2018 (6) TMI 830 - AT - Income Tax

Tribunal affirms deduction for agricultural credit societies under Section 80P(2)(a)(i)

The Tribunal upheld the CIT(A)'s decision to allow deduction under Section 80P(2)(a)(i) for primary agricultural credit societies registered under the ... Deduction u/s 80P(2)(a)(i) - assessee were doing the business of banking and therefore in view of the insertion of the provisions of section 80P(4) the assessee were not entitled to the deduction u/s 80P - Held that:- Assessees in these cases are primary agricultural credit societies, registered as such under the Kerala Co-operative Societies Act - in case of ITO v. The Chengala Service Co-operative Bank Limited (2018 (4) TMI 339 - ITAT COCHIN) 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) - thus we hold that the CIT(A)’s are justified in directing the A.O. to grant deduction u/s 80P(2)(a)(i) - Decided in favor of assessee. Issues Involved:1. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act.2. Applicability of the Supreme Court judgment in the case of Citizens Co-operative Society Ltd.3. Interpretation of the Kerala Co-operative Societies Act, 1969.4. Jurisdiction of the Assessing Officer to determine the nature of the cooperative society.5. Relevance of nominal members in the context of Section 80P deduction.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 registered under the Kerala Co-operative Societies Act, 1969, were entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer denied this deduction, arguing that the assessees were engaged in banking activities, thus falling under the purview of Section 80P(4), which excludes cooperative banks from such deductions. However, the CIT(A) allowed the deduction, relying on the Kerala High Court's decision in the case of Chirakkal Service Co-operative Bank Ltd., which held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to the deduction under Section 80P(2).2. Applicability of the Supreme Court Judgment in the Case of Citizens Co-operative Society Ltd.:The Revenue contended that the CIT(A)'s decision was contrary to the Supreme Court's ruling in Citizens Co-operative Society Ltd., where it was held that a cooperative society engaged in activities beyond its approved framework, such as accepting deposits from and giving loans to non-members, could not claim the deduction under Section 80P. The Tribunal, however, distinguished the facts of the present case from the Citizens Co-operative Society case, noting that the latter involved a society operating under the Andhra Pradesh Mutually Aided Co-operative Societies Act, with substantial deposits from non-members. In contrast, the present assessees were registered under the Kerala Co-operative Societies Act, which includes nominal members as valid members.3. Interpretation of the Kerala Co-operative Societies Act, 1969:The Tribunal emphasized that under the Kerala Co-operative Societies Act, a 'member' includes nominal members, and thus, deposits from nominal members cannot be treated as deposits from the public. The Tribunal cited the Kerala High Court's ruling that primary agricultural credit societies registered under the Kerala Act are entitled to the deduction under Section 80P(2), irrespective of the activities carried out, as long as they are registered as such by the competent authority.4. Jurisdiction of the Assessing Officer to Determine the Nature of the Cooperative Society:The Tribunal noted that the Assessing Officer lacked the jurisdiction to determine whether the assessees were primary agricultural credit societies or cooperative banks, as such determinations fall under the purview of the Registrar of Cooperative Societies and the Reserve Bank of India. The Tribunal referenced Section 3 of the Banking Regulation Act, which exempts primary agricultural credit societies from its provisions, and the explanation to Section 80P(4), which aligns the definitions of 'Primary Agricultural Credit Society' and 'Co-operative Bank' with those in the Banking Regulation Act.5. Relevance of Nominal Members in the Context of Section 80P Deduction:The Tribunal clarified that under the Kerala Co-operative Societies Act, nominal members are considered legitimate members. This contrasts with the Citizens Co-operative Society case, where the Supreme Court found that the society's nominal members were not genuine members as per the applicable law. The Tribunal cited the Bombay High Court's decision in Jalgaon District Central v. UOI, which affirmed that nominal members are valid members under the Maharashtra Co-operative Societies Act and are entitled to benefits under Section 80P.Conclusion:The Tribunal concluded that the CIT(A) correctly allowed the deduction under Section 80P(2)(a)(i) for the assessees, as they were primary agricultural credit societies registered under the Kerala Co-operative Societies Act. The Tribunal dismissed the Revenue's appeals, holding that the Supreme Court's judgment in Citizens Co-operative Society Ltd. did not apply to the present cases, and upheld the CIT(A)'s orders.Result:The appeals filed by the Revenue were dismissed, and the CIT(A)'s orders allowing the deduction under Section 80P(2)(a)(i) were upheld.