AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1506
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....imary Co-operative Agricultural and Rural Development Bank as per section 80P(4).The appellant is not a primary agricultural credit society(PACS) as defined in Part V of the Banking Regulations Act,1949. In view of the above, the decision of C1T(A)/ NFAC to allow entire deduction u/s 80P(2)(a)(i) of the Act is opposed to the facts of the case. 3. The CIT(A)/ NFAC has erred in not distinguishing the fact that the assessee in the case of Mavilayi Service Co-op Bank Ltd was registered under the Kerala State Co-operative Act and the present assessee is registered under the Karnataka State Souharda Sahakari Act, 1997. Under the Kerala State Cooperative Act there is no restriction on admission of any type of member, whereas the Karnataka State Souharda Sahakari Act places restriction on the admission of associate & nominal members. It states that associate / nominal members cannot be admitted in excess of 15% of the total membership. The CIT(A)/ NFAC has not appreciated the findings of the AO wherein it has been brought on record that the assessee Souharda Society has admitted and transacted with associate / nominal members in excess of 15% of the total membership thereby violat....
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....ies provided by the society. However the nominal members do not have voting rights and facilities as that of regular / normal members in that : i. They do not earn dividend out of profit of the society, ii. They do not have right over the property and assets of the society iii. They do not have right to participate in the general body or special body meeting. iv. They do not have voting right or contest in the election of the society. Their life in the society is limited to 3 years or till completion of the services provided by them for services utilized by them. They are not prominent members like that of normal / regular members. They are contributors to the surplus but are not participators in the business activities of the society. Thus the principle of mutuality between the regular / normal members and nominal members is lowest. Hence, society cannot be considered a cooperative society eligible for deduction under section 80P(2)(a)(i) of the Act. This fact has been confirmed by the Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. vs. ACIT in Civil Appeal No. 10245/2017 and he relied on para No.25. After relying on th....
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....nalysed the issue in detail and the assessee has also violated the principle of nominal members and it exceeded 15% of the total membership. He further submitted that in the Mavilayi Service Co-op Bank Ltd., the Hon'ble Apex Court has held that proportionate deduction under section 80P(2)(a)(i) of the Act needs to be allowed if the society had transacted with non members and the ld. CIT(A) should have allowed only on proportionate basis as decided by the Hon'ble Apex Court. The ld. Dr had no objection for uncertified paper books filed 10. On the other hand, learned Counsel for the assessee relied on the Order of learned CIT(A). He has filed written synopsis which is as under: 1. Briefly, the Respondent submits the questions that arise for consideration before this Hon'ble Tribunal out of this appeal are as follows: a. Issue No. 1: The Respondent is a co-operative society engaged in providing credit facility to its members and does not fall within the exclusion of 80P(4) of the Act and is entitled to deduction u/s 80P(2)(a)(i) of the Act. b. Issue No. 2: Disallowance of deduction u/s 80P(2)(a)(i) of the Act on 2 the ground that the Respondent has violat....
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....TR 670 (Karnataka)[16-01-2020] and Shri Vitthalray Souharda Pattin Sahakari Niyamit vs. Union of India [2020] 121 taxmann.com 300 (Karnataka)/[2021] 277 Taxman 276 (Karnataka)/[2020] 426 ITR 457 (Karnataka)[10-06-2020] (copy of judgement is enclosed and marked as Annexure 2) wherein it was held that: (f) the employment of the word "Sahakari" in the very title of the 1997 Act is also not sans any significance; 'Sahakaar' in Sanskrit is the equivalent of 'sahakaara' in Kannada which means 'cooperation'; as already mentioned above both the terminology; the 1959 Act and the 1997 Act employ this 1997 Act is woven with the principles of co-operation;sec.4 of this Act bars registration of an entity unless its main objectsare to serve the interest of the members in the area of co-operation and its bye-laws provide for economic and social betterment of its members through self-help & mutual principles; this apart, aid in accordance with the cooperative even sub-section (2) of sec.4 is heavily loaded with cooperative substance. In the above circumstances, these writ petitions succeed; a declaration is made to the effect that the entities registered S....
