2018 (6) TMI 753 - AT - Income Tax

Tribunal affirms deduction eligibility for agricultural credit societies under Income Tax Act

The Income Tax Officer Ward–2, Tirur And The Income Tax Officer, Ward–2 (1), Kozhikode Versus M/s. Irumbuzhi Service Co-operative Bank Limited And M/s. Kottur Service Cooperative Bank Limited, Avitanallur

The Tribunal upheld the CIT(A)'s decision, confirming that the primary agricultural credit societies were eligible for the deduction under section ... Deduction u/s 80P - denying the benefit of deduction was that the assessee were doing the business of banking - Held that:- As relying upon the judgement in case of ITO v. The Chengala Service Co-operative Bank Limited [2018 (4) TMI 339 - ITAT COCHIN] Tribunal held that the assessee is entitled to deduction u/s 80P(2) wherein it is 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 Act - thus decided in favor of assessee. Issues Involved:1. Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act.2. Interpretation of section 80P(4) of the Income Tax Act.3. Applicability of the Supreme Court judgment in the case of The Citizens Co-Operative Society Limited.4. Determination of the nature of activities of the assessee societies.5. Classification and registration under the Kerala Co-operative Societies Act, 1969.6. Judicial precedents and their applicability.7. Jurisdiction and authority of the Assessing Officer.Issue-wise Detailed Analysis:1. Eligibility for Deduction under Section 80P(2)(a)(i) of the Income Tax Act:The primary issue was whether the assessees, being primary agricultural credit societies, were entitled to the deduction under section 80P(2)(a)(i) of the Income Tax Act. The CIT(A) had allowed the deduction based on the judgment of the Hon’ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. and Others, which held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969, are entitled to such deduction.2. Interpretation of Section 80P(4) of the Income Tax Act:The Assessing Officer denied the deduction on the grounds that the assessees were engaged in the business of banking, invoking section 80P(4) which excludes co-operative banks from such deductions. However, the Tribunal noted that the Hon’ble jurisdictional High Court had clarified that primary agricultural credit societies are distinct from co-operative banks and are entitled to the deduction under section 80P(2).3. Applicability of the Supreme Court Judgment in the Case of The Citizens Co-Operative Society Limited:The Revenue argued that the Supreme Court’s decision in The Citizens Co-Operative Society Limited case should apply, which denied deduction under section 80P due to the society’s activities being akin to a finance business. However, the Tribunal distinguished this case, noting that it involved a credit co-operative society with activities beyond its registered scope, unlike the present assessees who were primary agricultural credit societies registered under the Kerala Co-operative Societies Act.4. Determination of the Nature of Activities of the Assessee Societies:The Tribunal examined whether the assessees were conducting activities beyond their approved framework. It was found that the assessees were indeed primary agricultural credit societies, providing credit facilities to their members as per their registration and classification under the Kerala Co-operative Societies Act, 1969.5. Classification and Registration under the Kerala Co-operative Societies Act, 1969:The Tribunal emphasized that the assessees were registered and classified as primary agricultural credit societies by the competent authority under the Kerala Co-operative Societies Act, 1969. This classification was pivotal in determining their eligibility for the deduction under section 80P(2).6. Judicial Precedents and Their Applicability:The Tribunal relied on the jurisdictional High Court’s judgment in the Chirakkal case, which was directly applicable to the facts of the present cases. The Tribunal also discussed other judicial precedents, including the Supreme Court’s decisions, to reinforce its conclusion that the assessees were entitled to the deduction.7. Jurisdiction and Authority 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, as this determination was within the purview of the Registrar of Co-operative Societies and the Reserve Bank of India. The Tribunal held that the Assessing Officer’s contrary view was not tenable.Conclusion:The Tribunal upheld the CIT(A)’s orders, affirming that the assessees were entitled to the deduction under section 80P(2)(a)(i) of the Income Tax Act. The appeals filed by the Revenue were dismissed. The Tribunal’s decision was based on the jurisdictional High Court’s judgment, the statutory provisions of the Kerala Co-operative Societies Act, and the inapplicability of the Supreme Court’s judgment in the Citizens Co-Operative Society Limited case to the facts at hand.Order Pronounced:The appeals filed by the Revenue were dismissed, and the CIT(A)’s direction to grant the deduction under section 80P(2)(a)(i) was upheld. The order was pronounced on the 14th day of June, 2018.