2025 (1) TMI 166 - AT - Income Tax

Allowability of deduction claimed u/s. 80P(2)(a)(i) - HELD THAT - The grounds related to allowability of deduction claimed u/s. 80P(2)(a)(i) of the Act is squarely covered in favour of the assessee by the judgment of Mavilayi Service Cooperative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT Accordingly, we dismiss this ground of the Revenue in all these appeals. Disallowance u/s. 40(a)(ia) with respect to interest paid to the depositor - HELD THAT - We completely agree with the view taken by the ld. CIT (A) that once it is held that the assessee is primary agricultural society, the provisions of sec. 194A(3)(viia) of the Act are squarely applicable and accordingly, no deduction of tax at source is required to be made on the interest payment to depositors held with primary agricultural society. Decided against revenue.

1. ISSUES PRESENTED and CONSIDERED

The judgment revolves around two core legal questions:

i. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance of deduction claimed under Section 80P(2)(a)(i) of the Income Tax Act, 1961, based solely on the decision of the Kerala High Court in the case of M/s. Chirakkal Service Co-operative Bank & others.

ii. Whether the interest paid to depositors is liable for disallowance under Section 40(a)(ia) of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue i: Deduction under Section 80P(2)(a)(i) of the Income Tax Act

Relevant legal framework and precedents: The case involves the interpretation of Section 80P(2)(a)(i) of the Income Tax Act, which provides deductions for cooperative societies engaged in providing financial assistance to their members. The CIT(A) relied on a Kerala High Court decision in M/s. Chirakkal Service Co-operative Bank & others. However, there were conflicting decisions from different benches of the Kerala High Court, including M/s. Perinthalmanna Service Co-operative Bank.

Court's interpretation and reasoning: The Tribunal noted that the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax, Calicut, resolved the conflict in favor of the assessee, confirming the eligibility for deductions under Section 80P(2)(a)(i).

Key evidence and findings: The Tribunal acknowledged that the assessee is registered as a primary agricultural credit society, primarily engaged in providing financial assistance to its members, aligning with the requirements of Section 80P(2)(a)(i).

Application of law to facts: The Tribunal applied the Supreme Court's ruling, which clarified the eligibility for deductions, to the facts of the case, supporting the CIT(A)'s decision to allow the deduction.

Treatment of competing arguments: The Revenue's argument, based on conflicting High Court decisions, was effectively countered by the Supreme Court's authoritative judgment, which the Tribunal followed.

Conclusions: The Tribunal concluded that the deduction under Section 80P(2)(a)(i) was correctly allowed by the CIT(A), dismissing the Revenue's appeal on this ground.

Issue ii: Disallowance under Section 40(a)(ia) regarding interest payments

Relevant legal framework and precedents: This issue pertains to the applicability of Section 40(a)(ia), which deals with disallowance for non-deduction of tax at source. The CIT(A) referenced Section 194A(3)(viia), which exempts certain interest payments by primary agricultural societies from tax deduction at source.

Court's interpretation and reasoning: The Tribunal agreed with the CIT(A) that as the assessee is a primary agricultural society, it is exempt from the requirement to deduct tax at source on interest payments to depositors under Section 194A(3)(viia).

Key evidence and findings: The Tribunal found that the assessee's status as a primary agricultural society was undisputed, thus qualifying for the exemption from tax deduction at source.

Application of law to facts: The Tribunal applied the statutory exemption to the facts, supporting the CIT(A)'s decision to not disallow interest payments under Section 40(a)(ia).

Treatment of competing arguments: The Revenue's contention for disallowance was dismissed based on the clear statutory exemption applicable to the assessee.

Conclusions: The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground as well.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal noted, "the issue is now squarely covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax, Calicut."

Core principles established: The judgment reinforces the principle that cooperative societies registered as primary agricultural credit societies are entitled to deductions under Section 80P(2)(a)(i) and are exempt from tax deduction at source on interest payments under Section 194A(3)(viia).

Final determinations on each issue: The Tribunal dismissed the Revenue's appeals on both issues, affirming the CIT(A)'s decisions to allow the deductions and exemptions claimed by the assessee.

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