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2018 (4) TMI 884 - AT - Income TaxDenying deduction u/s 80P(2) - Held that - In view of the judgment of the Hon ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. and Others (2016 (4) TMI 826 - KERALA HIGH COURT) wherein held the primary agricultural credit societies, registered as such under the KCS Act; and classified so, under that Act, including the appellants are entitled to such exemption. - thus we hold that the CIT(A) was justified in directing the A.O. to grant deduction u/s 80P(2) of the I.T.Act to the assessee. - Decided in favour of assessee.
Issues Involved:
1. Eligibility for deduction under section 80P(2) of the Income-tax Act, 1961. 2. Applicability of section 80P(4) of the Income-tax Act, 1961. 3. Interpretation of the term "Primary Agricultural Credit Society" under the Kerala Co-operative Societies Act, 1969. 4. Relevance of judgments from higher courts, including the Kerala High Court and the Supreme Court, on similar issues. Detailed Analysis: 1. Eligibility for Deduction under Section 80P(2) of the Income-tax Act, 1961: The assessee, a primary agricultural credit society, claimed a deduction under section 80P(2) amounting to ?1,01,62,056. The Assessing Officer (AO) denied this deduction, asserting that the assessee was engaged in banking activities and thus ineligible for the deduction under section 80P(2) due to the insertion of section 80P(4) effective from 01.04.2007. The CIT(A), however, allowed the deduction, relying on the Kerala High Court's judgment in the case of The Chirakkal Service Co-operative Bank Ltd. and Others vs. CIT, which stated that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to the deduction under section 80P(2). 2. Applicability of Section 80P(4) of the Income-tax Act, 1961: The Revenue argued that the introduction of section 80P(4) disqualified entities engaged in banking activities from claiming deductions under section 80P(2). They cited the jurisdictional High Court's decision in Perinthalmanna Service Co-operative Bank, which held that the deduction cannot be allowed solely based on the registration certificate as a primary agricultural credit society. However, the Tribunal found that the issue had been adjudicated in similar cases, such as Edanad-Kannur Service Co-operative Bank Ltd. and Nannambra Service Co-operative Bank Ltd., where the Tribunal followed the Kerala High Court's ruling in Chirakkal Service Co-operative Bank Ltd., affirming the eligibility for deduction under section 80P(2) for primary agricultural credit societies. 3. Interpretation of the Term "Primary Agricultural Credit Society" under the Kerala Co-operative Societies Act, 1969: The Tribunal emphasized that the Kerala High Court in Chirakkal Service Co-operative Bank Ltd. had clarified that once a society is registered and classified as a primary agricultural credit society by the competent authority under the Kerala Co-operative Societies Act, 1969, it is entitled to the deduction under section 80P(2). The Tribunal noted that the AO did not have the jurisdiction to challenge this classification, which is binding as per the Kerala High Court's interpretation. 4. Relevance of Judgments from Higher Courts: The Tribunal considered the Revenue's reliance on the Supreme Court's decision in Sabarkhanta Zilla Kharid Vechar Sangh Ltd., which limited deductions to profits from agricultural activities alone. However, the Tribunal distinguished this case, noting that the assessee in the present case extended credit facilities only to its members, not to the general public, thus aligning with the requirements for deduction under section 80P(2). The Tribunal also addressed the applicability of the Supreme Court's decision in Citizens Co-operative Society Ltd., concluding that it did not apply to primary agricultural credit societies under the Kerala Co-operative Societies Act. Conclusion: The Tribunal upheld the CIT(A)'s decision to allow the deduction under section 80P(2) to the assessee, affirming that the classification by the competent authority under the Kerala Co-operative Societies Act is binding and that the income tax authorities cannot probe further into the nature of the society's activities. The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection as infructuous. The judgment reaffirmed the principles laid down by the Kerala High Court in Chirakkal Service Co-operative Bank Ltd., ensuring that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to deductions under section 80P(2).
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