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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George Mathan, JM
O R D E R
Per CHANDRA POOJARI, AM:
This appeal at the instance of the assessee is directed against the order of the CIT(A) Kochi-2 dated 19/12/2019. The relevant assessment year is 2011-12.
The solitary issue that is raised is whether the CIT(A) is justified in confirming the Assessing Officer’s order in denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act.
The brief facts of the case are as follow: The assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969. For the assessment year 2014-15 return was filed after claiming deduction u/s 80P of the I.T.Act. The assessment order was passed for assessment year 2014-15 wherein the Assessing Officer disallowed the claim of deduction u/s 80P of the I.T.Act. The reasoning of the Assessing Officer to disallow the . claim of deduction u/s 80P(2)(a)(i) of the I.T.Act was that the assessee was essentially doing the business of banking, and therefore, in view of insertion of section 80P(4) of the I.T.Act with effect from 01.04.2007, the assessee will not be entitled to deduction u/s 80P of the I.T.Act.
4. Aggrieved by the order passed by the Assessing Officer disallowing the claim of deduction u/s 80P(2) of the I.T.Act, the assessee preferred appeal before the first appellate authority for assessment year 2014-2015. The CIT(A) placing reliance on the judgment of the Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT [(2019) 414 ITR 67 (Ker.) (FB) (HC)] held that the Assessing Officer had made elaborate findings and has come to a factual finding that agricultural credit provided by the assessee is only minuscule and assessee cannot be termed as primary agricultural credit society. Accordingly disallowance of claim of deduction u/s 80P of the I.T.Act made by the Assessing Officer was upheld by the CIT(A). In the result the appeal filed by the assessee was rejected by the CIT(A) for assessment year 2014-2015.
Aggrieved by the order passed by the CIT(A), the assessee has preferred this appeal before the Tribunal, raising following grounds:-
“1. The learned CIT(A) went wrong in approving the denial of deduction u/s. 80P in the assessment by wrongly treating the activities of the appellant as banking without appreciating the fact that the appellant have no licence to run banking business from the RBI. 2. The learned CIT(A) went wrong in approving the denial of . deduction u/s. 80P in the assessment without appreciating the fact that the assessee is a primary co-operative society and cannot be treated at par with Scheduled Banks as all the facilities such as issuance of Demand Draft, core banking, clearing of other bank’s cheques etc. enjoyed by the Scheduled Banks were not extended to the assessee.
3. The learned CIT(A) went wrong in approving the denial of deduction u/s. 80P in the assessment without appreciating the fact that the appellant is a co-operative society engaged in carrying on the business of providing credit facilities to its members and, as such, the income derived from the activity is eligible for deduction u/s. 80P(1) read with sub section (2)(a)(i).
The learned CIT(A) went wrong in approving the denial of deduction u/s. 80P by applying the decision of the jurisdictional High Court in Mavilayi Service Co-operative Bank Ltd. as the Assessing Officer did not conduct an enquiry into the factual situation as to the grant of advance in different sectors to arrive at a conclusion that the assessee is not a primary agricultural credit co-operative society.
The learned AR submitted that the appellant, a Primary Agricultural Co-Operative Credit Society (PACS) is deriving income from banking and providing credit facilities to its members. It was submitted that the income earned from the said activity was claimed as exempt u/s 80P(2)(a)(i) in the return of income of A.Y 2014-15 furnished on 30/11/2014. It was submitted that the assessing officer had disallowed the claim of deduction by invoking Section 80P(4) and the total income was determined at Rs 1,71,62,680 in the assessment order passed on 19/12/2016. It was submitted that regarding deduction u/s 80P(2)(a)(i) r.w.s 80(P)(4J), the former
. provides deduction in respect of income received by a co- operative society engaged in business of banking or providing credit facilities to its members, while the latter puts an embargo that the deduction shall not be available to a co- operative bank.
6.1 The Ld. AR submitted that the cardinal point in this case is that whether the assessee can be regarded as a co-operative bank and whether provisions of section 80P(4) could be applied in denying the benefit of deduction in 80P(2)(a)(i). According to the Ld. AR, primarily, the assessee cannot be regarded as e co- operative bank for the following reasons:- a) lt is not a "state co- operative bank or a central co- operative bank "within the meaning of Part V of Banking Regulation Act, 1949. b) The primary object and principal business is to provide financial help to the members who are agriculturist with a view to develop and improve the quality of their agriculture operation. Transaction of banking business is not at all the primary object and principal business of the assessee. Hence it is not a "Primary co-operative bank" within the meaning of Part V of Banking Regulation Act, 1949.
. c) The assessee has no licence to run banking business from RB1 of India. The facilities enjoyed by the Scheduled Banks such as issuance of demand drafts, core banking, clearing of cheques of other bank ..etc are not available to assessee. d) The assessee is registered as a primary co-operative society under the Kerala State Co-Operative Societies Act and as such the judgment of the apex court in The Citizen Co-operative Society vs. ACIT (SC) 397 ITR 1 does not apply in this case. The decision was rendered in the context of the co-operative societies governed by the Mutually aided Co- operative Societies Act, 1995 (MACSA). Hence, the ratio of the decision would be applicable only in case of co-operative societies governed by the aforementioned Act.
