Decided on July 31,2014

Pinarayi Service Co -Operative Bank Ltd. Appellant


Chandra Poojari, Member (A) - (1.) THESE cross appeals filed by different assessees and revenue are directed against the orders of the Ld. CIT(A), Kozhikode for different assessment years. The common ground in all these appeals and CO. No. 05/Coch/2014 is with regard to allowability of deduction u/s. 80P(2) and 80P(2)(d) of the I.T. Act. 1.1 The brief facts of the cases are that the lower authorities denied the claim of the assessees for deduction u/s. 80P of the Act. The primary object or principal business of the assessee is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities. Since the assessees provided only nominal amount of loan for agricultural purposes; these assessees are not treated as primary agricultural credit societies (PACS). Since the assessee are doing banking business and these assessees are treated as co -operative banks, the assessees are not granted deduction u/s. 80P of the I.T. Act. Against this all these assessees are in appeal before us.
(2.) THE Ld. AR submitted that in the return of income filed, the assessee had claimed deduction u/s. 80P(2)(a)(i) on income earned by the assessee in the activity of providing credit facility to members. The Assessing Officer disallowed the claim of deduction. According to the Assessing Officer the assessee is a co -operative bank and at the same time it is not a Primary Agricultural Credit Society and therefore the provisions of sub -section (4) of sec. 80P would apply. Accordingly he denied the benefit of deduction u/s. 80P to the assessee. On appeal CIT(A) confirmed the decision of the Assessing Officer. Section 80P as amended by Finance Act, 2006 reads as under: "Deduction in respect of income of co -operative societies 80P. (1) where, in the case of an assessee being a co -operative society, the gross total income includes any income referred to in sub -section (2), they shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub -section (2), in computing the total income of the assessee. (2) The sums referred to in sub -section (1) shall be the following, namely: - - (a) in the case of a co -operative society engaged in - - (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchases of materials and equipment in connection therewith for the purpose of supplying them to its members the whole of the amount of profits and gains of business attributable to any one or more of such activities: (3)........... (4) The provision of this section shall not apply in relation to any co -operative bank other than a primary agricultural credit society or a primary co -operative agricultural and rural development bank. Explanation. - -For the purposes of this sub -section, - (a) "co -operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) "primary co -operative agricultural an rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long -term credit for agricultural and rural development activities."
(3.) THE sub -clause (i) of clause (a) of sub -section (2) of section 80P given above speaks of two incomes i.e., income from banking and income from providing credit facility to members. As per the newly introduced sub section 4, the provision of section 80P shall not apply in relation to any co -operative bank other than a primary agricultural credit society, or a primary co -operative agricultural and rural development bank. Thus the restriction u/s. 80P(4) is applicable only to co -operative banks and what has become taxable as per the amendment is the income from banking mentioned in the first part of 80P(2)(a)(i). The restriction in sub -section 4 does not apply to any other Co -operative Institutions which are not banks. Hence all other co -operative societies such as consumer co -operatives, housing co -operatives etc. are still eligible for deduction u/s. 80P(2)(a)(i) for their income from providing credit facility to their members. Now the question is whether the assessee is a bank other than primary agricultural credit society.;

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