2024 (5) TMI 55 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - denial of deduction as assessee being in substance not a PACS inasmuch as the bulk of it s lending is not for agriculture and allied purposes - as submitted assessee that it is registered as a Primary Agricultural Credit Society (PACS) under the Kerala Cooperative Societies Act 1969 (Kerala Act) is admittedly in the business of banking - HELD THAT - As explained therein where and to the extent the assessee-society accepts deposits from non-members; rather is entitled to being permitted by it s bye-laws it is in the business of banking notwithstanding the area restrictions for it s operations inasmuch as the same are applicable only qua it s members. Rather in such a case being in the business of banking even income on provision of credit to non-members would stand to be deductible u/s. 80P(2)(a)(i). The bye-laws of the assessee-society are not on record neither stand referred to in their orders by the Revenue authorities. It is only with reference thereto would it stand to be determined as to if (a) the assessee is a co-operative bank; and (b) the assessee is in the business of banking. The matter accordingly is restored to the file of AO for on a perusal of it s bye-laws and after affording due opportunity of hearing to the assessee issue specific finding/s on the two aspects afore-stated and decide accordingly allowing or as the case may be disallowing wholly or partly the assessee s claim for deduction u/s. 80P(1) r/w s. 80P(2)(a)(i) of the Act. We make it clear that the assessee shall be allowed deduction u/s. 80P only if it is not a cooperative bank i.e. as per the definition provided in Explanation below s. 80P(4). Two where it s bye-laws permit it to accept deposit from non-members it is by definition in the business of banking and accordingly entitled to deduction on it s profit in full as opposed to that attributable to the provision of credit to it s members. Assessee appeal allowed.

Summary

Issues involved:
Appeal against Order of Commissioner of Income Tax (Appeals) dismissing assessment under section 143(3) of the Income Tax Act, 1961 for Assessment Year 2014-15 and denial of deduction under section 80P(1) r/w section 80P(2)(a)(i) based on the nature of business activity.

Summary:

Issue 1: Assessment under section 143(3) of the Income Tax Act, 1961
The appeal was filed by the Assessee against the Order of the Commissioner of Income Tax (Appeals) dismissing the assessment under section 143(3) of the Income Tax Act, 1961 for Assessment Year 2014-15. The Assessee also filed a Stay Application (SA) regarding the appeal.

Issue 2: Denial of deduction under section 80P(1) r/w section 80P(2)(a)(i)
The Assessee, registered as a Primary Agricultural Credit Society (PACS) under the Kerala Cooperative Societies Act, 1969, claimed deduction under section 80P(1) r/w section 80P(2)(a)(i) of the Act. The Revenue authorities denied the deduction on the grounds that the Assessee's lending activities were not primarily for agriculture and allied purposes, a defining attribute of a PACS. The Tribunal found that the Assessee, despite not being a cooperative bank, was in the business of banking and entitled to deduction under section 80P(2)(a)(i) for income on the provision of credit to non-members. The matter was remanded to the Assessing Officer to determine the Assessee's eligibility for deduction based on its bye-laws and business activities.

Conclusion:
The Tribunal allowed the Assessee's appeal and remanded the matter to the Assessing Officer to determine the eligibility for deduction under section 80P based on the Assessee's status as a cooperative bank and its business of banking.