6.2 Once it is found that the assessee cannot be regarded as a co-operative bank, the question of denying the benefit provided in section 80P(2)(a)(i) in respect of income derived from the business of banking or providing credit facilities to its members, does not arise.
. 6.3 The learned Departmental Representative, on the other hand, strongly supported the orders passed by the Income Tax Authorities.
We have heard the rival submissions and perused the material on record. The Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT [(2016) 384 ITR 490 (Ker.)] had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society, necessarily, the deduction u/s 80P(2) of the I.T.Act has to be granted to the assessee. However, the Full Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) had reversed the above findings of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Co- operative Bank Ltd. v. CIT (supra). The Larger Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) held that the Assessing Officer has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P of the I.T.Act. It was held by the Hon’ble High Court that the Assessing Officer is not bound by the registration certificate issued by the Registrar of Kerala Co-operative Society classifying the assessee-society as a co-operative society. The Hon’ble High Court held that each assessment year is separate and eligibility shall be verified by the Assessing Officer for each of the assessment years. The . finding of the Larger Bench of the Hon’ble High Court reads as follows:-
“33. In view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1] it cannot be contended that, while considering the claim made by an assessee society for deduction under Section 80P of the IT Act, after the introduction of sub-section (4) thereof, the Assessing Officer has to extend the benefits available, merely looking at the class of the society as per the certificate of registration issued under the Central or State Co-operative Societies Act and the Rules made thereunder. On such a claim for deduction under Section 80P of the IT Act, 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.
In Chirakkal [384 ITR 490] the Division Bench held that the appellant societies having been classified as Primary Agricultural Credit Societies by the competent authority under the KCS Act, it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rate of interest on such loans and advances to be at the rate to be fixed by the Registrar of Co-operative Societies under the KCS Act and having its area of operation confined to a Village, Panchayat or a Municipality and as such, they are entitled for the benefit of sub-section (4) of Section 80P of the IT Act to ease themselves out from the coverage of Section 80P and that, the authorities under the IT Act cannot probe into any issues or such matters relating to such societies and that, Primary Agricultural Credit Societies registered as such under the KCS Act and classified so, under the Act, including the appellants are entitled to such exemption.
In Chirakkal [384 ITR 490] the Division Bench expressed a divergent opinion, without noticing the law laid down in Antony Pattukulangara [2012 (3) KHC 726] and Perinthalmanna [363 ITR 268]. Moreover, the law laid down by the Division Bench in Chirakkal [384 ITR 490] is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society [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 [397 ITR 1] the law laid down by the Division Bench Perinthalmanna [363 ITR 268] has to be affirmed and we do so.
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-section (4) thereof, if the assessee society ceases to be the specified class of societies for which the deduction is provided, even if it was eligible in the initial years.” 7.1 In the instant case, the Assessing Officer had denied the claim of deduction u/s 80P of the I.T.Act for the reason that assessee was essentially doing the business of banking and disbursement of agricultural loans by the assessee was only minuscule. Therefore, the Assessing Officer concluded that the assessee cannot be treated as co-operative society. The Assessing Officer after perusing the narration of the loan extracts in the statutory audit report for assessment year 2014-15 came to the conclusion that out of the total loan disbursement, only a minuscule portion has been advanced for agricultural purposes. We are of the view that the narration in loan extracts in the audit reports by itself may not conclusive to prove whether loan is a agricultural loan or a non-agricultural loan. The gold loans may or may not be disbursed for the purpose of agricultural purposes. Necessarily, the A.O. had to examine the details of each loan disbursement and determine the purpose for which the loans were disbursed, i.e., whether it is for agricultural purpose or non-agricultural purpose. In these cases, such a detailed examination has not been conducted by the A.O. At the time
. of assessment, the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal Service Cooperative Bank Ltd. (supra) was ruling the roost and the certificate issued by the Registrar of Co-operative Society terming the assessee as a primary agricultural credit society would be sufficient for grant of deduction u/s 80P of the I.T.Act. In the light of the dictum laid down by the Full Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra), we are of the view that there should be fresh examination by the Assessing Officer as regards the nature of each loan disbursement and purpose for which it has been disbursed, i.e., whether it for agricultural purpose or not. The A.O. shall list out the instances where loans have disbursed for non-agricultural purposes etc. and accordingly conclude that the assessee’s activities are not in compliance with the activities of primary agricultural credit society functioning under the Kerala Co-operative Societies Act, 1969, before denying the claim of deduction u/s 80P(2) of the I.T.Act. For the above said purpose, the issue raised in these appeals is restored to the files of the Assessing Officer. The Assessing Officer shall examine the activities of the assessee- society by following the dictum laid down by the Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) and shall take a decision in accordance with law. It is ordered accordingly.
. 7. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 5th October, 2020.