Kanak Pattin Sahakari Sangh NIyamit , Bagalkot V. Income Tax Officer Ward-1, Bagalkot

ITA 545/BANG/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3533 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 18-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANESH R GHALE DEPT
• Assessee Lawyers: JEEVAN KISHORE D
• Keywords: Opportunity of being heard; Set aside
• Section: 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND ITA NO.545/BANG/2019 ASSESSMENT YEAR : 2016-17 KANAK PATTIN SAHAKARI SANGH NIYAMIT, BEHIND BUS STAND, BILAGI. DIST : BAGALKOT. PAN AABAK 9999 E VS. THE INCOME-TAX OFFICER, WARD-(1), BAGALKOT. APPELLANT RESPONDENT APPELLANT BY : SHRI JEEVAN KISHORE D, ADVOCATE RESPONDENT BY : SHRI GANESH R GHALE, ADVOCATE, STANDING COUNSEL FOR DEPT DATE OF HEARING : 07.11.2019 DATE OF PRONOUNCEMENT : 29.11.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING TH E ORDER DATED 11-01-2019 PASSED BY LD CIT(A), BELGAVI AND I T RELATES TO THE ASSESSMENT YEAR 2016-17. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN REJECTING THE DEDUCTION CL AIMED BY THE ASSESSEE U/S 80P OF THE ACT. 2. ACCORDING TO THE AO, THE ASSESSEE HAS CLAI MED TO BE A CO- OPERATIVE CREDIT SOCIETY REGISTERED UNDER KARNATAKA STATE CO- OPERATIVE SOCIETIES ACT, 1959 AND IS ENGAGED IN THE BUSINESS OF ACCEPTING DEPOSITS AND PROVIDING CREDIT FACILITIES TO ITS MEMBERS, ITA NO.545 /BANG/2019 PAGE 2 OF 8 BESIDES MAKING INVESTMENTS. THE ASSESSEE HAS CLAIM ED DEDUCTION U/S 80P OF THE ACT AND ACCORDINGLY DECLARED NIL INC OME. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE WAS HAVING DIFFERENT CATEGORIES O F MEMBERS, VIZ., REGULAR MEMBERS, ASSOCIATE MEMBERS AND NOMINAL MEMB ERS. HE NOTICED THAT THE NOMINAL MEMBERS ARE ALSO MENTIONED AS ASSOCIATE MEMBERS, I.E, BOTH CATEGORIES WERE TREATED ALIKE. THE ASSESSEE WAS HAVING 2038 NOMINAL MEMBERS/ASSOCIATE MEMBERS AND 3 831 REGULAR MEMBERS. THUS THE PERCENTAGE OF NOMINAL ME MBERS WORKED OUT TO 53.20%, WHICH WAS IN VIOLATION OF PRO VISIONS OF SEC.16 OF THE KARNATAKA CO-OPERATIVE SOCIETIES ACT, WHICH HAS PRESCRIBED A LIMIT OF 15%. ACCORDINGLY, THE AO TOO K THE VIEW THAT THE ASSESSEE IS DEALING WITH GENERAL PUBLIC BY ADMI TTING THEM AS NOMINAL MEMBERS. ACCORDINGLY, BY PLACING RELIANCE ON THE DECISION RENDERED BY HON'BLE SUPREME COURT IN THE CASE OF CI TIZEN CO-OP SOCIETY LTD (CIVIL APPEAL NO.10245 OF 2017), THE AO HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80P OF T HE ACT, SINCE IT IS DEALING WITH GENERAL PUBLIC/ NOMINAL MEMBERS. THE ASSESSEE HAD DERIVED INTEREST INCOME FROM DEPOSITS MADE WITH VAR IOUS BANKS. THE AO, BY FOLLOWING THE