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2018 (7) TMI 358 - AT - Income TaxDenying the benefit of claim of deduction u/s 80P(2)(a)(i) - assessee was doing the business of banking, and therefore, in view of insertion of provisions of section 80P(4) - Held that - We find that an identical issue was considered in the case of ITO v. The Chengala Service Co-operative Bank Limited 2018 (4) TMI 339 - ITAT COCHIN 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 for deduction under section 80P(2)(a)(i) of the Income Tax Act. 2. Applicability of the Supreme Court’s decision in the case of The Citizens Co-Operative Society Ltd. vs Assistant Commissioner of Income Tax. 3. Interpretation of the Kerala Co-operative Societies Act, 1969 concerning primary agricultural credit societies. 4. Distinction between nominal members and regular members in the context of cooperative societies. Detailed Analysis: 1. Eligibility for Deduction under Section 80P(2)(a)(i): The primary issue was whether the assessees, being primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969, were entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act. The CIT(A) had allowed the deduction based on the judgment of the Hon'ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. and Others, which held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to such deductions. 2. Applicability of the Supreme Court’s Decision in The Citizens Co-Operative Society Ltd. Case: The Revenue contended that the CIT(A)’s decision was against the law, citing the Supreme Court’s decision in The Citizens Co-Operative Society Ltd. case. The Supreme Court had held that if a cooperative society's activities extend beyond its members, it would not qualify for the deduction under section 80P(2). However, the Tribunal distinguished the facts of the present case from the Citizens Co-Operative Society case, noting that the latter involved a society operating under the Andhra Pradesh Mutually Aided Co-operative Societies Act and receiving deposits from non-members, which was not the case here. 3. Interpretation of the Kerala Co-operative Societies Act, 1969: The Tribunal reiterated that the assessees were primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969, and thus were entitled to the deduction under section 80P(2). The Tribunal emphasized that the Hon'ble jurisdictional High Court had categorically held that such societies are entitled to the benefit of deduction under section 80P(2) as long as they are registered and classified as primary agricultural credit societies by the competent authority under the Kerala Co-operative Societies Act. 4. Distinction between Nominal Members and Regular Members: The Revenue argued that the activities of the assessees involved transactions with nominal members, which should disqualify them from the deduction. The Tribunal clarified that under the Kerala Co-operative Societies Act, nominal members are considered members. The Tribunal referred to the definitions in the Kerala Co-operative Societies Act and noted that nominal members are included within the term "members," and thus transactions with them do not disqualify the society from claiming the deduction. Conclusion: The Tribunal upheld the CIT(A)’s decision, stating that the 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 Tribunal distinguished the Supreme Court’s decision in the Citizens Co-Operative Society case, emphasizing that the facts were different and that the Kerala Co-operative Societies Act includes nominal members as part of the cooperative society, thus allowing the deduction. Consequently, the Revenue’s appeals were dismissed, and the cross objections and cross appeal filed by the assessees were rendered infructuous.
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