Primary Agricultural Credit Society Entitled To Deduction U/s 80P Income Tax Act Even If They Give Loans To Members For Non-Agricultural Activities : Supreme Court

The Supreme Court has held that Cooperative Societies registered as primary agricultural credit societies are entitled to deductions under section 80P(2)(a)(i) of the Income-Tax Act,even when they may also be giving loans to their members which are not related to agricultureA bench comprising Justices RF Nariman, Navin Sinha and KM Joseph set aside the judgment of Kerala High Court (Full Bench) which had held that such societies are not entitled to the deduction under Section 80P when loans are given to members for non-agricultural purposes. The apex court observed that the judgment of the Kerala High Court Full Bench as "wholly incorrect"."Once it is clear that the co-operative society in question is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle the society in question from availing of the deduction", the judgment authored by Justice Nariman observed. The bench also observed that the giving of loans by a primary agricultural credit society to non-members is not illegal and held that the only effect of it is that profits attributable to such loans cannot be deducted under Section 80P."The distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted", the judgment of the SC said.Section 80P Income Tax ActSection 80P deals with deduction in respect of income of co-operative societies. The provision reads thus: 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), there 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. Sub-Section (2) states that the sums referred to in sub-section (1) shall be the following, namely:—(i) carrying on the business of banking or providing credit facilities to its members; the whole of the amount of profits and gains of business attributable to any one or more of such activities. Sub-Section (4) of 80P provides that the provisions 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.Kerala HC JudgmentsThe issue in this case was whether the appellant- primary agricultural credit societies are entitled to such deductions under section 80P(2)(a)(i) of the Income-Tax Act after the introduction of section 80P(4) of the IT Act by section 19 of the Finance Act, 2006 (21 of 2006) with effect from 01.04.2007.A Division Bench in Chirakkal Service Co-operative Bank Ltd. v. CIT (2016) 384 ITR 490 (Ker.),had held that once a Co-operative Society is classified by the Registrar of Co-operative Societies under the Kerala Act as being a primary agricultural credit society, the authorities under the IT Act cannot probe into whether agricultural credits were in fact being given by such societies to its members, thereby going behind the certificate so granted. It was held in Chirakkal that, since all the assesses were registered as primary agricultural credit societies, they would be entitled to the deductions under section 80P(2)(a)(i) read with section 80P(4) of the IT Act. The Full Bench of Justices PR Ramachandra Menon, Anil Narendran and Devan Ramachandran, in the judgment impugned in this appeal, while overruling the above case, held thus: In view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1] it cannot be contended that, while considering the claim made by an assessee society for deduction under section 80P of the IT Act, after the introduction of sub-section (4) thereof, the Assessing Officer has to extend the benefits available, merely looking at the class of the society as per the certificate of registration issued under the Central or State Co-operative Societies Act and the Rules made thereunder. On such a claim for deduction under section 80P of the IT Act, 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.Supreme Court's viewThe Supreme Court said that Section 80P is a "benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general" and hence it must be read "liberally and reasonably, and if there is ambiguity,in favour of the assessee".The Apex Court bench observed that the judgment in Citizen Cooperative Society Ltd. v. Asst. CIT, Hyderabad (2017) 9 SCC 364. does not hold that the assessing officer can go behind the...

Primary Agricultural Credit Society Entitled To Deduction U/s 80P Income Tax Act Even If They Give Loans To Members For Non-Agricultural Activities : Supreme Court

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