VIJAY SAHAKARI PAT SANSTHA LIMITED,ICHALKARANJI V. ITO WARD-2, ICHALKARANJI, ICHALKARANJI

ITA 90/PUN/2025

AI Insights

The case involves Vijay Sahakari Pat Sanstha Limited, a cooperative society, which appealed against the order of the Additional/Joint Commissioner of Income Tax (Appeals), Lucknow, confirming the disallowance of a deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The deduction was initially claimed for interest income earned from nominal members, which the Assessing Officer disallowed based on the Supreme Court's decision in Citizen Cooperative Society Ltd. vs. ACIT, arguing that nominal members do not fulfill the principle of mutuality required for such deductions. The Tribunal, however, referenced the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. vs. CIT, which supported the assessee's position, and noted that the Maharashtra Cooperative Societies Act, 1960, includes nominal members in its definition of 'members'.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396352 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Other Referred Cases: Citizen Co-op Society Ltd V/s ACIT Circle (1) Hyderabad, Sai Prerana Gramin Biggar Shati Sahakari Pat Sanstha V/s ITO W-10(5) Pune, Mavilayi Service Co-operative Bank Ltd. Vs. CIT
• Laws Referred To: Income Tax Act, 1961, Maharashtra State Co-op Societies Act 1960
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILESH SRIVASTAVA
• Assessee Lawyers: DEEPA KHARE
• Keywords: Set aside; Co-operative Credit Society
• Section: 142(1); 56

Judgement Text

" आयकर अपीलीय अधिकरण “एक सदस्य मामला” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, PUNE BEFORE SHRI MANISH BORAD, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.90/PUN/2025 निर्धारण वर्ा / Assessment Year : 2017-18 Vijay Sahakari Pat Sanstha Limited, 5/253, Nagar Palika Road, Near Nagar Parishad, Ichalkaranji-416115 PAN : AAAAV0274G Vs. ITO, Ward-2, Ichalkaranji अपीलधर्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Smt. Deepa Khare Department by : Shri Akhilesh Srivastava Date of hearing : 23-04-2025 Date of Pronouncement : 30-05-2025 आदेश / ORDER PER ASTHA CHANDRA, JM : The appeal filed by the assessee is directed against the order dated 27.11.2024 of the Ld. Additional/Joint Commissioner of Income Tax (Appeals), Lucknow [“Addl./JCIT(A)”] pertaining to Assessment Year (“AY”) 2017-18. 2. The assessee has raised the following grounds of appeal : “1. On the facts and in circumstances of the case and in law the Ld. CIT(A) has erred in confirming disallowance of deduction u/s 80P(2)(a)(i). 2. On the facts and in circumstances of the case and in law the Ld. CIT(A) has erred in applying the decision by the Hon'ble Supreme Court in the case of Citizen Co-op society Ltd V/s ACIT Circle (1) Hyderabad that Nominal Members are not members in real sense without referring to provision of Maharashtra State Co-op Societies Act 1960. 3. On the facts and in circumstances of the case and in law the Ld. CIT(A) has erred in not considering the decision of Hon'ble ITAT Pune in case of Sai Prerana Gramin Biggar Shati Sahakari Pat Sanstha V/s ITO W-10(5) Pune in ITA No. 143/PMA/2018 for AY 2015-16. 2 ITA No.90/PUN/2025, AY 2017-18 4. The assessee craves leave to add, alter, amend, delete, any ground that may occur at the time of hearing of the appeal.” 3. Briefly stated, the facts of the case are that the assessee is Co- operative Society. It filed its return of income on 20.02.2018 declaring total income at Rs. Nil after claiming deduction u/s 80P of the Income Tax Act, 1961 (the “Act”) of Rs.25,62,137/-. The return was processed u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny under CASS. Accordingly, notice(s) u/s 143(2) and 142(1) were of the Act were issued and served upon the assessee calling for certain details. During the assessment proceedings, the Ld. Assessing Officer (“AO”) observed that assessee has given loans to nominal members / B class members and earned interest thereon of Rs. 22,34,529/- and asked the assessee as to why the deduction under section 80P should not be disallowed in respect of the said interest income in view of the decision of the Hon‟ble Supreme Court in the case of Citizen Cooperative Society Ltd. Vs. ACIT. The assessee filed its written submission and in support of its contention, placed reliance on the favorable decision of the jurisdictional Pune ITAT in the case of Sai Prerna Gramin Bigar Sheti Pata Sanstha Vs. ITO (ITA No. 143/PMA/2018 for AY 2015-16, however, the Ld. AO did not consider the same for the reason that said decision is not yet finally accepted by the Department and the issue of further appeal against the said decision is yet to be finalized as on the date. The Ld. AO, therefore, denied the deduction of net interest income of Rs.8,81,745/- u/s 80P(2)(a)(i) of the Act and assessing such net interest income as “income from other sources” under section 56 of the Act on the ground that the interest derived by the assessee society from Nominal members/ B class members is not qualified for deduction under section 80P(2)(a). 