The Tax Publishers2021 TaxPub(DT) 0273 (SC) : (2021) 431 ITR 0001

INCOME TAX ACT, 1961

Section 80P(2)(a)(i)

A primary agricultural credit society not eligible for banking license could not be treated as co-operative bank merely because one of its objects might be carrying on of business of banking. Therefore, such society was entitled to the benefit of deduction under section 80P(2)(a)(i) notwithstanding it might also be giving non-agricultural loans to members.

Deduction under section 80P(2)(a)(i) - Co-operative society - Denial in the hands of primary agricultural credit societies on the ground of negligible agricultural credits given by assessee's -

Assessee's, co-operative societies registered as 'primary agricultural credit societies', together with one 'multi-State co-operative society', claimed deduction under section 80P(2)(a)(i). AO denied deduction, relying upon section 80P(4), holding that as per Audited Receipt and Disbursal Statement furnished by assessee's, agricultural credits that were given by assessee-societies to the members were negligible, i.e., the credits given to such members were for purposes, other than agricultural credit. Full Bench of the Kerala High Court, by the impugned Judgment, dated 19-3-2019, referred to section 80P various provisions of Banking Regulation Act and the Kerala Act and held that main object of a primary agricultural credit society which existed at the time of its registration, must continue at all times, including for the assessment year in under consideration. Notwithstanding the fact that primary agricultural credit society was registered as such under Kerala Co-operative Societies Act, yet, AO must be satisfied that in particular assessment year its main object is, in fact, being carried out. If it was found that as a matter of fact agricultural credits amount to a negligible amount, then it would be open for AO, applying the provisions of section 80P(4), to state that as co-operative society in question - though registered as a primary agricultural credit society-was not, in fact, functioning as such, deduction claimed under section 80P(2)(a)(i) must be refused. Held: Section 80P being a benevolent provision enacted by Parliament to encourage and promote credit of co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of 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 revenue 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, limited object of which is to exclude co-operative banks that function at par with other commercial banks, i.e., which lend money to members of public. Thus, if Banking Regulation Act, 1949 is to be seen, what is clear from section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the said Act, which means accepting, for the purpose of lending or investment, of deposits of money from public. Likewise, under section 22(1)(b) of Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society would carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by RBI. As opposed to this, a primary agricultural credit society is a co-operative society, primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. As a matter of fact, some primary agricultural credit societies applied for a banking licence to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of business of banking. This was turned down by RBI. Clearly, therefore, once section 80P(4) was out of harm's way, all the assessee's entitled to the benefit of deduction under section 80P(2)(a)(i), notwithstanding that they might also be giving loans to their members which were not related to agriculture. Also, in case it is found that there were instances of loans being given to non-members, profits attributable to such loans obviously could not be deducted. Resultantly, impugned Full Bench judgment was set aside and appeals were directed to be placed before appropriate Benches of Kerala High Court for disposal on merits.

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