TaxTMI 
TaxTMI 
2021 (10) TMI 970
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....it Society registered under the Kerala Cooperative Societies Act, 1969 and providing financial assistance/credit facility to its members for both agricultural or allied activities. The assessee claimed deduction under Section 80P(2) of Income Tax Act, 1961 (for short 'the Act'), and the deduction claimed by the assessee was disallowed by the assessing officer on the ground that the assessee is primarily engaged in the business of banking. Having regard to such a finding, it was recorded that by operation of Section 80P(4), the assessee is not entitled to deduction under Section 80P(2) of the Act. The assessee aggrieved by the said order filed appeal before the Commissioner of Appeals and the appeal was allowed in Annexure B order dated 31.01.2018. The Commissioner of Appeals held that the assessee is eligible to claim deduction as a primary agricultural credit society, having been registered as a Society under Kerala Societies Registration Act, 1860. 4. The Revenue filed ITA No.118/COCH/2048 and ITA No.121/COCH/2018 and the Appellate Tribunal, by taking note of the dictum of the judgment reported in Chirakkal Service Co-operative Bank Ltd. v. CIT 2016 (2) KHC 726 dismiss....
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....a (2014 (1) KLT OnLine 1117 = 363 ITR 268). Moreover, the law laid down by the Division Bench in Chirakkal (2016 (2) KLT 535 = 384 ITR 490) is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society (2017 (4) KLT Online 2013 (SC) = 397 ITR 1), on a claim for deduction under Section 80P of the Income Tax Act, by reason of sub-section (4) thereof, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of Section 80P of the IT Act. In view of the law laid down by the Apex Court in Citizen Co-operative Society (2017 (4) KLT OnLine 2013 (SC) = 397 ITR 1) the law laid down by the Division Bench Perinthalmanna (2014 (1) KLT OnLine 1117 = 363 ITR 268) has to be affirmed and we do so. 34. In view of the law laid down by the Apex Court in Ace Multi Axes Systems' case (supra), since each assessment year is a separate unit, the intention of the legislature is in no manner defeated by not allowing deduction under Section 80P of the IT Act, by reason of sub-sect....
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....which are co-operative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that case was not so licenced, the assessee would not fall within the mischief of S.80P(4)". xxx xxx xxx xxx xxx xxx "27. However, ...............{ Firstly, the marginal note to S.80P which reads "Deduction in respect of income of co-operative societies" is important, in that it indicates the general "drift" of the provision. This was so held by this Court in K.P.Varghese v. Income Tax Officer, Ernakulam & Anr. (1981 KLT SC SN 91 (C.No.163) = (1981) 4 SCC 173) as follows: "9. This interpretation of sub-s.(2) is strongly supported by the marginal note to S.52 which reads "Consideration for transfer in cases of understatement". It is undoubtedly true that the marginal note to a Section cannot be referred to for the purpose of construing the Section but it can certainly be relied upon as indicating the drift of the Section or, to use the words of Collins, M.R. in Bushel v. Hammond ((1904) 2 KB 563) to show what the Section is dealing with. It cannot control the interpretation of the words of a Section particularly when the languag....
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....e returns of income filed with the Department, the status of business indicated in such returns, etc. This exercise had not been undertaken at all." 31. The learned Additional Solicitor General relied upon the second proviso to S.2(oaa) of the Kerala Act, and argued that given the fact that the principal object in most, if not all, of the Appellants before us has not been fulfilled, these Appellants have lost all characteristics of being primary agricultural credit societies. In answer to this submission, learned counsel for the Appellants cited the following judgments, namely, Assistant Commissioner of Income Tax v. A.K. Menon and Ors. (1995 (2) KLT OnLine 1042 (SC) = (1995) 5 SCC 200) (paragraph 4); Titan Medical Systems (P) Ltd. v. Collector of Customs, New Delhi (2002 (3) KLT OnLine 1028 (SC) = (2003) 9 SCC 133) (paragraph 12); and Vadilal Chemicals Ltd. v. State of A.P. and Ors. (2005 (3) KLT OnLine 1117 (SC) = (2005) 6 SCC 292 (paragraphs 20 to 23), for the proposition that it is the RBI alone under the Banking Regulation Act, 1949, and the Registrar alone under the Kerala Act who can look into questions as to whether a primary agricultural credit society is, or is n....
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....estrictive language in S.80P(2)(a)(i). Once it is clear that the co-operative society in question is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle the society in question from availing of the deduction. The distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted. 34. Seventhly, S.80P(1)(c) also makes it clear that S.80P is concerned with the co-operative movement generally and, therefore, the moment a co-operative society is registered under the 1912 Act, or a State Act, and is engaged in activities which may be termed as residuary activities i.e. activities not covered by sub-clauses (a) and (b), either independently of or in addition to those activities, then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub-clause (c). The reach of subclause (c) is extremely w....
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....te the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into S.80P(2)(a)(i) when it is not there. Further, S.80P(4) is to be read as a proviso, which proviso now Mavilayi S.C.B. Ltd. v. Commr.of Income Tax (R.F. Nariman, J.) (SC) specifically excludes co-operative banks which are cooperative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Co-operative Society Ltd. (supra). Clearly, therefore, once S.80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in S.80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is f....