2018 (4) TMI 339 - AT - Income Tax

Primary agricultural credit societies eligible for tax deductions under Section 80P(2)

The Tribunal upheld the decision of the CIT(A) that the primary agricultural credit societies, registered under the Kerala Co-operative Societies Act, are ... Deduction u/s 80P - assessees were doing the business of banking and therefore in view of the insertion of the provisions of section 80P(4) of the Income-tax Act, the assessees were not entitled to the deduction u/s 80P - Held that:- The undisputed facts are that the assessees in these cases are primary agricultural credit societies, registered as such under the Kerala Co-operative Societies Act. In the case of Chirakkal Service Co-operative Bank Limited & Ors. (2016 (4) TMI 826 - KERALA HIGH COURT) had categorically held that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. 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. - Decided in favour of assessee. Issues Involved:1. Eligibility for deduction under Section 80P of the Income-tax Act.2. Interpretation of 'Primary Agricultural Credit Society' under the Kerala Co-operative Societies Act.3. Applicability of the Supreme Court judgment in the case of Citizens Co-operative Society Ltd. to the present cases.4. Jurisdiction and competence of the Assessing Officer in determining the nature of the society's activities.Detailed Analysis:1. Eligibility for Deduction under Section 80P of the Income-tax Act:The primary issue revolves around whether the assessees, being primary agricultural credit societies, are entitled to claim deductions under Section 80P of the Income-tax Act. The assessees had filed returns and claimed deductions under this section, which were denied by the Assessing Officer on the grounds that the societies were conducting banking activities rather than providing agricultural credit.2. Interpretation of 'Primary Agricultural Credit Society':The CIT(A) allowed the deduction based on the judgment of the Kerala High Court in the case of The Chirakkal Service Co-operative Bank Ltd., which held that societies registered as primary agricultural credit societies under the Kerala Co-operative Societies Act are entitled to the deduction under Section 80P(2). The High Court emphasized that the registration and classification by the competent authority under the Kerala Co-operative Societies Act are sufficient to grant this benefit.3. Applicability of the Supreme Court Judgment in Citizens Co-operative Society Ltd.:The Revenue argued that the Supreme Court's decision in Citizens Co-operative Society Ltd. should apply, which denied deductions under Section 80P for activities beyond the scope of a co-operative society meant for its members. However, the Tribunal found that the Supreme Court's judgment was inapplicable to the present cases as it dealt with a different context involving a credit co-operative society registered under the Multi-State Co-operative Societies Act, not a primary agricultural credit society under the Kerala Act.4. Jurisdiction and Competence of the Assessing Officer:The Tribunal noted that the Assessing Officer did not have the jurisdiction to determine whether the assessees were primary agricultural credit societies or co-operative banks. This determination, according to the Banking Regulation Act, falls under the purview of the Reserve Bank of India, which had classified the assessees as primary agricultural credit societies.Conclusion:The Tribunal upheld the CIT(A)'s decision, affirming that the assessees, being primary agricultural credit societies registered under the Kerala Co-operative Societies Act, are entitled to deductions under Section 80P(2) of the Income-tax Act. The Tribunal dismissed the Revenue's appeals, stating that the Supreme Court's judgment in Citizens Co-operative Society Ltd. was not applicable to the facts of these cases. The Tribunal emphasized that the jurisdictional High Court's judgment in Chirakkal Service Co-operative Bank Ltd. was directly relevant and binding.