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2018 (8) TMI 1725 - AT - Income TaxDenying the claim of deduction u/s 80P(2)(a)(i) - Held that - As per section 3 of the Banking Regulation Act, 1949, the provisions of Banking Regulation Act shall not apply to Primary Agricultural Credit Societies. The explanation to section 80P(4) states that Primary Agricultural Credit Society and Co-operative Bank will have the same meaning as provided in Part V of the Banking Regulation Act, 1949. The explanation provided after clause (ccvi) of section 5 r. w. s 56 of the Banking Regulation Act specifically provides that if any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final. 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 Cooperative 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. We hold that the CIT(A) s are justified in directing the A. O. to grant deduction u/s 80P(2)(a)(i) of the I. T. Act - Decided against revenue
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 The Citizens Co-Operative Society Limited vs Assistant Commissioner of Income Tax. 3. Distinction between de jure and de facto positions regarding cooperative societies' activities. 4. Interpretation of nominal members and their impact on eligibility for tax deductions. 5. Jurisdiction and authority of the Assessing Officer in determining the nature of cooperative societies. Detailed Analysis: 1. Eligibility of Primary Agricultural Credit Societies for Deduction under Section 80P(2)(a)(i): The assessees, primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969, filed returns claiming deductions under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer denied this deduction, arguing that the assessees were engaged in banking activities and thus not eligible under Section 80P(4). The CIT(A) overturned this decision, relying on the Kerala High Court's judgment in Chirakkal Service Co-operative Bank Ltd., which affirmed that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to such deductions. 2. Applicability of the Supreme Court's Decision in The Citizens Co-Operative Society Limited Case: The Revenue argued that the CIT(A)'s decision contradicted the Supreme Court's ruling in The Citizens Co-Operative Society Limited case, where the Court emphasized examining the actual activities of the society rather than solely relying on its registration status. The Tribunal noted that the Supreme Court's decision was based on specific facts, including the society's registration under the Multi-State Co-operative Societies Act and its operations involving non-members, which were not analogous to the present cases. 3. Distinction Between De Jure and De Facto Positions: The Revenue contended that the CIT(A) erred by not differentiating between the de jure (legal) and de facto (actual) positions of the societies' activities. They argued that the principle of penetrating the corporate veil should apply to determine the true nature of the cooperative societies' activities. The Tribunal, however, upheld the CIT(A)'s reliance on the Kerala High Court's judgment, which did not support such an inquiry once the society was classified as a primary agricultural credit society by the competent authority. 4. Interpretation of Nominal Members and Their Impact on Eligibility for Tax Deductions: The Tribunal examined whether nominal members should be considered actual members under the Kerala Co-operative Societies Act. It was noted that the Kerala Act's definition of a "member" includes nominal members, unlike the situation in the Citizens Co-Operative Society case. Therefore, deposits from nominal members could not be treated as public deposits, maintaining the societies' eligibility for deductions under Section 80P(2). 5. Jurisdiction and Authority of the Assessing Officer: The Tribunal emphasized that the Assessing Officer did not have the jurisdiction to determine whether the societies were primary agricultural credit societies or cooperative banks under the Banking Regulation Act. This determination falls under the purview of the Reserve Bank of India, which had classified the societies as primary agricultural credit societies, thereby exempting them from the Banking Regulation Act's provisions. Conclusion: The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s orders that the assessees were entitled to deductions under Section 80P(2)(a)(i) of the Income Tax Act. The Tribunal's decision was based on the Kerala High Court's judgment in Chirakkal Service Co-operative Bank Ltd., the specific statutory definitions under the Kerala Co-operative Societies Act, and the inapplicability of the Supreme Court's decision in the Citizens Co-Operative Society case to the present facts.
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