Society allowing Loan to non-members cannot claim deduction U/s. 80P

ITO Vs. Shri Bapooji Pattin Souhard Sahakari Niyamit (ITAT Bangalore)

The only issue in the present appeal is whether the respondent- assessee co-operative society is entitled for deduction u/s. 80P of the Act. The respondent- assessee is registered under the Karnataka Co-operative Societies Act. According to the respondent- assessee, the primary activity of the assessee is only to provide credit facilities to its members and therefore it is not a co-operative bank.

The AO had denied the benefit of section 80P on the ground that it is a co-operative bank and hit by the provisions of sub-section (4) of section 80P of the Act. Recently identical issue had come up before the Hon’ble Supreme Court in the case of The Citizen Co-operative Society Ltd. v. ACIT [2017] 397 ITR 1 (SC) wherein it was held that though business of the society does not amount to that of co-operative bank so as to come within the mischief of sub-section (4) of section 80P, since the assessee was catering to the needs of non-members also, the principle of mutuality is tainted and therefore the benefit of section 80P was denied.

An Appellant cannot be treated as a co-operative society meant only for its members if providing credit facilities to non- members and such a society cannot claim the benefit of Section 80P of the Income Tax Act, 1961.