2019 (8) TMI 186 - HC - Income Tax

Deduction u/s 80P(2)(a)(i) - appellant is admittedly a primary agricultural cooperative credit society registered under the Tamil Nadu Cooperative Societies Act - HELD THAT - Definition of 'credit society' is wider in import to include any activity that the Government may, by Notification, specify. Further, we find from By-law No.12(a) that if the society carries on an activity, which is not authorized under the By-laws or with the approval of the Registrar, the society is liable to strike off the Rules and the members engaged in the same are liable to be removed. Furthermore, in terms of By-law No.51, the society is entitled to purchase, in bulk, articles and materials required for its members and distribute the same. Therefore, viewed from any angle, the activity done by the appellant society cannot be truncated from the activity as a credit society and we are of the considered view that the Authorities below as well as the Tribunal committed an error in rejecting the stand taken by the appellant/ assessee. Appeal decide in favour of the assessee. AO is directed to extend the benefit of deduction under Section 80P(1) read with Section 80P(2)(a)(i) of the IT Act to the appellant/assessee.

Summary

Issues:
1. Applicability of deduction under Section 80P(2)(a)(i) of the Income Tax Act for a primary agricultural cooperative credit society.
2. Differentiation between Class A and Class B members for claiming deduction under Section 80P(2)(a)(i).
3. Interpretation of Section 80P(2)(a)(i) regarding transactions with members.
4. Permissibility of reassessment under Section 143(3) of the Income Tax Act.
5. Rejection of application for rectification of mistake under Section 254(2) of the Income Tax Act.

Analysis:
1. The appellant, a primary agricultural cooperative credit society, challenged the rejection of deduction under Section 80P(2)(a)(i) of the Income Tax Act. The High Court considered a similar case involving a cooperative society in AA 713 and allowed the appeal, emphasizing that activities like sale of items under the PDS to members fall within the scope of a credit society as defined by relevant laws. The Court rejected the Revenue's argument of different categories of sales, affirming that the society's authorized activities aligned with the directives issued by the Government.
2. The Court referred to a Bombay High Court case to support its view that income derived from authorized activities of a cooperative society is eligible for exemption under Section 80P(2)(a)(i). By analyzing the society's By-laws and government directives, the Court concluded that the appellant's activities were within the scope of a credit society, dismissing the Revenue's contentions regarding unauthorized activities or sales to non-members.
3. The judgment highlighted that the definition of a credit society encompasses activities specified by the Government, and the society's By-laws governed permissible operations. The Court emphasized that the appellant's actions were consistent with its status as a credit society, entitling it to the claimed deduction under Section 80P(2)(a)(i). The decision favored the appellant, directing the Assessing Officer to grant the deduction.
4. The Court's detailed analysis underscored the appellant's compliance with regulatory requirements and the alignment of its activities with the legal definition of a credit society. By upholding the appellant's entitlement to the deduction under Section 80P(2)(a)(i), the judgment emphasized the importance of adhering to authorized operations and government directives in determining eligibility for tax benefits.
5. The judgment concluded by allowing the appeal in favor of the assessee, based on the established alignment of the society's activities with the legal framework governing credit societies. The Court's decision emphasized the significance of operating within authorized parameters to claim deductions under relevant tax provisions, providing a comprehensive resolution to the issues raised in the appeal.