TaxTMI 
TaxTMI 
2025 (7) TMI 2061
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....d the facts of the case show that assessee is registered under the Karnataka Co-operative Societies Act [KCS Act], filed its return of income on 16.5.2017 declaring gross total income of Rs.19,10,651 and claimed deduction u/s. 80P(2)(a)(i) of the same amount resulting into taxable income at Nil. The return of income was picked up for scrutiny by issue of notice u/s. 143(2) on 17.8.2018. During the course of assessment proceedings, the ld. AO disallowed the entire deduction u/s. 80P(2)(a)(i) relying on the decision of Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. In the assessment order, the ld. AO held that in view of the decision of Hon'ble Supreme Court in the case of Citizen Co-operative Society, the assessee is not entitled to deduction u/s. 80P(2)(a)(i). With respect to interest income from investment in other co-operative banks also, interest income earned from Belgaum District central Cooperative bank Limited of Rs 20,88,556/- was not allowed as deduction u/s 80P (2) (d) of the Act. Further it was also found that assessee has debited a sum of Rs.75,000 towards audit fees, but did not furnish any details for TDS, therefore 30% of 75,000 i.e. Rs.22,500....
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.... concept. Further the business done with nominal members is hardly 1.82% of the total business. He further relied upon the decision of the coordinate Bench dated 10.11.2022 wherein the coordinate Bench has remanded the case back to the AO to consider and then allow the claim u/s. 80P(2)(a)(i) of the Act. It was further contested that even otherwise on the interest income from BDCC Bank amounting to Rs.20,88,556, the ld. AO has not given any deduction wherein according to KCS Act, 25% of the profit is required to be invested into statutory reserve fund with BDCC Bank. It is an investment with Apex Bank. Even otherwise, it is a co-operative society carrying on the business of banking and interest therefrom is eligible for deduction u/s. 80P(2)(d) of the Act. With respect to disallowance of 30% of audit fees, it was submitted that no opportunity was provided to the assessee to produce the relevant forms that recipient of the income has offered the income for taxation. 7. The ld. DR vehemently supported the orders of the ld. lower authorities and submitted that assessee is correctly denied deduction u/s. 80P(2)(a)(i) and 80P(2)(d) of the Act. He relied on the decision of Honourable ....
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.... society is carrying on banking business and for all practical purposes acts like a co operative bank, this Court then held as follows: "18. We may mention at the outset that there cannot be any dispute to the proposition that section 80-P of the Act is a benevolent provision which is enacted by Parliament in order to encourage and promote growth of cooperative sector in the economic life of the country. It was done pursuant to the declared policy of the Government. Therefore, such a provision has to be read liberally, reasonably and in favour of the assessee (see Bajaj Tempo Ltd. v. CIT [1992] 3 SCC 78]). It is also trite that such a provision has to be construed as to effectuate the object of the legislature and not to defeat it (see CIT v. Mahindra and Mahindra Ltd. [1983] 4 SCC 392. Therefore, it hardly needs to be emphasised that all those cooperative societies which fall within the purview of section 80-P of the Act are entitled to deduction in respect of any income referred to in sub section (2) thereof. Clause (a) of sub-section (2) gives exemption of whole of the amount of profits and gains of business attributable to any one or more of such activities which are m....
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....oviding credit facilities to its members will be entitled for exemption under this sub-clause. The carrying on the business of banking by a cooperative society or providing credit facilities to its members are two different types of activities which are covered under this sub-clause. ** ** ** 13. So, in our view, if the income of a society is falling within any one head of exemption, it has to be exempted from tax notwithstanding that the condition of other heads of exemption are not satisfied. A reading of the provisions of section 80-P of the Act would indicate the manner in which the exemption under the said provisions is sought to be extended. Whenever the legislature wanted to restrict the exemption to a primary cooperative society, it was so made clear as is evident from clause (f) with reference to a milk cooperative society that a primary society engaged in supplying milk is entitled to such exemption while denying the same to a federal milk cooperative society." The aforesaid judgment of the High Court correctly analyses the provisions of section 80-P of the Act and it is in tune with the judgment of this Court in Kerala State Coop. Mktg. Federation Lt....
