SRI. LAXMI VENKATESH CREDIT CO-OP SOCIETY LTD. V. THE PR. COMMISSIONER OF INCOME TAX

ITA/211/2019

AI Insights

The case involves Sri Laxmi Venkatesh Credit Co-op. Society Ltd., which appealed against the orders denying them deduction under Section 80P of the Income Tax Act, 1961. The Tribunal had previously set aside the CIT (Appeals) decision and remanded the matter for fresh assessment. The Assessing Officer's subsequent decision also denied the deduction, leading to this appeal. The High Court, referencing a Supreme Court decision, found that the matter required re-consideration regarding the nature of the society's membership and activities, particularly concerning nominal members.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 770040 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 29-09-2021
• Assessment Year: misc
• Other Referred Cases: The Citizen Co-operative Society Ltd. Hyderabad vs. ACIT, Mavilayi Service Co-operative Bank Ltd. vs. Commissioner of Income Tax, Calicut
• Laws Referred To: Income Tax Act 1961, Karnataka Co-operative Societies Act, 1959
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: SANMATHI
• Assessee Lawyers: MAHESH UPPIN
• Keywords: Assessment Year 2013-14; Co-operative Society; Deduction under section 80P; Income tax appeal
• Section: 143(3); 2(f); 80P(2)(a)(i); 60; 260-A

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 29TH DAY OF SEPTEMBER, 2021 PRESENT THE HON’BLE MRS.JUSTICE S.SUJATHA AND THE HON’BLE MR. JUSTICE RAVI V. HOSMANI I.T.A.No.211/2019 BETWEEN : SRI LAXMI VENKATESH CREDIT CO-OP. SOCIETY LTD., SUNANDA DEVDAS TOWER, P.P.C.ROAD, UDUPI - 576 101 REP. BY ITS SECRETARY Mr. B.MURALIDHAR RAO. ...APPELLANT (BY SRI MAHESH R. UPPIN, ADV.) AND : 1 . THE PR. COMMISSIONER OF INCOME TAX C.R.BUILDING, ATTAVARA MANGALURU -575 001. 2 . THE INCOME TAX OFFICER WARD - 1, AAYAKAR BHAVAN, MALPE ROAD, ADI-UDUPI UDUPI - 576 103. …RESPONDENTS (BY SRI SANMATHI E.I., ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31.12.2018 PASSED IN ITA NO.396/BANG/2018 PRAYING TO 1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS STATED ABOVE. 2) SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA - 2 - No.396/BANG/2018 DATED 31.12.2018 AND ALLOW THIS APPEAL. THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING: J U D G M E N T This appeal is filed by the assessee under Section 260A of the Income Tax Act, 1961 (‘Act’ for short) assailing the order dated 31.12.2018 passed in ITA No.396/Bang/2018 by the Income Tax Appellate Tribunal, “B” Bench, Bangalore (‘Tribunal’ for short) relating to the assessment year 2013-14 as well as the order dated 30.12.2019 passed by the Income Tax Officer, Udupi, Ward-3 in case bearing F.No.AAAJL0987F/ITO/W-3/UDP/2019-20. 2. The appeal was admitted by this Court on 06.03.2020 to consider the following substantial questions of law:- “1. Whether on the facts and circumstances of the case and in law, was it correct in holding the appellant is a ‘primary co-operative bank’ and that the appellant is not - 3 - entitled for deduction u/s.80 P(2)(a)(i) of the Act? 2. Whether on the facts and circumstances of the case and in law, was it correct in holding that the ratio decidendi in ‘The Citizen Co-operative Society Ltd. Hyderabad vs. ACIT’ (Civil Appeal No.10245 of 2017) is squarely applicable to the appellant?” 3. I.A.No.1/2020 filed by the assessee to amend the memorandum of appeal was allowed on 28.09.2020, permitting the assessee to incorporate the necessary amendment as sought for in the memorandum of appeal and accordingly, amended appeal memo has been filed by the assessee. 4. In view of the amendment now made, additional substantial questions of law are admitted for consideration and the same reads thus: “3. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in remanding the matter to the Income Tax Officer for fresh enquiry? - 4 - 4. Whether on the facts and in the circumstances of the case, the Income Tax Officer is justified in denying benefit of deduction under Section 80P(2)(a)(i) of the Income Tax Act?” 5. The assessee is a co-operative society engaged in the business of providing credit facilities to its members. The appellant filed its return of income declaring NIL income after claiming deduction under Section 80P of the Act. The Assessing Officer has concluded the assessment under Section 143(3) of the Act denying the claim of the assessee under Section 80P of the Act. Being aggrieved, the assessee preferred appeal before the CIT (Appeals) unsuccessfully. On further appeal before the Tribunal, the order of the CIT (Appeals) was set aside. The matter was restored back to the file of the Assessing Officer for fresh decision. 