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The Vainganga Nagari Sahakari Pat Sanstha Ltd. Vs. ITO - (Income Tax Appellate Tribunal) (21 Jun 2021)

When the loans are given to Nominal Members and relevant State Act includes, 'Nominal Member' under purview of 'Member', benefit under Section 80P(2)(a)(i) of IT Act cannot be denied


Direct Taxation

The assessee is a Co-operative society registered under the Maharashtra Co-operative Societies Act, 1960 ('the Maharashtra Act'). It is engaged in providing credit facilities to its Members. A return of income was filed claiming deduction under Section 80P(2)(a)(i) of Income Tax Act, 1961 (IT Act) 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) of IT Act 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, 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 assessee Co-operative society is admittedly engaged in carrying on the business of banking and providing credit facilities. Section 80P(2)(a)(i) of IT Act 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 under Section 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". 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 under Section 80P(2)(a)(i) of IT Act has to be allowed.

It is evident that, when the loans are given to Nominal Members and the relevant State Act includes, 'Nominal Member' under purview of 'Member', there can be no question of denial of benefit under Section 80P(2)(a)(i) of IT Act.

Adverting to the facts of the instant case, 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 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. Present Tribunal overturn the impugned order and direct to grant deduction under Section 80P(2)(a)(i) of IT Act, as claimed by the assessee. Appeal allowed.


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