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TMI Blog2025 (3) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... to grant 80P deduction. Appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the assessee is against the action of the AO denying deduction u/s. 80P(2)(d) of the Income Tax Act, 1961 (hereinafter the 'Act') to the extent of Rs. 7,06,759/-. 7. The brief facts are that the assessee had filed the return of income for AY 2016-17 on 08.03.2018 admitting 'nil' income after claiming deduction u/s. 80P(2)(a)(i) of the Act. Later the case of the assessee was selected for scrutiny under CASS and the AO asked the assessee to file relevant documents for claiming deduction under Chapter VIA and pursuant to it, the AO acknowledged that assessee had filed byelaws, profit & loss account, etc., and he further noted that the assessee society has claimed deduction u/s. 80P(2) of the Act amounting to Rs. 15,06,083/- being income from providing credit facility to its members. The AO also noted the credit facilities were being provided by the assessee to its 'A' class members as well as 'B' class members. According to the AO, the 'B' class members were not entitled to receive dividend or exercise their voting rights and cannot participate in the general administrative and meeting of the society, whereas these privileges are given only to 'A' class members. According to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral administration and meetings of the society and that these privileges are given to A Class members. The Assessing Officer further observed that B Class members are admitted for the limited purpose of availing loans and those members, after discharging their loans, relinquished their membership and did not have any role to play in the society whereas A Class members enjoy all rights in addition to other rights and liabilities in the society as specified in the By-laws. The Assessing Officer concluded that the associate members cannot be regarded as members of the cooperative society. The Assessing Officer allowed the deduction under Section 80P(2)(d) of the Act. The Assessing Officer also concluded that the assessee was not entitled to claim deduction under Section 80P(2)(a)(i) of the Act and that the Department decided to file special leave petitions before the Hon'ble Supreme Court against the said two decisions. The Assessing Officer, further observing that the collection of demand would not be enforced till the outcome of the special leave petitions in the Hon'ble Supreme Court, arrived at tax and initiated penalty proceedings under Sections 271(1)(c) and 271B of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding credit facilities to its member. Once the description is answered, then automatically, the benefit of Section 80P of the Act would stand attracted subject to the provisions contained in Sub- Section (2) of Section 80P of the Act. 14. Further, it is to be pointed out that in terms of Sub-Section (4) of Section 80P of the Act, which was inserted vide the Finance Act, 2006 with effect from 01.4.2007 i.e from the assessment year 2007-08, the 'primary cooperative agricultural and rural development bank' means 'a society having its area of operation confined to a taluk, the principal object of which is to provide for long term credit for agricultural and rural development activities'. What was excluded was the 'cooperative banks' and admittedly, the assessee society is a primary agricultural cooperative credit society and therefore, would be entitled to the benefit of Section 80P of the Act. 15. Further, for the assessment year 2014-15, the decision in the case of Citizen Cooperative Society Limited was relied upon by the Revenue before the Tribunal, which, in paragraph 6.1 of its order dated 28.2.2018 for the assessment year 2014-15, extracted the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals. 10. And our attention was also drawn to the decision of Hon'ble Supreme Court in similar case of the Mavilayi Service Cooperative Bank Ltd.& Ors. Vs. CIT in Civil Appeal Nos. 7343-7350 of 2019, order dated 12.01.2021, held as under:- 45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the cooperative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows: "59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank. Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society. (2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit. (3) Granting of loans to members or to non-members under sub-section (2) and recovery thereof shall be in the manner as may be specified by the Registrar." Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra). 48. Resultantly, the impugned Full Bench judgment is set aside. The appeals and all pending applications are disposed of accordingly. These appeals are directed to be placed before appropriate benches of the Kerala High Court for disposal on merits in the light of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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