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.... (b) 'primary co-operative agricultural and rural development bank' means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities." f. As in the instant case, the Respondent is a co-operative society engaged in providing credit facilities to its members and not being acooperative bank falling within the exclusion of 80P(4) of the Act, it is eligible for exemption u/s 80P(2)(a)(i) of the Act. g. Reliance is placed on the Respondent's own judgement by this Hon'ble Tribunal in ITA 1320/Bang/2013 wherein it was held that (copy of the judgement is enclosed and marked as Annexure 3): 9. The learned AR also placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha in ITA No.5006/2013 dated 5-2-2014 wherein it was held that where the status of the assessee is a co-operative society, also carrying on the business of lending money for providing credit facilities to its members and not a co-operative bank, the assessee is entitled to the grant of exem....
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....ement and to vote at any meeting of the co-operative including the election to the board of the co-operative and shall not be eligible to be elected as a director or an office-bearer of the cooperative. (3) A nominal member shall have such rights and privileges and be subject to such liabilities as may be specified in the byelaws of the cooperative] d. Therefore, as the nominal members are minimal in AY 2017-18 and NIL in AY 2018-19, hence the principles laid down by Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of Income Tax, Calicut [2021] 123 taxmann.com 161 are squarely applicable to the case as deduction has to be allowed irrespective of status of member including nominal members, if the members are mentioned in the respective state act. e. Wherefore, the Respondent is entitled to deduction u/s 80P(2)(a)(i) of 11 the Act for the interest income earned from members. 5. Therefore it is prayed that appeal of the department may be dismissed in the interest of justice. 11. Considering the rival submissions and perusing the entire materials available on record and Orders of authorities below, we noted that assesse....
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....he members of the Co-operative. 15 To carry out chit busines among members with the approval of Registrar as per The Karnataka Chit Act, 1982 and The Karnataka Chit Rules 1983. 12. AO has also noted that assessee is carrying main business of providing credit facilities to its members and not for any other business. On going through the Order of learned CIT(A) it is noticed that learned CIT(A) relied on the judgment in the case of Mavilayi Service Co-op Bank Ltd., Vs. CIT, Calicut reported in (2021) 123 taxmann.com 161 (SC) in which it has been observed that deduction has to be allowed irrespective of status of members. The AO has classified members into two categories viz., regular/normal and nominal members. For the sake of convenience, we are reproducing Order of learned CIT(A) as under: 4.3 Ground No.3 [Deduction u/s. 80P(2)(a)(i)]: 4.3.1 The appellant being a co-operative society carrying on the business of providing credit facilities to its members, is eligible for the deduction claimed u/s. 80P(2)(a)(i) of Income Tax Act, 1961 to the extent of amount of profits & gains of business attributable to such activity. However, the AO has relied upon the....
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.... Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. V Commissioner of Income Tax, Calicut [2021] 123 taxmann.com 161 (SC). The relevant excerpts of the Apex Court's decision in the case of Mavilayi (supra) is extracted hereunder: ------------------- 45. To sum up, therefore, the ratio decidendi of Citizen Co-operative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. ....
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.... appellant's case, the activity is not of an eligible business but an investment, further it is carried on with rank outsider institutions and banks who are not even nominal members of the appellant. Thus, even on this alternate argument, the claim of the appellant cannot be allowed. The decisions relied on by the appellant do not over rule this binding interpretation of law laid down by the Hon'ble Supreme Court in the case of Mavilayi (supra). 4.3.6 Thus, the appellant's case is squarely hit by the specific directions of the Hon'ble Supreme Court in Mavilayi (supra) that "in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted". 4.3.7 Respectfully following the decision of the Hon'ble Supreme Court, the claim of the appellant for deduction under Section 80P(2)(a)(i) in respect of interest income earned from its investments with other cooperative banks, scheduled banks and others in the instant year is held as not tenable on facts and in law. 13. On going through the above observation of the learned CIT(A) and relying on the judgment of jurisdictional ....