6. During the pendency of the present appeal proceedings, consequential order was passed by the - 5 - Assessing Officer. Pursuant to which, the appellant has sought for amendment of the appeal memorandum challenging the consequential order dated 30.12.2019 passed by the Assessing Officer as well raising the additional substantial questions of law. In the consequential order, it has been held that the assessee is not entitled to deduction under Section 80P(2)(a)((i) of the Act and accordingly entire deduction claimed under Section 80P is disallowed. 7. Learned counsel for the assessee placing reliance on the judgment of the Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., and others vs. Commissioner of Income Tax, Calicut and another reported in 2021 SCC Online SC 16, submitted that considering the definition of ‘Member’ under the Karnataka Co-operative Societies Act, 1959 r/w Section 80P(2)(a)(i) of the Act, the assessee is qualified for the purpose of deduction under Section - 6 - 80P(2)(a)(i) of the Act. Learned counsel argued that the assessee as observed by the Assessing Officer has four Class of members namely, A, B, C, D as per the Bye- laws of the Society. In terms of the said definition clause of ‘Member’, ‘A’ Class membership is for permanent members of Co-operative Societies operating in the jurisdictional area of the assessee; ‘B’ Class membership is capital by the State Government; ‘C’ Class member is the nominal members and ‘D’ Class membership is for the residents who reside within area of operation of the society with certain eligibility criteria. The ‘C’ and ‘D’ Class members are (1) who does not possess ‘A’ Class shares, (2) non-members having deposits, (3) self-help group, commission agents, individual businessmen, other businessmen etc., The share capital of members is, Rs.100/- for ‘A’ Class members; Rs.500/- for ‘B’ Class members; Rs.10/- for ‘C’ Class members and Rs.100/- for ‘D’ Class members. The Assessing Officer has thus observed that there are - 7 - three categories of members, ‘A’ Class members being members participating in day to day affairs, ‘B’ Class members being State Government shares, ‘C’ and ‘D’ Class members are non-members or nominal members. In terms of the judgment Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., supra, loans given to nominal members would qualify for the purpose of deduction under Section 80P(2)(a)(i) of the Act. 8. Learned counsel for the Revenue would submit that the appeal has rendered infructuous in view of the consequential order passed by the Assessing Officer pursuant to the remand order made by the Tribunal. The appellant, if aggrieved, has to exhaust the alternative remedy of appeal available under the Act. The challenge made to the assessment order in the present appeal proceedings is not maintainable. Learned counsel further submitted that even on merits, - 8 - the finding of the assessing officer deserves to be upheld. 9. We have carefully considered the arguments advanced by the learned counsel appearing for the parties and perused the material on record. 10. Sections 80P(1) and (2)(a)(i) of the Act reads thus:- “Deduction in respect of income of co-operative societies. 80P. (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. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) xxxx (i) carrying on the business of banking or providing credit facilities to its members or” - 9 - 11. Sections 2(f) and 60 of the Karnataka Co- operative Societies Act, 1959 reads thus: “2(f). “Member” means a person joining in the application for the registration of a co- operative society and a person admitted to membership after such registration in accordance with this Act, the rules and the bye-laws and includes a nominal and an associate member.” “60. Restrictions on loans.