2024 (5) TMI 851 - AT - Income Tax

Exemption u/s. 80P(2)(a)(i) - deduction was claimed in respect of the amount of profits attributable to the activity of providing credit facilities to its members - AO disallowed the entire claim as the assessee had not earned investments from its members of the society but also from general public and in respect of the interest income of co-operative society, the disallowance was made by holding that the claim is not found to be eligible for deduction u/s. 80P(2)(d) and therefore treated the same as income from other sources. HELD THAT - We note that the disallowance has been made in the hands of the assessee as assessee was also having nominal members from whom deposits were taken and credit facilities were provided. In respect of associate/nominal members, in the case of Mavilayi Service Cooperative Bank Ltd 2021 (1) TMI 488 - SUPREME COURT has held that the expression Members is not defined in the Income-tax Act. Hence, it is necessary to construe the expression Members in section 80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned co- operative societies Act. As held in UP CO-OPERATIVE CANE UNION FEDERATION LIMITED 1997 (1) TMI 7 - SUPREME COURT definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction u/s 80P(2)(a)(i) - Grounds raised by the assessee stands allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of deduction u/s 80P(2)(a)(i).
3. Applicability of the ratio of the Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs Commissioner of Income Tax, Calcutta.
4. Classification of the assessee as not involved in the business of banking.
5. Reliance on various case laws by the CIT(A).

Judgment Summary:

Issue 1: Condonation of Delay
The ITAT condoned a 2-day delay in filing the appeal, citing sufficient cause as per the principles laid down by the Hon'ble Supreme Court in Collector Land Acquisition Vs. Mst. Katiji & Ors. The Tribunal noted no malafide intention on the part of the assessee and emphasized a liberal approach towards condonation of delay to ensure justice on merits.

Issue 2: Disallowance of Deduction u/s 80P(2)(a)(i)
The assessee, a Primary Agriculture Co-operative Society, claimed a deduction u/s 80P on interest and dividend income from investments in South Canara District Co-op. Bank. The AO disallowed this, treating it as income from other sources, which was upheld by the CIT(A) based on the decision in Citizens Co-operative Society Ltd. v. ACIT. However, the ITAT directed the AO to grant relief in accordance with the Supreme Court's decision in Mavilayi Service Cooperative Bank Ltd., which supports the eligibility of co-operative societies to claim deductions u/s 80P(2)(a)(i), including transactions with nominal members.

Issue 3: Applicability of Supreme Court Rulings
The ITAT applied the Supreme Court's ruling in Mavilayi Service Cooperative Bank Ltd., which clarified the eligibility of co-operative societies to claim deductions u/s 80P(2)(a)(i) for credit facilities provided to nominal members. This overturned the lower authorities' reliance on Citizens Co-operative Society Ltd. v. ACIT, which was deemed inapplicable to the assessee's situation.

Issue 4: Business of Banking
The Tribunal recognized that the assessee, being a primary agricultural credit society, is not engaged in the business of banking as defined under the Banking Regulation Act, 1949, and thus eligible for deductions under section 80P(2)(a)(i) for providing credit facilities to its members.

Issue 5: Reliance on Case Laws
The ITAT found that the CIT(A) erred in relying on various case laws that were not applicable to the appellant's case, specifically the misapplication of the ruling in Citizens Co-operative Society Ltd. v. ACIT, which pertained to co-operative societies engaged in banking with the general public.

Conclusion:
The appeal by the assessee was allowed, and the AO was directed to grant the claimed deductions in line with the Supreme Court's guidelines, ensuring that co-operative societies providing credit facilities to their members, including nominal members, are eligible for benefits under section 80P(2)(a)(i). The order was pronounced on 02nd January, 2024.