2023 (1) TMI 515 - AT - Income Tax

Deduction u/s 80P - Assessee is a Cooperative Society registered under Karnataka Souharda Sahakari Act, 1997 - AO held that assessee does not fall in the definition of a 'Cooperative Society' u/s 2(19) of the Act and is not eligible for deduction u/s 80P - HELD THAT - We are of the opinion that this issue is squarely covered by case of M/s. Pavagada Souharda Multi-Purpose Co-operative Ltd. 2021 (9) TMI 806 - ITAT BANGALORE as held assessee should be allowed deduction under section 80P(2)(a)(i) of the Act and the CIT(A) was justified in doing so. Except the ground that the Assessee was not a co-operative society entitled to deduction u/s.80P(2)(a)(i) of the Act, no other reasons were given for denying the benefit of the said deduction to the Assessee. Hence, the order of CIT(A) is upheld. Also in SHREE MAHILA CREDIT SOUDHARDHA SAHAKARI LTD. 2016 (6) TMI 1226 - KARNATAKA HIGH COURT held if the assessee is not a co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then it is not a co-operative bank. It is a co-operative society which also carries on the business of lending money to its members which is covered under section 80P(2)(a)(i) of the Income-tax Act, 1961, i.e. carrying on the business of banking for providing credit facilities to its members. It is entitled to the special deduction under section 80P. Thus we inclined to decide the issue in favour of the assessee in allowing the claim u/s 80P of the Act. TDS u/s 194A - payment of interest to its members - non-deduction of TDS for invoking provisions of section 40(a)(ia) - HELD THAT - In the present case, there is no allegation that the assessee paid interest on deposits other than its members. Hence, the issue is to be decided in favour of the assessee in respect of payment of interest to its members regarding which section 194A of the Act is not applicable in respect of payment of interest to its members. To that extent, the assessee s claim is to be allowed.

Issues Involved:
1. Eligibility for deduction under Section 80P of the Income Tax Act, 1961.
2. Applicability of Section 194A regarding non-deduction of TDS and invoking provisions of Section 40(a)(ia) of the Act.

Detailed Analysis:

1. Eligibility for Deduction Under Section 80P:

The primary issue revolves around whether the appellant, a cooperative registered under the Karnataka Souharda Sahakari Act, 1997, qualifies for deductions under Section 80P of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the deduction on the grounds that the appellant is not a "Cooperative Society" as defined under Section 2(19) of the Act, but merely a "Cooperative" registered under a different statute. The AO's stance was supported by the judgments of the Division Bench of the Bengaluru Tribunal, which held that deductions under Section 80P are only available to Cooperative Societies registered under the Karnataka Cooperative Societies Act, 1959.

The Tribunal, however, referred to the Karnataka High Court's decision in the case of Swabhimani Souharda Credit Cooperative Ltd., which clarified that entities registered under the Karnataka Souharda Sahakari Act, 1997, fit the definition of "cooperative society" under Section 2(19) of the Income Tax Act, 1961. The High Court emphasized that both the Karnataka Cooperative Societies Act, 1959, and the Karnataka Souharda Sahakari Act, 1997, are cognate statutes dealing with cooperative societies, and thus, entities registered under either act should be treated as cooperative societies for the purposes of Section 80P.

The Tribunal aligned with the High Court's interpretation, allowing the appellant's claim for deduction under Section 80P. The Tribunal also cited similar judgments from the jurisdictional High Court, reinforcing that entities registered under the Karnataka Souharda Sahakari Act are entitled to the benefits of Section 80P.

2. Applicability of Section 194A Regarding Non-Deduction of TDS:

The second issue concerns the disallowance of expenses due to non-deduction of TDS under Section 194A, invoking the provisions of Section 40(a)(ia) of the Act. The AO had disallowed the appellant's claims on the grounds that they failed to deduct TDS on interest payments.

The Tribunal referred to several precedents, including the case of Kodangulur Town Co-operative Bank Ltd., where it was held that cooperative societies engaged in banking are not required to deduct TDS on interest payments to their members. The Tribunal noted that the Central Board of Direct Taxes (CBDT) Circular No. 9 of 2002 clarified that members of a cooperative bank are exempt from TDS on interest payments, as per Section 194A(3)(v) of the Act.

Further, the Tribunal referenced the Madras High Court's judgment in Coimbatore District Central Co-operative Bank Ltd., which elaborated that amendments to Section 194A, effective from June 1, 2015, explicitly mandated TDS on interest payments by cooperative banks to their members. However, prior to this amendment, cooperative banks were not required to deduct TDS on interest payments to their members.

In light of these judgments, the Tribunal concluded that the appellant was not liable to deduct TDS on interest payments to its members for the period before June 1, 2015. Consequently, the Tribunal allowed the appellant's claim, setting aside the AO's disallowance under Section 40(a)(ia).

Conclusion:

The Tribunal ruled in favor of the appellant on both issues. The appellant was deemed eligible for deductions under Section 80P, as entities registered under the Karnataka Souharda Sahakari Act, 1997, qualify as cooperative societies under the Income Tax Act. Additionally, the appellant was not required to deduct TDS on interest payments to its members before June 1, 2015, thus invalidating the AO's disallowance under Section 40(a)(ia). The appeal was allowed, and the order pronounced in the open court on November 17, 2022.

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