- (1) A co- operative society shall not make a loan to any person other than a member: Provided that a co-operative society may make loans to another co-operative society. (2) Notwithstanding anything contained in sub-section (1), a co-operative society may make a loan to a depositor on the security of his deposit.” 12. The Tribunal placing reliance on the judgment of the Hon'ble Apex Court rendered in the case of The Citizen Co-operative Society Ltd., vs. ACIT reported in (2017) 397 ITR 1, in order to - 10 - determine the nature of business as to whether the same is of a co-operative bank or not, certificate from the Reserve Bank of India (RBI) about the nature of business of the assessee would be significant and accordingly restored the matter back to the file of Assessing Officer for fresh decision to enable the assessee to produce such certificate of RBI regarding the nature of business of the assessee within a reasonable time. It was further observed that the major portion of the business of the assessee was with the second category of persons who were noted to be nominal members and the assessee was getting deposits from such nominal members and the same were kept in Fixed Deposit with a motive to earn maximum returns and a portion of these deposits was utilized to advance gold loans etc., to the members of the first category i.e., ordinary members. Having regard to these aspects, the Tribunal held that even if the assessee is not found to be a Co-operative Bank, the factual aspects requires to - 11 - be analysed and thereafter final decision has to be made. 13. On such remand made, the Assessing Officer has re-done the assessment and held that the assessee - Society has 1362 regular members, 299 associate/nominal members, the society has transacted with associate/nominal member and earned interest out of activities with associate/nominal members who are more than 21% of the regular members. Accordingly, the Assessing Officer has come to a conclusion that the assessee cannot be treated as a Co-operative society meant only for its members and providing credit facilities to its members. 14. The Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., supra, considering the expression ‘member’ as defined in Section 2(l) of the Kerala Co-operative Societies Act, 1969 and the said Act expressly permitting loans to - 12 - non-members under Section 59(2) and (3), held that loans given to nominal members would qualify for the purpose of deduction under Section 80P(2)(a)(i) of the Act. In the wake of this judgment, the matter requires re-consideration by the Assessing Officer with reference to Section 2(f) and 60 of the Karnataka Co-operative Societies Act, 1959 read with Section 80P(2)(a)(i) of the Act. The order of the Tribunal impugned being adjudicated and this Court having formed an opinion that the matter requires re-consideration, the consequential order of assessment has to be set aside. Alternative remedy of statutory appeal is not a bar in the circumstances of the case. 15. For the aforesaid reasons, without answering substantial questions of law, we set aside the orders impugned and restore the matter to the file of the Assessing Officer to re-consider the matter in the light of the observations made hereinabove. - 13 - 16. Hence, the following ORDER i) The appeal is allowed in part. ii) The order dated 31.12.2018 passed in ITA No.396/Bang/2018 by the Income Tax Appellate Tribunal, “B” Bench, Bangalore as well as the order dated 30.12.2019 passed by the Income Tax Officer, Udupi, Ward-3 in case bearing F.No.AAAJL0987F/ITO/W-3/UDP/2019-20 relating to the assessment year 2013-14 are set aside. iii) The matter is restored to the file of the Assessing Officer to redo the assessment considering Sections 2(f) and 60 of the Karnataka Co-operative Societies Act, 1959 vis-à-vis the judgment of the Hon’ble Apex Court in the case of Mavilayi Service Co- - 14 - operative Bank Ltd., and others vs. Commissioner of Income Tax, Calicut and another reported in 2021 SCC Online SC 16. iv) All the rights and contentions of the parties are left open. v) The Assessing Officer shall re-consider the matter in accordance with law and decision shall be taken in an expedite manner. vi) In view of the disposal of the main matter, all the pending applications stand disposed of. Sd/- JUDGE Sd/- JUDGE PMR "