Co-op society wins tax deduction case, Tribunal supports governance by members, not NLC.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the co-operative society was eligible for the deduction under Section 80P(2)(a)(vi) of the Income Tax Act, 1961. The Tribunal emphasized the society's compliance with the Tamil Nadu Co-operative Societies Act, 1983, and highlighted that voting rights were not conferred on NLC Limited's nominees, ensuring the society's eligibility for the deduction. The order reiterated that the society's governance was under the control of its general body members, not NLC Limited, in line with statutory requirements.

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Issues Involved:
1. Eligibility for deduction under Section 80P(2)(a)(vi) of the Income Tax Act, 1961.
2. Voting rights and control of the co-operative society by NLC Limited.
3. Compliance with the Tamil Nadu Co-operative Societies Act, 1983 (TNCSA 1983).

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(vi) of the Income Tax Act, 1961:
The primary issue revolves around whether the assessee, a co-operative society, is eligible for deduction under Section 80P(2)(a)(vi) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the deduction, arguing that the society's board was controlled by NLC Limited, and hence, the assessee did not meet the necessary conditions. However, the CIT(A) and the Tribunal found that the assessee was eligible for the deduction. The Tribunal noted that similar issues had been previously adjudicated in favor of the assessee for the assessment year 2012-2013, and there were no changes in the facts for the impugned assessment year.

2. Voting Rights and Control of the Co-operative Society by NLC Limited:
The AO contended that the society's board consisted of members nominated by NLC Limited, which violated the provisions of Section 80P(2)(a)(vi). The AO argued that the voting rights granted to NLC's nominees were against the statutory requirements, thereby disqualifying the society from claiming the deduction. The CIT(A), however, relied on precedents from the Hon'ble High Courts of Madras and Kerala, which clarified that the voting rights in elections were not conferred on NLC or its nominees as per the society's bye-laws. The Tribunal upheld this view, emphasizing that the ultimate control of the society rested with its general body members, not NLC Limited.

3. Compliance with the Tamil Nadu Co-operative Societies Act, 1983 (TNCSA 1983):
The CIT(A) and the Tribunal examined the compliance of the society's bye-laws with the TNCSA 1983. The CIT(A) noted that the society's membership and voting rights were in accordance with the TNCSA 1983, and any deviation in the bye-laws would render them ineffective. The Tribunal observed that the society's registration had not been revoked for any violations of the TNCSA 1983, further supporting the society's eligibility for the deduction. The Tribunal also highlighted that NLC's membership was for operational ease and did not confer voting rights in elections, aligning with the statutory requirements.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the assessee was eligible for the deduction under Section 80P(2)(a)(vi). The Tribunal reiterated that the society's compliance with the TNCSA 1983 and the non-conferment of voting rights to NLC's nominees were crucial factors in determining the eligibility for the deduction. The order emphasized that the ultimate authority of the society's administration lay with its general body members, ensuring that the provisions of Section 80P(2)(a)(vi) were not violated.

Order Pronouncement:
The appeal of the Revenue was dismissed, and the order was pronounced on Monday, 18th June 2018, at Chennai.

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