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TMI Blog2020 (10) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-9-2020 - Shri Chandra Poojari, AM For the Asessee : Shri V. Srinivasan, Advocate For the Revenue : Shri Ganesh Ghale, Advocate SC to Department ORDER PER CHANDRA POOJARI, AM: This appeal filed by the assessee is directed against the order of the CIT(A) dated 06/01/2020 and pertains to the assessment year2016-17. 2. The assessee has raised the following grounds of appeal: 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The ld. CIT(A) is not justified in upholding the denial of deduction claimed u/s. 80P(2)(a)(i) of the Act amounting to ₹ 33,70,747/- in respect of the profits earned by the appellant from the business of providing credit facilities to its members under the facts and in the circumstances of the case. 3. The ld. CIT(A) erred in holding that the business of providing credit facilities to the members carried on by the appellant cannot be regarded as a business carried on by a co-operative society complying with the principles of mutuality since the appellant had admitted nominal and asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the profits besides 25% of the total deposits as SLR with co-operative banks and 3% of the total deposits towards CRR and thus, the income earned therefrom ought to have been assessed as part of the business of the providing credit facilities to its members and not under the head Other Sources under the facts and in the circumstances of the appellant s case. 8. Without prejudice to the above, the learned CIT(A) ought to have appreciated that the cost of funds ought to have been allowed u/s. 57(iii) of the Act by allowing the actual interest paid on member s deposits while assessing the interest income under the head Other Sources instead of the arbitrary allowance of 10%of the income as incidental expenses, under the facts and in the circumstances of the appellant s case. 9. Without prejudice to the right to seek waiver with the Hon ble CCIT/DG, the appellant denies itself liable to be charged u/s. 234B of the Act, which under the facts and in the circumstances of the appellant s case deserves to be cancelled. 10. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. On appeal, the CIT(A) confirmed the order of the Assessing Officer on the above issue. 5. Against this, the assessee is in appeal before me. The Ld. AR submitted that the orders of the lower authorities are not justified and submitted that the assessee society is providing credit facilities to its members including nominal members and other members. The Ld. AR submitted that the assessee is entitled for deduction u/s. 80P(2) of the I.T. Act. 6. On the other hand, the Ld. DR submitted that the assessee s case is covered by the decision of the Co-ordinate Bench in the case of Mahaveera Credit Co-op Society Ltd. vs. ITO in ITA Nos. 282 283/Bang/2020 dated 21/08/2020 wherein it was held as follows: 9. We have perused submissions advanced by both sides in light of records placed before us. 10. The grievance of assessee is that, in its case test of mutuality is satisfied however, Ld.CIT(A) did not spell out as to how the said test fails. We are of the view that, such grievance of the assessee would be addressed by setting aside the issue of deduction u/s.80P(2)(a)(i) of the Act to Ld.AO for consideration afresh, with a direction to the Assessee to produce a certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers. Whereas the ld. AR has restricted his arguments to the extent of denial of deduction under Section 80P(2) of the Act and further submitted that the nominal members has been categorized as members and are eligible for benefits. Whereas CIT (Appeals) has relied on the judicial decisions, which shall apply to a society which is engaged in numerous activities but in the present case the assessee society is engaged in providing facilities of Banking business or credit facilities to its members. We found the issue of denial of deduction under Section 80P(2) and treatment of interest on deposits and also nominal members are treated as members for the purpose of benefit of section 80P(2) was dealt by the judicial forums. We consider it proper to refer to the decision of the co-ordinate Bench of the Tribunal in the case of The Jayanagar Co-operative Society Vs. ITO in ITA No.3254/Bang/2018 in respect of interest income earned by the society were the Assessing Officer denied the claim of the assessee observing that interest income earned on investment of surplus funds has to be assessed as income from other sources and not from business at Page No.3 paras 4 5 held which read as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act which was the claim in AY 1991-92 to 1999- 2000. The reason given by the Assessee was that in AY 2007-08 to 2011-12 investments and deposits after the Supreme Court's decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), were shifted from Schedule Banks to Cooperative Bank. U/s.80P(2)(d) of the Act, income by way of interest or dividends derived by a Co-operative Society from its investments with any other Co-operative Society is entitled to deduction of the whole of such interest or dividend income. The claim of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled for exemption under sub-section (4) of section 80P. Judgment of Hon ble Apex Court relied upon by the Revenue is distinguishable on facts. In that case assessee was a cooperative society registered under Multi State Cooperative Societies Act, 2002, while in the present case, assessee is a primary agriculture credit society registered under Gujarat State Cooperative Societies Act. The Hon ble Supreme Court disentitled the assessee from claiming exemption under section 80P due to violation of provisions of MACSA, under which it was formed, and most of the business of the assessee was with carved out category of persons without approval of Registrar of the Societies. Weighing point of view of both sides, we find that balance tilt in favour of the assessee. We find that by virtue of sub-section (4) of section 80P, the assessee is entitled for deduction under section 80P(2). Further, Income Tax Act does not define member , nor has provided distinction between regular member and nominal member and therefore, its meaning and objects has to be understood in the context of definition given in the State Act. The Revenue authorities are trying to extrapolate the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Totgar s Co-operative Sales Society Ltd. Vs. ITO 322 ITR 283 (SC) and Hon'ble Karnataka High Court decision in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. 230 Taxman 309 (Kar) as discussed in above paras. Whereas in respect of the claim of Nominal Members included in the definition of Member we find support on our view rely on the decision of Trapaj Vibhageeya Khet Udyog Mal Rupantar Food Processing Sahakari Mandali Ltd. Vs. DCIT (supra) and Prin. CIT Vs. S-1308 Ammapet Primary Agricultural Co-operative Bank Ltd. (supra) which is covered in favour of the assessee. Accordingly, we are of the substantive opinion that the nominal members are also eligible for the Benefits of credit society. Accordingly we restore entire disputed issue to the file of Assessing Officer to grant the benefit to the nominal members and the assessee should be provided adequate opportunity of hearing and co-operate in submitting the information for early disposal of the case and allow the grounds of appeal of the assessee for statistical purposes. 6. Similarly the appeals filed in ITA Nos.762, 765, 942, 1190 1191/Bang/2019 are similar and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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