2018 (10) TMI 1440 - AT - Income Tax

Co-op Bank denied tax deduction for broader operational area.

The Tribunal concluded that the Co-operative Agricultural and Rural Development Bank was not entitled to the deduction under Section 80P(2) of the Income ... Deduction u/s. 80(P) - assessee is a Co-operative Agricultural and Rural Development Bank, registered under the Kerala Co-operative Societies Act, 1969 - Held that:- We find that an identical issue has been considered by the Tribunal in case of M/s.Kottayam Cooperative Agricultural & Rural Development Bank Limited v. ITO (2018 (10) TMI 1121 - ITAT COCHIN), wherein the Tribunal held that the assessee was not entitled to the benefit of deduction u/s 80P(2) of the I.T.Act. The mischief of sub-section (4) will not fall on a primary cooperative agricultural and rural development bank provided it’s operation is limited to a taluk and the principal object of which is to provide for long term credit for agricultural and rural development activities. Since the assessee’s area of operation was not confined to a Taluk for the relevant assessment year, we hold that it was not entitled to the benefit of deduction u/s. 80P(2) of the Act. - Decided against assessee. Issues Involved:1. Eligibility for deduction under Section 80P of the Income Tax Act, 1961.2. Interpretation of the phrase 'confined to a taluk' in Section 80P(4)(b).3. The applicability of case laws and judicial precedents to the assessee's case.4. The principal object of the assessee society and its operational area.5. The impact of the CIT(A) and Assessing Officer's interpretation of Section 80P(4).Detailed Analysis:1. Eligibility for Deduction under Section 80P of the Income Tax Act, 1961:The primary issue revolves around the eligibility of the assessee, a Co-operative Agricultural and Rural Development Bank, for deductions under Section 80P of the Income Tax Act, 1961. The assessee claimed deductions amounting to Rs. 83,93,293 for the assessment year 2011-2012, which were disallowed by the Assessing Officer and upheld by the CIT(A). The grounds for disallowance were based on the interpretation of Section 80P(4) and the operational area of the assessee.2. Interpretation of the Phrase 'Confined to a Taluk' in Section 80P(4)(b):The crux of the dispute lies in the interpretation of the phrase “having its area of operation confined to a taluk” as mentioned in Section 80P(4)(b). The assessee argued that the term 'a taluk' should not be interpreted in the singular sense, citing Section 13(2) of the General Clauses Act, which allows singular terms to include the plural. However, the Tribunal, following the precedent set in the assessee's own case for the previous assessment year (2010-2011), held that the phrase should be strictly interpreted to mean a single taluk. The Tribunal emphasized the cardinal rule of statutory construction, which is to read the statute literally unless it leads to absurdity.3. Applicability of Case Laws and Judicial Precedents:The assessee cited several case laws to support their interpretation, including decisions from the Delhi High Court and Karnataka High Court, arguing that these precedents should apply to their case. However, the Tribunal found these references to be out of context and not directly applicable to the specific provisions of Section 80P(4). The Tribunal relied on its previous decision in the case of M/s. Kottayam Cooperative Agricultural & Rural Development Bank Limited, which was directly relevant and had similar facts.4. Principal Object of the Assessee Society and Its Operational Area:The Tribunal examined whether the principal object of the assessee society was to provide long-term credit for agricultural and rural development activities and whether its area of operation was confined to a taluk. The assessee's operational area included multiple taluks, which did not meet the strict interpretation of being confined to a single taluk as required by Section 80P(4)(b). This broader operational area disqualified the assessee from claiming the deduction under Section 80P(2).5. Impact of the CIT(A) and Assessing Officer's Interpretation of Section 80P(4):The Tribunal upheld the CIT(A) and Assessing Officer's interpretation of Section 80P(4), agreeing that the assessee's broader operational area and the nature of its activities did not qualify for the deductions claimed. The Tribunal reiterated that exemption provisions must be strictly construed, and the literal interpretation of the statute must be followed unless it leads to absurdity, which was not the case here.Conclusion:The Tribunal concluded that the assessee was not entitled to the benefit of deduction under Section 80P(2) of the Income Tax Act for the assessment year 2011-2012, affirming the decisions of the lower authorities. The appeal filed by the assessee was dismissed, and the order was pronounced on October 25, 2018.