TaxTMI 
TaxTMI 
2020 (5) TMI 163
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....,930/- as against the returned income of Rs.NiI under the facts and circumstances of the case. 2 a) The authorities below erred in denying the deduction claimed by the appellant under section 80P(2) of the Income-Tax Act, 1961 (the Act) Of under the facts and circumstances of the case. b) The authorities below are not justified in holding that the nominal/associate members of the society are not members in real sense and have consequently erred in not allowing the deduction under section 80P(2) of the Act under the facts and circumstances of the case. c) The authorities below failed to appreciate that there was no violation of the provisions of the Karnataka Co-operative Societies Act, 1959 on the part of the appellant and denial of deduction under section 80P(2) of the Act on the basis of the alleged non-compliance is unwarranted under the facts of the case. d) The authorities below erred in not appreciating the fact that interest earned from deposits made in Co-operative Banks and other banks is attributable to carrying on the business activities of the appellant and therefore the appellant is eligible for deduction under section 80P(2) of the Act under the facts of the case....
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.... principles of mutuality were violated by the appellant society under the facts and circumstances of the case. b) The learned CIT(A) further erred in concluding that the appellant society is engaged in the finance business despite evidence that the appellant was mainly engaged mainly in agricultural activities under the facts and circumstances of the case. 3. The Brief facts of the case are, the assessee is a Primary Agriculture Co- operative Society formed for the benefit of Members engaged in agriculture activities and also engaged in the business of accepting deposits and lending of finances to Members. The assessee is a co-operative society registered under Karnataka Co-operative Societies Act, 1959 and filed the return of income on 30.09.2017 with Rs Nil income. The Return of Income was processed under Section 143(1) and the case was selected for scrutiny under CASS, and Notice under Section 143(2) of the Act was issued. In compliance, the Id. AR appeared from time to time before the authorities and fumished the details and the case was discussed. The assessee has claimed deduction under Section 80P of the Act, but the Assessing Officer issued Show Cause Notice for disallow....
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....Class nominal members and also lend the funds. Whereas, the nominal members are the contributors for earning surplus and does not participate share the sulplus of the society, hence the concept of mutuality cease to exists. The LdAr 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.707Bang/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 members. We considered the observations of the co-ordinate bench of the Tribunal in the case of M/S. Kodavoor Vyavasaya Seva Sahakari Sangha Niyamitha & Others Vs. ITO (supra) at page 5 to 12 Para 4 & 5 which is read as under : "4. We heard the rival submissions and pelused the material on record. Prima facie, the sole disputed issue being denial of claim of deduction under Section 80P(2)(a)(ii) of the Act. The Assessing Officer has dealt on the interest income from investment deposits in Banks, whereas the assessee society is engaged in business of carrying on banking and providing credit facilities. In the present assessm....
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....se of The Totgar's Co- operative 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 special deduction. 5. While learned AR relied on the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd., 230 taxman 309 (Karn), the DR relied on a subsequent decision of the Hon'ble Karnataka High Court in the case of PCI T Vs. Totgars Co-operative Sale Society Ltd., 395 ITR 611 (Karn.). We have carefully gone through the said judgment. The facts of the case before the Hon'ble Karnataka High Court was that the Hon'ble Court was considering a case relating to Assessment Years 2007-08 to 2011-12. In case decided by the Hon'ble Supreme Co....
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....perative 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 Ahmedabad Bench of IT AT 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 Id.DR and gone through the record. We have also gone through case laws cited both the sides before Id.ClT(A). We find that fundamental facts which are not disputed by the Revenue authorities are that the assessee is a primary agricultural credit society registered under the Gujarat Cooperative Societies Act, 1961. It is engaged in providing credit facilities to the farmers in the region of Bhavnagar district. As per the AO, members of the assessee-society consisted of two types viz. regular member and nominal members. It is the case of the Revenue that assessee is doing more business with nominal members than the regular member in order to earn more profit, which is against the law, and therefore, there is a break-down of ....
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....ssessee 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 under section 80P(2). We allow the claim of the assessee and direct the Id.AO to re-compute income of the assessee by allowing claim under section 80P(2)(4) of the Act." Also in Tax Case Appeal No.882 and 891 of 2018 of Hon'ble Madras High Court in the case of The Prin. Commissioner of Income Tax Vs. S-1308 Ammapet Primary Agricultural Co-operative Bank Ltd. held in paras 11 to 18 as under : 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....
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....which were contrary to the provisions of the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995 and that they accepted deposits from third parties, who were not members in the real sense and were using those deposits to advance gold loans. Therefore, the Hon'ble Supreme Court pointed out that such an activity of the said society was that of a finance business and could not be termed as a cooperative society and that the loans, which were disbursed, were without the approval from the Registrar of Mutually Aided Cooperative Societies, Ranga Reddy District. The Honble Supreme Court found that the said society was not entitled to deduction under Section 80P of the Act. 16. It is noteworthy to point out that the Hon'ble Supreme Court in the decision in the case Of Citizen Cooperative Society Limited also observed that in the light of insertion of Sub-section (4) to Section BOP of the Act by the Finance Act, 2006, such deduction should not be admissible to a cooperative bank and that if it is a primary agricultural credit society or a primary cooperative agriculture and rural development bank, the deduction would still be provided. http://www.judis.nic-in 17. In t....