2018 (9) TMI 345 - AT - Income Tax

Tribunal Upholds Deduction for Agricultural Credit Societies under Section 80P(2)

The Income Tax Officer Ward 2 (5), Range-2, Trivandrum Versus M/s. Kadakkavoor Service Co-operative Bank Limited And M/s. Edackodu Service Co-operative Bank Limited

The Income Tax Officer Ward 2 (5), Range-2, Trivandrum Versus M/s. Kadakkavoor Service Co-operative Bank Limited And M/s. Edackodu Service Co-operative ... Issues Involved:1. Whether the assessee is entitled to deduction u/s 80P(2) of the Income Tax Act.2. Whether the interest income received from investments with co-operative banks is entitled to deduction u/s 80P(2)(a)(i) of the Income Tax Act.Issue-wise Detailed Analysis:1. Entitlement to Deduction u/s 80P(2):The primary issue was whether the assessee, a primary agricultural credit society, was entitled to deduction u/s 80P(2) of the Income Tax Act. The Assessing Officer denied the deduction, arguing that the assessee was primarily in the business of banking and, due to the insertion of section 80P(4) effective from 01.04.2007, was not entitled to the deduction. The CIT(A) reversed this decision, relying on the judgment of the Hon’ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. & Ors. vs. CIT, which held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to such deductions. The Tribunal upheld the CIT(A)'s decision, noting that the assessees were indeed primary agricultural credit societies as certified by the Registrar of Co-operative Societies and thus entitled to the deduction u/s 80P(2), as per the jurisdictional High Court's ruling.2. Deduction for Interest Income from Investments with Co-operative Banks:The second issue was whether the interest income from investments with co-operative banks was entitled to deduction u/s 80P(2)(a)(i). The Assessing Officer treated this income as ‘income from other sources’ and denied the deduction. The CIT(A) held that the interest income was part of the banking business and thus eligible for deduction u/s 80P(2)(d). The Tribunal, however, clarified that deduction u/s 80P(2)(d) is applicable only if the interest income is received from investments made with co-operative societies, not co-operative banks. Since the interest income in question was from co-operative banks, it did not qualify for deduction u/s 80P(2)(d). However, the Tribunal found that the investments were made in the course of banking business, thus the interest income was part of the banking activities and entitled to deduction u/s 80P(2)(a)(i).Conclusion:The Tribunal concluded that the CIT(A) was correct in granting deduction u/s 80P(2) for the primary agricultural credit societies. Regarding the interest income from investments with co-operative banks, the Tribunal held that such income qualifies for deduction u/s 80P(2)(a)(i) as part of the banking business. Therefore, the appeals filed by the Revenue were dismissed.