2018 (1) TMI 848 - AT - Income Tax

Entitled to the benefit of section 80P deduction - AO s jurisdiction to resolve / decide the issue as to whether the assessee was a Primary Agricultural Credit Society or a Co-operative bank - Held that - The Reserve Bank of India, which is the competent authority as per the Banking Regulation Act, treats assessee society and similar societies as only Primary Agricultural Credit Society not falling within the ambit of Banking Regulation Act. The Reserve Bank of India has given letters to the societies similar to assessee stating that they are Primary Agricultural Credit Societies and therefore in terms of section 3 of the Banking Regulation Act are not entitled for banking license; (Copies of such letter from RBI are placed on record). That being the case, the assessing officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a Primary Agricultural Credit Society or a Co-operative bank , within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section 5 r.w.s Section 56 of the Banking Regulation Act. - Decided against revenue

Issues Involved:
1. Entitlement to the benefit of section 80P deduction for the assessees.
2. Applicability of the judgment of the Hon'ble Supreme Court in the case of Citizens Co-operative Society Ltd.
3. Classification of the assessees as Primary Agricultural Credit Societies under the Kerala Co-operative Societies Act.

Issue-Wise Detailed Analysis:

1. Entitlement to the Benefit of Section 80P Deduction:
The primary issue raised by the Revenue was whether the assessees are entitled to the benefit of section 80P deduction. The CIT(A) had allowed the claim of deduction under section 80P(2) of the Income-tax Act, following the judgment of the Hon'ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Limited & Ors. The Revenue argued that the assessees were not eligible for this deduction as they were functioning more like co-operative banks rather than primary agricultural credit societies. However, the Tribunal upheld the CIT(A)'s decision, stating that the assessees, being registered as primary agricultural credit societies under the Kerala Co-operative Societies Act, were entitled to the deduction under section 80P(2).

2. Applicability of the Judgment of the Hon'ble Supreme Court in the Case of Citizens Co-operative Society Ltd.:
The Revenue contended that the CIT(A)'s reliance on the High Court's decision was misplaced in light of the Supreme Court's judgment in Citizens Co-operative Society Ltd., which emphasized that the activities of the society, rather than just its registration, should determine eligibility for section 80P deduction. The Tribunal distinguished the facts of the present case from those in Citizens Co-operative Society Ltd., noting that the Supreme Court's decision was based on specific violations of the relevant state act and the nature of deposits and loans involving non-members. In contrast, the Kerala Co-operative Societies Act allows for nominal members, and the assessees were operating within the legal framework, thus the Supreme Court's ruling did not apply.

3. Classification of the Assessees as Primary Agricultural Credit Societies:
The Tribunal examined whether the assessees' classification as primary agricultural credit societies under the Kerala Co-operative Societies Act was valid. The Tribunal referred to the High Court's decision in Chirakkal Service Co-operative Bank Limited & Ors., which held that societies registered as primary agricultural credit societies under the Kerala Co-operative Societies Act are entitled to section 80P(2) deduction. The Tribunal noted that the definition of "member" under the Kerala Act includes nominal members, and deposits from such members cannot be considered as from the general public. Furthermore, the Tribunal emphasized that the Reserve Bank of India recognizes these societies as primary agricultural credit societies, exempting them from the Banking Regulation Act.

Conclusion:
The Tribunal concluded that the assessees, being primary agricultural credit societies registered under the Kerala Co-operative Societies Act, are entitled to the benefit of section 80P(2) deduction. The decision of the CIT(A) was upheld, and the appeals filed by the Revenue were dismissed. The Tribunal clarified that the Supreme Court's judgment in Citizens Co-operative Society Ltd. did not apply to the present case, as the facts and legal context were different. The Tribunal's order was pronounced on January 10, 2018.

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