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2018 (7) TMI 367 - AT - Income TaxBenefit of deduction u/s 80P(2) - assessee were doing the business of banking and therefore in view of the insertion of the provisions of section 80P(4) the assessee were not entitled to the deduction u/s 80P - 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 as held that the assessee s in these cases are primary agricultural credit societies, registered as such under the Kerala Co-operative Societies Act. In the case of Chirakkal Service Co-operative Bank Limited & Ors. (2016 (4) TMI 826 - KERALA HIGH COURT) had categorically 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 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. Interpretation of the term "Primary Agricultural Credit Society" under the Kerala Co-operative Societies Act, 1969. 4. Relevance of the Supreme Court judgment in the case of Citizens Co-operative Society Ltd. 5. Examination of the activities of the assessee society to determine if they align with the definition of a co-operative society or a banking business. Detailed Analysis: 1. Eligibility for Deduction under Section 80P(2)(a)(i) of the Income Tax Act: The assessee, a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969, claimed a deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer denied this deduction, arguing that the assessee was engaged in the business of banking, thus falling under the purview of Section 80P(4), which excludes co-operative banks from such deductions. 2. Applicability of Section 80P(4) of the Income Tax Act: The CIT(A) allowed the deduction, 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 deductions under Section 80P(2). The Revenue appealed, citing the Supreme Court's decision in Citizens Co-operative Society Ltd., which emphasized examining the actual activities of the society rather than just its registration status. 3. Interpretation of the Term "Primary Agricultural Credit Society" under the Kerala Co-operative Societies Act, 1969: The Tribunal noted that the Kerala High Court had categorically held that societies registered as primary agricultural credit societies under the Kerala Co-operative Societies Act are entitled to the benefits of Section 80P(2). The High Court's judgment emphasized that the authorities under the Income Tax Act cannot probe into the classification done by the competent authority under the Kerala Co-operative Societies Act. 4. Relevance of the Supreme Court Judgment in the Case of Citizens Co-operative Society Ltd.: The Tribunal distinguished the Supreme Court's judgment in Citizens Co-operative Society Ltd., explaining that it dealt with a credit cooperative society registered under a different act and found to be violating the principles of mutuality by admitting nominal members not recognized under the relevant state law. In contrast, the Kerala Co-operative Societies Act includes nominal members within its definition of "members," thus making the Supreme Court's judgment inapplicable to the present case. 5. Examination of the Activities of the Assessee Society: The Tribunal examined whether the activities of the assessee society aligned with the definition of a primary agricultural credit society. It concluded that since the assessee was registered under the Kerala Co-operative Societies Act and classified as a primary agricultural credit society, it was entitled to the deductions under Section 80P(2). The Tribunal also noted that the Reserve Bank of India treats such societies as primary agricultural credit societies, exempt from the Banking Regulation Act. Conclusion: The Tribunal upheld the CIT(A)'s decision to allow the deduction under Section 80P(2)(a)(i) of the Income Tax Act, dismissing the Revenue's appeal. The Tribunal emphasized that the judgment of the jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. was squarely applicable, and the Supreme Court's judgment in Citizens Co-operative Society Ltd. did not apply to the facts of the present case. The Tribunal reiterated that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to the benefits of Section 80P(2).
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