2021 (3) TMI 263 - AT - Income Tax

Tax Tribunal Recognizes Society for Deduction Despite Not Meeting Cooperative Society Definition

The Tribunal overturned the denial of deduction under section 80P2(a)(i) of the Income Tax Act to a Society registered under the Karnataka Souharda ... Disallowance u/s 80P(2)(a)(i) - sole reason for the A.O. and the first appellate authority to decide the appeal against the assessee was that the assessee was registered under the Karnataka Souharda Sahakari Act, 1997, and therefore, was not a cooperative society within the purview of section 2(19) - HELD THAT:- Hon’ble Karnataka High Court in the case of M/s.Swabhimani Souharda Credit Co-operative Ltd.[2020 (1) TMI 831 - KARNATAKA HIGH COURT]had decided an identical issue and held that the entities registered under the Karnataka Souharda Sahakari Act, 1997, fit into the definite term “Co-operative Society”. AO in the impugned assessment order had clearly held that the assessee is providing credit facilities to its members and interest paid to members on their deposits. As further stated by the A.O. that the entire interest income received is out of operational income of the assessee. As mentioned earlier, the solitary reason for denying the claim of deduction u/s 80P(2) was that the assessee cannot be termed as a cooperative society coming within the definition of section 2(19) since it is registered under the Karnataka Souharda Sahakari Act, 1997. Since have held in view of the above judicial pronouncement that the assessee is a cooperative society though it is registered under the Karnataka Souharda Sahakari Act, 1997, allow the appeal of the assessee. Issues:Whether the CIT(A) was justified in confirming the disallowance of claim of deduction made under section 80P2(a)(i) of the Income Tax Act.Detailed Analysis:Issue 1: Claim of Deduction under Section 80P2(a)(i)The appeal pertains to the denial of a claim of deduction under section 80P2(a)(i) of the Income Tax Act by the Assessing Officer, which was confirmed by the CIT(A). The assessee, a Society registered under the Karnataka Souharda Sahakari Act, 1997, filed its return of income for the assessment year 2016-2017, claiming a deduction under section 80P2(a)(i). However, the Assessing Officer denied the claim, stating that the assessee did not fall within the definition of a cooperative society under section 2(19) of the Act due to its registration under the Karnataka Souharda Sahakari Act, 1997.Issue 2: Judicial PrecedentsThe assessee contended that the Karnataka High Court had ruled in the case of M/s.Swabhimani Souharda Credit Co-operative Ltd. that entities registered under the Karnataka Souharda Sahakari Act, 1997, indeed fit the definition of a cooperative society under section 2(19) of the Income Tax Act. This judgment was also followed in another case. Additionally, the Tribunal in a separate case had held that cooperatives registered under any law for the registration of cooperative societies in any State were considered cooperative societies under the Act.Issue 3: Decision and RationaleAfter considering the submissions and relevant judicial pronouncements, the Tribunal held that the assessee, despite being registered under the Karnataka Souharda Sahakari Act, 1997, qualified as a cooperative society under section 2(19) of the Income Tax Act. The Tribunal referred to the functional autonomy enjoyed by Souharda Cooperatives and the legislative history behind the enactment of the Karnataka Souharda Sahakari Act, 1997, to support its decision. Consequently, the Tribunal allowed the appeal of the assessee, overturning the earlier denial of the deduction under section 80P2(a)(i) by the Assessing Officer and CIT(A).In conclusion, the Tribunal's decision was based on the interpretation of relevant legal provisions, judicial precedents, and the specific characteristics of Souharda Cooperatives under the Karnataka Souharda Sahakari Act, 1997. The judgment clarified that registration under a specific state law did not preclude an entity from being considered a cooperative society for the purposes of claiming deductions under the Income Tax Act.