DECISION RENDERED BY HON'B LE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF CIT VS. THE TOTAGARS CO-OP SALE SOCIETY (ITA NO.100066/2016 DAT ED 16.06.2017), HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80P OF THE ACT FOR THE INTEREST INCOME. ACCORDINGL Y THE AO REJECTED THE CLAIM FOR DEDUCTION U/S 80P OF THE ACT IN TOTO. THE CIT(A) ALSO CONFIRMED THE SAME. ITA NO.545 /BANG/2019 PAGE 3 OF 8 4. WITH REGARD TO THE DECISION OF TAX AUTHORITIES TO TAX INTEREST INCOME FROM FIXED DEPOSITS, I RESTORE THE SAME TO T HE FILE OF THE AO TO EXAMINE THE SAME AFRESH IN THE LIGHT OF OBSERVAT IONS MADE BY THE DIVISION BENCH IN THE CASE OF M/S BAPOOJI PATTIN SO UHARDA SAHAKARI NIYAMIT VS. ITO (ITA NO.544/BANG/2019 DATED 04-09-2 019). 4. THE NEXT ISSUE RELATES TO THE REJECTION OF C LAIM FOR DEDUCTION U/S 80P OF THE ACT IN RESPECT OF ITS BUSINESS INCOM E. BEFORE ME, THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY THE DIVISION BENCH OF BANGALORE ITAT IN THE CASE OF M/S BAPOOJI PATTIN SOUHARDA SAHAKARI NIYAMIT VS. ITO (ITA NO.544/BANG/ 2019 DATED 04-09-2019) AND SUBMITTED THAT THE MATTERS MAY BE R ESTORED TO THE FILE OF THE AO FOR EXAMINING THE FACTS AS HELD IN T HE ABOVE SAID CASE. 5. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE AO HAD REJECTED THE CLAIM FOR DEDUCTION U/S 80P FOR THE RE ASON THAT THE ASSESSEE HAS CARRIED ON BUSINESS WITH NOMINAL/ASSO CIATE MEMBERS, WHO CANNOT BE CALLED AS MEMBERS WITHIN T HE MEANING OF SEC.80P(2)(A)(I). HE SUBMITTED THAT UNDER THE PROV ISIONS OF SEC.80P(2)(A)(I) OF THE ACT, THE INCOME EARNED BY A CO-OPERATIVE SOCIETY ON CREDIT FACILITIES PROVIDED TO ITS MEMBE RS ALONE IS DEDUCTIBLE. HE SUBMITTED THAT THE ASSESSEE HAS GOT HUGE NUMBER OF NOMINAL MEMBERS, WHO DO NOT PARTICIPATE IN THE DIVI DEND. HENCE AS PER THE DECISION RENDERED BY HONBLE SUPREME COU RT IN THE CASE OF CITIZEN CO-OPERATIVE BANK (349 ITR 1), THEY CANN OT BE CALLED AS MEMBERS, WITHIN THE MEANING OF SEC.80P(2)(A)(I) O F THE ACT. HENCE THE TAX AUTHORITIES HAVE HELD THAT THE ASSESSEE IS, IN EFFECT, DEALING WITH GENERAL PUBLIC. ACCORDINGLY HE SUBMITTED THAT THE DECISION ITA NO.545 /BANG/2019 PAGE 4 OF 8 RENDERED BY HON'BLE SUPREME COURT IN THE CASE OF CI TIZEN CO- OPERATIVE CO-OPERATIVE BANK (SUPRA) WOULD BE APPLIC ABLE TO THE ASSESSEE AND THE ASSESSEE IS NOT ELIGIBLE FOR DEDUC TION U/S 80P OF THE ACT. 6. HE FURTHER SUBMITTED THAT THE SMC BENCH OF IT AT, BANGALORE HAS EXAMINED AN IDENTICAL ISSUE IN THE CASE OF M/S ATHMASHAKTHI MULTIPURPOSE CO-OPERATIVE SOCIETY LTD (ITA NOS. 122 0 & 1221/BANG/2019 DATED 18-10-2019) AND CONFIRMED THE REJECTION OF DEDUCTION U/S 80P OF THE ACT, WHEN THE NUMBER OF AS SOCIATE MEMBERS EXCEEDED 15% LIMIT PRESCRIBED UNDER KARNATA KA CO- OPERATIVE BANK LTD. 7. IN THE REJOINDER, THE LD A.R SUBMITTED THAT TH E LIMIT OF 15% WOULD APPLY ONLY TO ASSOCIATE MEMBERS AND NOT NOMIN AL MEMBERS. HE SUBMITTED THAT THE ASSESSEE HAS GOT BOTH ASSOCIA TE MEMBERS AND NOMINAL MEMBERS. 