2014 (10) TMI 390 - AT - Income Tax

Denial of claim of exemption u/s 80P(2)(a)(i) Co-operative society as per Kerala Co-operative Societies Act AO was of the view that the assessee has not fulfilled the main object of providing financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities Held that - Following the decision in Kunnamangalam Co-operative Bank Ltd. 2014 (10) TMI 350 - ITAT COCHIN - the Assessee is carrying on banking business and for all practical purposes it acts like a co-operative bank - The Society is governed by the Banking Regulations Act - the society being a co-operative bank providing banking facilities to members is not eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of subsection (4) to section 80P - until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. The assessee cannot be regarded to be primary cooperative bank and in consequence thereof, it cannot be a co-operative bank as defined under part V of the Banking Regulation Act 1949 - the provisions of section 80P (4) read with explanation there under will not be applicable in the case of the assessee -The assessee will be entitled for the deduction u/s 80P(2)(a)(i) - the assessee is a primary cooperative bank and therefore hit by the provisions of section 80P(4) - Clause (c) of section 80P(2) is intended to cover receipts from sources other than the actual conduct of the business but attributable to an activity which results in profits and gains - Letting out of surplus space in the building owned and used by the assessee is not such an activity falling under clause (c) - the assessee is not entitled for deduction u/s. 80P of the Act Decided against assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Denial of exemption claimed under Section 80P(2)(a)(i) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an appeal with a delay of 21 days and sought condonation of this delay. The delay occurred as the appellate order was communicated to the Chartered Accountant, who then forwarded it to a Senior Advocate in Kochi. The Senior Advocate was unavailable, resulting in the delay. The assessee argued that the delay was beyond their control and not due to any willful neglect. The Tribunal found the reasons for the delay to be bona fide and condoned the delay, admitting the appeal for adjudication.

2. Denial of Exemption Claimed Under Section 80P(2)(a)(i) of the Income Tax Act:
The assessee, a Co-operative Society registered under the Kerala Co-operative Societies Act, claimed exemption under Section 80P(2)(a)(i) of the Income Tax Act. The lower authorities denied this exemption on the grounds that the assessee did not fulfill the primary objective of providing financial accommodation to its members for agricultural purposes. The assessee argued that it is classified as a "Primary Agricultural Credit Society" and does not possess a banking license, which exempts it from the exclusion under Section 80P(4) introduced by the Finance Act, 2006.

The assessee relied on various judgments, including those of the Karnataka High Court and other Tribunal orders, which clarified that Section 80P(4) does not apply to societies that are not co-operative banks. The assessee presented data showing that a significant portion of its loans were for agricultural purposes, contrary to the Assessing Officer's claim that such loans were less than 2%.

The Tribunal, however, referred to its earlier decision in the case of Kunnamangalam Co-operative Bank Ltd., where it was held that the assessee was a primary cooperative bank and thus not eligible for the exemption under Section 80P(2)(a)(i) after the introduction of Section 80P(4). The Tribunal also noted that the concept of mutuality argued by the assessee was not applicable, referencing the Supreme Court's decision in CIT vs. Kumbakonam Mutual Benefit Fund Ltd., which held that profits distributed to shareholders do not satisfy the principle of mutuality.

The Tribunal concluded that the assessee is not entitled to the exemption under Section 80P of the Income Tax Act and dismissed the appeal, maintaining consistency with its previous rulings.

Conclusion:
The Tribunal condoned the delay in filing the appeal but dismissed the appeal on the merits, holding that the assessee is not entitled to the exemption under Section 80P(2)(a)(i) of the Income Tax Act. The decision was pronounced on 10-10-2014.