A Co-operative Credit Society is eligible for the benefit of Section 80P(4) of the Income Tax Act: Madras HC [Read Judgment]

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The Madras High Court, in a recent decision declared that the Primary Agricultural Co-operative Credit Society is entitled to get exemption under section 80P(4) of the Income Tax Act, 1961. The Court was considering an appeal filed by the Revenue contending that such societies are outside the ambit of section 80P(4) of the Income Tax Act, 1961.

In the instant case, the assessee is a primary Agricultural Co-operative Credit Society, registered is under Tamil Nadu Co-operative Societies Act and is engaged in the business of banking and providing credit facilities to its members. The assessee used to invest its funds in CDCC Bank etc., to comply with the statutory obligations and received interest from such investments, which has been headed under “Income from other sources”. Therefore the assessee, claimed deduction in respect of its interest income and dividend income under Section 80P (2)(a)(i) & (d). the Assessing Officer maintained that all the co-operative banks other than primary agricultural credit society or a primary co-operative agricultural and rural development bank, become ineligible for exemption under section 80P(4).Therefore, the Assessing Officer decided that though the assessee society is a Primary Co-operative Society within the meaning of s.5 of the Banking Regulation Act, since carrying on the business of banking, it falls within the ambit of Primary Cooperative Society.

Before the Commissioner of Income Tax (Appeals), the assessee contended that the assessee society is not a primary credit society since it has not obtained any license from RBI and the business it carries is not banking as per the Banking Regulation Act. Being satisfied with the contentions of the assessee, the CIT(A) decided in their favor. The Revenue, therefore, preferred an appeal before the Tribunal, which was dismissed. Thereafter, the Revenue brought the case before the High Court for relief.

Before the High Court the Revenue contended that the deduction u/s 80P(4) is not allowable to a Primary Agricultural Credit Society, carrying on the business of banking.

The Court noticed that the Kerala High Court, has recently in Chirakkal Service Co-operative Bank Ltd., Kannur vs. the Commissioner of Income Tax, reported in (2016) 68 taxmann.com.298 (Kerala), considered similarsubstantial questions of law,regarding the entitlement for exemption under sub section (4) ofSection 80P. In this case, it was held thatthe primary agricultural credit societies, registered as such under the KCS Act and classified so under that Act, including the appellants, are entitled to such exemption.

Following the above decision, the division Bench dismissed the appeal and held that “The exception barred out in Section 80P (4) of the Income Tax Act, 1961, is applicable to the assessee credit society.”

Read the full text of the Judgment below.