2022 (7) TMI 1214 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - whether the Assessee can be said to be a co-operative Bank? - HELD THAT - Deduction u/s.80P(2)(a)(i) of the Act cannot be denied to the Assessee. The latest verdict by the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT held that section 80P being a benevolent provision must be read liberally and reasonably and in case of any ambiguity it must be interpreted in favour of the assessee. Supreme Court observed that section 80P(2)(a)(i) which covers a co-operative society engaged in the business of banking or providing credit facilities to its members does not require that the assessee has to be a primary agricultural credit society. Section 80P(2)(a)(i) does not require that the society has to give agricultural credit only. It further observed that once the co-operative society provides credit facility to its members, the fact that it also provides credit facility to non-members does not disentitle the society from availing of deduction. Supreme Court observed that the object of section 80P(4) was to exclude co-operative banks that function at par with other commercial banks and noted that as primary agricultural credit societies are not entitled for obtaining a banking license would not be hit by this provision. In the light of the law on the issue discussed above Assessee is entitled to deduction u/s.80P(2)(a)(i) of the Act as claimed and the same is directed to be allowed.

Summary

Issues:
- Denial of deduction u/s.80P(2)(a)(i) of the Act to the Assessee by Revenue authorities.

Analysis:
1. The main issue in the appeals is whether the Revenue authorities were justified in denying the benefit of deduction u/s.80P(2)(a)(i) of the Act to the Assessee, a society registered under the Karnataka Co-operative Societies Act, 1959. The Assessee engaged in various activities related to marketing agricultural produce, providing credit facilities, and more, claiming the deduction in the returns for AYs 2013-14 and 2014-15.

2. The AO and CIT(A) denied the deduction citing Sec.80P(4) of the Act, which excludes co-operative banks from claiming the benefit since AY 2007-08. The amendment introduced by the Finance Act, 2006, specified that the deduction under Section 80P does not apply to co-operative banks, except primary agricultural credit societies or primary co-operative agricultural and rural development banks.

3. The question arose whether the Assessee qualifies as a co-operative bank. The Hon'ble Supreme Court in a previous case emphasized the necessity of having a license from the Reserve Bank of India to operate as a cooperative bank. The CBDT circular clarified that Regional Rural Banks are not eligible for the deduction under Section 80P post-2007-08.

4. Referring to a decision by the Karnataka High Court, it was established that co-operative societies engaged in banking activities are entitled to claim deduction u/s.80P(2)(a)(i). The High Court's ruling emphasized that the legislature intended to exclude only co-operative banks exclusively involved in banking operations, not societies providing credit facilities to members.

5. The ITAT's analysis considered the High Court's decision and the recent Supreme Court judgment in Mavilayi Service Co-operative Bank Ltd. v. CIT, which emphasized interpreting Section 80P liberally in favor of the assessee. The Supreme Court clarified that the section does not require the society to be a primary agricultural credit society and that providing credit facilities to non-members does not disqualify the society from availing the deduction.

6. Ultimately, the ITAT allowed the Assessee's appeals, directing the deduction u/s.80P(2)(a)(i) to be granted. The judgment highlighted the importance of interpreting tax provisions liberally and reasonably, especially in cases of ambiguity, to benefit the assessee.