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2018 (7) TMI 357 - AT - Income TaxDenying the claim of deduction u/s 80P(2)(a)(i) - assessee was doing the business of banking and therefore in view of insertion of provisions of section 80P(4) - 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. 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 in favour of assessee.
Issues Involved:
1. Eligibility of the assessee for deduction under Section 80P(2)(a)(i) of the Income Tax Act. 2. Applicability of Section 80P(4) of the Income Tax Act. 3. Relevance of the Supreme Court judgment in the case of The Citizens Co-Operative Society Limited. 4. Interpretation of the term "Primary Agricultural Credit Society" under the Kerala Co-operative Societies Act, 1969. 5. Jurisdiction of the Assessing Officer in determining the nature of the assessee's activities. Detailed Analysis: 1. Eligibility of the Assessee for Deduction under Section 80P(2)(a)(i): The core issue revolves around whether the assessee, a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969, is entitled to claim deduction under Section 80P(2)(a)(i) of the Income Tax Act. The assessee filed a return of income claiming this deduction, which was denied by the Assessing Officer on the grounds that the assessee was engaged in the business of banking, thus invoking Section 80P(4). 2. Applicability of Section 80P(4): Section 80P(4) was inserted to deny the benefit of deduction under Section 80P to co-operative banks, except primary agricultural credit societies. The Revenue argued that the assessee was performing activities akin to banking and thus fell under the purview of Section 80P(4). However, the CIT(A) relied on the judgment of the Kerala High Court in the case of The Chirakkal Service Co-operative Bank Ltd., which held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to the deduction under Section 80P(2). 3. Relevance of the Supreme Court Judgment in The Citizens Co-Operative Society Limited: The Revenue cited the Supreme Court's decision in The Citizens Co-Operative Society Limited, where it was held that the society was not entitled to deduction under Section 80P due to its activities resembling those of a finance business. The Tribunal distinguished this case by noting that the Supreme Court's judgment was specific to the facts of that case, where the society admitted nominal members who were not genuine members under the relevant cooperative societies act. In contrast, under the Kerala Co-operative Societies Act, nominal members are considered genuine members. 4. Interpretation of "Primary Agricultural Credit Society": The Tribunal referred to the Kerala High Court's judgment in The Chirakkal Service Co-operative Bank Ltd., which clarified that once a society is registered and classified as a primary agricultural credit society under the Kerala Co-operative Societies Act, it is entitled to the benefits under Section 80P(2). The Tribunal emphasized that the definition of a member under the Kerala Act includes nominal members, and the activities of the assessee were within the scope of its registration. 5. Jurisdiction of the Assessing Officer: The Tribunal noted that the Assessing Officer did not have the jurisdiction to determine whether the assessee was a primary agricultural credit society or a cooperative bank, as this determination falls under the purview of the Registrar of Co-operative Societies and the Reserve Bank of India. The RBI had treated similar societies as primary agricultural credit societies, exempting them from the Banking Regulation Act. Conclusion: The Tribunal upheld the CIT(A)'s decision, confirming that the assessee is entitled to the deduction under Section 80P(2)(a)(i). The Tribunal found that the Revenue's reliance on the Supreme Court's judgment in The Citizens Co-Operative Society Limited was misplaced, as the facts of the present case were distinct and aligned with the Kerala High Court's ruling in The Chirakkal Service Co-operative Bank Ltd. The Tribunal dismissed the Revenue's appeal, reiterating that the assessee's classification as a primary agricultural credit society under the Kerala Co-operative Societies Act entitled it to the claimed deduction.
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