2013 (11) TMI 1283 - AT - Income Tax

Disallowance of Deduction u/s 80P(a)(i) of Income Tax Act,1961 Conditions u/s 80P(4) - Revenue was of the view that the assessee didnot satisfied the conditions mentioned in the Explanation below Section 80P(4)to be eligible for deduction u/s 80P(2)(a)(i) - Held that - Following Khamano Primary Cooperative Agricultural Development Bank Ltd. 2013 (9) TMI 558 - ITAT CHANDIGARH and Commissioner Of Income-Tax Versus Pondicherry Co-operative Housing Society Limited 1990 (11) TMI 132 - MADRAS High Court - The assessee was primary co-op agriculture and rural development bank, entitled to benefit of deduction u/s 80P(2)(a)(i) of the Act - Merely because certain deficiencies were noted in not holding the meetings on periodic intervals or the membership number of members were not available in particular list, etc., does not make the activities under taken by the assessee society to be not in the nature of providing credit facilities to its members - The basic activity carried on the assessee society as enshrined in its bye laws was to provide long term loans to its members for specified purposes and the assessee admittedly was doing so - Once the primary activity of providing loans to its members had been undertaken by the assessee society, its entitlement for exemption u/s 80P(2)(a)(i) of the Act merits to be allowed. Section 80P of the Act exempted certain categories of income of co-operative societies - The income arising from the specified activities were exempt from tax and not the whole receipts of the previous year - In order to avail the exemption provided u/s 80P of the Act, onus was upon the assessee to prove that it was engaged in carrying on of one or more of the activities specified in 80P(2) of the Act - The exemption u/s 80P of the Act was not to be denied where the society was carrying on certain other activities - The underlying principle of granting exemption to a society was whether it was engaged in any of the activities falling under 80P(2) of the Act. The assessee was allowed exemption u/s 80P (2)(a)(i) of the Act on income arising from providing credit facilities to its members - However, because of the amendment by Finance Act, 2006, the insertion of section 80P(4) of the Act comes into play and its provisions are applicable to the year under appeal i.e. A.Y, 2007-08 - The subsequent amendment to section 2(24) of the Act entails that such income is includible as income where the assessee is engaged in banking activities - the amended provisions of 80P of the Act come into play in respect of co-op societies, which are primary agricultural credit society or primary co-op agricultural and rural development bank - The explanation under section 80P of the Act, defined the societies - The claim of the assessee was that it was primary co-op agricultural and rural development bank i.e. society having an area of operation confined to a taluka and providing long term credit for agricultural and rural development activities - The assessee was admittedly not engaged in the banking activities and hence was not hit by the amendment by Finance Act, 2006 - Decided against Revenue.

Summary

Issues Involved:
1. Disallowance of claim of deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Deduction under Section 80P(2)(a)(i):

The Revenue challenged the order of the Commissioner of Income-tax (Appeals) [CIT(A)], Patiala, which allowed the assessee's claim for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Revenue contended that the CIT(A) erred by following a previous Tribunal decision without verifying whether the assessee satisfied the conditions under Section 80P(4).

The learned A.R. for the assessee argued that the issue was identical to a previous case (The Khamano Primary Cooperative Agricultural Development Bank Ltd. Vs. ITO), where the Tribunal had ruled in favor of the assessee. The learned D.R. for the Revenue relied on the Assessing Officer's (AO) order.

The Tribunal reviewed the rival contentions and the record. The assessee, a cooperative society providing credit facilities to its members, claimed its income as eligible for deduction under Section 80P(2)(a)(i). The AO disallowed the deduction based on a Special Audit under Section 142(2A), which found discrepancies similar to those in the Khamano case.

The CIT(A) allowed the claim, relying on the Tribunal's decision in the Khamano case. The Tribunal cited the detailed analysis from the Khamano case, which involved the interpretation of Section 80P and its amendments. The Tribunal noted that the assessee was a primary cooperative agricultural and rural development bank, providing long-term credit for agricultural and rural development activities within a taluka.

The Tribunal emphasized that the assessee's primary activity was providing long-term loans to its members for agricultural purposes, which qualified for deduction under Section 80P(2)(a)(i). The Tribunal referred to precedents from the Madras High Court and Allahabad High Court, which supported a liberal interpretation of Section 80P to encourage cooperative societies.

The Tribunal concluded that the assessee was entitled to the deduction under Section 80P(2)(a)(i) as it was engaged in providing credit facilities to its members. The deficiencies noted by the Special Auditors did not justify the rejection of the exemption. The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that allowed the assessee's claim for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Tribunal confirmed that the assessee, being a primary cooperative agricultural and rural development bank, was entitled to the deduction for providing credit facilities to its members.