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2018 (1) TMI 856 - AT - Income TaxDisallowing the claim of deduction u/s 80P(2) - AO competency and 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. CIT(A) has correctly allowed the claim of deduction - Decided against revenue
Issues Involved:
1. Deletion of disallowance of deduction claimed under section 80P(2)(a)(i) of the Income-tax Act. 2. Examination of whether the assessee-society fulfilled the primary object or principal business of providing agricultural loans. 3. Consideration of conflicting judgments by the jurisdictional High Court. 4. Deletion of disallowance of statutory contributions made by the assessee. Detailed Analysis: 1. Deletion of Disallowance of Deduction Claimed Under Section 80P(2)(a)(i) of the Income-tax Act: The assessee, a primary agricultural credit society registered under the Kerala State Co-operative Societies Act, 1969, claimed a deduction under section 80P(2) of the Income-tax Act for the assessment year 2013-2014. The Assessing Officer disallowed this claim on the grounds that the assessee was primarily engaged in banking activities, thus not eligible for the deduction due to the insertion of section 80P(4). The CIT(A) reversed this decision, citing the Kerala High Court's judgment in the case of The Chirakkal Service Co-operative Bank Ltd., which held that a primary agricultural credit society registered under the Kerala Co-operative Societies Act is entitled to the benefit of deduction under section 80P(2). 2. Examination of Whether the Assessee-Society Fulfilled the Primary Object or Principal Business of Providing Agricultural Loans: The Revenue argued that the assessee-society had advanced agricultural loans only to the extent of 0.24% of the total loans granted, questioning its status as a "Primary Agricultural Credit Society." The CIT(A), however, relied on the Kerala High Court's decision in The Chirakkal Service Co-operative Bank Ltd., which stated that the classification by the competent authority under the Kerala Co-operative Societies Act should be taken as conclusive. The Tribunal upheld this view, emphasizing that the assessee society is registered as a primary agricultural credit society and thus eligible for the deduction. 3. Consideration of Conflicting Judgments by the Jurisdictional High Court: The Revenue cited an earlier decision by the jurisdictional High Court in the case of Thathamangalam SCB Ltd., which required societies claiming the status and benefits of Primary Agricultural Credit Societies to substantiate their primary object of providing agricultural loans. However, the Tribunal found that the Kerala High Court's later judgment in The Chirakkal Service Co-operative Bank Ltd. was more applicable, as it specifically dealt with the issue of deduction under section 80P(2) for primary agricultural credit societies. 4. Deletion of Disallowance of Statutory Contributions Made by the Assessee: The Revenue also contested the deletion of disallowance of statutory contributions amounting to ?22,15,415, arguing that the CIT(A) should have examined the allowability of contributions to various funds. The Tribunal upheld the CIT(A)'s decision, which was based on the Kerala High Court's judgment that primary agricultural credit societies are eligible for deductions under section 80P(2). Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, affirming that the assessee, as a primary agricultural credit society registered under the Kerala Co-operative Societies Act, is entitled to the deduction under section 80P(2) of the Income-tax Act. The Tribunal also dismissed the cross-objection filed by the assessee as it was supportive of the CIT(A)'s order. The judgment of the Hon'ble Apex Court in Citizen Co-operative Society Ltd. was found not applicable to the facts of the present case, and the Tribunal relied on the jurisdictional High Court's judgment in The Chirakkal Service Co-operative Bank Ltd.
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