2018 (3) TMI 1671 - AT - Income Tax

Tribunal Upholds Deduction for Assessees under Section 80P(2)

The Tribunal upheld the CIT(A)'s decision to grant the deduction under Section 80P(2) to the assessees, dismissing the Revenue's appeals. The Tribunal ... Denying the benefit of deduction u/s. 80P(2) - assessee cannot be considered as Primary Agricultural Credit Society as they were engaged in the business of banking and only negligible percentage of loans disbursed by the assessee was for agricultural purposes - Held that:- The Hon'ble High Court of Kerala in the case of Chirakkal Service Co-op Bank Ltd. (2016 (4) TMI 826 - KERALA HIGH COURT) had held that a primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969 is entitled to the benefit of deduction u/s. 80P(2). - Decided in favour of assessee. Issues Involved:1. Denial of deduction under Section 80P(2) of the Income Tax Act.2. Classification of the assessees as Primary Agricultural Credit Societies (PACS).3. Applicability of the Supreme Court decision in the case of Citizens Co-operative Society Limited.4. Interpretation of the Kerala Co-operative Societies Act and Banking Regulation Act.5. Jurisdiction and authority of the Income Tax Department to probe into the classification of PACS.6. Relevance of various judicial precedents cited by the Revenue.Detailed Analysis:1. Denial of Deduction under Section 80P(2):The assessees, registered as Primary Agricultural Credit Societies (PACS) under the Kerala Co-operative Societies Act, 1969, were denied the benefit of deduction under Section 80P(2) by the Assessing Officer on the grounds that they were engaged in the business of banking with only a negligible percentage of loans disbursed for agricultural purposes. The CIT(A) reversed this decision, granting the deduction by relying on the judgment of the Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd. vs. CIT.2. Classification as Primary Agricultural Credit Societies:The CIT(A) held that the assessees were classified as PACS by the competent authority under the Kerala Co-operative Societies Act, and thus were entitled to the deduction under Section 80P(2). The Tribunal upheld this classification, noting that the certificate issued by the Registrar of Cooperative Societies confirming the PACS status is binding and the Income Tax authorities have no right to probe further into this classification.3. Applicability of Supreme Court Decision (Citizens Co-operative Society Limited):The Revenue argued that the CIT(A) erred by not considering the Supreme Court's decision in Citizens Co-operative Society Limited vs. Assistant Commissioner of Income-tax, which emphasized examining the activities of the society rather than just relying on the registration certificate. The Tribunal distinguished this case, noting that the Supreme Court's decision was based on specific facts where the society was involved in activities beyond its approved framework, which was not the case with the assessees here.4. Interpretation of the Kerala Co-operative Societies Act and Banking Regulation Act:The Tribunal highlighted that under the Kerala Co-operative Societies Act, a 'member' includes a nominal member, and deposits from such members cannot be treated as from non-members or the public. Furthermore, the Reserve Bank of India (RBI) had confirmed that PACS are not entitled to a banking license, reinforcing that they cannot be treated as banks under the Banking Regulation Act.5. Jurisdiction and Authority of the Income Tax Department:The Tribunal emphasized that the Assessing Officer does not have the jurisdiction to decide whether a society is a PACS or a co-operative bank. This determination is within the purview of the RBI, and the RBI had already classified the assessees as PACS. Therefore, the Income Tax Department cannot challenge this classification.6. Relevance of Judicial Precedents:The Tribunal addressed the Revenue's reliance on various judicial precedents, including the Supreme Court's decision in Sabarkantha Zilla Kharid Vechan Sangh Ltd. vs. CIT, and concluded that these cases were not applicable to the present facts. The Tribunal noted that the assessees had extended credit facilities only to their members and not to outsiders, making the income eligible for deduction under Section 80P.Conclusion:The Tribunal upheld the CIT(A)'s decision to grant the deduction under Section 80P(2) to the assessees, dismissing the Revenue's appeals. The Tribunal relied on the binding judgment of the Kerala High Court in Chirakkal Service Co-operative Bank Ltd. and confirmed that the classification of the assessees as PACS by the competent authority was conclusive. The Tribunal also clarified that the Supreme Court's decision in Citizens Co-operative Society Limited was not applicable to the facts of these cases.