TaxTMI 
TaxTMI 
2020 (10) TMI 650
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....ing that the business of providing credit facilities to the members carried on by the appellant cannot be regarded as a business carried on by a co-operative society complying with the principles of mutuality since the appellant had admitted nominal and associated members, who could neither vote nor were entitled to a share in the profits as per the bye-laws of the appellant and hence, the appellant was not entitled to deduction u/s. 80P(2)(a)(i) of the Act having regard to the rationale behind the judgment of the Hon'ble Supreme Court in the case of Citizens Co- operative Society reported in 397 ITR 1 (SC) under the facts and in the circumstances of the case. 4. The ld. CIT(A) ought to have appreciated that the appellant co-operative society had no doubt admitted nominal and associate members, which was permissible under the Karnataka Co-operative Societies Act, 1959 but, there was no violation of any of the provisions of the Karnataka Co-operative Societies Act under which the appellant was constituted and therefore, the judgment of the Hon'ble Supreme Court relied upon in the case of Citizens Co-operative Society reported in 397 ITR 1 was distinguishable and wholly inap....
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....be charged u/s. 234B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 10. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs. 3. The facts of the case are that the assessee is a Primary Agricultural Co-operative Society duly registered under the Karnataka Co-operative Societies Act, 1959 and is engaged in the business of accepting deposits from members, lending credit facilities to its members (mainly agricultural loans), distribution of food grains and other products under State Government's Public Distribution System, sale of fertilizers/pesticides etc. to farmers,. For the assessment year 2016-17, the assessee filed its return of income declaring a total income of Rs. 5040/- after claiming deduction of Rs. 33,70,747/- u/s. 80P(2)(d) of the Act. Thereafter, the assessee's case was selected for scrutiny under CASS and notice u/s. 143(2) was issued by the Ass....
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....r, Ld.CIT(A) did not spell out as to how the said test fails. We are of the view that, such grievance of the assessee would be addressed by setting aside the issue of deduction u/s.80P(2)(a)(i) of the Act to Ld.AO for consideration afresh, with a direction to the Assessee to produce a certificate from RBI that it does not possess license from it for doing banking business and further that business carried on by Assessee is not akin to business of a co-operative bank. Further the first part of Sec.80P(2)(a)(i) allows deduction in respect of income derived by a co- operative Society from business of banking. Even the claim of the Assessee for deduction requires to be examined under the first part of Sec.80P(2)(a)(i) of the Act. Hon'ble Supreme Court in case of Citizen Co- operative Society Ltd. (supra) has also held that, it is also important to ascertain as to what is the nature of income which is claimed as exempt and as to how the principle of mutuality is not violated in respect of such income. An examination of (i) the memorandum of association, the articles of association, (ii) the byelaws and other documents explaining the rules and regulations of the society is necessary,....
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....2018 in respect of interest income earned by the society were the Assessing Officer denied the claim of the assessee observing that interest income earned on investment of surplus funds has to be assessed as 'income from other sources' and not from business at Page No.3 paras 4 & 5 held which read as under : " 4. The issues that arise for consideration in this appeal by the assessee are as to whether the Revenue authorities were justified in holding that the assessee was not entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (in 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....
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.... supreme Court in The Totgars Co-operative Sales Society Ltd. (supra) and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter 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-operati....
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....n under section 80P(2). Further, Income Tax Act does not define "member", nor has provided distinction between 'regular member' and 'nominal member' and therefore, its meaning and objects has to be understood in the context of definition given in the State Act. The Revenue authorities are trying to extrapolate the meaning of expression "Member" contrary to the spirit of the Act. It is evident from the definition of "member" provided in section 2(13) of the Gujarat Cooperative Societies Act that "Member" includes nominal, associate or sympathizer member. Therefore, in the present case, the nominal members are 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 asse....
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....inal members and the assessee should be provided adequate opportunity of hearing and co-operate in submitting the information for early disposal of the case and allow the grounds of appeal of the assessee for statistical purposes. 6. Similarly the appeals filed in ITA Nos.762, 765, 942, 1190 & 1191/Bang/2019 are similar and identical. Hence the decision rendered in ITA No.707/Bang/2019 at paras 4 & 5 above shall apply mutadis mutandis. Accordingly the disputed issue in these appeals are remitted to the file of Assessing Officer as indicated and allow the grounds of appeal of assessees. 7. In the result, appeals of the assessee in ITA Nos.707, 762, 765, 942, 1190 & 1191/Bang/2019 are treated as allowed for statistical purposes. 8. I have heard the rival submissions and perused the material on record. The assessee is having nominal members and having nominal members in the Co-operative Society does not disentitle the assessee for getting exemption u/s. 80P of the Act. In my opinion, the issue is covered by the above orders of the Co-ordinate Bench relied on by the Ld. AR and is required to be re-adjudicated by the Assessing Officer after considering the above dec....
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....ttedly, the assessee society is a primary agricultural cooperative credit society and therefore, would be entitled to the benefit of Section 80P of the Act. 15. Further, for the assessment year 2014-15, the decision in the case http://www.judis.nic.in of Citizen Cooperative Society Limited was relied upon by the Revenue before the Tribunal, which, in paragraph 6.1 of its order dated 28.2.2018 for the assessment year 2014-15, extracted the operative portion of that judgment. In that case, the Hon'ble Supreme Court found that the society carried on certain activities, 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 Hon'ble Supreme....