2018 (8) TMI 1040 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - The reasons for denying the benefit of deduction was that the assessee was doing the business of banking, and therefore, in view of insertion of provisions of section 80P(4) of the I.T.Act, the assessee was not entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. - Held that - the 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 Cooperative 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. CIT(A) is justified in directing the A.O. to grant deduction u/s 80P(2)(a)(i) of the I.T.Act. It is ordered accordingly - Decided against the revenue.

Issues Involved:
1. Entitlement to deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of the Supreme Court's decision in the case of Citizens Co-operative Society Ltd.
3. The distinction between de jure and de facto positions of cooperative societies.
4. Interpretation of the term 'member' under the Kerala Co-operative Societies Act.
5. The role of the Reserve Bank of India in determining the nature of cooperative societies.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80P(2)(a)(i):
The assessee, a primary agricultural credit society registered under the Kerala Co-operative Societies Act, claimed a deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer denied this claim, arguing that the assessee was engaged in the business of banking and thus not entitled to the deduction due to the provisions of Section 80P(4). The CIT(A), however, allowed the deduction, relying on the Kerala High Court's judgment in the case of Chirakkal Service Co-operative Bank Ltd., which stated 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 Citizens Co-operative Society Ltd.:
The Revenue argued that the decision of the CIT(A) was against the law, citing the Supreme Court's ruling in Citizens Co-operative Society Ltd., which emphasized examining the actual activities of the society rather than just its registration status. The Tribunal noted that the Supreme Court's decision was specific to the facts of that case, where the society was found to be accepting deposits from non-members, which was not in accordance with the law. The Tribunal distinguished this from the present case, where the assessee was registered as a primary agricultural credit society and complied with the relevant provisions.

3. Distinction Between De Jure and De Facto Positions:
The Revenue contended that the CIT(A) relied solely on the registration certificate without examining the actual activities of the society, which could involve non-agricultural credit activities. The Tribunal, however, upheld the CIT(A)'s decision, emphasizing that the registration and classification by the competent authority under the Kerala Co-operative Societies Act should be accepted, and the Income Tax authorities cannot probe further into the nature of activities if the society is classified as a primary agricultural credit society.

4. Interpretation of the Term 'Member' Under the Kerala Co-operative Societies Act:
The Tribunal referred to the definitions provided under the Kerala Co-operative Societies Act, which includes nominal members as part of the term 'member'. This was significant because the Supreme Court's decision in Citizens Co-operative Society Ltd. was partly based on the fact that the society was accepting deposits from non-members. In contrast, under the Kerala Act, nominal members are considered members, and thus, the activities of the assessee were within the legal framework.

5. Role of the Reserve Bank of India:
The Tribunal noted that the Reserve Bank of India (RBI) treats societies like the assessee as primary agricultural credit societies, which are not subject to the provisions of the Banking Regulation Act. This classification by the RBI further supported the assessee's claim for deduction under Section 80P(2)(a)(i). The Tribunal held that the Assessing Officer did not have the jurisdiction to determine whether the assessee was a primary agricultural credit society or a cooperative bank, as this was within the purview of the RBI.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to allow the deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Tribunal emphasized that the assessee, being a primary agricultural credit society registered under the Kerala Co-operative Societies Act, was entitled to the deduction, and the Supreme Court's decision in Citizens Co-operative Society Ltd. was not applicable to the facts of the present case. The Tribunal also highlighted the importance of the RBI's classification and the statutory definitions under the Kerala Act in reaching its decision.

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