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Facts
The assessee, a primary agricultural cooperative society, claimed deduction under Section 80P. The AO denied the deduction as the society had nominal members and granted loans beyond agricultural activities, functioning like a bank. The CIT(A) upheld the AO's decision.
Held
The Tribunal held that the assessee is a primary agricultural cooperative society and is entitled to deduction under Section 80P(2)(a)(i) of the Act. The presence of nominal members, permitted by the Kerala Co-operative Societies Act, does not disentitle the assessee from claiming the deduction.
Key Issues
Whether the assessee, a primary agricultural cooperative society with nominal members, is eligible for deduction under Section 80P of the Income Tax Act.
Sections Cited
80P, 80P(2)(a)(i), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SOUNDARARAJAN K.
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 23/05/2025 in respect of the A.Y. 2017-18 and raised the following grounds:
Tax effect relating to Grounds of Appeal each Ground of appeal (see note below)
The order of the learned Commissioner of Income Tax(Appeals) Income Tax Department National Faceless Appeal Center, dated 23-05-2025 for the assessment year 2017-18 1 Rs. 99,22,105/- affirming the Order of assessment of the A O u/s. 143(3) disallowing deduction u/s 80P Rs. 2,15,66,466/-is against law contrary to the facts and circumstances..
Your appellant is a Primary Agricultural Cooperative Society registered under the Kerala State Cooperative Societies Act and the Learned Commissioner of Income Tax appeals ought to have seen that 2. exclusion u/s. 80(P),(4) is applicable Rs. 99,22,105/- only to any Cooperative society other than a primary Credit Society or a Primary Cooperative agricultural and rural development Bank. Your appellant is not such a cooperative bank.
The learned Commissioner of Income Tax (Appeals) went wrong is not following the Judgment of the Honorable Supreme Court in the in the case of Mavilayi Service Cooperative Bank Ltd, & ORS Vs 3 Rs. 99,22,105/- Commissioner of Income Tax, Kozhikode & ANR (431 ITR1 ) affirming the High Court of Kerala Judgment in the case of Chirakkal Service Cooperative Bank and disallowing the appeal.
The decision of relied upon by the Honorable Commissioner of Income Tax in the case Citizen Cooperative 4 Rs. 99,22,105/- Society vs. Assistant Commissioner (2017) 84 taxmann.com.114(SC) is not applicable to your appellant.
The principle of mutuality in the case Citizen Cooperative Society vs. 5 Assistant Commissioner (2017) 84 Rs. 99,22,105/- taxmann.com.114(SC) is not applicable to your appellant. For the above and other grounds that may be submitted at the time of 6 Prayer hearing it is prayed to the Honorable Tribunal to allow the appeal Total tax effect (see note below) Rs. 99,22,105/-
The assessee is a co-operative society registered under the Kerala Co- operative Societies Act. The assessee filed their return of income and claimed the income as eligible for deduction u/s. 80P of the Act. Thereafter the case was selected for scrutiny and the AO denied the deduction claimed u/s. 80P of the Act because the assessee had also nominal members and the society also granted other loans apart from the agricultural loans. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) also dismissed the same on the ground that the assessee is functioning as a co-operative Bank and the society also deals with the nominal members and therefore they are not entitled for deduction u/s. 80P(2)(a)(i) of the Act. The said order of the Ld.CIT(A) is challenged before this Tribunal.
At the time of hearing, the Ld.AR submitted that the assessee is a primary agricultural co-operative society registered under the provisions of the Kerala Co-operative Societies Act and therefore they are entitled for deduction u/s. 80P(2)(a)(i) of the Act. Further, the Ld.AR submitted that the presence of nominal members would not disentitle the assessee to claim the deduction u/s. 80P(2)(a)(i) of the Act. The Ld.AR also relied on the judgment of the Hon’ble Supreme Court reported in 431 ITR 1 in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT and prayed to allow the appeal.
The Ld.DR relied on the orders of the lower authorities and submitted that the assessee is acting like a co-operative bank and therefore they are not entitled for deduction u/s. 80P of the Act.
We have heard the arguments of both sides and perused the materials available on record.
Admittedly, the assessee is a co-operative society registered under the provisions of the Kerala Co-operative Societies Act and on that basis, the assessee had claimed the deduction u/s. 80P(2)(a)(i) of the Act. The Ld.AO relied on the data found in the balance sheet which forms part of the audit report of the Co-operative Department and on that basis, the AO had come to the conclusion that the assessee is acting like a bank and not eligible for deduction u/s. 80P(2)(a)(i) of the Act. The AO also observed that the presence of nominal members would disentitle the assessee from claiming the deduction u/s. 80P(2)(a)(i) of the Act.
We have also perused the data furnished by the AO in his order that the assessee had advanced agricultural short-term loan at 8.27% and agricultural middle term loan 49.09% and the total loan disbursed towards the agricultural activities are 57.36%. Similarly, the assessee also offered gold and other loans to its members who are all mostly agriculturists. Therefore giving loan to members could not be treated as an activity of doing the banking activities and on that score, the benefit could not be denied by the revenue. Similarly, the presence of nominal members, which is permitted under the provisions of the Kerala Co-operative Societies Act would not disentitle the assessee from claiming the said deduction u/s. 80P(2)(a)(i) of the Act. When the Kerala Co-operative Societies Act had permitted the nominal members as members of the assessee society, the revenue cannot deny the benefit granted under the provisions of the Act. In fact this issue came up for consideration before the Hon’ble Supreme Court in the judgment reported in 431 ITR 1 in the case of Mavilayi Service Co- operative Bank Ltd. v. CIT wherein the Hon’ble Supreme Court had granted the benefit of 80P(2)(a)(i) of the Act even though there were nominal members available in the said society.
Respectfully following the principles laid down by the Hon’ble Supreme Court, we are also of the view that the assessee is entitled for deduction u/s. 80P(2)(a)(i) of the Act, in the facts and circumstances of the case.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 26th August, 2025.