ITO Vs Udayravi Credit Coop (ITAT Bangalore)
Souharda Society Eligible for Full 80P Deduction – Nominal Members Not a Bar for 80P – ITAT Bangalore Rejects Revenue’s Appeal
Revenue filed appeals against the Orders of CIT(A) allowing deduction u/s 80P(2)(a)(i) to the Assessee, a credit co-operative society registered under Karnataka Souharda Sahakari Act, 1997. The delay of 5 days in filing the appeals was condoned. AO had denied deduction u/s 80P(2)(a)(i) on the ground that the Assessee admitted nominal members, alleged violation of the 15% cap under the Souharda Act, & relied on the decision in Citizen Co-operative Society Ltd to hold that mutuality was absent. AO also made addition u/s 69A for demonetisation cash deposits & applied s.115BBE.
CIT(A) held that the Assessee is a co-operative society u/s 2(19), not a co-operative bank covered by 80P(4), & hence eligible for deduction on business income. Relying on Mavilayi SC decision, CIT(A) held that nominal members recognised in the State Act are also “members” for 80P purposes, & allowed deduction except for interest from scheduled banks, which was taxed as “other sources”. CIT(A) also deleted the addition u/s 69A.
Tribunal upheld CIT(A)’s findings. It relied on Karnataka HC rulings in Swabhimani Souharda Credit Co-operative Ltd holding that Souharda institutions are also “co-operative societies” for 80P. Tribunal held that nominal members are included in s.2(r) of the Karnataka Souharda Act; therefore AO cannot treat them as non-members. The Assessee’s main activity is providing credit to members, fulfilling requirements of 80P(2)(a)(i). Proportionate disallowance as per Mavilayi does not arise when nominal members are statutorily recognised. Revenue’s ground alleging 15% violation does not arise from AO’s order & is dismissed.
