2022 (1) TMI 540 - HC - Income Tax

Deduction u/s 80P - entities registered under the Souharda Act - Appellant Cooperative registered under the Karnataka Souharda Sahakari Act 1997 enacted by the Government of Karnataka falling under the definition of Section 2 19 for the purpose of Section 80P - whether the appellate cooperative is not a cooperative society since it is registered under the Karnataka Souharda Sahakari Act, 1997 and not under the Karnataka Co-operative Societies Act? - Whether the definition of cooperative in Section-2 e of the Karnataka Souharda Sahakari Act, 1997, enacted by the Government of Karnataka, deeming to be Cooperative Society for the purpose of the enactments mentioned in the said society is only illustrative or exhaustive and not restricted to the enactments mentioned in the said Section? - HELD THAT - The fallout of the object and reasons and the subsequent amendment which takes the forefront by this 97th Constitution Amendment is appreciating Cooperative movement. By incorporating part IX-B in the Constitution under the head The Co-operative Society and making it part of directive principles of the state policy, it becomes explicit that the co-operative movement is top priority of the Central Government s Policy and its implementation. Merely, because separate definitions are provided for the words Co-operative and Co-operative Society under Section 2 e and g respectively of Sec.2 of Souharda Act, it cannot be construed as their characteristic is different, since their nomenclature is different. Importance has to be given to the word Cooperative which is found in both the enactments i.e., Act No.11 of 1959 and Act No.17 of 1997, as adjective pre-fixed to the noun that means the characteristic of the organization/institution while applying the principle of hormonial construction and interpretation of the laws, especially the laws which are intended to promote the organization of that character. The Souharda Act and the Karnataka Cooperative Societies Act, 1959 are both in force in the State of Karnataka and are regulated by the State Registrar of Co-operatives Karnataka. Registrar of Cooperative Societies governs all Co-operatives while being formed, alteration of bylaws and closure of the Co-operative Societies. Though the aforesaid two Acts are parallel but are in respect of Co-operatives in the State as the name suggests. Once the entities are governed by the Co-operative Principles under the law in force and registered under the State enactment, which by implication or otherwise shall only have a same meaning of Co-operative Society. Both these Acts Souharda Act and Cooperative Societies Act, 1959 would come within the ambit of Article 246 3 read with Entry 32 of the List-II of Schedule VII of the Constitution of India. The judgments cited by the learned counsel for the Revenue inasmuch as Articles 246 and 254 would be of no assistance in adjudicating the dispute in the case on hand. If a strict literal interpretation is given to the word Co-operative as canvassed by the learned counsel for the Revenue, in the absence of rate of tax fixed for such Co-operative , no tax liability would arise in the light of the judgment of the Hon ble Apex Court in the case of Govind Saran Ganga Saran supra. Hence, the said arguments are negated. The provisions of Section 80P offers tax deduction in respect of income of Co-operative Societies which is enacted with a laudable object of promoting Co-operating moment. Such benefit cannot be denied to the so called Co-operatives under the Souharda Act merely on hyper technicalities. The interpretation given by the Revenue to Section 2 19 of the Act is untenable. A harmonious reading of the said provisions would indicate that Co-operative Society registered under the Co-operative Societies Act, 1959 alone is not the Cooperative Society for the purposes of the Income Tax Act, as the phrase or employed with the following words under any other law for the time being in force in any State for the registration of Co-operative Society if read, Co-operative Societies registered under the Souharda Act which is a State enactment would certainly be construed as Co-operative Society coming within the ambit of Section 2 19 . We find no jurisdictional error in the order passed by the learned Single Judge in extending the benefit of Section 80P to the entities registered under the Souharda Act.Writ appeals stand dismissed.

Issues Involved:
1. Definition of 'cooperative' under Section 2[e] of the Karnataka Souharda Sahakari Act, 1997.
2. Applicability of Section 2[19] of the Income Tax Act, 1961 to cooperatives registered under the Karnataka Souharda Sahakari Act, 1997.
3. Jurisdiction of the Income Tax Appellate Tribunal in entertaining and remanding legal questions.
4. Denial of deduction under Section 80P of the Income Tax Act, 1961.
5. Validity of proceedings based on the denial of cooperative society status.

Detailed Analysis:

1. Definition of 'cooperative' under Section 2[e] of the Karnataka Souharda Sahakari Act, 1997:
The court examined whether the definition of 'cooperative' in Section 2[e] of the Karnataka Souharda Sahakari Act, 1997, which deems a cooperative to be a "Cooperative Society" for the purposes of certain enactments, is illustrative or exhaustive. The court held that entities registered under the Souharda Act fit into the definition of “Cooperative Society” as enacted under Section 2[19] of the Income Tax Act, 1961. This interpretation was bolstered by the Karnataka Souharda [Amendment] Act, 2021, which clarified that for the purposes of the Income Tax Act, a cooperative under the Souharda Act is deemed to be a cooperative society.

2. Applicability of Section 2[19] of the Income Tax Act, 1961 to cooperatives registered under the Karnataka Souharda Sahakari Act, 1997:
The court addressed whether cooperatives registered under the Souharda Act fall under the definition of Section 2[19] of the Income Tax Act, 1961. Section 2[19] defines a "cooperative society" as one registered under the Cooperative Societies Act, 1912, or any other law for the time being in force in any state for the registration of cooperative societies. The court concluded that cooperatives registered under the Souharda Act qualify as cooperative societies under Section 2[19] of the Income Tax Act, 1961, thus making them eligible for benefits under Section 80P.

3. Jurisdiction of the Income Tax Appellate Tribunal in entertaining and remanding legal questions:
The court examined whether the Income Tax Appellate Tribunal (ITAT) was right in entertaining for the first time the question of whether the appellant cooperative is not a cooperative society since it is registered under the Souharda Act and not under the Karnataka Co-operative Societies Act. The court found that the Tribunal erred by not deciding the legal question itself and remanding the case to the Assessing Officer. The Tribunal should have adjudicated the matter based on the legal framework provided.

4. Denial of deduction under Section 80P of the Income Tax Act, 1961:
The court evaluated whether the Tribunal was justified in denying the deduction under Section 80P of the Income Tax Act, 1961, on the grounds that the appellant is not a cooperative bank. The court held that the entities registered under the Souharda Act are eligible for the benefits of Section 80P, as they meet the definition of a cooperative society under Section 2[19] of the Income Tax Act, 1961.

5. Validity of proceedings based on the denial of cooperative society status:
The court considered whether the proceedings could be validly conducted on the appellant pursuant to the denial of cooperative society status. The court concluded that the proceedings were invalid as the entities registered under the Souharda Act qualify as cooperative societies under the Income Tax Act, 1961. Therefore, the denial of cooperative society status was incorrect, and the proceedings based on such denial were not legally sustainable.

Conclusion:
The court dismissed the appeals, affirming that entities registered under the Karnataka Souharda Sahakari Act, 1997, qualify as cooperative societies under Section 2[19] of the Income Tax Act, 1961, and are entitled to the benefits of Section 80P. The court found no jurisdictional error in the order passed by the learned Single Judge and upheld the decision to extend the benefit of Section 80P to the entities registered under the Souharda Act. The substantial questions of law raised in the Income Tax Appeals were answered in favor of the assessee and against the Revenue.

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