Supreme Court allows 80P Deduction Benefit under Income Tax Act to Kerala State Cooperative Agricultural and Rural Development Bank [Read Judgement]

In a landmark ruling, the Supreme Court bench, composed of Justice B.V. Nagarathna and Justice Ujjal Bhuyan, has granted the Kerala State Cooperative Agricultural and Rural Development Bank (KSCARDB) the 80P deduction benefit under the Income Tax Act, 1961.

In a brief, the appellant/assessee,  Kerala State Cooperative Agricultural and Rural Devt Bank is a State-level Agricultural and Rural Development Bank governed by the Kerala Co-operative Societies Act, 1969, and primarily involved in providing credit facilities to its members, who are themselves cooperative societies.

The crux of the matter was whether the appellant, as a cooperative society, could claim the deduction of its profits and gains derived from banking or providing credit facilities to its cooperative society members under Section 80P of the Income Tax Act.

The Kerala Co-operative Societies Act, 1969 unified cooperative society regulations in the state, and the appellant was registered and regulated under this act. Additionally, the appellant was governed by the Kerala State Cooperative Agricultural Development Banks Act, 1984, aimed at enhancing the efficiency of co-operative agricultural and rural development banks in Kerala.

The appellant filed its income tax return for the Assessment Year 2007-08, claiming a deduction under Section 80P(2)(a)(i) of the Income Tax Act. However, the Assessing Officer disallowed the deduction, deeming the appellant a cooperative bank under the amended Section 80P(4), which rendered it ineligible for the benefit.

The case moved through various authorities, including the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, with differing opinions on the appellant's status. The Kerala High Court eventually dismissed the appellant's appeal, leading to a Special Leave Petition (SLP) in the Supreme Court.

The senior counsel for the appellant argued that Section 80P(4) was an exception and did not apply to them as they were a cooperative society providing credit facilities to cooperative societies, not a cooperative bank.

The appellant does not hold any licence as per Section 22 of the BR Act, 1949 and in fact such a licence is not required for the appellant to conduct its business as the appellant is not conducting banking business within the meaning of BR Act, 1949. Therefore, the appellant bank does not come under the provisions of Chapter V of the BR Act, 1949. It was submitted that the Reserve Bank of India reports and the RTI replies categorically indicate that the appellant is not included under the scope of the provisions of the RBI Act, noted the Court.

After considering all the relevant statutory provisions, the bench observed that “The appellant is a co-operative credit society under Section 80P(2)(a)(i) of the Act whose primary object is to provide financial accommodation to its members who are all other co-operative societies and not members of the public.”

The apex court stated that “In the instant case, although the appellant society is an apex cooperative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of Section 5(b) read with Section 56 of the BR Act, 1949. In the result, the appeals filed by the appellant are allowed and the order(s) of the Kerala High Court and other authorities to the contrary are set aside. Consequently, we hold that the appellant is entitled to the benefit of deduction under Section 80P of the Act”.

The Supreme Court also directed that the Reserve Bank of India revoke the banking licence granted to the appellants as it does not carry on the activities of banking and the state declaration related to the appellant as Cooperative Bank was already struck down.

To Read the full text of the Order CLICK HERE

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