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“Members” is not defined in the Income-tax Act – Expression “Members” need to extracted from concerned co-operative societies Act for the purpose of Section 80P(2)(a)(i)
In the case of co-operative Societies, whether a Member includes Nominal Members is the most common issue while carrying out the assessment proceeding. The Assessing authorities are disallowing the deduction u/s 80P if the society is dealing with nominal members.
It may be noted that the expression “Members” is not defined in the Income-tax Act. Hence, it is necessary to construe the expression “Members” in section 80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned co-operative societies Act.
This was the question which was involved before the Bangalore ITAT in the case of SHANKARLING CO-OPERATIVE CREDIT SOUHARDA SAHAKARI vs. INCOME TAX OFFICER (2021) 63 CCH 0112.
Let us have a short overview of the case”
The case was regarding deductions U/s 80P of the Income Tax Act-1961.
It was pertaining to the deduction in respect of income of Co-operative Societies
Assessee is a co-operative society providing credit facilities to its members
Return of income was filed declaring ‘NIL’ income after claiming deduction u/s 80P(2)
Assessment was completed wherein entire claim of deduction u/s 80P was denied for reason that assessee is a co-operative bank and not a co-operative society
A.O. also denied alternative claim of deduction u/s 80P(2)(d) stating that since section 80P(4) is invoked, assessee is not entitled to any deduction u/s 80P
CIT(A) directed A.O. to verily and allow deduction u/s 80P(2)(a)(i) in respect of income earned by providing credit facilities to its regular members
As regards interest income earned from saving banks, fixed deposits and investments, CIT(A) held that same is not entitled for deduction u/s 80P(2)(d)
CIT(A) further directed A.O. to verify whether assessee has deducted TDS on interest payment of Rs.10,000 per annum to non-members
Court observed as under:
Apex Court in case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. 2021) 431 ITR 1 (SC) had held that co-operative societies providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i)
Term “member” has not been defined under Act
Term “member” in respective State Co-operative Societies Acts under which societies are registered have to be taken into consideration
If nominal / associate member is not prohibited under said Act, for being taken as a member, income earned on account of providing credit facilities to such member also qualify for deduction u/s 80P(2)(a)(i)
Section 80P(4) now specifically excludes only co-operative banks which are co-operative societies engaged in business of banking i.e. engaged in lending money to members of public, which have a licence in this behalf from RBI
Bangalore Bench of Tribunal in case of M/s.Ravindra Multipurpose Co-operative Society Ltd. v. ITO in ITA No.1262/Bang/2019 had remanded the issue to files of A.O. for de novo consideration
Tribunal directed A.O. to follow dictum laid down by Apex Court in case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra)
In view of the order of ITAT, which is identical to facts of the case, the issue of claim of deduction u/s 80P is restored to files of A.O. for de novo consideration
As regards claim of deduction u/s 80P(2)(d) A.O. is directed to verily whether interest / dividend is received by assessee out of investments made with Co-operative Societies
If assessee earns interest / dividend income out of investments with co-operative society, same is entitled to deduction u/s 80P(2)(d)
With these observations, the issue is restored to files of A.O