2021 (10) TMI 1263 - HC - Income Tax

Deduction u/s 80P - AO has come to a conclusion that the assessee cannot be treated as a Co-operative society meant only for its members and providing credit facilities to its members - Whether the appellant is a primary co-operative bank and that the appellant is not entitled for deduction u/s.80 P(2)(a)(i) ? - Tribunal held that even if the assessee is not found to be a Co-operative Bank, the factual aspects requires to be analysed and thereafter final decision has to be made - HELD THAT - The Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT considering the expression member as defined in Section 2(l) of the Kerala Co-operative Societies Act, 1969 and the said Act expressly permitting loans to non-members under Section 59(2) and (3), held that loans given to nominal members would qualify for the purpose of deduction under Section 80P(2)(a)(i) of the Act. In the wake of this judgment, the matter requires re-consideration by the Assessing Officer with reference to Section 2(f) and 60 of the Karnataka Co-operative Societies Act, 1959 read with Section 80P(2)(a)(i) of the Act. The order of the Tribunal impugned being adjudicated and this Court having formed an opinion that the matter requires re-consideration, the consequential order of assessment has to be set aside. Alternative remedy of statutory appeal is not a bar in the circumstances of the case. For the aforesaid reasons, without answering substantial questions of law, we set aside the orders impugned and restore the matter to the file of the Assessing Officer to re-consider the matter in the light of the observations made hereinabove.

Summary

Issues:
1. Interpretation of Section 80P(2)(a)(i) of the Income Tax Act, 1961 regarding deduction for co-operative societies.
2. Application of the judgment in 'The Citizen Co-operative Society Ltd. Hyderabad vs. ACIT' to the appellant's case.
3. Justification of remand to the Income Tax Officer for fresh inquiry.
4. Denial of benefit of deduction under Section 80P(2)(a)(i) by the Income Tax Officer.

Analysis:
1. The appellant, a co-operative society providing credit facilities to members, claimed deduction under Section 80P of the Act. The Assessing Officer denied the claim, leading to appeals. The Tribunal remanded the matter for fresh decision. The appellant argued membership categories qualified for deduction under Section 80P(2)(a)(i) based on the Karnataka Co-operative Societies Act and relevant share capital. The Tribunal emphasized the need for a certificate from RBI to determine the nature of business. The matter was sent back to the Assessing Officer for reconsideration.

2. The Tribunal relied on 'The Citizen Co-operative Society Ltd. vs. ACIT' judgment to assess the nature of the appellant's business. It noted the significant portion of business with nominal members, prompting a reevaluation by the Assessing Officer. The Tribunal highlighted the need for analysis before a final decision, irrespective of the appellant's classification as a cooperative bank.

3. The Assessing Officer, upon reassessment, found a high number of nominal members relative to regular members, leading to the conclusion that the society did not primarily serve its members. The judgment in 'Mavilayi Service Co-operative Bank Ltd.' was cited to support loans to nominal members for deduction under Section 80P(2)(a)(i). The Tribunal directed a reassessment considering the Karnataka Co-operative Societies Act and the Supreme Court's interpretation.

4. The High Court set aside previous orders, restoring the matter to the Assessing Officer for a fresh assessment in line with the Karnataka Co-operative Societies Act and relevant legal interpretations. The Court emphasized the need for a thorough reconsideration and expedited decision-making process, leaving all rights and contentions open for the parties involved. The pending applications were disposed of in light of the main matter's resolution.