THE JT DIRECTOR OF IT ( I&C1), KOCHI vs. M/S.PUDUKKAD SERVICE CO-OP BANK LTD, THRISSUR

The learned Commissioner of Income-tax (Appeals) ought to have appreciated the fact that the Hon. High Court of Kerala has based its decision on allowing deduction u/s 80P(2) (a) (i) of the Income-tax Act,1961 on the certificate issued by the competent authority (as defined in the The Kerala Co-operative

The learned CIT(A) has erred in equating a society registered as a Primary Agricultural Credit Society under KCS Act to a Primary Agricultural Credit Society under the Banking Regulation Act and Income-tax Act, 1961 and thereby allowing deduction under section 80P(2) (a) (i) of the Income-tax Act,1961 without perceiving the difference in definition of a Primary Agricultural Credit Society in the two Acts.

The Ld.CIT(A) ought to have considered the decision of the jurisdictional Hon. High Court in the case of M/s.Perinthalmanna Service Co-operative Bank (363 ITR 268) wherein it has been held that with the introduction of section 80P(4) of the Act deduction u/s 80P(2) cannot be allowed merely on the strength of certificate of registration as "Primary Agricultural Credit Society."

The learned CIT (Appeals) ought to have seen that the Hon. Supreme Court in the case of Sabarkhanta Zilia Kharid Vechar Sangh Ltd. Vs. CIT reported in 203 ITR 1027 (SC) had held that eligible deduction under section 80P of the Income tax Act, 1961 in respect of co-operative societies I banks doing both agricultural and non-agricultural activities should not be 100% of the gross profits of such societies etc. but should be limited to the profits generated from agricultural activities alone performed by such assessees.

The learned CIT (appeals) ought to have seen that the above decision of the Hon. Apex court is in sharp contrast to the decision of the Hon. High Court of Kerala in the case of M/s Chirakkal Service Co-operative Bank & others in ITA No. 212 of 2013, that held that the authorities under the Income tax Act cannot probe into question whether the assessee cooperative society is a primary agricultural credit society', once it is registered and classified as 'primary agricultural credit society' by the competent authorities under the provisions of the Kerala Cooperative Societies Act, 1969.

The learned CIT (Appeals) ought to have considered the reference order of Hon'ble High Court of Kerala to a larger Bench in ITA Nos.97 of 2016 dated 09.07.2018 in view of two conflicting decisions of the two separate benches of the Hon'ble High Court of Kerala in the cases of M/s Chirakkal Service Co- operative Bank & others and M/s.Perinthalmanna Service Co- operative Bank.

The appellant craves leave to add or amend any ground of appeal before it is finally disposed off.”

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