8. I HEARD RIVAL CONTENTIONS AND PERUSED THE RE CORD. AS NOTICED EARLIER, THE ASSESSEE WAS HAVING 2038 NOMINAL MEMBE RS AND 3831 REGULAR MEMBERS. THE AO HAS ALSO OBSERVED THAT THE NOMINAL MEMBERS HAVE BEEN INTERCHANGEABLY REFERRED TO AS AS SOCIATE MEMBERS ALSO. HOWEVER, THE LD A.R IS CONTENDING TH AT THERE IS DIFFERENCE BETWEEN NOMINAL MEMBER & ASSOCIATE MEMBE RS. THE LD A.R FURTHER SUBMITTED THAT THE LIMIT OF 15% PRESCRI BED IN THE KARNATAKA CO-OPERATIVE SOCIETIES ACT WOULD APPLY ON LY TO ASSOCIATE MEMBERS. HENCE THE QUESTION AS TO WHETHER NOMINAL MEMBERS AND ITA NO.545 /BANG/2019 PAGE 5 OF 8 ASSOCIATE MEMBERS WOULD FALL IN THE SAME CATEGORY O R THEY ARE DIFFERENT FROM EACH OTHER REQUIRES CLARIFICATION. 8. THE PRINCIPLE OF MUTUALITY SHALL APPLY WHEN THERE IS PARITY OF CONTRIBUTORS AND PARTICIPATORS, I.E., THE CONTRIBUT ORS AS A CLASS SHOULD BE ELIGIBLE TO PARTICIPATE IN PROFITS ALSO. IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD (397 ITR 1), THE A O HAD BROUGHT OUT THE FACTS THAT THE CONTRIBUTORS WERE ALL CATEGO RIES OF PERSONS, VIZ., REGULAR MEMBERS, NOMINAL MEMBERS AND GENERAL PUBLIC. HOWEVER, IT WAS NOT PROVED BY THE ASSESSEE THAT THE VERY SAME CONTRIBUTORS WERE ALSO PARTICIPATORS IN PROFITS. FURTHER, MAJORITY OF INCOME WAS DERIVED BY THE ABOVE SAID ASSESSEE FR OM NOMINAL MEMBERS AND GENERAL PUBLIC. THESE FINDINGS REMAINE D UNSHAKEN TILL THE STAGE OF HON'BLE SUPREME COURT. UNDER THE SE SET OF FACTS, THE HON'BLE SUPREME COURT HELD THAT THE ABOVE SAID ASSESSEE CANNOT BE CATEGORIZED AS A CO-OPERATIVE SOCIETY ELI GIBLE FOR DEDUCTION U/S 80P(2)(A)(I), SINCE THE SAID SECTION EXEMPTS IN COME EARNED FROM CREDIT FACILITIES GIVEN TO ITS MEMBERS ONLY. IN THE INSTANT CASE, IT IS NOT CLEAR AS TO WHETHER NOMINAL MEMBERS OR ASSOCIAT E MEMBERS ARE ALSO ENTITLED TO PARTICIPATE IN PROFITS, SO THAT CA N ALSO BE CALLED AS MEMBERS MENTIONED IN SEC. 80P(2)(A)(I) OF THE ACT . THIS ISSUE ALSO REQUIRES EXAMINATION. 