2019 (7) TMI 1412 - AT - Income Tax

Deduction u/s 80P(2) - whether Souharda Sahakari registered under the Karnataka Souharda Sahakari Act, 1997 are also co-operative societies within the meaning of Sec.2(19) ? - HELD THAT - The Souharda Cooperatives enjoy functional autonomy in design and implementation of their Business plans, customer service activities, etc., based on the needs of their members. Unlike other forms of cooperatives in India, the interference of State / Central in day-to-day operations of Souharda Cooperatives is almost minimal. The above discussion would show that souharda co-operatives are also one form of co-operative societies registered under a law in force in the State of Karnataka for registration of co-operative societies. Therefore the conclusion of the revenue authorities that co-operative societies and co-operatives are different and that co-operative registered as Souharda Sahakari cannot be regarded as co-operative societies is unsustainable. We therefore hold that the Assessee should be allowed deduction u/s.80P(2)(a)(i) of the Act, as the ground on which the same was denied to the Assessee is held to be incorrect. However, the other conditions for allowing deduction u/s. 80P(2)(a)(i) of the Act needs to be examined by the AO. Therefore, remand the question of allowing deduction u/s. 80P(2)(a)(i) of the Act to the AO, except the issue already decided above. Appeal by the Assessee is allowed for statistical purposes.

Summary

Issues:
Interpretation of Sec.80P(2)(a)(i) of the Income Tax Act, 1961 regarding deduction eligibility for co-operative societies under different Acts.

Analysis:
The issue in this case revolves around the interpretation of Sec.80P(2)(a)(i) of the Income Tax Act, 1961, specifically regarding the eligibility of a co-operative society registered under the Karnataka Souharda Sahakari Act, 1997 for deduction. The Assessing Officer (AO) contended that the benefit of deduction under Sec.80P(2)(a)(i) was only available to co-operative societies, not co-operatives. The AO argued that the Assessee, being a Souharda Sahakari registered under the Karnataka Souharda Sahakari Act, 1997, did not qualify as a co-operative society under the Act. The Co-operative and Co-operative Societies were deemed as distinct entities according to the AO's interpretation.

Upon appeal, the Commissioner of Income Tax (Appeals) (CIT(A)) upheld the AO's view, leading to the Assessee's appeal before the Tribunal. The Tribunal deliberated on the matter, considering the definition of 'co-operative society' under Sec.2(19) of the Act. The Tribunal noted that any co-operative society registered under any state law for the registration of co-operative societies was recognized as a co-operative society under the Act. It emphasized that Souhardas also operated on cooperative principles, aligning with the essence of co-operative societies.

The Tribunal delved into the historical context of cooperative movements in India, highlighting the evolution of cooperative legislation from the Co-operative Societies Act, 1912 to the Karnataka Souharda Sahakari Act, 1997. It emphasized the principles of self-help, mutual aid, and member ownership ingrained in Souharda Cooperatives, underscoring their functional autonomy. The Tribunal concluded that Souharda co-operatives fell under the category of co-operative societies registered under state laws, thus qualifying for the deduction under Sec.80P(2)(a)(i) of the Act.

The Tribunal ruled in favor of the Assessee, allowing the appeal for statistical purposes. It remanded the examination of other conditions for deduction under Sec.80P(2)(a)(i) to the AO, except for the issue already decided. The judgment, delivered on July 26, 2019, clarified the eligibility of Souharda Sahakari co-operatives for the deduction under the Income Tax Act, 1961, based on the interpretation of relevant legal provisions and historical context.