2023 (1) TMI 564 - AT - Income Tax

Exemption u/s 80P(2)(a)(i) - assessee registered under Karnataka Souharda Sahakari Act, 1997 - HELD THAT - Assessee registered under Karnataka Souharda Sahakari Act, 1997 - HELD THAT - As in the case of Swabhimani Souharda Credit Cooperative Ltd. vs. Government of India 2020 (1) TMI 831 - KARNATAKA HIGH COURT that a cooperative society registered under Karnataka Souharda Sahakari Act, 1997 within the meaning of section 2(19) of the Act should be considered a cooperative society placing reliance on the decision in the case of Government of India, Ministry of Finance vs. Karnataka State Souharda Federal Co-operative Ltd. 2022 (1) TMI 540 - KARNATAKA HIGH COURT Therefore, the reasoning of the 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. As regards income earned on advance income with nominal members, nominal members are treated as members of co-operative society in view of decision of the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT . Thus, this ground of appeal nos.2 3 stands allowed. 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 2021 (11) TMI 1117 - ITAT PANAJI in favour of the appellant society. -Decided in favour of assessee.

Summary

Issues:
- 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.
- 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.

Analysis:

Issue 1: Eligibility for Exemption u/s 80P(2)(a)(i)
The case involved an appeal by the assessee against the order of the ld. Commissioner of Income Tax (Appeals) concerning the denial of exemption u/s 80P(2)(a)(i) for the assessment year 2017-18. The appellant, a cooperative society registered under the Karnataka Souhard Sahakari Act, 1997, claimed exemption under section 80P(2)(a)(i) of the Act. The Assessing Officer denied the claim, stating that the credit facilities were provided to nominal members who had no voting rights. The issue was whether the appellant society qualified as a cooperative society for exemption. The Tribunal referred to decisions by the Hon'ble Karnataka High Court, which held that a society registered under the Karnataka Souharda Sahakari Act, 1997 is considered a cooperative society under section 2(19) of the Act. The Tribunal disagreed with the CIT(A)'s reasoning and allowed the appeal, stating that the income earned by the appellant society from credit facilities to members was exempt under section 80P(2)(a)(i).

Issue 2: Allowability of Deduction under Section 80P(2)(d)
The second issue revolved around the 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 cited a decision by a Co-ordinate Bench, which clarified that interest income derived from investments made with cooperative banks is exempt under section 80P(2)(d). The Tribunal highlighted that the reasoning of the lower authorities for denying the exemption was not valid, as a cooperative bank is also considered a cooperative society. Referring to various decisions, including those of the Hon'ble Karnataka High Court and the Hon'ble Delhi High Court, the Tribunal concluded that the appellant was eligible for the deduction under section 80P(2)(d). Consequently, the Tribunal allowed the appeal on this ground as well.

In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling in favor of the appellant on both the eligibility for exemption u/s 80P(2)(a)(i) and the allowability of deduction under section 80P(2)(d) of the Income Tax Act, 1961.