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TMI Blog2024 (7) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... members, their rights, sharing of profits of the society among the members (Regular/Nominal). In the event it is found that thee nominal/associate members are not members and they are not entitled from share of profits earned by the assessee, then the proportionate deduction u/s 80P(2)(a)(i) to be granted in terms of the judgment of Mavilayi Service Co-operative Bank Ltd., (supra) on such income. The assessee is directed to produce the quantum of interest income received from all the categories of members for AO to carry out necessary verification - Accordingly this issue is partly allowed for statistical purpose. Deduction u/s 80P(2)(d) - Section 80P(2)(d) describes that if the assessee has received interest/dividend from the co-operative society, then the assessee is eligible for claim of deduction on such interest/dividend, however we note that the assessee has received interest from co-operative bank but it is not clear whether the interest payer (co-operative bank) is a bank and registered with Reserve Bank of India and holding licence from RBI for carrying out banking business as per RBI Act. In addition, the judgment of Kerala State Co-operative Agricultural and Rural Devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter claiming deduction u/s. 80P(2)(a)(i) on the gross total income to the extent of Rs. 21,25,403. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee filed the documents and the AO observed that the function of a society is mainly based on the principle of mutuality wherein, each and every member does have equal and identical rights and participation in the business of the society. It was held by various judicial authorities that such a society only can be considered for deduction u/s 80P(2)(a)(i) of the Act on the income earned from business. In the instant case , the assessee is carrying the main business of providing credit facilities to its members. The assessee society is having two category of members namely regular/normal members and nominal members. All these members are providing and utilizing the facilities provided by the Society. However, nominal members do not have the same right and facilities as that of regular/normal members accordingly the assessee society has violated the principal of mutuality and relying on the judgement of the Hon ble Apex Court in case of Citizen Co-operative Society Ltd. (2017) 88 taxmann.com 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 80P(2)(a)(i) as per judgment of Hon ble Apex Court in Mavilayi Service Co-op. Bank Ltd. [2021] 123 taxmann.com 1 (SC) wherein it is held that primary agricultural credit societies are entitled to the benefit of deduction u/s. 80P(2)(a)(i) of the Act on interest income earned from lending to members including nominal members. He submitted that interest income received on assessee s investments to another co-operative society are also eligible for deduction u/s. 80P(2)(d) because the co-operative banks are primarily co-operative societies as specified in section 80P(2)(d). He further submitted that the ld. CIT(A) has not considered the judgment in the case of Tumkur Grain Merchants Souharda Credit Co-op. Ltd. reported in 55 taxmann.com 447 and the ITAT decision in Totgars Co-operative Sale Society in ITA No.376 to 379/Bang/2023 wherein interest income earned from investment in co-operative bank by multipurpose cooperative society is held eligible for deduction u/s. 80P(2)(d) of the Act. He further submitted that the assessee is a primary agricultural co-operative society engaged mainly in the business of providing credit facilities to its members and providing financial aids a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen. He submitted that the interest received from co-operative bank is governed by Banking Regulation Act, 1949. The ld. DR further submitted that the for deduction or exemption provision the strict interpretation should be considered as decided by the Hon ble Apex Court in the case of Commissioner of Customs (Import), Mumbai vs Dilip Kumar Company reported in [2018] 95 taxmann.com 327 (SC)/[2018] 69 GST 239 (SC)/[2018]. The ld. DR submitted that the in the case law relied by the assessee the literal interpretation of the section 80P(2) has not been done. 9. Considering the rival submissions, we note that the assessee is registered under Karnataka Co-operative Society Act 1959. During the course of assessment proceedings, the AO asked to submit details as per notice u/s 142(1) and the AO noted as per Bye-laws that there are regular/normal members and nominal members. The regular members participate in day to day affairs, and nominal members have no role in the management of society, have no voting rights no entitlement for share in the assets or profits. The sec. 20(2)(a) of the Karnataka Cooperative Society Act denies any right to vote to a nominal or associate members. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of profits of the society among the members (Regular/Nominal). In the event it is found that thee nominal/associate members are not members and they are not entitled from share of profits earned by the assessee, then the proportionate deduction u/s 80P(2)(a)(i) to be granted in terms of the judgment of Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., (supra) on such income. The assessee is directed to produce the quantum of interest income received from all the categories of members for AO to carry out necessary verification. Accordingly we remit this issue to the AO for afresh consideration and determination of the interest received from members and non-members from providing credit facilities and decide the issue as per law. The AO shall grant deduction on such interest income u/s 80P(2)(a)(i) of the Act that satisfies principle of mutuality as per bye-laws. Accordingly this issue is partly allowed for statistical purpose. 10. Further in respect of deduction u/s 80P(2)(d), considering the rival submissions, we note that here the issue is that whether the assessee is eligible to claim of deduction u/s. 80P(2)(a)(i) and/or 80P(2)(d) on the interest inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty wants to invest reserve fund or any portion thereof for any other purpose as prescribed under section 58 (a) to (d) of the Karnataka Co-operative Societies Act permission is to be taken from the Registrar of Co-operative Societies. Therefore the argument of the assessee that interest income on such investment is operational income is rejected. Even if the maintainability of SLR requirement is out of internal fund/external funds then no deduction shall be allowed u/s. 80P(2)(a)(i), since the interest income received on such investments from co-operative banks is not attributable to main business of the appellant. The issue regarding the word attributable has been discussed elaborately by the Hon ble Apex Court in the case of M/s Totgar s Co-operative Sales Society (2010) reported in [2010] 188 Taxman 282 (SC) where it is held by the Hon ble Supreme Court that the deduction u/s 80P is available only to the income which is attributable to the business operation. 11.1 Admittedly, it is a matter of fact borne from the record that the legislature in all its wisdom had inserted the provisions of Section 80P(2)(a)(i) of the Act as a part of deductions from carrying on the business of ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court) it has been discussed in detail the definition of co-operative banks and co-operative society. If the payer bank falls under the definition of co-operative bank/ bank in the light of the judgment of Hon ble Apex Court then the assessee is not eligible to get deduction u/s. 80P(2)(d) on such interest income received from co-operative banks. We note that the assessee has also received interest from co-operative banks which is governed by the Banking Regulation Act of 1949 and this argument of the ld. DR has not been denied by the ld. AR of the assessee. The Section 80P(2)(d) describes that if the assessee has received interest/dividend from the co-operative society, then the assessee is eligible for claim of deduction on such interest/dividend, however we note that the assessee has received interest from co-operative bank but it is not clear whether the interest payer (co-operative bank) is a bank and registered with Reserve Bank of India and holding licence from RBI for carrying out banking business as per RBI Act. In addition, the judgment of Hon ble Apex Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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