equal dividend rights.

2. Application of Supreme Court Judgment in Citizen Co-operative Society Case:
The CIT(A) applied the Supreme Court's ruling in the Citizen Co-operative Society case, which held that income earned from persons other than regular members is not eligible for deduction under Section 80P(2)(a)(i). The CIT(A) emphasized that the burden of proving eligibility for exemption lies with the assessee, and any ambiguity should be interpreted in favor of the revenue.

3. Non-application of Karnataka High Court Judgments:
The assessee argued that the CIT(A) failed to follow the Karnataka High Court judgments in the cases of Tumkur Merchants Souharda Credit Co-operative Ltd. and Guttugedarara Credit Co-operative Society Ltd., which were favorable to the assessee. The Tribunal noted that the CIT(A) relied on the Supreme Court's judgment, which takes precedence over High Court rulings.

4. Disallowance of Pigmy Commission under Section 40(a)(ia):
The CIT(A) upheld the AO's disallowance of Pigmy Commission amounting to ?2,23,397 under Section 40(a)(ia) due to non-deduction of TDS. The assessee contended that the commission paid to Pigmy Agents should be treated as salary, subject to TDS under Section 192, and that none of the agents' commissions exceeded the basic exemption limit. The Tribunal remitted this issue to the AO for fresh consideration, directing the assessee to furnish details of TDS.

5. Double Disallowance of Audit Fees:
The assessee claimed that the audit fees of ?70,000 were disallowed twice—once during the filing of the return and again by the AO during assessment. The CIT(A) confirmed the disallowance, and the Tribunal did not provide additional details on this issue in the judgment.

6. TDS on Interest Payments to Associate Members under Section 194A(3)(v):
The CIT(A) upheld the AO's action of verifying TDS on interest payments exceeding ?10,000 to associate members. The assessee argued that Section 194A(3)(v) exempts co-operative societies from deducting TDS on interest paid to members. The Tribunal noted that the CIT(A) directed the AO to verify the TDS made on such payments.

Conclusion:
The Tribunal remitted the issues of deduction under Section 80P(2)(a)(i) and Pigmy Commission to the AO for fresh consideration, directing the AO to examine the facts in light of relevant judgments. The appeal was partly allowed for statistical purposes, and the Tribunal emphasized the need for the assessee to provide necessary details for TDS verification. The judgment highlights the importance of adhering to Supreme Court rulings and the burden of proof on the assessee to demonstrate eligibility for exemptions.

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