2014 (9) TMI 943 - HC - Income Tax

Benefit of deduction u/s 80P(2)(a)(i) declined to extend - whether the appellant a multi-purpose co-operative credit society falling within the definition of the term primary agricultural credit co-operative society under section 2(h-2) of the KCS Act is entitled to the benefit of deduction in respect of its income under section 80P(2)(a)(i) of the Act regard being had to section 80P(4) of the Act? - Held that - In the light of the established fact that the appellant is a multi-purpose co-operative society registered under the KCS Act as evident from the registration certificate issued under the KCS Act it cannot but be said that it falls within the definition of the said term under section 2(f- 1) of the KCS Act and also under the definition of the term Primary agricultural credit co-operative society . Regard being had to section 5(cciv) as provided under section 56 of the Banking Regulation Act 1949 the appellant being a primary agricultural credit co-operative society coupled with the fact that under its bye-laws a co-operative society cannot become a member complies with the requirements of the Act . Thus the exception carved out in sub-section (4) of section 80P of the Act squarely applies to the appellant s multipurpose co-operative credit society hence entitled to the deduction under section 80P(2)(a)(i) of the Act . - Decided in favour of assessee.

Summary

Issues:
Interpretation of section 80P(2)(a)(i) of the Income-tax Act, 1961 regarding deduction for a multi-purpose co-operative credit society registered under the Karnataka Co-operative Societies Act, 1959.

Analysis:
The appellant, a multi-purpose co-operative credit society, contested the denial of deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. The primary issue revolved around whether the appellant, categorized as a primary agricultural credit co-operative society under the Karnataka Co-operative Societies Act, 1959, was eligible for the deduction under section 80P(2)(a)(i) of the Act, considering the provisions of section 80P(4) of the Act. The appellant had filed its return for the assessment year 2010-11, claiming the entire income as a deduction under section 80P(2)(a)(i) and the taxable income as nil. However, the assessing authority declined the deduction, asserting that the appellant was a primary co-operative bank not entitled to the benefit under section 80P(2)(a)(i), based on section 80P(4) of the Act.

The statutory provision in section 80P(4) of the Income-tax Act, 1961, stated that the benefits of deduction under section 80P do not apply to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The interpretation of whether the appellant, a multi-purpose co-operative credit society, fell within the definitions of a "primary agricultural credit society" or a "primary co-operative agricultural and rural development bank" was crucial. The Explanation to this sub-section referred to Part V of the Banking Regulation Act, 1949, defining the terms "co-operative bank" and "primary agricultural credit society." The appellant's status as a multi-purpose co-operative society under the Karnataka Co-operative Societies Act, 1959, was a key factor in determining its eligibility for the deduction.

The definitions provided in the Banking Regulation Act, 1949, and the Karnataka Co-operative Societies Act, 1959, were essential in establishing the appellant's classification as a primary agricultural credit co-operative society. The bye-laws of the appellant-society, which outlined the criteria for membership, further supported its classification. The judgment emphasized that the appellant, being a primary agricultural credit co-operative society and meeting the necessary criteria, was entitled to the deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. The orders of the authorities denying the deduction were deemed illegal and unsustainable, leading to the appeal being allowed in favor of the appellant.