2018 (6) TMI 1041 - AT - Income Tax

Benefit of deduction u/s 80P(2) - assessee are primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969 - Held that - We find that an identical issue was considered in the case of ITO v. The Chengala Service Co-operative Bank Limited 2018 (4) TMI 339 - ITAT COCHIN held that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. - Decided in favour of assessee.

Issues Involved:
1. Eligibility of primary agricultural credit societies for deduction under section 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of the Supreme Court's decision in the case of Citizen Co-operative Society Ltd. to the present cases.
3. Jurisdiction of the Assessing Officer to determine the nature of the cooperative societies.

Detailed Analysis:

1. Eligibility of Primary Agricultural Credit Societies for Deduction under Section 80P(2)(a)(i) of the Income Tax Act:
The assessees, primary agricultural credit societies registered under the Kerala Co-operative Societies Act, claimed deductions under section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer denied these claims, arguing that the assessees were engaged in banking activities and hence, not entitled to such deductions per section 80P(4). The CIT(A), however, allowed the deductions, relying on the Kerala High Court's judgment in the case of The Chirakkal Service Co-operative Bank Ltd. and Others, which held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to such deductions. The Tribunal upheld the CIT(A)’s decision, stating that the assessees are indeed entitled to the deductions as they are classified as primary agricultural credit societies by the competent authority.

2. Applicability of the Supreme Court's Decision in the Case of Citizen Co-operative Society Ltd.:
The Revenue argued that the Supreme Court's decision in Citizen Co-operative Society Ltd. should apply, which denied deductions under section 80P to a cooperative society engaged in banking activities with non-members. The Tribunal distinguished the present cases from the Citizen Co-operative Society case, noting that the latter involved a society registered under a different act and operating across multiple states, with most deposits from non-members. In contrast, the assessees in the present cases are registered under the Kerala Co-operative Societies Act, which includes nominal members within the definition of members, thus qualifying for the deduction under section 80P(2)(a)(i).

3. Jurisdiction of the Assessing Officer to Determine the Nature of the Cooperative Societies:
The Tribunal emphasized that the Assessing Officer did not have the jurisdiction to determine whether the assessees were primary agricultural credit societies or cooperative banks under the Banking Regulation Act. The Reserve Bank of India (RBI) is the competent authority to make such determinations, and it treats the assessees as primary agricultural credit societies, not subject to banking regulations. The Tribunal noted that the RBI had issued letters to similar societies affirming their status as primary agricultural credit societies, thus supporting the assessees' claims for deductions.

Conclusion:
The Tribunal concluded that the CIT(A) was justified in allowing the deductions under section 80P(2)(a)(i) of the Income Tax Act and dismissed the Revenue's appeals. The Tribunal's decision was based on the Kerala High Court's judgment, the specific provisions of the Kerala Co-operative Societies Act, and the lack of jurisdiction of the Assessing Officer to challenge the classification of the societies by the competent authority. The Tribunal also clarified that the Supreme Court's decision in Citizen Co-operative Society Ltd. was not applicable to the present cases due to differing factual and legal contexts.

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