4. Aggrieved, the assessee filed appeal before the Ld. Addl./JCIT(A) who confirmed the order of the Ld. AO by observing as under: “7.3 In the present appeal, all grounds relate to the disallowance of the deduction under Section 80P(2)(a)(i) of the Act, amounting to Rs. 8,81,745/-. The AO noted that the appellant's income was derived from providing loan facilities to not only its members but also to non-members (nominal members), who do not qualify under the principle of mutuality. The AO relied on the decision of the CIT(A), Kolhapur, in the case of Manamandir Nagari Shekari Pata Sanstha, Sangli (Appeal No. Sli/10311/2018-19 for A.Y. 2016- 17). 3 ITA No.90/PUN/2025, AY 2017-18 7.4 During the appellate proceedings, the appellant submitted that it is a registered Co-operative Society under the Maharashtra Co-operative Societies Act, 1960. The appellant accepts deposits from members and provides credit facilities (i.e., loans) to its members. The society emphasized that there is no distinction made between regular members, nominal members, associate members, and sympathizer members. The appellant further cited judgments from the ITAT, Pune, and other higher judicial authorities to support its claim. The appellant argued that the decision by the Apex Court in Citizen Co-Op Credit Society, Hyderabad is not applicable to societies registered under the Maharashtra Co-operative Societies Act, 1960. According to the appellant, members should include \"nominal members, associate members, and sympathizer members.\" 7.5 The contentions of the appellant have been carefully considered. The appellant's argument that, according to the Maharashtra Co-operative Societies Act, 1960, members should include \"nominal members is noted. However, it is important to clarify that while a co-operative society may have various categories of members as per the relevant state laws, it must also comply with the requirements under the Income Tax Act, particularly under Section 80P, to claim deductions. Section 80P(2)(a)(i) allows a deduction for the income derived by a co-operative society from carrying on the business of providing credit facilities to its members. However, the fundamental principle of mutuality underpins the eligibility for such deductions. A member who is not involved in the economic and administrative affairs of the society and is merely a nominal member would not fulfill the concept of mutuality. Such a member is, in effect, considered part of the general public, and therefore, the income generated from them would not qualify for deductions under Section 80P. Co-operative societies, being voluntary associations of persons united to meet their common economic, social, and cultural needs, must ensure that their activities are centered on members who actively participate in the cooperative's affairs. Non-participating or nominal members do not contribute to this mutual relationship, and income derived from them cannot be considered eligible for deduction under Section 80P. 7.6 The AO, after considering the submissions, concluded that the appellant's income was derived from providing credit facilities to both regular and nominal members. Nominal members, being akin to the general public, do not fulfill the mutuality requirement. Since the appellant society was engaged in providing loans to the general public (i.e., nominal members), it could not be classified as a co-operative society dedicated solely to its eligible members. As such, the appellant is not entitled to the deduction under Section 80P. 7.7 The appellant has failed to substantiate its claim that the facts and circumstances of its case are distinct from those in the case of Citizen Co- operative Society Ltd. v. Assistant Commissioner of Income-tax, Circle-9(1), Hyderabad, where similar issues were adjudicated in favor of the Revenue. 8. In light of the above considerations, I find no merit in the appellant's contentions. The AO's decision to disallow the appellant's claim for a deduction of Rs. 8,81,745/- under Section 80P(2)(a)(i) of the Income Tax Act is in accordance with the provisions of the Act. Therefore, the appeal of the appellant is hereby dismissed.” 5. Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto. 4 ITA No.90/PUN/2025, AY 2017-18 6. The Ld. AR submitted that the assessee is a cooperative society registered under the Maharashtra Cooperative Societies Act, 1960 and is eligible for deduction u/s 80P of the Act. Referring to the relevant provisions of the Maharashtra Cooperative Societies Act, 1960, the Ld. AR submitted that as per the said Act, „members‟ include „nominal members‟ and therefore the assessee has rightly claimed deduction under section 80P(2)(a)(i) of the Act in respect of the interest earned by the assessee society from nominal members / B class members during the relevant AY under consideration. She further submitted the case laws cited by the Ld. AO/Ld. Addl./JCIT(A) are not applicable to the facts of the present case. The Ld. AR submitted that the impugned issue is now covered in favour of the assessee by catena of decisions of the coordinate bench of the Pune Tribunal and cited the decision of Pune ITAT in the case of Nivruttisheth Gramin Bigarsheti Sahakari Patsanstha Ltd. Vs. ITO in ITA No. 1502/PUN/2018, dated 15.03.2022 in support thereto. 7. The Ld. DR, on the other hand, relied on the order of the Ld. AO/ Ld. Addl./JCIT(A) but could not cite any decision in favour of the Revenue against the above submission of the Ld. DR . 