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2018 (6) TMI 1104 - AT - Income TaxDenying the claim of deduction u/s 80P(2)(a)(i) - assessee were doing the business of banking, and therefore, in view of insertion of provisions of section 80P(4) the assessee were not entitled to deduction u/s 80P(2)(a)(i) - AO jurisdiction to resolve / decide the issue -Held that - The undisputed facts are that the assessee in these cases are primary agricultural credit societies, registered as such under the Kerala Co-operative Societies Act. In the case of THE INCOME TAX OFFICER WARD-1, KASARAGOD VERSUS M/S. THE CHENGALA SERVICE CO-OP BANK LTD. 2018 (4) TMI 339 - ITAT COCHIN had categorically held that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. Assessing Officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a Primary Agricultural Credit Society or a Co-operative bank , within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section 5 r.w.s Section 56 of the Banking Regulation Act. - Decided in favour of assessee.
Issues Involved:
1. Eligibility of primary agricultural credit societies for deduction under section 80P(2)(a)(i) of the Income Tax Act. 2. Interpretation of section 80P(4) of the Income Tax Act in relation to primary agricultural credit societies. 3. Applicability of the Supreme Court judgment in the case of Citizens Co-operative Society Ltd. to the present case. 4. Jurisdiction and competence of the Assessing Officer in determining the nature of the cooperative society. Detailed Analysis: 1. Eligibility of Primary Agricultural Credit Societies for Deduction under Section 80P(2)(a)(i) of the Income Tax Act: The assessees, primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969, claimed deduction under section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer denied this deduction, arguing that the assessees were engaged in the business of banking, and thus, ineligible for the deduction per section 80P(4) of the Income Tax Act. The CIT(A), however, upheld the assessees' claim, referencing the Kerala High Court's judgment in the case of The Chirakkal Service Co-operative Bank Ltd. and Others, which affirmed that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to the deduction under section 80P(2). 2. Interpretation of Section 80P(4) of the Income Tax Act: The Revenue's appeal contended that the CIT(A) erred by relying solely on the registration and classification of the societies under the Kerala Co-operative Societies Act without examining their actual activities. The Revenue cited the Supreme Court's decision in the case of Citizens Co-operative Society Ltd., which emphasized assessing the activities of the society rather than just its registration status. The Tribunal, however, noted that the Kerala High Court had clearly stated that once a society is classified as a primary agricultural credit society by the competent authority under the Kerala Co-operative Societies Act, it is entitled to the deduction under section 80P(2), and the Income Tax authorities cannot probe further into its activities. 3. Applicability of the Supreme Court Judgment in the Case of Citizens Co-operative Society Ltd.: The Revenue argued that the Supreme Court's decision in the Citizens Co-operative Society Ltd. case should be applied, where the Court denied the deduction under section 80P due to the society's activities being akin to banking. The Tribunal distinguished the present case, noting that the Supreme Court's decision was specific to the facts of the Citizens Co-operative Society Ltd., which was not a primary agricultural credit society and had significant business with non-members. In contrast, the assessees in the present case were primary agricultural credit societies with certificates from the Registrar of Cooperative Societies, confirming their status under the Kerala Co-operative Societies Act. 4. Jurisdiction and Competence of the Assessing Officer: The Tribunal highlighted that under section 3 of the Banking Regulation Act, 1949, the provisions of the Act do not apply to primary agricultural credit societies. Furthermore, the explanation to section 80P(4) aligns the definitions with those in the Banking Regulation Act, where the Reserve Bank of India (RBI) is the competent authority to determine the nature of a cooperative society. The RBI had classified the assessees as primary agricultural credit societies, thus exempting them from the Banking Regulation Act. Consequently, the Assessing Officer did not have the jurisdiction to challenge this classification. Conclusion: The Tribunal upheld the CIT(A)'s decision, affirming that the assessees, being primary agricultural credit societies registered under the Kerala Co-operative Societies Act, are entitled to the deduction under section 80P(2)(a)(i) of the Income Tax Act. The appeal by the Revenue was dismissed, and the Tribunal reiterated that the Supreme Court's judgment in the Citizens Co-operative Society Ltd. case does not apply to the present facts. The Tribunal's order emphasized the binding nature of the Kerala High Court's judgment and the lack of jurisdiction of the Assessing Officer to reclassify the societies' nature.
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