INCOME TAX ACT, 1961

Section 80P(2)(a)(i)

Deduction under section 80P(2)(a)(i) - Co-operative society - Denial of deduction on the ground of society having admitted nominal members -

Assessee-society was engaged in the business of providing credit facilities to its members. AO disallowed deduction on the ground that business of providing credit facilities to members carried on by assessee could not be regarded as a business carried on by a co-operative society complying with the principles of mutuality since assessee had admitted nominal and associated members, who could neither vote nor were entitled to a share in the profits as per the bye-laws of assessee. Held: Income Tax Act does not define 'member', nor has provided distinction between 'regular member' and 'nominal member' and therefore, its meaning and objects has to be understood in the context of definition given in the State Act. AO was trying to extrapolate the meaning of expression 'Member' contrary to the spirit of the Act. Therefore, nominal members were members and deposits received and loan advanced to nominal members could not be treated as from non-members or from public and in the nature of banking business. That being so, assessee engaged in primary agricultural activities and providing credit facilities and agricultural facilities to farmer-members of a particular region, was entitled to claim deduction under section 80P(2). Accordingly, issue was restored to AO to grant benefit to nominal members and assessee was to be provided adequate opportunity of hearing.

Relied:Kodavoor Vyavasaya Seva Sahakari Sangha Niyamitha v. ITO ITA Nos. 707, 762, 765, 942, 1190 & 1191/Bang/2019, dated 26-8-2019 : 2019 TaxPub(DT) 5448 (Bang-Trib).

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2016-17

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