Assessee v. I.t.appeal

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI FRIDAY, THE 07TH DAY OF JUNE 2019 / 17TH JYAISHTA, 1941 ITA.No. 55 of 2019 AGAINST THE ORDER IN ITA NO.144/Coch/2018 of I.T.A.TRIBUNAL,COCHINBENCH DATED 23.07.2018 APPELLANT/RESPONDENT/REVENUE: THE PRINCIPAL COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM BY ADVS.SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENTSRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/APPELLANT/ASSESSEE: M/S.KUNDAYAM SERVICE CO-OPERATIVE BANK LTDPATHANAPURAM, KOLLAM – 689 695 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10.04.2019,THE COURT ON 07.06.2019 DELIVERED THE FOLLOWING: C.K.ABDUL REHIM & R.NARAYANA PISHARADI, JJ. ************************** I.T..A.No.55 of 2019 ---------------------------------------------- Dated this the 7[th] day of June, 2019 J U D G M E N T R.Narayana Pisharadi, J This appeal is filed by the revenue against the order dated23.07.2018 of the Income Tax Appellate Tribunal, Cochin Benchin I.T.A.No.144/Coch/2018. 2.The respondent/assessee is a Primary AgriculturalCredit Society registered under the Kerala Co-operativeSocieties Act, 1969. It is a society engaged in banking as wellas providing credit facilities to its members. The issue in thisappeal relates to assessment of income tax for the assessmentyear 2014-2015 in respect of the society. 3.The Assessing Officer treated the income derived bythe assessee by way of interest from loans and advances madeby it as not eligible for deduction under Section 80P(2)(a)(i) ofthe Income Tax Act, 1961 (hereinafter referred to as 'the Act')on the ground that the assessee is not a society as envisaged under Section 80P(4) of the Act and passed assessment orderaccordingly. 4.The assessee challenged the aforesaid order of the Assessing Officer by filing appeal before the Commissioner ofIncome Tax (Appeals). The Appellate Authority allowed theappeal filed by the assessee and deleted the amount of incomeearned by it as interest from loans and advances from thetaxable income by granting deduction under Section 80P(2)(a)(i) of the Act. 5.Aggrieved by the aforesaid order of theCommissioner of Income Tax (Appeals), the revenue filedappeal before the Income Tax Appellate Tribunal, Cochin Bench.The Tribunal held that the assessee is entitled to the benefit ofdeduction under Section 80P(2) of the Act and dismissed theappeal filed by the revenue. The aforesaid order of the Tribunalis challenged in this appeal. 6.The substantial question of law that arises forconsideration in this appeal is whether the Tribunal is justified inholding that the classification of "Primary Agricultural CreditSociety" made by the competent authority under Kerala Co-operative Societies Act, 1969 is binding on the authoritiesunder the Income Tax Act for determining the eligibility for deduction under section 80P(4) of the Income Tax Act. 7.Heard learned counsel for the revenue as well as the assessee. 6.The substantial question of law that arises forconsideration in this appeal is whether the Tribunal is justified inholding that the classification of "Primary Agricultural CreditSociety" made by the competent authority under Kerala Co-operative Societies Act, 1969 is binding on the authoritiesunder the Income Tax Act for determining the eligibility for deduction under section 80P(4) of the Income Tax Act. 7.Heard learned counsel for the revenue as well as the assessee. 8.The Assessing Officer has declined to treat theincome derived by the assessee by way of interest from loansand advances made by it as eligible for deduction under Section80P(2)(a)(i) of the Act on the ground that the assessee is not asociety as envisaged under Section 80P(4) of the Act. TheAssessing Officer has found that enquiry can be conducted intothe factual situation whether the assessee is conductingbusiness as a Primary Agricultural Credit Co-operative Societyand that the benefit under Section 80P(2) of the Act cannot begranted merely on the basis of the registration certificate issuedto the assessee under the Kerala Co-operative Societies Act,1969. The Appellate Authority relied upon the decision of thisCourt in Chirakkal Service Co-operative Bank Ltd v.Commissioner of Income Tax : 2016(2) KLT 535 and foundthat the assessee being a Primary Agricultural Credit Co-operative Society registered under the Kerala Co-operativeSocieties Act is entitled for deduction under Section 80P(2)(a)(i)of the Act and that the assessee cannot be treated as a PrimaryCo-operative Bank. The order of the Appellate Authority is confirmed by the Income Tax Appellate Tribunal on the basis ofthe decision of this Court in Chirakkal Service Co-operativeBank Ltd (supra). 