2019 (6) TMI 613 - HC - Income Tax

Deduction u/s 80P(2)(a)(i) - income derived by the assessee by way of interest from loans and advances made by it as not eligible for deduction - as per AO assessee is not a society as envisaged u/s 80P(4) - HELD THAT - In Chirakkal Service Co-operative Bank v. Commissioner of Income Tax 2016 (4) TMI 826 - KERALA HIGH COURT held that societies having been classified as Primary Agricultural Credit Societies by the competent authority under the Kerala Co-operative Societies Act, it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rate of interest on such loans and advances to be at the rate to be fixed by the Registrar of Co-operative Societies and having its area of operation confined to a village, panchayat or a municipality and as such, they are entitled for the benefit of sub-section (4) of Section 80P of the Act to ease themselves out from the coverage of Section 80P and that the authorities under the Act cannot probe into any issues or such matters relating to such societies and that the Primary Agricultural Credit Societies registered as such under the Kerala Cooperative Societies Act and classified so under that statute, are entitled to such exemption. Chirakkal (supra) now stands overruled by the decision of the Full Bench of this Court in Mavilayi Service Cooperative Bank Limited v. Commissioner of Income Tax 2019 (3) TMI 1580 - KERALA HIGH COURT on a claim for deduction u/s 80P, by reason of sub-section (4) thereof, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of Section 80P Thus matter has to be remitted to the Income Tax Appellate Tribunal for fresh consideration by it in the light of the aforesaid decision. Substantial question of law is answered in favour of the revenue.

Summary

Issues:
Assessment of income tax for the assessment year 2014-2015 in respect of a Primary Agricultural Credit Society under Section 80P(2)(a)(i) of the Income Tax Act, 1961.

Analysis:
The appeal filed by the revenue challenges the order of the Income Tax Appellate Tribunal, Cochin Bench regarding the eligibility of a Primary Agricultural Credit Society for deduction under Section 80P(2) of the Act. The Assessing Officer initially disallowed the deduction, contending that the society did not qualify under Section 80P(4) of the Act. However, the Commissioner of Income Tax (Appeals) allowed the appeal filed by the assessee, granting the deduction. The Tribunal upheld this decision, leading to the revenue's appeal. The key question at hand is whether the classification of a "Primary Agricultural Credit Society" under the Kerala Cooperative Societies Act, 1969 is binding for determining eligibility for deduction under Section 80P(4) of the Income Tax Act.

The Assessing Officer's stance was that the society did not meet the criteria under Section 80P(4) and thus denied the deduction. However, the Appellate Authority, relying on the decision in Chirakkal Service Co-operative Bank Ltd v. Commissioner of Income Tax, held that the society was entitled to the deduction under Section 80P(2)(a)(i) as a Primary Agricultural Credit Cooperative Society. The Tribunal also upheld this decision based on the same precedent.

Section 80P of the Act deals with deductions for co-operative societies, specifying that certain societies, including primary agricultural credit societies, are eligible for deductions. The decision in Chirakkal Service Co-operative Bank case emphasized that societies classified as Primary Agricultural Credit Societies under the Kerala Co-operative Societies Act are entitled to exemption under Section 80P(4) without further scrutiny by the Income Tax authorities. However, a subsequent Full Bench decision in Mavilayi Service Cooperative Bank Limited v. Commissioner of Income Tax altered this position, stating that an inquiry into the factual activities of the society is necessary for determining eligibility for Section 80P deductions.

Following the ruling in Mavilayi Service Co-operative Bank, the High Court remitted the matter back to the Tribunal for fresh consideration in light of the updated legal position. The appeal was allowed, setting aside the Tribunal's order and instructing a reevaluation based on the Full Bench decision. The substantial question of law was answered in favor of the revenue, emphasizing the need for a detailed investigation into the society's activities to determine eligibility for Section 80P deductions.