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2019 (9) TMI 1333 - AT - Income TaxDeduction u/s 80P - denial of deduction as activities relate to giving loans to members/nominal members etc are earned the interest income - existence of two kinds of members of cooperative society - HELD THAT - The earnings out of investments in PDCC Credit Co-operative Banks and others are exempt u/s 80P of the Act. Considering the settled nature of the issue at the level of Sai Prerana Gramin Bigarsheti Sahakari Pat Sanshta Maryadit 2019 (7) TMI 1582 - ITAT PUNE and following the rule of consistency said issue should be decided in favour of the assessee.
Issues Involved:
1. Eligibility of cooperative societies for deduction under Section 80P of the Income Tax Act. 2. Classification of cooperative societies as cooperative banks. 3. Applicability of Section 80P(4) to cooperative societies. 4. Treatment of interest income from investments in cooperative banks. 5. Definition and inclusion of nominal members in cooperative societies. Issue-wise Detailed Analysis: 1. Eligibility of Cooperative Societies for Deduction under Section 80P of the Income Tax Act: The primary issue was whether the cooperative societies involved in the appeals were eligible for deduction under Section 80P of the Income Tax Act. The Assessing Officer (AO) had denied the deduction, arguing that the societies acted like regular banks by accepting deposits and giving loans, thus not qualifying for the deduction under Section 80P. However, the Tribunal referred to its previous decision in the case of Sai Prerana Gramin Bigarsheti Sahakari Pat Sanshta Maryadit, which had ruled in favor of the assessee, stating that cooperative credit societies are distinct from cooperative banks and are eligible for the deduction under Section 80P(2)(a)(i). 2. Classification of Cooperative Societies as Cooperative Banks: The AO had classified the cooperative societies as cooperative banks, thereby disqualifying them from the benefits of Section 80P. The Tribunal, however, emphasized that cooperative credit societies and cooperative banks are distinct entities. The Tribunal referenced the Banking Regulation Act, 1949, which defines cooperative banks and cooperative credit societies separately. The Tribunal concluded that cooperative credit societies do not fall under the definition of cooperative banks and thus are eligible for the deduction. 3. Applicability of Section 80P(4) to Cooperative Societies: Section 80P(4) excludes cooperative banks from availing the benefits of Section 80P. The AO had applied this exclusion to the cooperative societies in question. The Tribunal, however, cited various judicial precedents, including the Hon’ble Supreme Court’s decision in Citizen Co-operative Society Ltd. vs. ACIT, which clarified that cooperative societies providing credit facilities to their members are not considered cooperative banks and thus are not subject to the exclusion under Section 80P(4). 4. Treatment of Interest Income from Investments in Cooperative Banks: The AO had denied the deduction on interest income earned from investments in cooperative banks, arguing that the investments should be with cooperative societies, not banks. The Tribunal referred to the decision in the case of Jankalyan Nagri Sahakari Pat Sanstha Ltd., which allowed the deduction for interest income from investments in cooperative banks under Section 80P(2)(d). The Tribunal ruled in favor of the assessee, allowing the deduction for interest income from investments in cooperative banks. 5. Definition and Inclusion of Nominal Members in Cooperative Societies: The AO had argued that the inclusion of nominal members, who do not hold shares or voting rights, disqualified the societies from the benefits of Section 80P. The Tribunal referenced the Maharashtra Cooperative Societies Act, 1960, which includes nominal members within the definition of members. The Tribunal also cited the Hon’ble Bombay High Court’s decision in Jalgaon District Central Cooperative Bank Ltd., which held that nominal members are considered members for the purposes of Section 80P. Thus, the Tribunal concluded that the societies were eligible for the deduction despite having nominal members. Conclusion: The Tribunal ruled in favor of the assessee on all issues, allowing the deduction under Section 80P of the Income Tax Act. The Tribunal emphasized the distinction between cooperative credit societies and cooperative banks, the inclusion of nominal members as members, and the eligibility of interest income from investments in cooperative banks for the deduction. The Tribunal’s decision was consistent with previous judicial precedents and the legislative intent of Section 80P.
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