NAGARIPURAM SERVICE CO-OP BANK LTD,PALAKKAD vs. THE ITO, PALAKKAD

The assessees are Primary Agricultural Credit Co-operative Societies registered under Kerala Cooperative Act. The assessees have filed their returns of income claiming deduction under Section 80P. The same came to be denied on the ground that the assessees had not fulfilled the primary object of a Primary Agricultural Credit Society in so far as they were not providing financial accommodation to their members for agricultural purposes or for purposes connected with agricultural activities.

On appeal the learned CIT(A), following the decision of the Full Bench of the Hon'ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. reported in 414 ITR 67, upheld the denial of deduction under Section 80P. SA Nos.164 to 167/C/2020 ITA Nos. 334 to 339/C/2020 & SA Nos.175 to 180/C/2020 .

Shri Sivadas Chettoor, Chartered Accountant appeared on behalf of the assessees and Smt. Jamuna Devi, Sr. Departmental Representative appeared on behalf of Revenue.

On further appeal before the Tribunal it was submitted by the learned A.R. that the decision of the Full Bench of the Hon'ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. (supra) had been set aside by the Hon'ble Supreme Court in Civil Appeal Nos. 7343 to 7350 of 2019 dated 12th January, 2021 wherein the Hon'ble Supreme Court in paras 45 to 48 had held as under: - “45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote 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 Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes cooperative banks which are co-operative 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 Cooperative Society Ltd. (supra). Clearly, therefore, once section 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 section 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 found that there are instances of loans being given to non- members, profits attributable to such loans obviously cannot be deducted.

It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, ‘nominal members’ are ‘members’ as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions’ Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: SA Nos.164 to 167/C/2020 ITA Nos. 334 to 339/C/2020 & SA Nos.175 to 180/C/2020 . “8. The expression “members” is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression “members” in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression “members” in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: