2017 (11) TMI 449 - AT - Income Tax

Eligibility for deduction u/s. 80P - Held that - It is clear that the ld. CIT(A) has omitted to peruse the assessee s stated stand before him, i.e., by way of statement of facts , filed along with the memo of appeal before him, and which corresponds with the material on record. It is therefore the assessee who has taken an inconsistent and ambivalent stand in the matter, with the ld. CIT(A) in fact issuing a finding contradictory to the assessee s own stated decision. So however, it could also be that its principal business is restricted to providing financial accommodation to it s members for agricultural and related purposes. We say so as the said activity also is a sub set of activity of lending, a business the assessee is definitely engaged in. The matter would therefore require being examined on facts. And the assessee allowed deduction if its principal business found to be so, so that it is a primary agricultural credit society, even as held by the ld. CIT(A), even though in contradiction to the assessee s claim before him. This is as the matter is principally of fact, on which no examination has taken place; the Assessing Officer (AO) also resting content on finding, and not incorrectly, that the assessee is a primary co-operative bank, i.e., save for it being a primary agricultural credit society, which stands excepted in the definition of the former and, in any case, is excepted u/s. 80-P(4) and, therefore, is entitled to deduction u/s. 80-P(1). Where so, and which would only be on the basis of a positive finding to that effect, the assesseee, irrespective of its name, which is apposite, is eligible for deduction u/s. 80-P. The matter is accordingly restored to the file of the AO, who shall decide per a speaking order TDS u/s 194A - non deduction of tds on the interest allowed on the time deposits maintained with it by it s depositors, members or nonmembers - Interest other than Interest on securities - Held that - The word principal , a word of common usage, is well understood both in law and in common parlance. Its use, in conjunction with the words primary object , as explained in Madras Autorickshaw Driver s Cooperative Society Ltd. (1982 (10) TMI 28 - MADRAS High Court) is to ascertain the character of the business being actually carried out by the society in terms of its objects. The maintainability of section 194A(3)(viia), on the basis of which relief stands allowed to the assessee by the ld. CIT(A) in the Revenue s second appeal, is consequential, though the assessee, a co-operative society in the business of banking, is at liberty to advance its case, i.e., as to the non-application of section 194A(1), alternatively, on any other ground/basis in the set-aside proceedings. The AO shall decide per a speaking order, allowing the assessee a reasonable opportunity to state and present its case before him

Issues Involved:
1. Delay in filing the appeal by the Revenue.
2. Eligibility of the assessee for deduction under section 80P of the Income Tax Act, 1961.
3. Obligation of the assessee to deduct tax at source under section 194A on interest paid on deposits.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal by the Revenue:
The Revenue filed a single appeal initially, which was later deemed improper by the Tribunal, necessitating two separate appeals. The subsequent appeal was delayed by 313 days. The delay was satisfactorily explained, and the assessee did not object. Consequently, the appeal was admitted, and the hearing proceeded.

2. Eligibility of the Assessee for Deduction under Section 80P:
The core issue was the assessee's eligibility for deduction under section 80P(2)(a) of the Income Tax Act, 1961. The assessee, a co-operative society, claimed this deduction on its entire income, which was denied by the AO on the grounds that the assessee is a primary co-operative bank, excluded from such deduction by section 80P(4). The CIT(A) found the assessee to be a primary agricultural credit society, thus eligible for the deduction.

The Tribunal noted that the CIT(A) issued two findings:
a) The assessee is not a primary co-operative agricultural and rural development bank as its principal object is not the provision of long-term credit for agricultural and rural development activities.
b) The assessee is a primary agricultural credit society as it satisfies the conditions under section 5(cciv) of the Banking Regulation Act, 1949.

However, the Tribunal disagreed with the CIT(A)'s finding, emphasizing that the assessee's bye-laws allowed for non-agricultural loans, thus contradicting the claim that its primary object is to provide financial accommodation for agricultural purposes. The Tribunal highlighted that the matter is factual and requires examination of the assessee's principal business activities. Consequently, the issue was remanded to the AO for a factual determination of whether the assessee's principal business is to provide financial accommodation for agricultural purposes.

3. Obligation to Deduct Tax at Source under Section 194A:
The issue was whether the assessee was obligated to deduct tax at source under section 194A on interest paid on time deposits. The AO disallowed the interest deduction under section 40(a)(ia) due to non-deduction of tax. The CIT(A) allowed relief, citing section 194A(3)(viia)(a), which excludes interest paid by a primary agricultural credit society from the purview of section 194A(1).

The Tribunal noted that the determination of whether the assessee is a primary agricultural credit society impacts the applicability of section 194A. Therefore, this issue was also remanded to the AO for reconsideration in light of the findings on the assessee's principal business activities. The AO was directed to allow the assessee an opportunity to present evidence and decide per a speaking order.

Conclusion:
The Tribunal restored both issues to the AO for a detailed factual examination and determination. The AO was instructed to issue a speaking order after allowing the assessee a reasonable opportunity to present its case. The onus to establish the claims was placed on the assessee. The appeals were allowed for statistical purposes.

← Previous Next →