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It is thecaseof the Revenue that assessee is doing more business with nominal members than the regular member in order to earn more profit, which is against the law, and therefore, there is a break-down of principle of mutuality resulting disentitlement of exemption under section 80P. The ld.AO relied upon the judgment of Hon’ble Supreme Court in thecaseof Citizens Cooperative Society Ltd. (supra) to support his view. While thecaseof the assessee is that being a primary agriculture credit society, it is entitled for exemption under sub-section (4) of section 80P. Judgment of Hon’ble Apex Court relied upon by the Revenue is distinguishable on facts. In thatcaseassessee was a cooperative society registered under Multi State Cooperative Societies Act, 2002, while in the presentcase, assessee is a primary agriculture credit society registered under Gujarat State Cooperative Societies Act. The Hon’ble Supreme Court disentitled the assessee from claiming exemption under section 80P due to violation of provisions of MACSA, under which it was formed, and most of the business of the assessee was with carved out category of persons without approval of Registrar of the Societies. Weighing point of view of both sides, we find that balance tilt in favour of the assessee. We find that by virtue of sub-section (4) of section 80P, the assessee is entitled for deduction under section 80P(2). Further, 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. The Revenue authorities are trying to extrapolate the meaning of expression “Member” contrary to the spirit of the Act. It is evident from the definition of “member” provided in section 2(13) of the Gujarat Cooperative Societies Act that “Member” includes nominal, associate or sympathizer member. Therefore, in the presentcase, the nominal members are members as provided in the Act and that deposits received and loan advanced to the nominal cannot be treated as from non-members or from public and in the nature of banking business. That being so, then, an assessee engaged in primary agriculture activities and providing credit facilities and agriculture facilities to the farmer-members of a particular region, claim of deduction under section 80P(2) cannot be denied. It is not denied by the Revenue that the activities of the assessee society are of primary agriculture activities. Competent authority has also recognized the assessee as primary agriculture credit society. In the earlier assessment year also, Revenue has accepted this fact and allowed the claim of the assessee. Judgment of Hon’ble Supreme Court in thecaseof Citizens Co-operative Society Ltd. (supra) is distinguishable on facts. In thatcase, status of the assessee is that of co-operative bank, whereas assessee in the presentcaseis a primary agriculture credit society and applicability of section 80P(2)(4) of the Act. Considering all these facts, we are not convinced with the reasoning and finding given by the Revenue authority in denying claim of the assessee under section 80P(2). We allow the claim of the assessee and direct the ld.AO to re-compute income of the assessee by allowing claim under section 80P(2)(4) of the Act.”

Sec. 80P(2) of Income Tax Act, 1961— Deduction- The nominal members are also eligible for the Benefits of credit society. ITAT restored the entire disputed issues to the file of AO to examine and verify the eligibility of nominal members under Karnataka Co-operative Societies Act, 1959. Appeal of the assessee allowed. - BANGADY CO-OPERATIVE AGRICULTURAL SOCIETY LTD. V/s ITO - [2020] 23 ITCD Online 133 (ITAT-BANGALORE)
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