TaxTMI 
TaxTMI 
2025 (7) TMI 1216
X X X X Extracts X X X X
X X X X Extracts X X X X
....eration has shown the net profit of Rs. 14,98,578/- and the same was claimed as deduction u/s 80P(2)(a)(i) of the Act. The net profit of Rs. 14,98,578/- also includes a sum of Rs. 17,445/- and Rs. 4,94,014/- being receipt of commission on E-Stamps and receipt of interest on deposits with cooperative Bank namely BDCC Bank. 4. The assessee, during the assessment proceeding submitted it carried business accepting deposit from the member and providing credit facility to the needy members. In the process of carrying out the impugned business, it earned a net profit of 14,98,578/- which as per the provisions of section 80P(2)(a)(i) of the Act is eligible for 100% deduction. The assessee claimed that in the ordinary course of business it made deposits with the cooperative bank to meet the statutory requirement of the KCSA, and the amount deposited in the manner provided under section 58 of the KCSA. The assessee submitted that as per the guidelines of the KCSA, the cooperative societies engaged in banking business with members required to deposit 100% of general reserve and 20% of the Deposit collected in short term deposit. It also submitted that as per the said guidelines, the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duction to the cooperative society under the Act provided on the concept of mutuality. In the case of interest earned from FD with the bank, the condition of mutuality does not satisfy. The AO held even assuming, the interest earned from such deposits is distributed to members as divided, still the principle of mutuality does not get fulfilled as held by the Hon'ble Supreme Court in the case of Kumbakonam Mutual benefit Fund Ltd reported in 53 ITR 241 8. Accordingly, the AO comes to conclusion that the interest income has not been earned from its business activity and the deduction claim by the assessee for interest income is in violation of provision of section 80P of the Act. 9. Furthermore, the AO regarding the commission income of Rs. 17,445/- on E-Stamp observed that the assessee in issuing E-stamp dealt with the general public, and this is not denied by the assessee. Therefore, the assessee by dealing with general public violated the principles of mutuality. 10. The AO relying on various judgments of Hon'ble Supreme Court and High Courts disallowed the entire claim of the assessee under section 80P the Act on account of violation of mutuality. 11. The aggrieved as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....low for any exception. Therefore, the quantum of transactions with non-members is irrelevant. The learned CIT(A) in holding so referred to the judgment of the Hon'ble Supreme Court ruling in case of CIT vs. Kumbakonam Mutual Benefit Ltd reported in 53 ITR 241 and various other Hon'ble High Court which are available at page 12 of ld. CIT(A) order. Thus, the learned CIT(A) concluded that the insignificant transactions with non-members also violate the principles of mutuality and accordingly the assessee is not eligible for deduction under section 80P of the Act. 17. Being aggrieved by the finding of the learned CIT(A) the assessee is in appeal before us. 18. The learned AR for the assessee before us among other contentions argued that the deposits made with the Co-operative Bank, are out of statutory obligation as per the Karnataka State Co-operative Societies Act, 1959, and not voluntary investments intended to earn income. As per Section 57(2) of the Karnataka State Co-operative Societies Act, 1959, co-operative societies are required to set certain sum, which must be mandatorily invested in manner provided under section 58 of the said Act. The learned AR argued that since th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at matters is whether the predominant activity is mutual in nature. We find that Hon'ble Patna High Court in the case of CIT vs. Bankipur Club Ltd which was further upheld by the Hon'ble Supreme Court reported in [1997] 92 Taxman 278 (SC) has held as under: that merely because the assessee-company had entered into transactions with non-members and earned profits out of transactions held with them, its right to claim exemption on the principle of mutuality in respect of transactions held by it with its members was not lost. The assessee was a mutual concern. The income derived by it from its house property let to its members and their guests and from the sale of liquor, etc., to its members and their guests was not taxable in 20.4 In the present case, the e-stamping commission from nonmembers constitutes a very small fraction (Rs. 17,445/-) of the total net profit of Rs. 14,98,578/-, which arises primarily from business with members. Disallowing the entire deduction under section 80P(2)(a)(i) merely due to such a minor non-member transaction is disproportionate and contrary to the spirit of the provision. Courts have consistently ruled that the eligibility for deduction ....