2016 (11) TMI 669 - AT - Income Tax

Benefit of deduction u/s 80P(2) - Held that - In the instant case, the assessee is a primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969. The certificate has been issued by the Registrar of Cooperative Societies to the above said effect and the same is on record. The Hon ble High Court, in assessee s own case and other batch of cases, had held that primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969, is entitled to the benefit of deduction u/s 80P(2). Since there is a certificate issued by the Registrar of Cooperative Societies, stating that the assessee is a primary agricultural credit society, thus hold that the assessee is entitled to the benefit of deduction u/s 80P(2) of the Act. Addition u/s 40 (a)(ia)- disallowance of the interest payment on deposits received from non members for the reason that there was no tax deduction at source - Held that - The assessee is a primary agricultural credit society and as such it is entitled to the benefit of deduction u/s 80P(2) of the Act. Since the assessee is an primary agricultural credit society, the exemption provided for non deduction of tax to primary agricultural credit society u/s 194A(3)(viia) is applicable to the assessee society. Accordingly, the disallowance by invoking the provisions of section 40(a)(ia) is not warranted.

Summary

Issues Involved:
1. Disallowance of deduction u/s 80P(2) of the Act
2. Disallowance of interest payment under section 40(a)(ia) due to non-deduction of tax at source

Analysis:

Issue 1: Disallowance of deduction u/s 80P(2) of the Act
The case revolved around the disallowance of the deduction u/s 80P(2) of the Act by the Assessing Officer, who claimed that the assessee, a service co-operative bank, did not fulfill its main object of providing financial accommodation to its members for agricultural purposes. The CIT(A) upheld this disallowance, leading to appeals to the Tribunal. The Hon'ble High Court, in a similar case involving a primary agricultural credit society, had ruled that such societies are entitled to the benefit of deduction u/s 80P(2) and that the provisions of section 80P(4) do not apply to them. The Tribunal, after verifying that the assessee was indeed a primary agricultural credit society registered under the Kerala Cooperative Societies Act, allowed the appeal, stating that the assessee was entitled to the deduction u/s 80P(2).

Issue 2: Disallowance of interest payment under section 40(a)(ia)
The Assessing Officer also disallowed interest payment under section 40(a)(ia) due to non-deduction of tax at source, arguing that the exemption under section 194A(3)(viia) did not apply as the assessee was not a primary agricultural credit society. However, since the Tribunal established that the assessee was a primary agricultural credit society entitled to the deduction u/s 80P(2), it followed that the exemption for non-deduction of tax under section 194A(3)(viia) applied to the assessee. Consequently, the disallowance under section 40(a)(ia) was deemed unwarranted, and the appeal filed by the revenue on this issue was dismissed.

In conclusion, the appeal filed by the assessee was allowed as they were entitled to the deduction u/s 80P(2), while the appeal filed by the revenue was dismissed concerning the disallowance of interest payment. The cross objection filed by the assessee was also dismissed as it did not raise any specific grievance.