2022 (8) TMI 292 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - whether the Assessee can be said to be a co-operative Bank? - HELD THAT - Section 80P being a benevolent provision must be read liberally and reasonably and in case of any ambiguity it must be interpreted in favour of the assessee. Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd.. 2021 (1) TMI 488 - SUPREME COURT observed that section 80P(2)(a)(i) which covers a co-operative society engaged in the business of banking or providing credit facilities to its members does not require that the assessee has to be a primary agricultural credit society. The Hon'ble Supreme Court noted that section 80P(2)(a)(i) does not require that the society has to give agricultural credit only. It further observed that once the co-operative society provides credit facility to its members, the fact that it also provides credit facility to non-members does not disentitle the society from availing of deduction. Supreme Court observed that the object of section 80P(4) was to exclude co-operative banks that function at par with other commercial banks and noted that as primary agricultural credit societies are not entitled for obtaining a banking license would not be hit by this provision. Assessee is entitled to deduction u/s.80P(2)(a)(i) of the Act as claimed and the same is directed to be allowed. Non deduction of tax at source on payment to pigmy agents - disallowance of those payments as expenses were made by the AO u/s.40(a)(ia) - plea of the Assessee before the Tribunal, that the said disallowance will only go to increase the income of the Assessee that is eligible for deduction u/s.80P(2)(a)(i) of the Act and deduction on the said enhanced income should be allowed - HELD THAT - As revenue authorities erred in not allowing deduction u/s.80-P(2)(a)(i) of the Act on the income derived by the Assessee from providing credit facilities to its members as enhanced by the sum disallowed u/s.40(a)(ia) of the Act. The claim of the assessee in this regard is accepted and the AO is directed the give necessary relief to the assessee in this regard. Whether the rent income received by the Assessee from letting of Godowns is entitled to deduction u/s.80P(2)(e) of the Act ? - HELD THAT - AO/CIT(A) did not consider the plea of the Assessee in the light of the provisions of Sec.80P(2)(e) of the Act which provides that income derived by co-operative society from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, is eligible for deduction but examined the said claim as one made u/s.80P(2)(a) of the Act. We therefore deem it fit and proper to direct the AO to examine this issue afresh and for this purpose the issue is set aside to the AO.

Summary

Issues Involved:
1. Denial of deduction under Section 80P(2)(a)(i) of the Income-tax Act.
2. Disallowance under Section 40(a)(ia) for non-deduction of tax at source.
3. Entitlement to deduction under Section 80P(2)(e) for rent income from letting of godowns.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80P(2)(a)(i):
The primary issue was whether the Assessee, a co-operative society, was entitled to deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961. The Revenue authorities denied this benefit, applying Section 80P(4), which excludes co-operative banks from claiming such deductions. However, the Assessee argued that it did not possess a banking license under the Banking Regulation Act, 1949, and was engaged in activities such as marketing agricultural produce, providing credit facilities to its members, and warehousing.

The Tribunal referred to the Supreme Court's decision in Citizen Cooperative Society Ltd. vs. ACIT, which held that a co-operative society without an RBI license cannot be equated to a co-operative bank. The Karnataka High Court in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot also supported this view, stating that a co-operative society providing credit facilities to its members without a banking license is not a co-operative bank and thus eligible for deduction under Section 80P(2)(a)(i).

The Tribunal concluded that the Assessee is entitled to the deduction under Section 80P(2)(a)(i), as it is a co-operative society engaged in providing credit facilities to its members and not a co-operative bank.

2. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source:
For Assessment Years 2013-14 and 2014-15, the Assessee faced disallowance of expenses paid to pigmy agents due to non-deduction of tax at source under Section 40(a)(ia). The Assessee contended that this disallowance would increase the income eligible for deduction under Section 80P(2)(a)(i).

The Tribunal cited decisions from the Bombay High Court in CIT v. Gem Plus Jewellery India Ltd. and the Gujarat High Court in ITO vs. Kewal Construction, which held that disallowances under Section 40(a)(ia) enhance the profits eligible for deductions under Chapter VI-A. The CBDT Circular No. 37/2016 also supports this view.

The Tribunal directed that the enhanced income due to disallowance under Section 40(a)(ia) should be eligible for deduction under Section 80P(2)(a)(i).

3. Entitlement to Deduction under Section 80P(2)(e) for Rent Income from Letting of Godowns:
For Assessment Year 2015-16, the Assessee claimed deduction under Section 80P(2)(e) for rent income from letting godowns. The AO and CIT(A) did not consider this claim under the appropriate section but evaluated it under Section 80P(2)(a).

The Tribunal directed the AO to re-examine this issue afresh under Section 80P(2)(e), which provides for deduction on income derived from letting godowns or warehouses for storage, processing, or facilitating the marketing of commodities.

Conclusion:
The appeals for AY 2013-14 and 2014-15 were allowed, granting the Assessee the claimed deductions. The appeal for AY 2015-16 was partly allowed, with a directive to the AO to re-examine the rent income deduction under Section 80P(2)(e).