2019 (9) TMI 635 - HC - Income Tax

Cooperative Society Eligibility for Tax Deduction Clarified by High Court: Credit Facilities to Members Key

Principal Commissioner of Income Tax 2 Versus M/s. Thudiyalur Co-operative Agricultural Services Ltd.

The High Court analyzed the eligibility of a cooperative society for deduction under Section 80P(4) of the Income Tax Act. The Court clarified that the ... Deduction u/s 80P(4) - assessee-society is registered under the provisions of the TNCS Act - whether activity of the appellant is that of finance business and cannot be termed as cooperative society? - definition of the word 'members' - HELD THAT:- The substantial question of law framed for consideration was considered by a Division Bench of this Court in the case of The Principal Commissioner of Income Tax, Salem vs. M/s.S-1308 Ammapet Primary Agricultural Cooperative Bank Ltd. [2019 (1) TMI 116 - MADRAS HIGH COURT] where held Definitions of the expressions 'members' and 'associate member' under the TNCS Act held that an 'associate member' is also a 'member' in terms of Section 2(16) of the TNCS Act. Furthermore, the Assessing Officer himself found that the associate members are also admitted as members of the society. AO fell into an error in not granting any relief to the assessee society, which was rightly granted by the CIT (A) as confirmed by the Tribunal AO has not pointed out that loans have been disbursed to all and sundry in terms of the provisions of the TNCS Act and in terms of Clause (b) to Sub-Section (4) of Section 80P the society has an area of operation, operates within the taluk and will provide long term credit for agricultural and rural development activities as well. CIT (A) rightly granted the relief to the assessee as confirmed by the Tribunal. - Decided against the Revenue. Issues:1. Interpretation of Section 80P(4) of the Income Tax Act.2. Eligibility criteria for deduction under Section 80P(4).3. Application of the Banking Regulation Act in determining eligibility.Analysis:1. The appeal under Section 260A of the Income-tax Act, 1961 questioned the eligibility of the assessee for deduction under Section 80P(4) of the Act. The central issue was whether the assessee, a cooperative society, met the criteria for claiming the deduction.2. The High Court analyzed the definition of 'members' under the TNCS Act, emphasizing that the Assessing Officer erred in distinguishing between different classes of members. The Court clarified that for Section 80P relief, the cooperative society only needed to be engaged in providing credit facilities to its members, regardless of membership distinctions.3. The Court highlighted the significance of Sub-Section (4) of Section 80P, inserted by the Finance Act, 2006, which excluded cooperative banks from the deduction but included primary agricultural cooperative credit societies. Referring to a previous case involving a cooperative society engaging in non-compliant activities, the Court emphasized that adherence to the Act's provisions was crucial for claiming the deduction.4. By referencing the decision in Citizen Cooperative Society Limited, the Court underscored that the deduction under Section 80P should not apply to cooperative banks engaging in non-compliant activities. However, primary agricultural credit societies or cooperative agriculture and rural development banks remained eligible for the deduction.5. The Court concluded that the Assessing Officer's failure to grant relief to the assessee, despite meeting the criteria and operating within the defined parameters, was erroneous. Upholding the CIT (A) and Tribunal's decisions, the Court dismissed the appeal, answering the substantial question of law against the Revenue.6. The judgment provided a detailed analysis of the legal provisions, emphasizing the importance of adherence to statutory requirements for claiming deductions under Section 80P. The decision reaffirmed the eligibility of primary agricultural cooperative credit societies for the deduction while excluding non-compliant cooperative banks from such benefits.