The Income Tax Appellate Tribunal, Bangalore bench proclaimed that exemption under section 80P of the Income Tax Act can be claimed by the co-operative society providing credit facilities provided that it has dealings with non-members.
The tribunal bench comprising Accountant Member Shri.Inturi Rama Rao and judicial member Shri.Laliet Kumar held so while dismissing the appeal of Income Tax Officer.
The assessee involved in the case is a co-operative society providing credit facilities. Return of income declared by assessee was NIL by claiming deduction under section 80P of the Act of Rs.87,10,540.Against the said return the AO denied the exemption u/s. 80P on the ground that the assessee society is a bank and was hit by the provisions of sub-section (4) of section 80P of the Income Tax Act.
Being aggrieved the assessee went for appeal before CIT(A) who allowed the appeal by holding that the respondent-assessee is not a co-operative bank, therefore, is not hit by provisions of sub-section (4) of section 80P of the Act. The CIT (Appeals) also granted relief in respect of addition of Pigmi commission paid on the ground that TDS provisions are not applicable.
The revenue contested the same before the Appellate Tribunal.
The only issue in the present appeal is whether the assessee co-operative society is entitled for deduction u/s. 80P of the Act. The assessee is registered under the Karnataka Co-operative Societies Act. According to the assessee, the primary activity of the assessee is only to provide credit facilities to its members and therefore it is not a co-operative bank. Hence the provisions of sub-section (4) of section 80P of the Act are not applicable so AO denied the exemption.
As per the provisions of section 80P of the Income Tax Act, (1) Where, in the case of an assessee being a co‑ operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
The bench noticed that an identical issue had come up before the Supreme Court in the case of The Citizen Co-operative Society Ltd. v. ACIT wherein SC was held that though business of the society does not amount to that of co-operative bank so as to come within the mischief of sub-section (4) of section 80P, since the assessee was catering to the needs of non-members also, the principle of mutuality is tainted and therefore the benefit of section 80P was denied.
While observing the financial statement of assessee-society the bench found that here was an income in the form of interest on investments of Rs.1,11,84,095 and commission income of Rs.24,02,183 indicating that the respondent-society had dealings with the other non-members.
Further that co-operative society had paid commission to Pigmi agents of Rs.1, 70, 46,946 goes to indicate that it had accepted deposits even from non-members. Therefore tribunal demanded for de novo assessment from AO.So the appeal filed by the revenue was allowed.
Read the full text of the Order below.
