2020 (1) TMI 831 - HC - Income Tax

Deduction u/s 80P - Whether an entity registered under the Karnataka Souharda Sahakari Act 1997 fits into the definition of co-operative society as enacted by sec. 2(19) of the Income Tax Act 1961 for the purpose of Section 80P thereof? - HELD THAT - In both these definitions as defined by sec.2(d-2) of 1959 Act and Sec. 2(e) of 1997 Act the word co-operative is employed not as an adjective but as a noun; the definition of other relative concepts in the dictionary clauses of these Acts strengthens this view; this apart sec.7 of the 1997 Act provides that the entity registered as a co-operative shall be a body corporate notwithstanding the conspicuous absence of the word society as a postfix; sec.9 of the 1959 Act makes the entity once registered u/s.8 thereof a body corporate; both the entities have perpetual succession by operation of law; thus on registration be it under the 1959 Act or the 1997 Act a legal personality is donned by them so that inter alia they can own and possess the property; The employment of the word Sahakari in the very title of the 1997 Act is also not sans any significance; Sahakaar in Sanskrit is the equivalent of sahakaara in Kannada which means co-operation ; as already mentioned above both the 1959 Act and the 1997 Act employ this terminology; the 1997 Act is woven with the principles of co-operation; sec.4 of this Act bars registration of an entity unless its main objects are to serve the interest of the members in the area of co-operation and its bye-laws provide for economic and social betterment of its members through self-help mutual aid in accordance with the cooperative principles; this apart even sub-section (2) of sec.4 is heavily loaded with co-operative substance. These writ petitions succeed; a declaration is made to the effect that the entities registered under the Karnataka Souharda Sahakari Act 1997 fit into the definition of co-operative society as enacted in sec.2(19) of the Income Tax Act 1961 and therefore subject to all just exceptions petitioners are entitled to stake their claim for the benefit of sec.80P - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of the term "co-operative society" under section 2(19) of the Income Tax Act, 1961.
2. Whether entities registered under the Karnataka Souharda Sahakari Act, 1997 qualify as a "co-operative society" for the purpose of claiming deduction under section 80P of the Income Tax Act, 1961.

Analysis:
1. The primary issue in this case revolves around the interpretation of the term "co-operative society" as defined in section 2(19) of the Income Tax Act, 1961. The petitioners, registered under the Karnataka Souharda Sahakari Act, 1997, sought to claim a deduction under section 80P of the Act, contending that they fall within the scope of a cooperative society. On the contrary, the Revenue argued that the definition of a cooperative society under section 2(19) does not include entities registered under the Souharda Sahakari Act, highlighting potential implications on the Exchequer if a broader interpretation is adopted.

2. The Court analyzed the provisions of section 80P of the Income Tax Act, 1961, which allows for deductions for income of cooperative societies. It emphasized the need to liberally construe this section to promote the cooperative movement, aligning with the legislative intent and constitutional principles. The Court also delved into the legislative history and objectives of the Karnataka Co-operative Societies Act, 1959, and the Karnataka Souharda Sahakari Act, 1997, to establish their commonality in dealing with cooperative societies, despite differences in nomenclature.

3. By examining the definitions of "co-operative" under the 1959 Act and the 1997 Act, the Court found substantial similarities, reinforcing the argument that entities registered under the Souharda Sahakari Act qualify as cooperative societies. The presence of the term "Sahakari" in the title of the 1997 Act, coupled with provisions emphasizing cooperative principles and corporate status upon registration, further supported the conclusion that these entities meet the criteria of a cooperative society under the Income Tax Act, 1961.

4. Ultimately, the Court ruled in favor of the petitioners, declaring that entities registered under the Karnataka Souharda Sahakari Act, 1997, fit within the definition of a "co-operative society" as per section 2(19) of the Income Tax Act, 1961. The impugned notice was quashed, allowing the petitioners to claim benefits under section 80P. The judgment highlighted the legal personality conferred upon registration under both Acts and emphasized the cooperative ethos embedded in the legislative framework, ensuring the petitioners' entitlement to the claimed deduction.

5. The judgment refrained from delving into the broader implications of section 80P and left any further considerations regarding the application of the provisions to the concerned authorities. No costs were awarded in the matter, concluding the legal proceedings surrounding the interpretation and applicability of the term "co-operative society" in the context of income tax deductions.