9. IN THE CASE OF ATMASHAKTHI MULTIPURPOSE CO-O PERATIVE SOCIETY LTD, THE CO-ORDINATE BENCH CONSIDERED SECTION 18 OF THE KARNATAKA COOPERATIVE SOCIETIES ACT, 1959, WHICH PRESCRIBED A LIMIT OF 15% FOR ADMITTING ASSOCIATE MEMBERS. ACCORDINGLY IT WAS HE LD THAT WHEN THE NUMBER OF ASSOCIATE MEMBERS DOES NOT EXCEED 15% , THE ITA NO.545 /BANG/2019 PAGE 6 OF 8 PROVISIONS OF KARNATAKA CO-OPERATIVE SOCIETIES ACT WERE NOT VIOLATED. IN AY 2015-16, THE NUMBER OF ASSOCIATE M EMBERS DID NOT EXCEED 15%. SINCE THE AO HAD DENIED DEDUCTION U/S 8 0P OF THE ACT IN AY 2015-16 IN THE CASE OF ABOVE SAID ASSESSEE WI THOUT POINTING OUT ANY OTHER REASON, THE MATTER WAS RESTORED TO TH E FILE OF THE AO. 10. I NOTICE THAT THE PRINCIPLE OF MUTUALITY E MPHASIZED BY HON'BLE SUPREME COURT IN THE CASE OF CITIZEN CO-OPE RATIVE SOCIETY LTD (SUPRA) WAS NOT DISCUSSED IN THE ABOVE SAID DEC ISION. AS STATED EARLIER, THE QUESTION WHETHER NOMINAL MEMBERS AND ASSOCIATE MEMBERS WOULD ALSO QUALITY AS MEMBERS WITHIN THE MEANING OF SEC.80P(2)(I) ALSO REQUIRES EXAMINATION IN THE LIGH T OF PROVISIONS OF KARNATAKA CO-OPERATIVE SOCIETIES ACT AND/OR BYE LAW S OF SOCIETY. IN THE INSTANT CASE, THE LD A.R IS ALSO CONTENDING THAT THERE IS DIFFERENCE BETWEEN NOMINAL MEMBERS AND ASSOCIATE ME MBERS. 11. IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY (SUPRA), THE MAJORITY OF INCOME WAS DERIVED FROM NOMINAL MEMBERS AND GENERAL PUBLIC AND HENCE THE HON'BLE SUPREME COURT HELD THA T THE BUSINESS OF THE ASSESSEE IS IN THE NATURE OF A FINANCIAL INS TITUTION AND NOT IN THE NATURE OF PROVIDING CREDIT FACILITIES TO ITS ME MBERS. HENCE THE COMPONENT OF INCOME DERIVED FROM MEMBERS (WHO ARE E LIGIBLE TO PARTICIPATE IN PROFITS) AND OTHER PERSONS MAY ALSO REQUIRE EXAMINATION AND MAY INFLUENCE THE DECISION TO BE TA KEN WITH REGARD TO THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTI ON U/S 80P OF THE ACT. IF MAJORITY OF INCOME WAS DERIVED FROM MEMBER S (WHO ARE ENTITLED TO PARTICIPATE IN PROFITS), THEN THE QUEST ION THAT WOULD ARISE IS, WHETHER THE ASSESSEE WOULD BE ELIGIBLE FOR DEDU CTION U/S 80P OF ITA NO.545 /BANG/2019 PAGE 7 OF 8 THE ACT FULLY OR PROPORTIONATELY IN PROPORTION TO T HE INCOME DERIVED FROM MEMBERS, WHO QUALIFY AS PARTICIPATORS IN PROFI TS. THIS QUESTION ALSO REQUIRES EXAMINATION. 12. THE FOREGOING DISCUSSIONS WOULD SHOW THAT T HE ENTIRE ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESS ING OFFICER. ACCORDINGLY I SET ASIDE THE ORDER PASSED BY LD CIT( A) AND RESTORE ALL THE ISSUES TO THE FILE OF THE AO FOR EXAMINING IT A FRESH. AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD, THE AO MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2019. SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, NOVEMBER, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. ITA NO.545 /BANG/2019 PAGE 8 OF 8 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DICTATION NOTE ENCLOSED DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED