2018 (8) TMI 2060 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - Whether the interest earned on investment made with sub-treasury and Banks is entitled for deduction u/s. 80P(2)(a)(i)? - HELD THAT - Admittedly, the assessee is a primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969. The Hon'ble High Court of Kerala in the case of Chirakkal Service Co-op Bank Ltd. 2016 (4) TMI 826 - KERALA HIGH COURT had held that a primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969 is entitled to the benefit of deduction u/s. 80P(2) - Thus we hold that the assessee-Society is entitled to the benefit of deduction u/s. 80P(2) of the Act. Whether the assessee was entitled to deduction u/s 80P(2)(a)(i) of the I.T. Act for the interest received on investment made with sub-treasuries and banks? - As relying on Padne Service Co-operative Bank Limited 2018 (1) TMI 602 - ITAT COCHIN Interest earned from investment with sub-treasuries and Banks was part of the banking activities, and therefore, the said income was entitled to deduction u/s 80P(2)(a)(i) of the I.T. Act. Hence, we hold that the CIT(A) is justified in directing the A.O. to grant deduction u/s 80P(2)(a)(i) of the I.T. Act for the interest earned on the investments made with sub-treasuries and Banks. Appeal filed by the Revenue is dismissed.

Summary

Issues:
1. Whether the assessee is entitled to deduction u/s. 80P(2)(a)(i) of the I.T.Act.
2. Whether the interest earned on investment made with sub-treasury and Banks is entitled for deduction u/s. 80P(2)(a)(i) of the I.T. Act.

Issue 1 - Deduction u/s. 80P(2)(a)(i) of the I.T. Act:
The case involved a primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969, seeking deduction u/s. 80P(2) of the I.T. Act for the assessment year 2012-13. The Assessing Officer initially denied the deduction, considering the society primarily engaged in banking. However, the CIT(A) and the Tribunal referred to the judgment in the case of Chirakkal Service Co-operative Bank Ltd., holding that such societies are entitled to the deduction. The Kerala High Court's decision emphasized that societies classified as primary agricultural credit societies under the State law are entitled to the exemption under section 80P of the IT Act. Consequently, the Tribunal ruled in favor of the assessee, allowing the deduction u/s. 80P(2) of the Act.

Issue 2 - Interest earned on investments for deduction u/s. 80P(2)(a)(i) of the I.T. Act:
The second issue pertained to whether the interest earned on investments made with sub-treasuries and banks qualifies for deduction u/s. 80P(2)(a)(i) of the I.T. Act. The CIT(A) relied on the Tribunal's order in the case of Kizhathadiyoor Service Co-operative Bank Limited, where it was held that such interest income is eligible for deduction under section 80P(2)(a)(i). The Tribunal further cited precedents in cases like Padne Service Co-operative Bank Limited and Mundakkayam Service Co-operative Bank Ltd., which supported the view that interest earned from investments with sub-treasuries and banks is part of banking activities and thus qualifies for the deduction. Consequently, the Tribunal upheld the CIT(A)'s decision, directing the Assessing Officer to grant deduction u/s. 80P(2)(a)(i) of the I.T. Act for the interest earned on such investments.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the entitlement of the assessee to deductions under both sections 80P(2) and 80P(2)(a)(i) of the Income Tax Act. The judgment highlighted the significance of the classification of societies as primary agricultural credit societies under State laws for determining their eligibility for tax exemptions, emphasizing the legal principles established by relevant precedents and High Court decisions.