2022 (4) TMI 1008 - AT - Income Tax

Exemption u/s 80P - Denying the exemption as principle of mutuality is absent in the cooperative society due to distinction in the rights of ordinary members and the nominal members - HELD THAT - We find that assessee has submitted the details in support of claim of deduction U/sec 80P of the Act. The A.O. has observed that it is a mutually aided cooperative society and activities are confined to members only. Whereas the assessee being a cooperative society provided services to its nominal members who does not have equal rights compared to ordinary members and the concept of mutuality principle is nullified. CIT(A) was not satisfied with explanations of the assessee on the concept of mutuality and relied on the the Hon ble Supreme Court decision in the case of Citizen Cooperative Society 2017 (8) TMI 536 - SUPREME COURT We considering the facts, circumstances and the ratio of the Hon ble Supreme Court decision do not find any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the assessee.

Summary

Issues:
1. Denial of exemption claimed under section 80P of the Income Tax Act.
2. Interpretation of the principle of mutuality in the context of a cooperative society.
3. Disallowance of deduction under section 80P based on the rights of ordinary members and nominal members.

Analysis:

1. The appellant, a cooperative society, appealed against the denial of exemption under section 80P of the Income Tax Act by the Assessing Officer (AO). The AO disallowed the exemption, citing a violation of the Cooperative Societies Act and rules due to the absence of the principle of mutuality. The AO relied on the Supreme Court decision in the case of Citizen Cooperative Society Ltd Vs. ACIT to support the disallowance. The AO initiated penalty proceedings under section 271(1)(c) for inaccurate income particulars.

2. The cooperative society primarily catered to its members engaged in banking and credit facilities, distributing surplus among members only. The AO, during scrutiny, focused on the society's bylaws, mutuality principle, and the distinction between ordinary and nominal members. The AO concluded that nominal members lacked equal rights compared to ordinary members, leading to a violation of cooperative society regulations. The Commissioner of Income Tax (Appeals) upheld the AO's decision based on the Supreme Court precedent, leading to the appellant's appeal before the Tribunal.

3. The Tribunal, in the absence of the appellant, reviewed the case. The core issue revolved around the absence of the mutuality principle due to differential rights between ordinary and nominal members. Despite the appellant's submissions supporting the deduction claim under section 80P, the Tribunal concurred with the CIT(A) and upheld the disallowance based on the Supreme Court's interpretation in the Citizen Cooperative Society case. The Tribunal dismissed the appellant's appeal, affirming the disallowance of the deduction and the decision of the CIT(A).

In conclusion, the Tribunal dismissed the appellant's appeal, upholding the disallowance of the deduction under section 80P based on the absence of the mutuality principle in the cooperative society's operations. The decision aligned with the interpretation set by the Supreme Court precedent, emphasizing the importance of equal rights among members in cooperative societies to claim tax exemptions.