8. We have heard the Ld. Representatives of the parties and perused the record as well as case laws cited by the Ld. DR. The facts of the case are not in dispute. The assessee is a co-operative society duly registered under the Maharashtra Cooperative Societies Act, 1960 and thus governed by the provisions of the said Act. We observe that the Ld. AO has denied the assessee‟s claim of deduction under section 80P(2)(a)(i) on the ground that the assessee is not eligible to the said deduction in respect of interest earned from nominal members/ class B members as the nominal members are not members of the assessee society in real sense. The Ld. Addl./JCIT(A) has confirmed the findings of the Ld. AO for the reasons reproduced above. We, however, on perusal of the relevant provisions of the Maharashtra Cooperative Societies Act, 1960 find that the members under the said Act include non-members, thereby making the assessee eligible for its claim of deduction under section 80P(2)(a)(i) of the Act. 5 ITA No.90/PUN/2025, AY 2017-18 9. We find that the impugned issue is no more res-integra and covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. Vs. CIT, 431 ITR 1, dated 12/01/2021, wherein it has been held as under : “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)(4)(1) when it is not there. Further, section 80P(4) s to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business in engaged in lending money to members of the public, which have a licence in this behalf from the RBL. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in is reading of Citizen Cooperative Society Ltd. (napra) Clearly, therefore, once section COPY 4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(3)(), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, 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. 46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, 'nominal members' are 'members as defined under the Kerala Act. This Court in UP Cooperative Cane Unions' Federation Lid CIT (1997) 11 SCC 287 referred to section 80P of the IT Act and then held \"8. The expression \"members\" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression \"members\" in Section 80- P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is therefore, necessary to construe the expression \"members\" in Section 80-P(2)(a)(1) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: \"2. (n) Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty,\" Considering the definition of 'member under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(4)(1). 6 ITA No.90/PUN/2025, AY 2017-18 “3. Briefly stated, the facts of the case are that the assessee is a co-operative credit society providing credit facilities to its members. A return was filed declaring Nil income after claiming deduction of Rs.45,71,701/- u/s.80P of the Act. The Assessing Officer (AO) observed that the assessee was accepting deposits from its regular members and also nominal members. Considering the fact that there was a difference between the rights and obligations of the regular and nominal members, the AO held that the nominal members could not be considered as „members‟ for the purpose of deduction u/s.80P. He also noted that the assessee earned interest income on deposits made with the banks, which was not eligible for deduction u/s.80P of the Act. In the ultimate analysis, he denied the benefit of deduction u/s.80P, which got echoed in the first appeal. 4. I have heard both the sides and gone through the relevant material on record. The assessee Co-operative society is admittedly engaged in carrying on the business of banking and providing credit facilities. Section 80P(2)(a)(i) provides that in the case of co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profits and gains of business attributable to such activities shall be deductible in the computation of total income. The claim of assessee for deduction has been negated by the authorities below, inter alia, on the ground that it admitted certain Members, described as „Nominal Members‟, who were neither entitled to dividend nor voting rights. It is relevant to note that the term „Member‟ has been defined u/s 2(19) in the Maharashtra Act to mean: “a person joining in an application for the registration of a Co- operative society which is subsequently registered, or a person duly admitted to membership of a society after registration and includes a nominal, associate or sympathizer member”. On going through the above definition of „Member‟, it becomes overt that the term „Member‟ also includes a Nominal Member. Once it is accepted that the assessee, governed by the Maharashtra Act, made advances to certain Nominal Members from whom interest income was earned, there can be no doubt whatsoever that the deduction u/s 80P(2)(a)(i) has to be allowed. The Department has heavily relied on the judgment of Hon'ble Supreme Court in the case of Citizen Co- operative Society Ltd. vs. ACIT (supra). That was a case in which Andhra Pradesh Mutually Aided Co-operative Society Act, 1995 was under consideration, which did not admit `Nominal Member‟ within the ambit of the term „Member‟. Recently, the Hon'ble Supreme Court in Mavilayi Service CoOperative Bank Ltd. vs. CIT (2021) 123 taxmann.com 161 (SC) considered its earlier judgment in Citizen Co-operative Society Ltd. vs. ACIT (supra) vide para 46 of its order. Taking note of the fact case in which Andhra Pradesh Mutually Aided Co-operative Society Act, 1995 was under consideration, which did not admit `Nominal Member‟ within the ambit of the term „Member‟. Recently, the Hon'ble Supreme Court in Mavilayi Service CoOperative Bank Ltd. vs. CIT (2021) 123 taxmann.com 161 (SC) considered its earlier judgment in Citizen Co-operative Society Ltd. vs. ACIT (supra) vide para 46 of its order. Taking note of the fact member. In view of the above discussion, I overturn the impugned order on this score.” 