2019 (6) TMI 1089 - AT - Income Tax

Assessing Officer to Verify Compliance with Kerala Co-op Act for Section 80P Deduction

The Tribunal concluded that the Assessing Officer must scrutinize the assessee's activities to ensure compliance with the Kerala Co-operative Societies ... Deduction under Section 80P(2)(a)(i) - principle of mutuality - registration certificate not conclusive - Assessing Officer to conduct enquiry into activities - each assessment year is a separate unitDeduction under Section 80P(2)(a)(i) - Assessing Officer to conduct enquiry into activities - registration certificate not conclusive - each assessment year is a separate unit - Entitlement of the assessee to deduction under Section 80P for the assessment year 2015-2016 - HELD THAT: - The Tribunal, following the Larger Bench decision of the jurisdictional High Court in The Mavilayi Service Co-operative Bank Ltd., held that the Assessing Officer is not bound by the registration certificate issued under the Co-operative Societies Act and must conduct an enquiry into the factual activities of the assessee to determine eligibility for deduction under Section 80P(2)(a)(i). The Larger Bench emphasised that after introduction of sub-section (4) the AO must verify whether the society's activities conform to the statutory conditions entitling it to the deduction, and that each assessment year stands separately for such verification. Accordingly, the Tribunal did not decide the deduction on merits but restored the matter to the Assessing Officer for examination of activities under the Kerala Co-operative Societies Act and determination of entitlement in accordance with law. [Paras 7]Issue remanded to the Assessing Officer for enquiry and determination of eligibility for deduction under Section 80P(2)(a)(i) for AY 2015-2016; AO not bound by registration certificate and must examine activities for that year.Final Conclusion: The Tribunal allowed the Revenue's appeal for statistical purposes and restored the question of entitlement to deduction under Section 80P to the Assessing Officer to be examined afresh for the assessment year 2015-2016, holding that the AO must inquire into the society's activities and is not bound by the registration certificate, each assessment year being a separate unit. Issues Involved:1. Entitlement of the assessee to deduction under Section 80P of the Income Tax Act.2. Classification of the assessee as a co-operative society or a co-operative bank.3. Applicability of the principle of mutuality.4. Relevance of the registration certificate issued by the Registrar of Kerala Cooperative Society.5. Impact of the Supreme Court's decision in the case of Citizen Co-operative Society on the assessee’s case.Issue-wise Detailed Analysis:1. Entitlement of the Assessee to Deduction under Section 80P of the Income Tax Act:The core issue is whether the assessee is entitled to deduction under Section 80P of the I.T. Act. The CIT(A) allowed the claim of deduction based on the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. However, the Department contended that the CIT(A) erred in its decision by not considering the Supreme Court’s ruling in the case of Citizen Co-operative Society, which has implications on the eligibility for deduction under Section 80P.2. Classification of the Assessee as a Co-operative Society or a Co-operative Bank:The Assessing Officer denied the deduction under Section 80P by treating the assessee as a co-operative bank rather than a co-operative society. The Department argued that the CIT(A) incorrectly relied on the ITAT Cochin Bench’s decision in the case of Maruthonkara Service Co-operative Bank Ltd., which distinguished the assessee from Citizen Co-operative Society.3. Applicability of the Principle of Mutuality:The Department emphasized that the assessee failed the principle of mutuality. The principle requires complete identity between contributors to the common fund and participants in the surplus. The Department argued that the assessee had different classes of members with varying privileges, which violated the mutuality principle. This was compared to the scenario in Citizen Co-operative Society, where the Supreme Court ruled that such differentiation disqualifies the society from claiming deduction under Section 80P.4. Relevance of the Registration Certificate Issued by the Registrar of Kerala Cooperative Society:The Larger Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Cooperative Bank Ltd. held that the Assessing Officer must conduct an inquiry into the factual activities of the assessee society to determine eligibility for deduction under Section 80P. The registration certificate alone is not sufficient to grant the deduction. Each assessment year must be separately verified for compliance with the cooperative society's activities under the Kerala Co-operative Societies Act, 1969.5. Impact of the Supreme Court's Decision in the Case of Citizen Co-operative Society on the Assessee’s Case:The Department argued that the CIT(A) did not appropriately consider the Supreme Court’s decision in Citizen Co-operative Society, which disallowed deduction under Section 80P for failing the mutuality principle. The Department highlighted that the assessee’s activities and member classification were similar to those in the Citizen Co-operative Society case, thus making the Supreme Court’s ruling applicable.Conclusion:The Tribunal, considering the Larger Bench’s decision in The Mavilayi Service Cooperative Bank Ltd., concluded that the Assessing Officer must examine the assessee’s activities to determine compliance with the Kerala Co-operative Societies Act and eligibility for deduction under Section 80P. The matter was restored to the Assessing Officer for a detailed inquiry and determination in accordance with the law. The appeals filed by the Revenue were allowed for statistical purposes.