2023 (11) TMI 1221 - AT - Income Tax

Primary agricultural cooperative society gets partial Section 80P deduction despite having nominal and associated members

Kedambady Keyyur Primary Agricultural Co-operative Society Ltd. Versus ITO Ward-1 Puttur

Kedambady Keyyur Primary Agricultural Co-operative Society Ltd. Versus ITO Ward-1 Puttur - TMI Issues Involved:1. Validity of the assessment order.2. Entitlement to deduction under Section 80P of the Income-tax Act.3. Classification of interest income for tax purposes.4. Levy of interest under Sections 234A, 234B, and 234C of the Income-tax Act.Summary:Issue 1: Validity of the Assessment OrderThe appellant argued that the assessment order was bad in law for want of requisite jurisdiction. However, the tribunal found this ground to be very general in nature and lacking specific material to suggest that the assessing officer had no jurisdiction. Therefore, this ground was dismissed.Issue 2: Entitlement to Deduction under Section 80PThe primary issue was whether the appellant, a Primary Agricultural Credit Co-operative Society, was entitled to deductions under Section 80P of the Income-tax Act. The tribunal noted that the appellant's claim was initially denied because the society had nominal and associated members. The tribunal referred to the Supreme Court's decision in Mavilayi Service Cooperative Bank Ltd. vs. CIT, which held that Section 80P is a benevolent provision and must be read liberally in favor of the assessee. The tribunal concluded that the claim could not be denied on the basis of having nominal members and associated members.Issue 3: Classification of Interest IncomeThe tribunal examined whether the interest income earned from investments in cooperative banks should be classified as 'Business income' or 'Other sources.' The tribunal referred to multiple judicial precedents, including the Supreme Court's decision in Totgars Co-operative Sale Society Ltd. vs. ITO and Kerala State Co-operative Agricultural and Rural Development Bank Ltd. vs. AO. It was held that interest income from investments in cooperative banks that do not hold a license under Section 22 of the Banking Regulation Act, 1949, would be eligible for deduction under Section 80P(2)(d). The matter was remitted to the assessing officer for necessary verification.Issue 4: Levy of Interest under Sections 234A, 234B, and 234CThe appellant contested the levy of interest under Sections 234A, 234B, and 234C. Since the tribunal remitted the issue of deduction under Section 80P(2)(d) back to the assessing officer, this ground was deemed infructuous at this stage and was dismissed.Conclusion:The appeals filed by the assessee were partly allowed for statistical purposes, with specific directions to the assessing officer for further verification regarding the eligibility for deductions under Section 80P(2)(d). The additional grounds raised by the assessee were dismissed.