ITA No. 49/NAG/2020

Assessment Year: 2016-2017

Decided On: 21.06.2021

Appellants: The Vainganga Nagari Sahakari Pat Sanstha Ltd.
Respondent: ITO, Ward 2

Hon'ble Judges/Coram:
R.S. Syal, Vice President and S.S. Viswanethra Ravi


R.S. Syal, Vice President

1. This appeal by the assessee is directed against the order passed by the CIT(Appeals)-2, Nagpur on 31-01-2020 in relation to the assessment year 2016-17.

2. The only issue raised in this appeal is against the denial of deduction u/s. 80P(2)(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act').

3. Briefly stated, the facts of the case are that the assessee is a Co-operative society registered under the Maharashtra Co-operative Societies Act, 1960 (hereinafter called 'the Maharashtra Act'). It is engaged in providing credit facilities to its Members. A return of income was filed claiming deduction u/s. 80P(2)(a)(i) amounting to Rs. 33,41,435. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee was carrying on its activities in violation of provisions of section 80P(2)(a)(i) inasmuch as it had advanced loans to persons who were not Members of the society. On being called upon to explain its stand, the assessee submitted that the loans were advanced only to the Members, be it Regular (ordinary) members or Nominal members. Relying on the judgment of the Hon'ble Supreme Court in Citizen Co-operative Society Ltd. vs. ACIT MANU/SC/0963/2017 : (2017) 84 114 (SC), the AO repelled the assessee's claim and disallowed the deduction by holding that the assessee violated the provisions by accepting deposits from and making advances to such members, who though described as 'Nominal Members', were not entitled to dividend or shareholders' rights. The ld. CIT(A) echoed the assessment order on this point, against which the assessee has come up in appeal before the Tribunal.

4. We have heard the rival submissions through Virtual Court and scanned 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 on the ground that it had 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 Co-Operative Bank Ltd. vs. CIT MANU/SC/1953/2019 : (2021) 123 161 (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 that the Citizen Co-operative Society Ltd. vs. ACIT (supra) judgment dealt with the Andhra Act wherein the term 'Member' did not include Nominal Member, the Hon'ble Supreme Court in Mavilayi Service (supra) held that the interest on loans given to Nominal Members under the Kerala Act was eligible u/s. 80P(2)(a)(i) of the Act as the term 'Member' under the Kerala Act included 'Nominal Members'. In view of the foregoing discussion, it is evident that when the loans are given to Nominal Members and the relevant State Act includes, 'Nominal Member' purview of 'Member', there can be no question of denial of benefit u/s. 80P(2)(a)(i).

5. Adverting to the facts of the instant case, we find that the provisions of the Kerala Act and the Maharashtra Act, in so far as the term 'Member' including 'Nominal member' is concerned, are similar. The Hon'ble jurisdictional High Court in Jalgaon District Central Co-operative Bank Ltd. vs. Union of India MANU/MH/0505/2003 : (2004) 134 Taxman 1 (Bom) has held that the definition of 'member' given in section 2(19) of the Maharashtra Act takes within its sweep even a nominal member and there is no distinction between a duly registered member and nominal member. In view of the above discussion, we overturn the impugned order and direct to grant deduction u/s. 80P(2)(a)(i), as claimed by the assessee.

6. In the result, the appeal is allowed.

Order pronounced in the open Court on 21st June, 2021.

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