2018 (1) TMI 857 - AT - Income Tax

Tribunal affirms agricultural society's tax deduction eligibility based on cooperative classification

The Tribunal upheld the CIT(A)'s decision allowing the primary agricultural credit society's claim for deduction under section 80P(2) of the Income-tax ... Entitled to the benefit of deduction u/s 80P(2) - whether 'Primary Agricultural Credit Society' not falling within the ambit of Banking Regulation Act? - Held that:- The Reserve Bank of India, which is the competent authority as per the Banking Regulation Act, treats assessee society and similar societies as only 'Primary Agricultural Credit Society' not falling within the ambit of Banking Regulation Act. The Reserve Bank of India has given letters to the societies similar to assessee stating that they are Primary Agricultural Credit Societies and therefore in terms of section 3 of the Banking Regulation Act are not entitled for banking license; (Copies of such letter from RBI are placed on record). That being the case, the Assessing Officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society' or a 'Co-operative bank', within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section 5 r.w.s Section 56 of the Banking Regulation Act. CIT(A) has correctly allowed the claim of deduction - Decided against revenue Issues Involved:1. Eligibility for deduction under section 80P of the Income-tax Act, 1961.2. Applicability of the Supreme Court judgment in the case of The Citizens Co-operative Society Limited vs. Assistant Commissioner of Income Tax, Circle-9(1), Hyderabad.3. Interpretation of the Kerala Co-operative Societies Act, 1969, and its classification of primary agricultural credit societies.4. Jurisdiction of the Assessing Officer in determining the nature of the cooperative society under the Banking Regulation Act, 1949.Detailed Analysis:Eligibility for Deduction under Section 80PThe primary issue is whether the assessee, a primary agricultural credit society registered under the Kerala State Co-operative Societies Act, 1969, is entitled to the benefit of deduction under section 80P of the Income-tax Act, 1961. The Assessing Officer denied this benefit on the grounds that the assessee was engaged in banking activities rather than providing agricultural credit, thus falling under section 80P(4) which excludes co-operative banks from such deductions. However, the CIT(A) allowed the deduction based on the Kerala High Court's judgment in The Chirakkal Service Co-operative Bank Ltd. and Others, which held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to such deductions.Applicability of the Supreme Court Judgment in The Citizens Co-operative Society Limited CaseThe Revenue argued that the CIT(A)'s decision was against the law and facts, citing the Supreme Court's decision in The Citizens Co-operative Society Limited case. The Supreme Court had emphasized that the activities of the society, rather than its registration status, should determine its eligibility for deduction under section 80P. The Revenue contended that the assessee's activities were akin to those of a banking business, thus disqualifying it from the deduction. However, the Tribunal noted that the Supreme Court's judgment was context-specific and pertained to a society registered under the Multi-State Co-operative Societies Act, not a primary agricultural credit society under the Kerala Co-operative Societies Act.Interpretation of the Kerala Co-operative Societies ActThe Tribunal emphasized that under the Kerala Co-operative Societies Act, a primary agricultural credit society is defined and classified by the competent authority, and such classification should be respected. The Kerala High Court had held that once a society is registered and classified as a primary agricultural credit society, it is entitled to the benefits under section 80P(2) of the Income-tax Act. The Tribunal upheld this view, noting that the assessee was indeed registered and classified as such, and thus eligible for the deduction.Jurisdiction of the Assessing OfficerThe Tribunal also addressed the jurisdictional issue, noting that the Assessing Officer did not have the authority to determine whether the assessee was a 'Primary Agricultural Credit Society' or a 'Co-operative bank' under the Banking Regulation Act. This determination is the prerogative of the Reserve Bank of India, which had classified the assessee as a primary agricultural credit society, thereby exempting it from the provisions of the Banking Regulation Act.ConclusionThe Tribunal dismissed the appeals filed by the Revenue, affirming the CIT(A)'s order that allowed the assessee's claim for deduction under section 80P(2) of the Income-tax Act. The Tribunal concluded that the judgment of the Hon'ble jurisdictional High Court in The Chirakkal Service Co-operative Bank Ltd. case was applicable and that the Supreme Court's decision in The Citizens Co-operative Society Limited case did not alter the eligibility of primary agricultural credit societies for the deduction. The Tribunal also reinforced that the Assessing Officer lacked jurisdiction to reclassify the nature of the cooperative society contrary to the classification by the Reserve Bank of India.