2022 (11) TMI 1528 - HC - Income Tax

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

The Kerala HC ruled on a cooperative society's claim for deduction under Section 80P. The court held that a society registered under the Multi-State ... Deduction claimed u/s 80P - Passessee earned income from interest on deposits from members and deposits made in scheduled Banks from trading commodities and interest from call money depositors - HELD THAT:- The subtle argument canvassed for the Revenue is to follow the interpretative principle applied in fiscal statutes viz. strict construction. It is said that the assessee is not a Society registered under both the Acts referred to in the definition. Therefore, the assessee cannot claim benefits u/s 80P of the Act. Before applying the said argument in the case on hand, we need to bear in mind that the definition in Section 2(19) is in the statute book from 1961. The Parliament made the MSCS Act, as the table presented above clearly shows the distinguishing feature, if any, between a Society registered under the Kerala Cooperative Societies Act and MSCS Act is that in the former area of operation is limited to a place in the State or within the State or in the latter, the area of operation can be expanded to Multi-states. All the attributes weighed with the Apex Court for interpreting Co-operative Societies etc., in Mavilayi Service Cooperative Bank Ltd [2021 (1) TMI 488 - SUPREME COURT] are available and attracted to the case on hand. The MSCS Act is an Act of the Parliament, and restricting the deduction under Section 80P to an Act of parliament and extending it to the bodies coming into existence under an enactment of the State could again defeat not only the contemporaneous definition applicable to Section 2(19) read with Section 80P of the Act. Thus, we are holding that the assessee is a Society registered under MSCS Act, comes within the definition of Section 2(19) of the Act, hence entitled to the benefit of Section 80P of the Act. The question is answered in favour of the assessee. Correct head of income - interest from surplus fund is 'Income from business' or 'Income from other sources' - HELD THAT:- As argued that the assessee, after satisfying the test of being a Cooperative society and falling within the range of the Mavilayi Service Cooperative Bank Ltd, the assessee is entitled to the deduction strictly in terms of Section 80P(2). This Court had to consider the applicability of Section 80P(2) and 80P(4) of the Act in Peroorkada Service Cooperative Bank Ltd. [2021 (12) TMI 1084 - KERALA HIGH COUR] Therefore, the findings in favour of the assessee on the interest income earned from other than named institutions and members will have to go back for reconsideration. Following Peroorkada Service Cooperative Bank Ltd, we have disposed of ITA No.205 of 2019 vide judgment dated 28.09.2022. By following the principle laid down in Peroorkada Service Cooperative Bank Ltd, the question is answered in favour of the Revenue and against the assessee for statistical purposes. The matter is remitted to Assessing Officer for disposal afresh. 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.