2020 (3) TMI 1112

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....earned Commissioner Of Income-Tax (Appeals) denied the deduction u/s. 80P(2)(a)(i) Of the Act on the only ground that the appellant deals with nominal and associate members. 4. That the learned Commissioner of Income-Tax (Appeals) ought to have appreciated that the appellant is registered as Co-operative Society under Karnataka State Co-operative Societies Act, 1959 and the said Act allows the appellant to admit nominal and associate members. 5. That the learned Commissioner of Income-Tax (Appeals) erred in law and on facts in not allowing the interest income of Rs. on investments as deduction u/s. 80P(2)(a)(i) of the Act. 6. That the learned Commissioner of Income-Tax (Appeals) erred in law and on facts in not allowing the interest income of Rs. 1,11,708/- on investments as deduction u/s. 80P(2)(d) of the Act. 3. The Brief facts of the case are, the assessee is a Primary Agriculture Cooperative Society formed for the benefit of Members primarily engaged in the business of accepting deposits and lending of finances to Members. Further the assessee is a co-operative society registered under Karnataka Co-operative Societies Act, 1959 and filed the return....

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....sions relied by the CIT(Appeals) are distinguishable. Further the society accepts the deposits and lends finances to its members and supported his arguments with the decision of Tribunal and jurisdictional Hon'ble High Court and prayed for allowing the appeal. Contra, the ld. DR relied on the orders of the CIT (Appeals). 5. We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue is with respect to denial of deduction under Section 80P(2) of the Act by the Assessing officer, as the assessee is in the Banking business accepts the deposits from the general public being D Class nominal members and also lend the funds. Whereas, the nominal members are the contributors for earning surplus and does not participate /share the surplus of the society, hence the concept of mutuality cease to exist. The Ld. AR supported his arguments relying on the co-ordinate bench decision of the Tribunal in the case of M/s. Kodavoor Vyavasaya Seva Sahakari Sangha Niyamitha & Others Vs. ITO (ITA No.707/Bang/2019 Dt.26.08.2019). We found the disputed issues are with respect to claim of deduction under Section 80P(2) of the Act and the criteria of nominal....

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.... short 'the Act') on interest income earned and under section 80P(2)(d) of the Act in respect of interest received from Co-operative institutions. The Assessing Officer (AO) denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head "Income from Other Sources" and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 of the Act cannot be allowed. In upholding the above conclusions, the CIT(A), inter alia, relied on the decision of the Hon'ble Supreme Court in the case of The Totgar's Cooperative Sales Society Ltd., Vs. ITO 322 ITR 283 (SC) wherein the Hon'ble Supreme Court held that the benefit of deduction under section 80P(2)(a)(i) of the Act is only on income which is assessable under the head "Income from Business". Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co-operative Society providing credit facilities to members or marketing agricultural produce to members is not business income but income from other sources and the society is not entitled to ....

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....er of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra)." 5. Similarly, on the issue of definition of the Member where Nominal Members are also eligible for benefits. The Member defined under the co-operative society Act bye-laws includes Nominal Member. We found Ahmadabad Bench of ITAT in ITA No.1328/Ahmd/2018 for Asst. Year 2015-16 in the case of Trapaj Vibhageeya Khet Udyog Mal Rupantar Food Processing Sahakari Mandali Ltd. Vs. DCIT (supra) at para 7 has held as under : " 7. We have heard ld.DR and gone through the record. We have also gone through case laws cited both the sides before ld.CIT(A). We find th....

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....re members as provided in the Act and that deposits received and loan advanced to the nominal cannot be treated as from non-members or from public and in the nature of banking business. That being so, then, an assessee engaged in primary agriculture activities and providing credit facilities and agriculture facilities to the farmer-members of a particular region, claim of deduction under section 80P(2) cannot be denied. It is not denied by the Revenue that the activities of the assessee society are of primary agriculture activities. Competent authority has also recognized the assessee as primary agriculture credit society. In the earlier assessment year also, Revenue has accepted this fact and allowed the claim of the assessee. Judgment of Hon'ble Supreme Court in the case of Citizens Co-operative Society Ltd. (supra) is distinguishable on facts. In that case, status of the assessee is that of co-operative bank, whereas assessee in the present case is a primary agriculture credit society and applicability of section 80P(2)(4) of the Act. Considering all these facts, we are not convinced with the reasoning and finding given by the Revenue authority in denying claim of the assessee u....

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....pportunity of hearing and shall co-operate in submitting the information and allow the grounds of appeal of the assessee for statistical purposes. 6. In the result, the assessee's appeal is allowed for statistical purposes. Pronounced in the open court on the date mentioned on the caption page. ============= Document 1 11. We have elaborately heard the learned Senior Standing Counsel for the Revenue. 12. Admittedly, the assessee society is registered under the provisions of the TNCS Act. It defines the word 'members' under Section 2(16) to mean a person joining in the application for the registration of society and a person admitted to the membership after registration in accordance with the provisions of the Act, the Rules framed thereunder and the By-laws and includes an associate member. The expression 'associate member' is defined under Section 2(6) of the TNCS Act to mean a member, who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in this Act, the Rules and the By-law. http://www.judis.nic.in 13. Thus, the definition of the word 'members' includes an as....