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Facts
The assessee, a cooperative society, claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer (AO) and the Commissioner (Appeals) denied this deduction, holding that the society was not a primary agricultural credit cooperative society as it extended credit facilities for non-agricultural purposes. The assessee filed appeals against these orders.
Held
The Tribunal, relying on the Apex Court's decision in Mavilayi Service Co-Operative Bank Ltd. vs. CIT, held that Section 80P is a benevolent provision and should be interpreted liberally in favor of the assessee. It was clarified that Section 80P(4) only excludes co-operative banks with RBI licenses engaged in banking business with the public, not primary credit societies. Therefore, the restriction of credit facilities solely to agricultural purposes was not legally sustainable for claiming deduction under Section 80P(2)(a)(i).
Key Issues
Whether the assessee cooperative society is eligible for deduction under Section 80P(2)(a)(i) even if it extends credit facilities for non-agricultural purposes.
Sections Cited
80P(2)(a)(i), 80P(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SOUNDARARAJAN K, JM
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI SOUNDARARAJAN K, JM 478 to 480/Coch/2025 Assessment Years : 2020-21, 2016-17 to 2018-19 The Pavaratty Service Co-op. .......... Appellant Bank Ltd. No. 3918, Pavaratty, Thrissur, Kerara [PAN: AADAT 2483 J] vs. Income Tax Officer, .......... Respondent Ward-2, Guruvayur Appellant by: Shri Ramdas M, CA Respondent by: Smt. Leena Lal, Sr. DR Date of Hearing: 04.08.2025 Date of Pronouncement: 08.08.2025 O R D E R Per: Inturi Rama Rao, AM These appeals filed by the assessee are directed against separate orders of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 21.03.2025 for Assessment Years (AY) 2020-21, 2016-17 to 2018-19. 2. Since identical facts and issues involved in all these appeals, these appeals heard together and disposed of vide this common order.
479-480/Coch/2025 M/s. The Pavaratty Service Co-op. Bank Ltd.
For the sake of convenience, facts relevant to the A.Y. 2017-18 in ITA No. 479/Coch/2025 are stated herein.
Brief facts of the case are that appellant is a cooperative society registered under Kerala Co-operative Societies Act, 1969. It is classified as primary agricultural credit cooperative society. It is engaged in the business of accepting deposits from members and providing credit facilities to its members. The return of income for the A.Y. 2017-18 was filed on 31/03/2018 disclosing nil income after claiming 80P(2)(a)(i) of the Income Tax Act, 1961 (for short, 'the Act'). Against the said return of income, the assessment was completed by the ITO, Ward-2, Guruvayoor (for short, 'AO') vide order dated 10/11/2019 by denying deduction for claim u/s. 80P(2)(a)(i) by holding that it is not a primary agricultural credit cooperative society as the credit facilities was not provided to its members for agricultural purposes alone.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, the assessee is in appeal before the Tribunal in the present appeal. 7. At the outset, we find that there is a delay of 28 days in filing the appeal. The assessee filed affidavits seeking condonation of delay on the ground the orders passed by the NFAC u/s. 250 of the Act were served on the appellant on 21/03/2025 through email went to spam folder, and the appellant has come to know about the order 479-480/Coch/2025 M/s. The Pavaratty Service Co-op. Bank Ltd. passed by the NFAC only on the verification of Income Tax portal. Thereafter the appellant immediately filed the appeal without any further delay. Since the averments made in the affidavit remain uncontroverted by the Department, we are of the considered opinion, it is a fit case to condone the delay. Accordingly, we condone the delay of 28 days and admit the appeal for adjudication on merits.
We have heard the rival submissions and perused the material on record. The issue in the present appeal relates to eligibility of the appellant cooperative society for deduction u/s. 80P(2)(a)(i) of the Act. The AO as well as learned CIT(A) denied the claim solely on the ground that the appellant is extending the credit facilities to its members for non-agricultural purposes also. The Hon'ble Apex Court in the case of Mavilayi Service Co-Operative Bank Ltd vs. CIT [2021] 431 ITR 01 (SC) wherein it has been held as under:-
“45. To sum up, therefore, the ratio decidendi of Citizen Co- operative 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 co-operative 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 479-480/Coch/2025 M/s. The Pavaratty Service Co-op. Bank Ltd. 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. v. CIT [1997] 11 SCC 287 referred to section 80P of the IT Act and then held: "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: "2. (n) 'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;"" Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).”
In view of the dictum laid down by the Hon'ble Apex Court in the aforesaid referred to case, we are of the considered opinion that the reasoning of the lower authorities cannot be sustained in the eyes of law. Accordingly, we allow the appeal directing the AO to allow deduction u/s. 80P(2)(a)(i) of the Act to the appellant society.
In the result, appeal filed by the assessee stands allowed.
Our findings in the above appeal in shall apply mutatis mutandis to the appeals in ITA Nos. 448, 478 & 480/Coch/2025 also. 12. In the result, all appeals filed by the assessee stand allowed. Order pronounced on 08th August, 2025 under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.
Sd/- Sd/- (SOUNDARARAJAN K) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Cochin, Dated: 08th August, 2025 Vr/-.