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2019 (7) TMI 1207 - AT - Income TaxDeduction u/s. 80P(2)(a)(i) - alleged that co-operative society carrying on the business of baking - scope of clause no.(4) of section 80P - HELD THAT:- According to the revenue the Hon’ble Supreme Court in the case of Citizens Co-operative Society Ltd. [2017 (8) TMI 536 - SUPREME COURT] has also held it is also important to ascertain as to what is the nature of income which is claimed as exempt and as to how the principle of mutuality is not violated in respect of such income. According to the revenue the principle of mutuality will not be satisfied, if the person from whom income from providing credit facilities is derived is a nominal member who has no right to participate in the profits of the Assessee. Such grievance would be addressed by setting aside the issue of deduction u/s.80P(2)(a)(i) to the AO for consideration afresh, with a direction to the Assessee to produce a certificate from RBI that it does not possess license from it for doing banking business and further that the business carried on by the Assessee is not akin to business of a co-operative bank. Further the first part of Sec.80P(2)(a)(i) allows deduction in respect of income derived by a co-operative society from the business of banking. Even the claim of the Assessee for deduction requires to be examined under the first part of Sec.80P(2)(a)(i). The relevant law governing co-operative societies of the concerned State providing status of different categories of members in so far as the affairs of the co-operative society are concerned, is also required to be examined. It is only income which arises from dealing with members and which is either in the nature of banking or providing credit facilities to members that would be allowed as deduction. All these aspects also require examination. - remanded to AO with directions Disallowance u/s 40(a)(ia) - no exception to co-operative societies for non deduction of tax for pigmy commission payments - HELD THAT:- The disallowance u/s 40(a)(ia) was made on account of non-deduction of tax at source on payment of pigmy commission and therefore, it had direct nexus with the business income of the assessee on which deduction u/s 80P(2)(a)(i) was claimed. Aggrieved by the order of the CIT(Appeals), the revenue has raised ground No.6. In our view, the aforesaid ground of appeal would depend on the outcome on grounds No.1 to 6 in the set aside proceedings. If the disallowance u/s.40(a)(i) results in increase in income of the Assessee which would otherwise go to enhance the income on which the Assessee is eligible to claim deduction u/s.80P(2)(a)(i), then the CBDT Circular referred to by CIT(A) would be applicable. Therefore this issue is also set aside to the AO to decide afresh in the light of the decision on the eligibility of Assessee for deduction u/s.80P(2)(a)(i).
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