2020 (3) TMI 45 - AT - Income Tax

Tribunal Remands Tax Appeal, Emphasizes Statutory Compliance

The Tribunal allowed the appeal for statistical purposes, remanding the matter to the Assessing Officer for reassessment of deductions under Section ... Deduction u/s 80P[2][a][i] & 80P [2][d] - income derived from business of providing credit facilities to its members and Godown rent earned by the appellant under the facts and in the circumstances of the appellant's case - HELD THAT:- Assessee is an Agricultural Co-operative Society, registered under the Karnataka Co-operative Societies Act, 1959. The assessee filed its return of income for the assessment year 2016-2017 declaring total income of ₹ 8,23,810 after claiming deduction u/s 80P. The return of income was selected for scrutiny through CASS. The Assessing Officer noticed that the principles of mutuality were violated by the assessee-society and therefore denied the deduction in view of the Hon’ble Supreme Court judgment in the case of M/s.Citizen Co-operative Society Ltd. [2017 (8) TMI 536 - SUPREME COURT]. Tribunal in the case of Sindhu Credit Souharda Sahakari Niyamita [2019 (12) TMI 1277 - ITAT BANGALORE] , respectfully following the same, we remit the matter to the file of the Assessing Officer for adjudication afresh, on similar line. - Decided in favour of assessee allowed for statistical purposes. Issues Involved:1. Applicability of Section 80P(2)(a)(i) and 80P(2)(d) deductions.2. Principles of mutuality and their violation.3. Classification of interest income from investments.4. Applicability of Section 234B and 234C interest charges.Issue-wise Detailed Analysis:1. Applicability of Section 80P(2)(a)(i) and 80P(2)(d) Deductions:The assessee, an Agricultural Co-operative Society, claimed deductions under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act. The Assessing Officer (AO) denied these deductions, asserting that the principles of mutuality were violated, referencing the Supreme Court judgment in the case of Citizen Co-operative Society Ltd. (397 ITR 1). The AO disallowed the entire deduction claimed by the assessee, specifically excluding interest/dividend income of Rs. 1,37,44,585 from investments with co-operative/scheduled banks from the deduction under Section 80P(2)(a)(i) and denying the deduction under Section 80P(2)(d), relying on the Karnataka High Court decision in the case of Totgar’s Co-operative Sale Society Ltd.2. Principles of Mutuality and Their Violation:The AO and CIT(A) held that the assessee violated the principles of mutuality by admitting nominal members who could neither vote nor share in the profits, thereby disqualifying the society from claiming deductions under Section 80P(2)(a)(i). The CIT(A) upheld the AO's decision, referencing the Supreme Court's rationale in Citizen Co-operative Society Ltd., which emphasized the importance of mutuality in co-operative societies.3. Classification of Interest Income from Investments:The AO classified the interest income of Rs. 1,37,44,585 received from deposits/investments in South Carrara District Co-op Bank under the head 'Other Sources,' rather than as part of the business income of providing credit facilities to its members. The CIT(A) confirmed this classification, rejecting the assessee's argument that the interest income should be considered part of the business income due to statutory requirements under the Karnataka Cooperative Societies Act.4. Applicability of Section 234B and 234C Interest Charges:The assessee contested the levy of interest under Sections 234B and 234C of the Income Tax Act. The authorities below upheld the interest charges, and the issue was raised as a ground in the appeal.Tribunal's Decision:The Tribunal noted that similar issues had been adjudicated in the case of Sindhu Credit Souharda Sahakari Niyamita v. ITO (ITA No. 2144/Bang/2019). The Tribunal held that Souharda Sahakaris, registered under the Karnataka Souharda Sahakari Act, 1997, are indeed co-operative societies under Section 2(19) of the Income Tax Act. Therefore, the assessee's claim for deductions under Section 80P(2)(a)(i) could not be rejected on the basis that it is a Souharda Sahakari.However, the Tribunal remitted the matter back to the AO for fresh adjudication regarding the fulfillment of other conditions for claiming the deduction under Section 80P(2)(a)(i). The Tribunal directed the AO to re-examine the conditions for allowing such deductions and decide afresh.Conclusion:The appeal was allowed for statistical purposes, with the matter remanded to the AO for re-evaluation of the conditions for deductions under Section 80P(2)(a)(i) and 80P(2)(d). The Tribunal's decision emphasized the need for a detailed examination of the statutory requirements and principles of mutuality in the context of co-operative societies registered under the Karnataka Souharda Sahakari Act, 1997. The issue of interest classification and applicability of Sections 234B and 234C was also to be reconsidered by the AO.