2022 (11) TMI 1528 - HC - Income Tax

Multi-State Cooperative Society qualifies for Section 80P deduction but interest income classification requires fresh assessment

THE PRINCIPAL COMMISSIONER OF INCOME TAX KOTTAYAM Versus M/s. SAHYADRI CO-OPERATIVE CREDIT SOCIETY LTD

THE PRINCIPAL COMMISSIONER OF INCOME TAX KOTTAYAM Versus M/s. SAHYADRI CO-OPERATIVE CREDIT SOCIETY LTD - TMI Issues Involved:1. Applicability of Section 80P of the Income Tax Act to a multi-state co-operative society.2. Entitlement to deductions under Section 80P for providing general credit facilities instead of agricultural credits.3. Interpretation of 'primary agricultural credit society' under different laws.4. Classification of interest from surplus funds as 'Income from business' or 'Income from other sources.'Issue-wise Detailed Analysis:1. Applicability of Section 80P of the Income Tax Act:The primary issue was whether a multi-state co-operative society, registered under the Multi-State Cooperative Societies Act, 2002 (MSCS Act), qualifies for deductions under Section 80P of the Income Tax Act. The Revenue argued that the society does not fit the definition of a 'co-operative society' under Section 2(19) of the Income Tax Act, which refers to societies registered under the Co-operative Societies Act, 1912, or any state law. The court, however, noted that the MSCS Act is a parliamentary enactment applicable across India, and the principles governing co-operative societies under state laws and the MSCS Act are similar. The court emphasized the benevolent nature of Section 80P, which aims to promote co-operative growth, and concluded that the assessee qualifies for deductions under Section 80P.2. Entitlement to Deductions for Providing General Credit Facilities:The court addressed whether the assessee, which provides general credit facilities rather than agricultural credits, is entitled to Section 80P benefits. It was noted that previous judgments, including Mavilayi Service Cooperative Bank Ltd, support the view that the nature of credit facilities does not restrict the applicability of Section 80P, provided the society meets other criteria. The court ruled in favor of the assessee, affirming its entitlement to deductions despite the nature of its credit facilities.3. Interpretation of 'Primary Agricultural Credit Society':The court examined the distinction in definitions of 'primary agricultural credit society' under state co-operative laws and the Banking Regulation Act. The tribunal's decision not to confine its interpretation to the Banking Regulation Act was upheld. The court reiterated that the broader interpretation under co-operative principles should prevail, aligning with the Supreme Court's approach in Mavilayi Service Cooperative Bank Ltd, thereby supporting the assessee's position.4. Classification of Interest from Surplus Funds:The final issue was whether interest from surplus funds should be classified as 'Income from business' or 'Income from other sources.' The tribunal had classified it as 'Income from business,' which the court reviewed in light of the principles established in Peroorkada Service Cooperative Bank Ltd. The court decided that this classification should be reconsidered by the Assessing Officer, as the interest income from non-member deposits requires further examination to determine its correct classification under Section 80P(2).Conclusion:The court ruled in favor of the assessee on the applicability of Section 80P and the entitlement to deductions for general credit facilities. It instructed a reassessment of the classification of interest income from surplus funds. The appeals were disposed of accordingly, with directions for further proceedings where necessary.