10. We have also perused the decision of the Pune Tribunal in the case of Nivruttisheth Gramin Bigarsheti Sahakari Patsanstha Ltd. (supra) wherein the Tribunal relying on the decision the Hon‟ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. (supra) decided the impugned issue in favour of the assessee under the similar set of facts, by observing as under: 7 ITA No.90/PUN/2025, AY 2017-18 “3. Briefly stated, the facts of the case are that the assessee is a co-operative credit society providing credit facilities to its members. A return was filed declaring Nil income after claiming deduction of Rs.45,71,701/- u/s.80P of the Act. The Assessing Officer (AO) observed that the assessee was accepting deposits from its regular members and also nominal members. Considering the fact that there was a difference between the rights and obligations of the regular and nominal members, the AO held that the nominal members could not be considered as „members‟ for the purpose of deduction u/s.80P. He also noted that the assessee earned interest income on deposits made with the banks, which was not eligible for deduction u/s.80P of the Act. In the ultimate analysis, he denied the benefit of deduction u/s.80P, which got echoed in the first appeal. 4. I have heard both the sides and gone through the relevant material on record. The assessee Co-operative society is admittedly engaged in carrying on the business of banking and providing credit facilities. Section 80P(2)(a)(i) provides that in the case of co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profits and gains of business attributable to such activities shall be deductible in the computation of total income. The claim of assessee for deduction has been negated by the authorities below, inter alia, on the ground that it admitted certain Members, described as „Nominal Members‟, who were neither entitled to dividend nor voting rights. It is relevant to note that the term „Member‟ has been defined u/s 2(19) in the Maharashtra Act to mean: “a person joining in an application for the registration of a Co- operative society which is subsequently registered, or a person duly admitted to membership of a society after registration and includes a nominal, associate or sympathizer member”. On going through the above definition of „Member‟, it becomes overt that the term „Member‟ also includes a Nominal Member. Once it is accepted that the assessee, governed by the Maharashtra Act, made advances to certain Nominal Members from whom interest income was earned, there can be no doubt whatsoever that the deduction u/s 80P(2)(a)(i) has to be allowed. The Department has heavily relied on the judgment of Hon'ble Supreme Court in the case of Citizen Co- operative Society Ltd. vs. ACIT (supra). That was a case in which Andhra Pradesh Mutually Aided Co-operative Society Act, 1995 was under consideration, which did not admit `Nominal Member‟ within the ambit of the term „Member‟. Recently, the Hon'ble Supreme Court in Mavilayi Service CoOperative Bank Ltd. vs. CIT (2021) 123 taxmann.com 161 (SC) considered its earlier judgment in Citizen Co-operative Society Ltd. vs. ACIT (supra) vide para 46 of its order. Taking note of the fact case in which Andhra Pradesh Mutually Aided Co-operative Society Act, 1995 was under consideration, which did not admit `Nominal Member‟ within the ambit of the term „Member‟. Recently, the Hon'ble Supreme Court in Mavilayi Service CoOperative Bank Ltd. vs. CIT (2021) 123 taxmann.com 161 (SC) considered its earlier judgment in Citizen Co-operative Society Ltd. vs. ACIT (supra) vide para 46 of its order. Taking note of the fact member. In view of the above discussion, I overturn the impugned order on this score.” 11. In light of the facts of the case and legal position set out above and respectfully following the decision(s) (supra) of the Hon‟ble Supreme Court and Co-ordinate Bench of the Pune Tribunal and in the absence of any contrary material brought on record by the Revenue, we hold that the assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act on the 8 ITA No.90/PUN/2025, AY 2017-18 impugned interest earned by it from the nominal members/B class during the relevant AY 2017-18. The order of the Ld. Addl./JCIT(A) is set aside and the Ld. AO is directed to allow claim of the assessee. Grounds of appeal raised by the assessee are accordingly allowed. 12. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 30th May, 2025. Sd/- Sd/- (Manish Borad) (Astha Chandra) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; ददन ांक / Dated : 30th May, 2025. रदि आदेश की प्रनिनलनप अग्रेनर्ि / Copy of the Order forwarded to : 1. अपील थी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The Pr. CIT concerned. 4. धिभागीय प्रधिधिधि, आयकर अपीलीय अधिकरण, “एक सदस्य मामला” बेंच, पुणे / DR, ITAT, “SMC” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपत प्रदत// True Copy// आदेश नुस र / BY ORDER, िररष्ठ दनजी सदिि / Sr. Private Secretary आयकर अपीलीय अदधकरण ,पुणे / ITAT, Pune "