2019 (3) TMI 1580 - HC - Income Tax

Deduction u/s 80P (2) - scope of introduction of sub-section (4) - provisions of this Section shall not apply in relation to any Co-operative Bank other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank - Primary Agricultural Credit Society or a Co-operative Bank - if the assessee is having a valid registration u/s 8 of the KCS Act, the authorities under the IT Act have to extend the benefit of deduction provided u/s 80P , by reason of sub-section (4) thereof, to such societies - HELD THAT - In view of the law laid down by the Apex Court in Citizen Co-operative Society 2017 (8) TMI 536 - SUPREME COURT it cannot be contended that, while considering the claim made by an assessee society for deduction u/s 80P , after the introduction of sub-section (4) thereof, the Assessing Officer has to extend the benefits available, merely looking at the class of the society as per the certificate of registration issued under the Central or State Co-operative Societies Act and the Rules made thereunder. On such a claim for deduction u/s 80P, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of Section 80P. Moreover, the law laid down by the Division Bench in Chirakkal 2016 (4) TMI 826 - KERALA HIGH COURT is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society (supra) on a claim for deduction u/s 80P, by reason of sub-section (4) thereof, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of Section 80P. In view of the law laid down by the Apex Court in Citizen Cooperative Society (supra) the law laid down by the Division Bench Perinthalmanna 2014 (6) TMI 184 - KERALA HIGH COURT has to be affirmed and we do so. In view of the law laid down by the Apex Court in Ace Multi Axes Systems' case 2017 (12) TMI 372 - SUPREME COURT , since each assessment year is a separate unit, the intention of the Legislature is in no manner defeated by not allowing deduction under Section 80P, by reason of sub-section (4) thereof, if the assessee society ceases to be the specified class of societies for which the deduction is provided, even if it was eligible in the initial years. The question referred to the Full Bench is answered as above. Registry shall list the appeals before appropriate Bench as per roster.

Summary

Issues Involved:
1. Eligibility for exemption under Section 80P of the Income Tax Act, 1961, after the introduction of sub-section (4).
2. Jurisdiction of Income Tax authorities to determine the status of a society as a Primary Agricultural Credit Society (PACS) or a Co-operative Bank.
3. Interpretation of the term "Primary Agricultural Credit Society" under the Kerala Co-operative Societies Act and the Banking Regulation Act.
4. Impact of the certificate of registration under the Kerala Co-operative Societies Act on the eligibility for deduction under Section 80P.
5. Relevance of the factual activities of the society in determining eligibility for exemption.

Detailed Analysis:

1. Eligibility for Exemption under Section 80P:
The primary issue addressed was whether the respective assessees are eligible for exemption under Section 80P of the Income Tax Act, 1961, after the introduction of sub-section (4). The court analyzed the divergence in opinions between two Division Bench decisions: *Perinthalmanna Service Co-operative Bank Ltd. v. Income Tax Officer* and *Chirakkal Service Co-operative Bank Ltd. v. Commissioner of Income Tax*. The former emphasized the need for an inquiry into the factual activities of the society to determine eligibility, while the latter relied on the certificate of registration as conclusive evidence.

2. Jurisdiction of Income Tax Authorities:
The court held that the authorities under the Income Tax Act have ample power to examine the eligibility of the assessee for deduction under Section 80P, for each assessment year. This includes determining whether the society is a PACS or a Co-operative Bank, based on its activities, rather than merely relying on the registration certificate.

3. Interpretation of "Primary Agricultural Credit Society":
The court referred to the definition of "Primary Agricultural Credit Society" under the Kerala Co-operative Societies Act and the Banking Regulation Act. It emphasized that the principal object of a PACS should be to undertake agricultural credit activities. The court noted that if a society does not fulfill this principal object, it loses its characteristics as a PACS, as per the second proviso to clause (oa) of Section 2 of the Kerala Co-operative Societies Act.

4. Impact of the Certificate of Registration:
The court clarified that the certificate of registration under the Kerala Co-operative Societies Act is not conclusive evidence of the society's eligibility for deduction under Section 80P. The registration certificate indicates the society's classification at the time of registration, but the actual activities of the society must align with the statutory requirements for it to be eligible for the deduction.

5. Relevance of Factual Activities:
The court highlighted the importance of examining the factual activities of the society to determine its eligibility for exemption under Section 80P. It referred to the Supreme Court's decision in *Citizen Co-operative Society Ltd. v. Assistant Commissioner of Income Tax*, which held that the actual activities of the society must be scrutinized to ensure compliance with the statutory requirements.

Conclusion:
The court concluded that the law laid down by the Division Bench in *Chirakkal Service Co-operative Bank Ltd.* is not good law, as it did not consider the necessity of examining the factual activities of the society. The court affirmed the law laid down in *Perinthalmanna Service Co-operative Bank Ltd.*, which requires an inquiry into the factual situation to determine eligibility for deduction under Section 80P. The court emphasized that each assessment year is a separate unit, and the eligibility for deduction must be evaluated for each year based on the society's activities.