2018 (10) TMI 364 - AT - Income Tax

Entitled to deduction u/s 80P - Assessee s area of operation is not confined to a taluk - Held that - In the instant case, the Assessing Officer has held that the assessee s operations during the relevant assessment year have extended to two taluks, viz., Aluva and Paravoor. This finding of the Assessing Officer has been objected to by the assessee by stating that the bye-laws have been amended during the relevant assessment year and the assessee s operations were confined to only Aluva taluk. We find that this issue was not adjudicated by the CIT(A), and therefore, in the interest of justice and equity, we deem it appropriate to restore the matter to the CIT(A) for de novo consideration. We also noticed that the CIT(A) has directed the A.O. to grant deduction u/s 80P(2)(c) of the I.T.Act. There is no discussion by the CIT(A) for granting benefit of deduction u/s 80P(2)(c) of the I.T.Act. For this reason also, we vacate the finding of the CIT(A) and direct him to consider the entire case afresh. The CIT(A) shall also take into consideration that a co-operative society having an area of operation in more than one taluk is not entitled to deduction u/s 80P of the I.T.Act. The assessee shall produce necessary material to prove its case of eligibility u/s 80P(2)(a)(i) and 80P(2)(c) of the I.T.Act. It is ordered accordingly.

Summary

Issues involved:
1. Interpretation of Section 80P(4) in relation to a Co-operative Agricultural and Rural Development Bank.
2. Determination of the eligibility for deduction under Section 80P(2)(a)(i) and 80P(2)(c) of the Income Tax Act.
3. Assessment of the area of operation of the Co-operative Bank in relation to the taluk restriction under Section 80P(4).
4. Consideration of rental income as profits and gains under Section 80P(2)(c).

Detailed Analysis:
1. The main issue in this case revolved around the interpretation of Section 80P(4) of the Income Tax Act in relation to a Co-operative Agricultural and Rural Development Bank. The Revenue contended that the bank did not meet the definition of a Primary Co-operative Agricultural and Rural Development Bank as per the explanation provided in the section. The Revenue argued that the bank's area of operation extended beyond a taluk, which was a requirement for eligibility under Section 80P(4). The Revenue cited decisions of other ITAT benches to support their position, emphasizing the strict construction of the defining provision using the word "means." The Revenue also highlighted the temporary extension of the bank's area of operation to two taluks during a specific period, which they believed affected the bank's eligibility under Section 80P(4).

2. The second issue involved the determination of the Co-operative Bank's eligibility for deduction under Section 80P(2)(a)(i) and 80P(2)(c) of the Income Tax Act. The CIT(A) allowed the bank's appeal based on the judgment of the jurisdictional High Court, which found the bank entitled to the deductions. The CIT(A) directed the Assessing Officer to grant the deductions under the specified sections. However, the Tribunal noted that the CIT(A) did not address whether the bank could be granted the deduction when its area of operation extended to more than one taluk. Therefore, the Tribunal decided to restore the matter to the CIT(A) for further consideration, emphasizing the importance of the bank's compliance with the taluk restriction for eligibility under Section 80P.

3. The assessment of the Co-operative Bank's area of operation in relation to the taluk restriction under Section 80P(4) was a crucial aspect of the case. The Tribunal found that the CIT(A) did not address the issue of the bank's operations extending to two taluks, as determined by the Assessing Officer. The Tribunal decided to restore the matter to the CIT(A) for a fresh consideration, emphasizing the need to determine whether the bank's operations were confined to only one taluk, as required by the provisions of Section 80P. The Tribunal also directed the CIT(A) to consider relevant precedents where co-operative societies with operations in more than one taluk were not entitled to deductions under Section 80P.

4. Lastly, the consideration of rental income as profits and gains under Section 80P(2)(c) was another issue raised in the case. The Revenue contended that the rental income should not be treated as profits and gains eligible for deduction under the specific head "Income from House Property" under the Income Tax Act. This issue was not extensively discussed in the judgment, but it was noted that the CIT(A) directed the Assessing Officer to grant the benefit of deduction under Section 80P(2)(c) without detailed reasoning.