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2023 (4) TMI 743 - AT - Income TaxDeduction u/s 80P - true interpretation of sec 80-P in the context of cooperative societies engaged in the business of banking or provision of credit facilities to their Members - As per revenue the assessee, though registered under the Kerala Act as PACS has lost all characteristics thereof 93-99% of its lending is for non-agricultural purposes, it is engaged in accepting the deposits as well as providing all types of loans, to members of the public, by being compulsorily required to become nominal members either under category C or D and invests in shares of District Co-operative Bank and also different co-op. societies, i.e., with a view to earn profit, diluting mutuality. HELD THAT - Cooperative societies engaged in lending to their members, or predominantly so, for whatever purpose, could stand to be excluded on the principle of mutuality. Income by way of interest or dividend on investment in another cooperative society stands exempted u/s. 80P(2)(d), being only an extension of the principle of mutuality. It is this, we would like to think, that p rompted the Apex Court in Citizen CS Ltd. 2017 (8) TMI 536 - SUPREME COURT to state the assessee-appellant as being not a cooperative society meant for its members and providing credit facilities thereto. Even as we consider it proper to bring on record our understanding of the decision in The Citizen CS Ltd. (supra), i.e. , qua both the aspects of the Revenue s case, the same having been explained in Mavilayi Service Co-op. Bank Ltd 2019 (3) TMI 1580 - KERALA HIGH COURT have no hesitation in, respectfully following the same, holding that the appellant-societies in the instant case/sas eligible for deduction u/s. 80P as claimed. In this, we also take into account the absence of any finding of the lending being in violation of s. 59 of the Kerala Act, as well as the decision in CIT v. Peroorkada Service Co-op. Bank Ltd. 2021 (12) TMI 1084 - KERALA HIGH COURT holding investment in cooperative banks as not impeding the deduction on interest thereon. Decided in favour of assessee.
Issues Involved:
1. Admissibility of the assessee's claim for deduction under section 80P of the Income Tax Act, 1961. 2. Interpretation of section 80P in the context of cooperative societies engaged in banking or providing credit facilities to their members. Summary: Issue 1: Admissibility of Deduction under Section 80P The primary issue in these appeals is the admissibility of the assessee's claim for deduction under section 80P, which was denied due to: - Predominant lending (93%-99%) for non-agricultural purposes. - Lending to nominal members without voting rights, diluting the mutuality principle. The Revenue relied on the decision in The Citizen Co-op. Society Ltd. v. CIT and Pr. CIT v. Poonjar Service Co-op. Bank, where similar claims were denied. However, the assessee argued based on the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. v. CIT, which reversed the Poonjar case and distinguished Citizen Co-op. Society Ltd. on facts. Issue 2: Interpretation of Section 80P The Tribunal examined the true interpretation of section 80P in light of the Supreme Court's decisions. The key points from Mavilayi Service Co-operative Bank Ltd. were: - Section 80P is a benevolent provision and should be read liberally in favor of the assessee. - The burden is on the assessee to show entitlement to the deduction. - The AO can conduct a fact-finding inquiry without being restricted by the registration certificate. - The deduction under section 80P(2)(a)(i) is not limited to agricultural credit alone. - The specific provision does not require the cooperative society to be a PACS to claim deduction. The Tribunal noted the inconsistency in section 80P(4), which excludes cooperative banks but retains PACS and PCARDB within the ambit of section 80P. It concluded that a cooperative society engaged in banking or providing credit to its members is excluded from section 80P except where it qualifies as a PACS or PCARDB. Conclusion: The Tribunal, following the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd., held that the appellant societies are eligible for deduction under section 80P as claimed. The appeals by the assessees were allowed, and the stay petitions were rendered infructuous. Order: The appeals are allowed, and the order was pronounced under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.
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