2025 (1) TMI 1725 - AT - Income Tax

80P deduction for primary agricultural co-op society: not treated as co-op bank under 80P(4) without RBI licence; disallowance set aside.

Whether deduction under s. 80P(2)(a)(i) was deniable by treating a registered primary agricultural co-operative society as a co-operative bank under s. ... Deduction u/s. 80P(2)(a)(i) - assessee is a primary agricultural co-operative society registered under the provisions of Kerala Co-Operative Societies Act, 1969 and engaged in the business of providing credit facilities to its members - AO was of the opinion that the assessee is not a co-operative society but a cooperative bank, as it is engaged in the business of banking, thus denied the claim for deduction u/s. 80P(2)(a)(i) placing reliance on the provisions of sub-section (4) of section 80P and also placing reliance on case of Mavilayi Service Co-op. Bank Ltd [2019 (3) TMI 1580 - KERALA HIGH COURT] HELD THAT:- We find that the Full Bench decision of the Hon'ble Kerala High Court was overruled by the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd [2021 (1) TMI 488 - SUPREME COURT] wherein it was held that once a co-operative society is registered as a primary co-operative society so long as it does not enjoy any licence from the Reserve Bank of India to carry out business of banking’ the co-operative society cannot be treated as a co-operative bank, the AO cannot possibly go into the question whether the society continues to be a primary co-operative society. Thus, we reverse the orders of the lower authorities and direct the AO to allow the deduction u/s. 80P(2)(a)(i) - Assessee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1) Whether a primary agricultural credit society registered under the Kerala Co-Operative Societies Act, 1969 and providing credit facilities to its members could be treated as a 'co-operative bank' so as to attract the exclusion in section 80P(4) and be denied deduction under section 80P(2)(a)(i). 2) Whether, in view of the Supreme Court decision referred to by the Tribunal, the assessee was entitled to deduction under section 80P(2)(a)(i) despite the authorities below having denied it by treating the assessee as a co-operative bank. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Classification of the assessee as a 'co-operative bank' for purposes of section 80P(4) Legal framework (as discussed by the Tribunal): The Tribunal considered deduction under section 80P(2)(a)(i) and the exclusion in section 80P(4), which denies the benefit to co-operative banks. The Tribunal also treated the Supreme Court ruling on the interpretation of section 80P(4) as controlling. Interpretation and reasoning: The Tribunal accepted that the assessee was registered as a primary agricultural co-operative society and was engaged in providing credit facilities to its members. It noted that denial by the authorities below proceeded on the footing that the assessee was engaged in banking and therefore should be treated as a co-operative bank. The Tribunal applied the Supreme Court decision referred to in the order, which held that once a society is registered as a primary co-operative society, so long as it does not have a licence from the Reserve Bank of India to carry on the business of banking, it cannot be treated as a co-operative bank; and the assessing authority cannot re-examine whether the society 'continues' to be a primary co-operative society merely for denying section 80P. Conclusions: On the basis of the Supreme Court position adopted by the Tribunal, the assessee could not be treated as a co-operative bank for section 80P(4) so as to deny deduction, given its status as a registered primary agricultural credit society and the absence of any finding of an RBI banking licence. Issue 2: Entitlement to deduction under section 80P(2)(a)(i) and relief to be granted Legal framework (as discussed by the Tribunal): Section 80P(2)(a)(i) grants deduction for income from providing credit facilities to members, and section 80P(4) operates as an exclusion for co-operative banks. The Tribunal treated section 80P as a benevolent provision to be applied consistently with the Supreme Court's interpretation. Interpretation and reasoning: The Tribunal held that the lower authorities' reliance on the overruled Full Bench view was no longer sustainable, and that the Supreme Court's interpretation required allowing the deduction where section 80P(4) is not attracted. Applying that ratio to the assessee's admitted status and activity (credit to members), the Tribunal found the denial of deduction legally unsustainable. Conclusions: The Tribunal reversed the orders of the lower authorities and directed the assessing authority to allow deduction under section 80P(2)(a)(i). As the issue was identical for the other assessment years covered by the common order, those appeals were also allowed on the same terms.