2017 (10) TMI 1383 - AT - Income Tax

Revenue appeal allowed, case remanded for fresh assessment on mutuality principles

The Income Tax Officer, Ward 1, Bagalkot Versus Shri Bapooji Pattin Souhard

The appeal filed by the revenue is allowed for statistical purposes, remanding the case to the AO for a fresh assessment of the respondent-assessee's ... Denying the exemption u/s. 80P - assessee society is a bank and is hit by the provisions of sub-section (4) of section 80P - Held that:- As during the course of hearing we had called for the financial statements of the assessee from which it is clear that there is income in the form of interest on investments of ₹ 1,11,84,095 and commission income of ₹ 24,02,183 indicating that the respondent-society had dealings with the other non-members. Furthermore, the fact that the co-operative society had paid commission to Pigmi agents of ₹ 1,70,46,946 goes to indicate that it has accepted deposits even from non-members. These aspects need to be examined thoroughly in the light of the judgment in the case of The Citizen Co-operative Society Ltd. v. ACIT [2017 (8) TMI 536 - SUPREME COURT]. Therefore, we remand this issue back to the file of the AO for de novo assessment on the above lines. - Appeal filed by the revenue is allowed for statistical purposes. Issues Involved:1. Eligibility of the cooperative society for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.2. Applicability of the provisions of sub-section (4) of section 80P of the Income Tax Act, 1961.3. Consideration of the Special Leave Petition pending before the Hon'ble Supreme Court.Issue-wise Detailed Analysis:1. Eligibility of the Cooperative Society for Deduction under Section 80P(2)(a)(i):The primary issue in this case is whether the respondent-assessee cooperative society is entitled to deduction under section 80P of the Income Tax Act, 1961. The respondent-assessee, registered under the Karnataka Co-operative Societies Act, claimed that its primary activity is to provide credit facilities to its members, thus qualifying for the deduction under section 80P(2)(a)(i). The AO denied this deduction, asserting that the respondent-assessee is a cooperative bank and falls under the provisions of sub-section (4) of section 80P. The CIT(Appeals) allowed the appeal, holding that the respondent-assessee is not a cooperative bank and is thus eligible for the deduction.2. Applicability of Provisions of Sub-section (4) of Section 80P:The AO's denial of the deduction was based on the argument that the respondent-assessee is a cooperative bank and is therefore affected by sub-section (4) of section 80P, which excludes cooperative banks from the deduction. However, the CIT(Appeals) and subsequent rulings referenced in the judgment, including cases like CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, concluded that the respondent-assessee is not a cooperative bank but a credit cooperative society, thus not falling under the exclusion of sub-section (4).3. Consideration of the Special Leave Petition Pending Before the Hon'ble Supreme Court:The revenue contended that the CIT(Appeals) erred by not considering the fact that a Special Leave Petition (SLP) filed by the Department on a similar issue is pending before the Hon'ble Supreme Court. The CIT(Appeals) did not address this pending SLP, which the revenue argued could have a bearing on the case. However, the tribunal did not find this argument sufficient to overturn the CIT(Appeals)'s decision.Conclusion and Remand:The tribunal noted that the financial statements of the respondent-assessee indicated income from interest on investments and commission income, suggesting dealings with non-members. Additionally, the payment of commissions to Pigmi agents indicated acceptance of deposits from non-members. These aspects, in light of the Hon'ble Supreme Court's decision in The Citizen Co-operative Society Ltd. v. ACIT, required thorough examination. Consequently, the tribunal remanded the issue back to the AO for de novo assessment.Final Judgment:The appeal filed by the revenue is allowed for statistical purposes, with the case remanded to the AO for a fresh assessment based on the detailed examination of the respondent-assessee's activities and compliance with the principles of mutuality as outlined in the Supreme Court's decision.Pronouncement:The judgment was pronounced in the open court on October 31, 2017.