2022 (12) TMI 332 - AT - Income Tax

Exemption u/s 80P(2)(a)(i) - eligibility of an assessee registered under Karnataka Souharda Sahakari Act, 1997 for exemption - HELD THAT - The Hon ble Karnataka High Court in the case M/S. SWABHIMANI SOUHARDA CREDIT CO. OPERATIVE LTD. 2020 (1) TMI 831 - KARNATAKA HIGH COURT held that a cooperative society registered under Karnataka Souharda Sahakari Act, 1997 also fall within the definition of cooperative society as defined u/s 2(19) of the Act. Therefore, the reasoning of the ld. CIT(A) that the appellant society is not a cooperative society, cannot be accepted. Therefore, the income earned by the appellant society from its members on the credit is exempt from tax u/s 80P(2)(a)(i) of the Act. Thus, this ground of appeal stands allowed. As regards to the exemption of income earned from another cooperative society, this issue is no longer res integra as the issue was decided by the Co-ordinate Bench of the this Tribunal in the case of The Ugar Sugar Works Kamgar Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society 2021 (11) TMI 1117 - ITAT PANAJI - Decided in favour of assessee.

Summary

Issues:
1. Eligibility of an assessee registered under Karnataka Souharda Sahakari Act, 1997 for exemption u/s 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Allowability of deduction under section 80P(2)(d) of the Act for income derived by a cooperative society from its investment held with other cooperative societies.

Issue 1: Eligibility for Exemption u/s 80P(2)(a)(i):
The appeal concerned the eligibility of an assessee registered under the Karnataka Souharda Sahakari Act, 1997 for exemption u/s 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer had denied the exemption, claiming that the credit facilities provided were to nominal members who had no voting rights. However, the Hon'ble Karnataka High Court had previously held that a society registered under the Karnataka Souharda Sahakari Act, 1997 falls within the definition of a cooperative society under section 2(19) of the Act. The Tribunal found that the reasoning of the CIT(A) that the appellant society was not a cooperative society was incorrect. Therefore, the Tribunal allowed the appeal, stating that income earned by the appellant society from its members on credit was exempt from tax u/s 80P(2)(a)(i) of the Act.

Issue 2: Deduction under Section 80P(2)(d) for Income from Investments:
The second issue revolved around the allowability of deduction under section 80P(2)(d) of the Act for income derived by a cooperative society from its investments held with other cooperative societies. The Tribunal referred to a Co-ordinate Bench decision where it was clarified that interest income derived from investments made by a cooperative society with other cooperative societies should be exempt from total income. The Tribunal disagreed with the lower authorities' denial of exemption under 80P(2)(d) based on the premise that interest was received from a cooperative bank. The Tribunal cited a decision of the Hon'ble Karnataka High Court and a Pune Bench Tribunal decision to support the allowance of the deduction under 80P(2)(d). Consequently, the Tribunal allowed this ground of appeal, stating that the reasoning of the lower authorities on this issue could not be accepted.

In conclusion, the Tribunal allowed the appeal filed by the assessee, highlighting the eligibility of the appellant society for exemption under section 80P(2)(a)(i) and the deduction under section 80P(2)(d) for income derived from investments made with other cooperative societies. The decision was pronounced on November 24, 2022.