2022 (9) TMI 347 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - loans given to nominal members - Whether CIT(A) have erred in denying the exemption claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961 available to Co-operative Societies engaged in the business of banking or providing credit facilities to its members and accepting deposits from its members? - HELD THAT - We note that the assessee is a Co-operative Credit Society registered under the Karnataka State Co-operative Societies Act, 1959 having two categories of members i.e. regular members and associate/nominal members. We also note that the objective of the society is that of providing credit facilities to its members The basis adopted by the ld. AO for the purpose of making disallowance relates to credit facilities provided to the category of members which are associate/nominal members. We note that the issue in the present appeal before us has been concluded by the decision of Hon ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT wherein it is held that full bench judgement in the case of Citizen Co-op Society Ltd. 2017 (8) TMI 536 - SUPREME COURT wherein the Hon ble Supreme Court has considered the decision of Co-ordinate Bench of Supreme Court in the case of Citizen Co-operative Bank Ltd. 2017 (8) TMI 536 - SUPREME COURT as held that section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee - once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction - section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a license from the RBI to do banking business. Given the fact that the assessee is not so licensed, the assessee would not fall within the mischief of section 80P(4). Thus, respectfully following the said decision of Hon ble Supreme Court in the given facts and circumstances of the case, we direct the ld. AO to delete the addition made and allow the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act. Accordingly, the grounds of appeal of the assessee are allowed.

Summary

Issues:
Claim of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for Co-operative Societies providing credit facilities to members.

Analysis:
The appeal concerns the denial of exemption claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961 by a Co-operative Society providing credit facilities to its members. The society had two categories of members: regular and associate/nominal members. The Assessing Officer (AO) disallowed the deduction based on the Supreme Court's decision in a similar case. The AO held that the concept of mutuality was not satisfied as the society earned income from non-members as well. The Commissioner of Income Tax (Appeals) upheld the AO's decision, leading the assessee to appeal to the Tribunal.

The assessee argued that the Supreme Court's recent decision in the case of Mavilayi Service Co-operative Bank Ltd. clarified that loans to nominal members qualified for deduction under section 80P(2)(a)(i). The Supreme Court emphasized interpreting the provision liberally in favor of the assessee. The assessee also cited a decision of the Madras High Court supporting the deduction for co-operative societies with non-dividend entitled members.

The Tribunal noted that the society's objective was to provide credit facilities to its members, including regular and associate/nominal members. Relying on the Supreme Court's decision, the Tribunal held that section 80P is a benevolent provision meant to promote the co-operative sector and should be interpreted liberally. The Tribunal directed the AO to delete the addition made and allow the deduction claimed by the assessee under section 80P(2)(a)(i).

In conclusion, the Tribunal allowed the appeal, emphasizing the liberal interpretation of section 80P and the eligibility of the assessee for the claimed deduction. The decision was pronounced on 30.08.2022.