2021 (6) TMI 758 - AT - Income Tax

Denial of deduction u/s 80P(2)(a)(i) - assessee is a Co-operative society registered under the Maharashtra Co- operative Societies Act 1960 - HELD THAT - The assessee Co-operative society is admittedly engaged in carrying on the business of banking and providing credit facilities. Section 80P(2)(a)(i) provides that in the case of co-operative society engaged in carrying on the business of banking or providing credit facilities to its members the whole of the amount of profits and gains of business attributable to such activities shall be deductible in the computation of total income. The claim of assessee for deduction has been negated by the authorities below on the ground that it had admitted certain Members described as Nominal Members who were neither entitled to dividend nor voting rights. Taking note of the fact that the Citizen Co-operative Society Ltd. 2017 (8) TMI 536 - SUPREME COURT judgment dealt with the Andhra Act wherein the term Member did not include Nominal Member the Hon ble Supreme Court in Mavilayi Service 2021 (1) TMI 488 - SUPREME COURT held that the interest on loans given to Nominal Members under the Kerala Act was eligible u/s 80P(2)(a)(i) as the term Member under the Kerala Act included Nominal Members . As evident that when the loans are given to Nominal Members and the relevant State Act includes Nominal Member purview of Member there can be no question of denial of benefit u/s 80P(2)(a)(i). We find that the provisions of the Kerala Act and the Maharashtra Act in so far as the term Member including Nominal member is concerned are similar. In Jalgaon District Central Co-operative Bank Ltd. 2003 (9) TMI 56 - BOMBAY HIGH COURT has held that the definition of member given in section 2(19) of the Maharashtra Act takes within its sweep even a nominal member and there is no distinction between a duly registered member and nominal member. We overturn the impugned order and direct to grant deduction u/s 80P(2)(a)(i) as claimed by the assessee. - Decided in favour of assessee.

Summary

Issues:
Denial of deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis:
The appeal pertains to the denial of deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961 by the CIT(Appeals)-2, Nagpur for the assessment year 2016-17. The primary contention was that the assessee, a Co-operative society registered under the Maharashtra Co-operative Societies Act, 1960, had advanced loans to individuals who were not Members of the society, leading to the disallowance of the deduction. The Assessing Officer based the disallowance on the violation of provisions of section 80P(2)(a)(i) due to loans being extended to persons not qualified as Members under the Maharashtra Act. The AO's decision was supported by the CIT(A), prompting the assessee to appeal to the Tribunal against the denial of deduction.

Upon hearing the arguments and examining the case details, the Tribunal observed that the term 'Member' under the Maharashtra Act includes Nominal Members, as per the definition provided in section 2(19) of the Act. Given that the assessee had advanced loans to Nominal Members in compliance with the Maharashtra Act, the deduction u/s 80P(2)(a)(i) should be allowed. The Tribunal highlighted a recent Supreme Court judgment, Mavilayi Service Co-Operative Bank Ltd. vs. CIT, which clarified that loans extended to Nominal Members under the Kerala Act were eligible for deduction under section 80P(2)(a)(i) as the term 'Member' encompassed 'Nominal Members'. Drawing parallels between the provisions of the Kerala Act and the Maharashtra Act regarding the inclusion of 'Nominal Members' within the definition of 'Member', the Tribunal overturned the lower authorities' decision and directed the allowance of the deduction claimed by the assessee.

In light of the consistent interpretation of the term 'Member' across different state Acts and the absence of differentiation between registered and nominal members as per the Maharashtra Act, the Tribunal allowed the appeal and ordered the grant of deduction u/s 80P(2)(a)(i) to the assessee. The decision was based on the harmonious reading of the relevant legal provisions and judicial precedents, ensuring the assessee's entitlement to the deduction under the Income-tax Act, 1961.

Order pronounced in the open Court on 21st June 2021.