Case Law Details
Yuvashakti Nagari Sahkari Path Sanstha Maryadit Rendal Vs ITO (ITAT Pune)
Introduction The Income Tax Appellate Tribunal (ITAT) Pune recently delivered a significant verdict in the case of Yuvashakti Nagari Sahkari Path Sanstha Maryadit Rendal Vs ITO, where the central issue was the non-granting of deduction under Section 80P of the Income Tax Act. This case specifically pertains to the claim of deductions on earned interest income from nominal members and income earned from certain business activities.
Analysis In the case, the cooperative credit society argued that the earned interest income from its nominal members should be granted a deduction under section 80P. The tribunal examined previous precedents such as The Vainganga Nagari Sahakari Pat Sanstha Ltd. Vs. ITO, and found the deduction on interest income received from nominal members has been allowed in these cases. Furthermore, the tribunal took into account that the Kerala Act and Maharashtra Act consider ‘Nominal Members’ within the ambit of ‘Members’, thereby making such interest income eligible for deduction u/s 80P(2)(a)(i).
In respect to the non-granting of deduction on ‘insurance fees’, this issue was not pursued by the appellant. Consequently, it was dismissed as not pressed.
Another point of contention was the non-granting of deduction on the Electricity Commission. The appellant argued that the commission earned from the collection of electricity bills should also be granted deduction under section 80P. The tribunal examined this issue and found precedent where such income was allowed deduction.
Conclusion In conclusion, the ITAT Pune ruled in favour of the assessee regarding the interest income from nominal members and the commission income from the collection of electricity bills, referring to precedents and relevant acts. The ruling provides clarity on the application of deductions under Section 80P of the Income Tax Act, and it could have far-reaching implications for similar cases in the future.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee arises out of the order dated 21-02-2023 passed by the CIT(A) in National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 20 17-18.
2. The first issue raised in this appeal is against the non-granting of deduction u/s.80P in respect of interest income earned from nominal members.
3. Briefly stated, the facts of the case are that the assessee is a cooperative credit society engaged in the business of providing credits facilities to its members. During the year under consideration, the assessee received interest income of Rs.36,20,022/- from its nominal members and claimed the same as deductible u/s.80P. The AO did not allow the deduction on the net interest income of Rs. 3,90,600/-, which action came to be countenanced in the first appeal. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.
4. I have heard the rival submissions and gone through the relevant material on record. It is seen that the extant issue of granting deduction on the interest income received from nominal members is no more res integra in view of several orders passed by the Tribunal holding the same in favour of the assessee. The Tribunal in The Vainganga Nagari Sahakari Pat Sanstha Ltd. Vs. ITO (ITA No.49/Nag/2020) has decided the issue in favour of the assessee by its order dt. 21-06-2021. The relevant discussion has been made in Para Nos.4 and 5 of the order, relevant parts of which are reproduced as under :
“4. We have heard the rival submissions through Virtual Court and scanned through the relevant material on record. The assessee Cooperative 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 (2021) 123 taxmann.com 161 (SC) considered its earlier judgment in Citizen Cooperative 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 Cooperative Bank Ltd. VS. Union of India (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.
5. Following the precedent, I allow this ground of appeal raised by the assessee.
6. The second issue of non-granting of deduction u/s.80P in respect of income earned from `insurance fees’ was not pressed by the ld. AR. The same is, therefore, dismissed as not pressed.
7. The third issue is about non-granting of deduction u/s.80P in respect of Electricity Commission. The assessee carried out the activity of collection of electricity bills from customers and then depositing it with the Maharashtra State Electricity Distribution Company Limited (MSEDCL). For doing this activity, it was awarded commission of Rs.70,763/-, which was not accorded the deduction u/s.80P of the Act by the AO as well as the ld. CIT(A).
8. It is seen that this issue has been decided in favour of the assessee by the Tribunal in its order dt. 14-03-2022 in Bhagyalaxmi Nagri Sahakari Patsanstha Meryadit Vs. ITO (ITA Nos. 705 and 706/PUN/2021). Relevant paras of the Tribunal order allowing deduction u/s.80P in respect of such electricity commission are reproduced as under :
“4. I have heard the ld. DR and gone through the relevant material on record. There is no appearance from the side of the assessee. However, written submissions have been filed with reference to the confirmation of denial of deduction u/s.80P on the two items, which have been taken into consideration in deciding the extant appeal.
5. The first item is the commission income from MSEDCL amounting to Rs.60,363/-. The assessee has contended in its written submissions that similar issue came up for consideration before the Pune Tribunal in Banganga Nagri Sah. Patsanstha Ltd. (ITA No.873/PUN/2014) and the Tribunal, vide its order dated 31-03-2016, allowed the deduction on commission of collection of MSEDCL bills by holding that it was from the business activity carried on by the assessee. The Tribunal, for allowing such deduction in Banganga Nagri Sah. Patsanstha Ltd. (supra), in turn, relied on another order passed by the Tribunal in the case of the same assessee for the assessment years 2010- 11 and 2011-12. In view of the above order passed by the Tribunal, it is clear that the activity of earning commission from collection of bills relating to MSEDCL has been held as eligible business activity and resultantly allowed granted deduction u/s.80P. The ld. DR fairly conceded the position but relied on the impugned orders on this score. In view of the fact that commission income on collection of bills from MSEDCL has been made eligible for deduction u/s.80P(2)(a) on the ground of the same being in the nature of business activity, I allow the assessee’s claim in respect of similar commission income of Rs.60,363/-.”
9. Following the precedent, I order to allow deduction on such commission income.
10. In the result, the appeal is partly allowed.
Order pronounced in the Open Court on 08th June, 2023.
