TaxTMI 
TaxTMI 
2020 (10) TMI 650
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....s 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 inapplicable to the facts of the appellant's case. 5. Without prejudice to ....
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....rves 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 Assessing Officer. During the course of the assessment proceedings, the assessee submitted revised statement of income d....
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....sue 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, so as to clearly understand the purpose and the nature of business done by it. An examination of the facts in light of discussion cited by Ld.CIT(A) as well as....
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....ds 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 Court in the case 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) o....
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.... 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-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 inclu....
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....f 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 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 Soc....