2017 (8) TMI 1389 - AT - Income Tax

Tribunal upholds deduction eligibility for society under Section 80P(2)(a)(vi)

The tribunal upheld the CIT(A)'s decision, confirming the assessee society's eligibility for deduction under Section 80P(2)(a)(vi). It was found that the ... Disallowance of deduction u/s 80P(2)(a)(vi) - Held that:- NLC Industrial Co-operative society, the assessee, is registered as a co-operative society under Tamil Nadu Cooperative Act, 1983 - the board of the assessee society is responsible for the affairs of the assessee society and not the NLC board .The ultimate authority of its administration is vested with the General Body of the members. NLC or its nominated members, if any, do not have voting rights in elections of the assessee society as per Rule 22 of its Byelaws. NLC has been co-opted as a member only for operational ease and convenience to assist the board of the assessee society in administration, without which the smooth running of the assessee society will be practically difficult .Further, the registration of the society has not been revoked under law for violation of the provisions of TNSCA, 1983 - hence the order of the CIT(A) does not require any interference and hence the revenue’s appeal is dismissed - Decided in favor of assessee. Issues Involved:1. Eligibility of the assessee for deduction under Section 80P(2)(a)(vi) of the Income Tax Act.2. Voting rights of the NLC and its nominated members in the assessee society.3. Control of the assessee society by NLC.4. Compliance of the assessee society's bye-laws with Section 80P(2)(a)(vi) and the Tamil Nadu Cooperative Societies Act, 1983.Detailed Analysis:1. Eligibility of the assessee for deduction under Section 80P(2)(a)(vi):The assessee, a co-operative society, claimed a deduction under Section 80P(2)(a)(vi) of Rs. 67,98,303/-. The Assessing Officer (AO) denied this deduction, arguing that the society's board, influenced by NLC nominees, did not meet the criteria specified in Section 80P(2)(a)(vi). The AO added the claimed deduction to the taxable income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] referenced decisions from the Hon’ble High Courts of Madras and Kerala, which held that the voting rights in elections were not conferred on NLC or its nominees, thus not violating Section 80P(2)(a)(vi). Consequently, the CIT(A) allowed the deduction.2. Voting rights of the NLC and its nominated members:The AO contended that the assessee society's bye-laws allowed NLC and its nominees voting rights, contrary to Section 80P(2)(a)(vi). The CIT(A), however, found that Rule 22 of the society's bye-laws restricted voting rights in elections to members who contribute their labor, thereby excluding NLC and its nominees from voting in elections. This interpretation aligned with the judgments from the Hon’ble High Courts, which emphasized that the society should restrict voting rights to specific classes of members, including individuals contributing their labor.3. Control of the assessee society by NLC:The AO argued that the assessee society was under NLC's control, with NLC nominees holding significant roles on the board. The CIT(A) countered this by stating that the ultimate authority of the society's administration rested with the general body of its members, not NLC. The CIT(A) highlighted that NLC's membership was for operational ease and did not translate to control over the society’s affairs, as NLC or its nominees did not have voting rights in elections.4. Compliance of the assessee society's bye-laws with Section 80P(2)(a)(vi) and the Tamil Nadu Cooperative Societies Act, 1983:The CIT(A) examined the society's bye-laws and found them compliant with the Tamil Nadu Cooperative Societies Act, 1983. The bye-laws, approved by the Registrar of Cooperative Societies, restricted the voting rights of NLC and its nominees in elections, thereby adhering to the requirements of Section 80P(2)(a)(vi). The CIT(A) also noted that any deviation from the Act would result in de-registration of the society, which had not occurred.Conclusion:The tribunal upheld the CIT(A)'s decision, confirming that the assessee society was eligible for the deduction under Section 80P(2)(a)(vi). The tribunal found that the society's bye-laws and actual functioning did not violate the provisions of Section 80P(2)(a)(vi), as NLC and its nominees did not have voting rights in elections. The revenue's appeal was dismissed, and the order pronounced on 18th August 2017 at Chennai.