2022 (3) TMI 721 - AT - Income Tax

Denial of deduction u/s.80P - Assessee was accepting deposits from its regular members and also nominal members - difference between the rights and obligations of the regular and nominal members, the AO held that the nominal members could not be considered as members for the purpose of deduction u/s.80P - HELD THAT - The assessee Co-operative society is admittedly engaged in carrying on the business of banking and providing credit facilities. Section 80P(2)(a)(i) provides that in the case of co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profits and gains of business attributable to such activities shall be deductible in the computation of total income. The claim of assessee for deduction has been negated by the authorities below, inter alia, on the ground that it admitted certain Members, described as Nominal Members , who were neither entitled to dividend nor voting rights. It is relevant to note that the term Member has been defined u/s 2(19) in the Maharashtra Act to mean a person joining in an application for the registration of a Co-operative society which is subsequently registered, or a person duly admitted to membership of a society after registration and includes a nominal, associate or sympathizer member . On going through the above definition of Member , it becomes overt that the term Member also includes a Nominal Member. Once it is accepted that the assessee, governed by the Maharashtra Act, made advances to certain Nominal Members from whom interest income was earned, there can be no doubt whatsoever that the deduction u/s 80P(2)(a)(i) has to be allowed. It is evident that when the loans are given to Nominal Members and the relevant State Act includes, Nominal Member within the purview of Member , there can be no question of denial of benefit u/s 80P(2)(a)(i). The Hon ble jurisdictional High Court in Jalgaon District Central Co-operative Bank Ltd. VS. Union of India 2003 (9) TMI 56 - BOMBAY HIGH COURT has held that the definition of Member given in section 2(19) of the Maharashtra Act takes within its sweep even a nominal member and there is no distinction between a duly registered member and nominal member. In view of the above discussion, overturn the impugned order on this score. Assessee earning interest from fixed deposits held with co-operative bank - HELD THAT - This issue is no more res integra by virtue of an order of the Pune Bench dated 28-11-2018 in the case of ITO Vs. Sureshdada Jain Nagri Sahakari Patsanstha 2018 (11) TMI 1589 - ITAT PUNE wherein the decision of CIT(A) allowing deduction u/s.80P was approved by the Tribunal. Tribunal discussed the contrary views expressed by the Hon ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT allowing the deduction u/s. 80P on interest income and the Hon ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. 2014 (9) TMI 833 - DELHI HIGH COURT not allowing deduction u/s.80P on interest income, earned from banks under similar circumstances. Both the Hon ble High Courts have taken into consideration the ratio laid down in the case of Totgar s Cooperative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT There being no direct judgment from the Hon ble jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit 2015 (8) TMI 1085 - ITAT PUNE preferred to go with the view taken in favour of the assessee by the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). We direct to grant the deduction.

Summary

Issues involved:
1. Denial of deduction u/s.80P of the Income-tax Act, 1961.
2. Eligibility of interest income from fixed deposits held with a cooperative bank for deduction u/s.80P.

Issue 1: Denial of deduction u/s.80P:
The appellant, a cooperative credit society, filed an appeal against the denial of deduction u/s.80P for the assessment year 2015-16. The Assessing Officer (AO) disallowed the deduction on the grounds that nominal members were not eligible for the deduction and interest income on deposits with banks was not deductible u/s.80P. However, the definition of 'Member' under the Maharashtra Act includes nominal members. Citing relevant case law, it was established that when loans are given to nominal members and the State Act includes them within the definition of 'Member,' the deduction u/s.80P must be allowed. The Tribunal overturned the impugned order based on this analysis.

Issue 2: Eligibility of interest income from fixed deposits:
The second issue revolved around the appellant earning interest from fixed deposits held with a cooperative bank. Referring to a previous Pune Bench decision and other relevant cases, it was concluded that the deduction u/s.80P on interest income from fixed deposits is allowable. The Tribunal noted the differing views of various High Courts but followed the precedent set by the Pune Bench and the Karnataka High Court in favor of allowing the deduction. In the absence of a direct judgment from the jurisdictional High Court, the Tribunal directed to grant the deduction based on the consistent legal position on this issue.

In conclusion, the Tribunal allowed the appeal, overturning the denial of deduction u/s.80P and directing the grant of the deduction for both the issues raised in the appeal.