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...., such activity of the appellant is that of finance business and cannot be termed as cooperative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the assessing officer that the activity of the appellant is in violation of the Cooperative Societies Act. Moreover, it is a cooperative credit society which is not entitled to deduction under section 80 P(2)(a)(i) of the Act. 25. It is in this background, a specific finding is also rendered that the principle of mutuality is missing in the instant case. Though there is a detailed discussion in this behalf in the order of the assessing officer, our purpose would be served by taking note of the following portion of the discussion: "As various courts have observed that the following three conditions must exist before an activity could be brought under the concept of mutuality: (i) that no person can earn from him; (ii) that there a profit motivation; (iii) and that there is no sha....
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....d if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; (IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so - which is not the case with section 80P(2)(a)(i); (V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that case was not so licenced, the assessee would not fall within the mischief of section 80P(4). 22. However, considering that the learned Senior Advocate appearing for the Revenue argued that the concurrent findings of fact in that case were that most of the business of the assessee was conducted illegally with nominal members, who could not be members of such society under the Andhra Pradesh Act, and considering....
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.... only to the factum of a co-operative society being registered under the 1912 Act or under the State law. For purposes of eligibility, it is unnecessary to probe any further as to whether the co-operative society is classified as X or Y. 29. Thirdly, the gross total income must include income that is referred to in sub section (2). 30. Fourthly, sub-clause (2)(a)(i) with which we are directly concerned, then speaks of a co-operative society being "engaged in" carrying on the business of banking or providing credit facilities to its members. What is important qua sub clause (2)(a)(i) is the fact that the co-operative society must be "engaged in" the providing credit facilities to its members. As has been rightly pointed out by the learned Additional Solicitor General, the expression "engaged in", as has been held in CIT v. Ponni Sugars & Chemicals Ltd. [2008] 174 Taxman 87/306 ITR 392 (SC), would necessarily entail an examination of all the facts of the case. This Court in Ponni Sugars & Chemicals Ltd. (supra) held: "20. In order to earn exemption under section 80-P(2) a cooperative society must prove that it had engaged itself in carrying on any of the se....
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....ding credit facilities to its members. Such fact finding enquiry (see section 133(6) of the Income-tax Act) would entail examining all relevant facts of the co-operative society in question to find out whether it is, as a matter of fact, providing credit facilities to its members, whatever be its nomenclature. Once this task is fulfilled by the assessee, by placing reliance on such facts as would show that it is engaged in providing credit facilities to its members, the assessing officer must then scrutinize the same, and arrive at a conclusion as to whether this is, in fact, so. 33. Sixthly, what is important to note is that, as has been held in Kerala State Cooperative Marketing Federation Ltd. (supra) the expression "providing credit facilities to its members" does not necessarily mean agricultural credit alone. Section 80P being a beneficial provision must be construed with the object of furthering the co-operative movement generally, and section 80P(2)(a)(i) must be contrasted with section 80P(2)(a)(iii) to (v), which expressly speaks of agriculture. It must also further be contrasted with sub-clause (b), which speaks only of a "primary" society engaged in supplying m....
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.... also entitled to deduct the whole of such income, the object of the provision being furtherance of the co-operative movement as a whole." 11. As the assessee is carrying on the business of the assessee as per the certificate granted by the respective registrar of the cooperative societies and according to its bylaws, the reliance by the learned lower authorities on decision of the honourable Supreme Court in case of Citizen cooperative society (supra), is unjustified. In fact, the principles laid down by that decision favours the claim of the assessee and does not support the case of revenue. Thus the assessee is entitled to deduction under section 80 P (2) (a) (i) of the Act. 12. Now the issue was also raised that assessee has earned interest from a cooperative societies which is carrying on the business of banking and therefore the deduction u/s 80 P (2) (d) is denied to the assessee. Revenue relied heavily on the decision of honourable Karnataka High court in case of PCIT V Totagar Cooperative Sales Society (2017) 395 ITR 611 ( Karnataka ) dated 16 June, 2017. 13. We find that honourable Supreme court has rendered two decisions after that in case of (i) Mavilayi Servic....