9.Section 80P of the Act deals with deduction inrespect of income of co-operative societies. Sub-section (1) ofthat section provides that where, in the case of an assesseebeing a co-operative society, the gross total income includesany income referred to in sub-section (2) of that section, thereshall be deducted, in accordance with and subject to theprovisions of Section 80P, the sums specified in sub-section (2)thereof, in computing the total income of the assessee. Sub-section (4) of Section 80P provides that the provisions ofSection 80P shall not apply in relation to any co- operative bankother than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. 10.In Chirakkal Service Co-operative Bank v.Commissioner of Income Tax : 2016 (2) KLT 535, aDivision Bench of this Court had held that societies having beenclassified as Primary Agricultural Credit Societies by thecompetent authority under the Kerala Co-operative SocietiesAct, it has necessarily to be held that the principal object ofsuch societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rateof interest on such loans and advances to be at the rate to befixed by the Registrar of Co-operative Societies and having itsarea of operation confined to a village, panchayat or amunicipality and as such, they are entitled for the benefit ofsub-section (4) of Section 80P of the Act to ease themselvesout from the coverage of Section 80P and that the authoritiesunder the Act cannot probe into any issues or such mattersrelating to such societies and that the Primary AgriculturalCredit Societies registered as such under the Kerala Co-operative Socities Act and classified so under that statute, areentitled to such exemption. 9.Chirakkal (supra) now stands overruled by thedecision of the Full Bench of this Court in Mavilayi Service Co-operative Bank Limited v. Commissioner of Income Tax : 2019 (2) KHC 287, in which it has been held as follows: 9.Chirakkal (supra) now stands overruled by thedecision of the Full Bench of this Court in Mavilayi Service Co-operative Bank Limited v. Commissioner of Income Tax : 2019 (2) KHC 287, in which it has been held as follows: “In view of the law laid down by the Apex Courtin Citizen Co-operative Society v. AssistantCommissioner of Income Tax: AIR 2017 SC 5147,it cannot be contended that, while considering theclaim made by an assessee society for deductionunder Section 80P of the IT Act, after theintroduction of sub-section (4) thereof, theAssessing Officer has to extend the benefits available, merely looking at the class of thesociety as per the certificate of registration issuedunder the Central or State Co -operative SocietiesAct and the Rules made thereunder. On such aclaim for deduction under Section 80P of the ITAct, the Assessing Officer has to conduct anenquiry into the factual situation as to theactivities of the assessee society and arrive at aconclusion whether benefits can be extended ornot in the light of the provisions under sub-section(4) of Section 80P”. The Full Bench has further held as follows: “ Moreover, the law laid down by the DivisionBench in Chirakkal is not good law, since, in viewof the law laid down by the Apex Court in CitizenCo-operative Society, on a claim for deductionunder Section 80P of the Income Tax Act, byreason of sub-section (4) thereof, the AssessingOfficer has to conduct an enquiry into the factualsituation as to the activities of the assesseesociety and arrive at a conclusion whetherbenefits can be extended or not in the light of theprovisions under sub-section (4) of Section 80P ofthe IT Act”. 10.In the light of the law laid down by the Full Bench of this Court in Mavilayi Service Co-operative Bank (supra), the matter has to be remitted to the Income Tax AppellateTribunal for fresh consideration by it in the light of the aforesaiddecision. The legal position with regard to the substantial question of law raised in this appeal is covered by the decisionin Mavilayi Service Co-operative Bank (supra) and thesubstantial question of law is answered in favour of therevenue. 11.Consequently, the appeal is allowed and the orderdated 23.07.2018 of the Income Tax Appellate Tribunal, CochinBench in I.T.A.No.144/Coch/2018 is set aside. The aforesaidappeal is remanded for fresh consideration and disposal by theTribunal in the light of the decision of the Full Bench of thisCourt in Mavilayi Service Co-operative Bank (supra). Nocosts in the present appeal. (sd/-) C.K.ABDUL REHIM, JUDGE (sd/-) jsr/15/05/2019 R.NARAYANA PISHARADI, JUDGE APPENDIX OF ITA 55/2019 PETITIONER'S EXHIBITS: ANNEXURE A TRUE COPY OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 OF THE ASSESSING OFFICER DATED 29/12/2016 . ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), TRIVANDRUM DATED 20.02.2018 ANNEXURE C A TRUE COPY OF THE ORDER OF THE ITAT IN ITANO.144/Coch/2018, FOR THE ASST.YEAR 2014-15DATED 23.07.2018 RESPONDENT'S EXHIBITS: NIL TRUE COPY PS TO JUDGE