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2018 (7) TMI 945 - AT - Income Tax


Issues Involved:
1. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Interpretation of Section 80P(4) of the Income Tax Act.
3. Applicability of the Supreme Court's judgment in the case of The Citizens Co-operative Society Limited.
4. Role of registration and classification under the Kerala Co-operative Societies Act, 1969.
5. Analysis of the principle of mutuality concerning nominal members.
6. Jurisdiction and authority of the Assessing Officer versus the Reserve Bank of India.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(i):
The primary issue was whether the assessees, being primary agricultural credit societies, were entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Tribunal upheld the CIT(A)'s decision, which relied on the Kerala High Court's judgment in the case of The Chirakkal Service Co-operative Bank Ltd. and Others, affirming that primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969, are entitled to this deduction.

2. Interpretation of Section 80P(4):
The Revenue contended that the assessees were engaged in the business of banking, thereby disqualifying them from the deduction under Section 80P(2)(a)(i) due to the provisions of Section 80P(4). However, the Tribunal clarified that Section 80P(4) does not apply to primary agricultural credit societies, as confirmed by the Supreme Court in the Citizens Co-operative Society Limited case, which emphasized that such societies remain eligible for the deduction.

3. Applicability of the Supreme Court's Judgment in The Citizens Co-operative Society Limited Case:
The Tribunal distinguished the facts of the present cases from those in the Citizens Co-operative Society Limited case. The Supreme Court's decision was based on the specific activities and violations of the provisions of the Andhra Pradesh Mutually Aided Co-operative Societies Act by the Citizens Co-operative Society. The Tribunal noted that the Kerala Co-operative Societies Act includes nominal members in the definition of members, unlike the situation in the Citizens Co-operative Society case.

4. Role of Registration and Classification under the Kerala Co-operative Societies Act, 1969:
The Tribunal reiterated that the registration and classification of the assessees as primary agricultural credit societies by the competent authority under the Kerala Co-operative Societies Act are decisive. The Kerala High Court had held that once a society is registered and classified as such, it is entitled to the deduction under Section 80P(2).

5. Analysis of the Principle of Mutuality Concerning Nominal Members:
The Tribunal addressed the Revenue's argument regarding the principle of mutuality and the role of nominal members. It was clarified that under the Kerala Co-operative Societies Act, nominal members are considered members, and therefore, transactions with them do not violate the principle of mutuality. This was supported by the Supreme Court's observation in U.P. Cooperative Cane Union v. Commissioner of Income-tax and the Bombay High Court's ruling in Jalgaon District Central v. UOI.

6. Jurisdiction and Authority of the Assessing Officer versus the Reserve Bank of India:
The Tribunal emphasized that the Assessing Officer does not have the jurisdiction to determine whether a society is a primary agricultural credit society or a co-operative bank. This determination falls under the purview of the Reserve Bank of India, which had classified the assessees as primary agricultural credit societies, thereby exempting them from the provisions of the Banking Regulation Act.

Conclusion:
The Tribunal upheld the CIT(A)'s orders, confirming that the assessees are entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act. The appeals filed by the Revenue were dismissed.

 

 

 

 

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