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TMI Blog2019 (7) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case and facts in the case of Citizen Co -Operative Society Limited vs. ALIT (Supra). Respectfully following the decision of the ITAT, Bangalore Bench, (supra) restoring the matter to the file of the AO for fresh examination and adjudication Eligible of persons to be members under the Karnataka State Co-operative Societies Act, 1959 - classification / restriction under the Act - HELD THAT:- On similar facts, the Co-ordinate Bench of this Tribunal in its decision in the case of Chatrapati Sivaji Co-operative Credit Society Ltd., Vs. ITO [ 2018 (12) TMI 1662 - ITAT BANGALORE] restored this issue back to the file of the AO O for fresh adjudication after examination / verification of the facts in the light of the judgments of Totgars Co-operative Sale Society Ltd., Vs. ITO [ 2010 (2) TMI 3 - SUPREME COURT] and case of Tumkur Merchants Souharda Co-operative Ltd. [ 2015 (2) TMI 995 - KARNATAKA HIGH COURT] - the assessee s appeal is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... d in applying Citizen Coop Society Vs CIT C-9 (1) Hyderabad Supreme Court case which facts are different from that of t appellant Society. 4. The learned Commissioner of Income Tax (Appeals),Hubballi has erred in not considering the provisions of Karnataka State Cooperative Societies Act 1959 regarding types of members eligible to become members as there is no classification/restriction under the Income Tax Act 1961. As held in the The Principal Commissioner of Income Tax Salem-7 Vs M/s S-1308 Ammapet Primary Agricultural Cooperative bank Ltd Ammapet, Salem 5. The learned Commissioner of Income Tax (Appeals),Hubballi has erred in treating Interest earned from Cooperative Banks as Income from Other Sources of ₹ 5,09,310/- and disallowed claim u/s 80P(2)(a)(i) even when deposits are out of regular business funds. 6. The appellants craves leave to add/alter any of the grounds of appeal on or before the date of final hearing 4. Ground Nos. 1 and 6 (supra), being general in nature, no adjudication is called for thereon. 5. Ground Nos.2 and 3 5.1 In these grounds (supra), the assessee assails the action of the CIT(A) in holding that income from regular Members only is elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egory is concerned. However, the assessee had carved out another category of 'nominal members. These are those members who are making deposits with the assessee for the purpose of obtaining loans, etc. and, in fact, they are not members in real sense. Most of the business of the appellant was with this second category of persons who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a coITA operative credit society which is not entitled to deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "6. I find that as per this judgment of Hon'ble Supreme Court rendered in the case of Citizen Co - Operative Society Limited vs. ACIT (Supra), this is not the ratio that that even if a small portion of total income is earned from nominal members, deduction u/s 80P should not be allowed qua such income although deduction is to be allowed ,in respect of income from regular members as held by CIT (A) in the present case. In'-fact, in that case, apart from this objection that most of the business of the assessee was with nominal members, there were various other objections also such as deposit from nominal members-was also received and the same was utilized for giving gold loans to regular members. There is no discussion in the present case about this aspect as to whether deposit was received from nominal members and it was utilized to give loan to regular members. As per the facts of the present case, the interest income from nominal members is ₹ 36,90,730/- out of the total interest earned ₹ 133,14,319/- and hence although it is substantial, it cannot be said that most of the business of the assessee was with nominal members. There was one more objection in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting aside the orders of the authorities below on this issue and restoring the matter to the file of the AO for fresh examination and adjudication. I, therefore, set aside the order of the CIT(A) and restore this matter to the file of the AO for fresh adjudication, after affording the assessee adequate opportunity of being heard in the matter and to file details / submissions in this regard as were required to be filed in the case of Jyoti Co-operative Credit Society Ltd., at para 7 thereof (supra) which shall be duly considered by the AO before deciding the issue. It is accordingly ordered. The grounds raised are allowed for statistical purposes. 6. Ground Nos. 4 and 5 6.1 In these grounds (supra), the assessee contends that the CIT(A) erred in not considering the provisions of the Karnataka State Co-operative Societies Act, 1959 regarding the types of persons eligible to be members as there is no classification / restriction under the Act. In this regard, it is contended that the CIT(A) erred in treating the interest of ₹ 5,09,310/- earned from Co-operative Banks as 'Income from Other Sources' and disallowing the claim under section 80P(2)(a)(i) of the Act even when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) of the Act. The Hon'ble Karnataka High Court followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. (supra) and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d) of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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