2024 (1) TMI 1273 - AT - Income Tax

Primary agricultural credit society's section 80P(1) deduction claim remanded for proper determination of cooperative bank status

Koyyode Service Co-op. Bank Ltd. Versus Income Tax Officer - (1), Kannur

The ITAT Cochin examined a primary agricultural credit society's claim for deduction under section 80P(1). The assessee argued it qualified as a PACS ... Deduction u/s. 80P(1) r/w s. 80P(2)(a)(i) - assessee’s, a society registered as a primary agricultural credit society (PACS) (under the Kerala Co-operative Societies Act, 1969 – Kerala Act) - claim denied in view of section 80P(4), i.e., as it stands after its amendment by Finance Act, 2006, w.e.f. 01.04.2007 - HELD THAT:- The assessee, in view of it’s lending profile, does not, sure, qualify to be PACS in terms of section 80P of the Act. So, however, nothing turns thereon as, even as explained in Mavilayi Service Co-operative Bank Ltd. [2021 (1) TMI 488 - SUPREME COURT] reliance on which by the assessee was repelled by the Revenue authorities, the nature of credit, i.e., agricultural or non-agricultural, is not a condition of section 80P(2)(a)(i) of the Act. As long as, therefore, income flows from the provision of credit to it’s members, the same would be liable for deduction u/s. 80P(1) of the Act. The question that nevertheless would be relevant in this context is if the assessee is indeed a cooperative society u/s. 2(19) of the Act, an aspect we advert to later. Assessee is in the business of banking - Any member of the public can, as explained therein, become a ‘member’ on paying a nominal sum, which in fact is insisted upon as a practice, making co-operative societies, as the assessee, essentially public institutions. The legal basis for the same is found in sections 58 to 60 of the Kerala Act. Further, by providing membership to all on payment of a nominal fee, without extending them the rights and privileges of a member, there is thus, clearly, acceptance of deposits from and, equally, lending to, the members of the public, i.e., for all practical purposes, even as explained in The Karannur Service Co-op. Bank Ltd. [2023 (12) TMI 1254 - ITAT COCHIN] - So, however, again, nothing turns thereon inasmuch as the same is not an inhibiting factor; the income there-from being equally eligible, i.e., as on provision of credit to it’s members, for deduction u/s. 80P(1) inasmuch as s. 80P(2)(a)(i) treats the two activities at par, being, rather, more beneficial to the assessee as it extends deduction to income from non-members also. If the assessee, ostensibly a co-operative society u/s. 2(19) of the Act inasmuch as it is a society registered under the Kerala Act, is a ‘co-operative bank’, a term which again stands defined u/s. 80-P with reference to BRA - We refer only to the definition of a ‘primary cooperative bank’, and not of ‘state cooperative bank’ and ‘central co-operative bank’ inasmuch as the same, defined u/s. 5(ccvii) with reference to NABARD Act, are defined in the latter as principal societies for financing other co-operative societies in the respective state and district respectively, qua which there is no claim, so that the assessee could be a cooperative bank only by virtue of being a primary cooperative bank, i.e., by definition. The assessee’s bye-laws, which are, therefore, relevant for ascertaining it’s status as a primary cooperative bank, are not on record. The same – in their relevant part, have neither been reproduced by the AO – claiming the assessee to be a primary co-operative bank and, thus, a co-operative bank in his order, nor by the ld. CIT(A) per the impugned order confirming his order, nor indeed placed on record by the assessee, disputing their findings. The matter, therefore, would require travelling back to the file of the AO for the purpose.If the assessee is a primary co-operative bank, it is a co-operative bank by definition, excluded u/s. 80P(4) w.e.f. AY 2007-08. The matter, accordingly, for proper determination of the issue arising, in terms of this order, is restored to the file of the AO, who shall decide the issue/s arising in accordance with law per a speaking order upon hearing the assessee, duly considering each of it’s arguments/contentions. Assessee’s appeal is allowed for statistical purposes. Issues involved:The judgment involves the issue of the maintainability of a society's claim for deduction under section 80P of the Income Tax Act, 1961, and the determination of whether the society qualifies as a primary agricultural credit society (PACS) for the purposes of the Act.Maintainability of Deduction under Section 80P:The judgment concerns an appeal by the Assessee challenging the denial of its claim for deduction under section 80P of the Income Tax Act. The primary issue raised is whether the Assessee, registered as a society under the Kerala Co-operative Societies Act, qualifies as a PACS for the purpose of claiming the deduction. The denial of the deduction was based on the low percentage of lending to the agricultural sector and the acceptance of deposits from non-members by the Assessee-society.Definition of Primary Agricultural Credit Society (PACS):The Tribunal agreed with the Assessing Officer that the Assessee does not qualify as a PACS as per the definition under the Banking Regulation Act, 1949, which is relevant for determining eligibility under section 80P of the Act. The judgment highlighted the specific criteria outlined in the Act for a society to be considered a PACS, emphasizing the importance of the nature of income flowing from the provision of credit to its members.Status as a Co-operative Bank:The judgment also delves into the assessment of whether the Assessee, being a cooperative society registered under the Kerala Act, can be classified as a co-operative bank. The determination of the Assessee's status as a primary cooperative bank, as defined under the Act, plays a crucial role in deciding its eligibility for the deduction under section 80P. The absence of the Assessee's bye-laws on record necessitates further examination by the Assessing Officer to ascertain its classification as a cooperative bank.Restoration of the Matter to the Assessing Officer:In conclusion, the Tribunal restored the matter to the file of the Assessing Officer for a comprehensive review and decision in accordance with the law. The Assessing Officer is directed to consider each argument presented by the Assessee and issue a speaking order after due deliberation. The judgment emphasizes the need for a thorough evaluation of the Assessee's status and operations to determine its eligibility for the deduction under section 80P.Judgment Pronouncement:The order was pronounced on January 31, 2024, under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.