Cooperative society registered under Karnataka Souharda Sahakari Act qualifies for section 80P exemption on member income

The ITAT Panaji allowed the assessee's appeal regarding exemption under section 80P(2)(a)(i). The tribunal held that a cooperative society registered under Karnataka Souharda Sahakari Act, 1997 qualifies as a cooperative society within the meaning of section 2(19) of the Income Tax Act, rejecting the CIT(A)'s contrary finding. The tribunal granted exemption for income earned from members on credit facilities, treating nominal members as regular members based on SC precedent. Additionally, exemption was allowed for income earned from another cooperative society, following earlier tribunal decisions. The appeal was decided in favor of the assessee.

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Issues:
- Eligibility of an assessee registered under Karnataka Souharda Sahakari Act, 1997 for exemption u/s 80P(2)(a)(i) of the Income Tax Act, 1961.
- Allowability of deduction under section 80P(2)(d) of the Act for income derived by a cooperative society from its investment held with other cooperative societies.

Analysis:

Issue 1: Eligibility for Exemption u/s 80P(2)(a)(i)
The case involved an appeal by the assessee against the order of the ld. Commissioner of Income Tax (Appeals) concerning the denial of exemption u/s 80P(2)(a)(i) for the assessment year 2017-18. The appellant, a cooperative society registered under the Karnataka Souhard Sahakari Act, 1997, claimed exemption under section 80P(2)(a)(i) of the Act. The Assessing Officer denied the claim, stating that the credit facilities were provided to nominal members who had no voting rights. The issue was whether the appellant society qualified as a cooperative society for exemption. The Tribunal referred to decisions by the Hon'ble Karnataka High Court, which held that a society registered under the Karnataka Souharda Sahakari Act, 1997 is considered a cooperative society under section 2(19) of the Act. The Tribunal disagreed with the CIT(A)'s reasoning and allowed the appeal, stating that the income earned by the appellant society from credit facilities to members was exempt under section 80P(2)(a)(i).

Issue 2: Allowability of Deduction under Section 80P(2)(d)
The second issue revolved around the deduction under section 80P(2)(d) of the Act for income derived by a cooperative society from its investments held with other cooperative societies. The Tribunal cited a decision by a Co-ordinate Bench, which clarified that interest income derived from investments made with cooperative banks is exempt under section 80P(2)(d). The Tribunal highlighted that the reasoning of the lower authorities for denying the exemption was not valid, as a cooperative bank is also considered a cooperative society. Referring to various decisions, including those of the Hon'ble Karnataka High Court and the Hon'ble Delhi High Court, the Tribunal concluded that the appellant was eligible for the deduction under section 80P(2)(d). Consequently, the Tribunal allowed the appeal on this ground as well.

In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling in favor of the appellant on both the eligibility for exemption u/s 80P(2)(a)(i) and the allowability of deduction under section 80P(2)(d) of the Income Tax Act, 1961.

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