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TMI Blog2022 (7) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P(2)(a)(i) of the Act to the Assessee. The Assessee is a society registered under the Karnataka Co-operative Societies Act, 1959. In the return of income filed for the relevant AYs, the Assessee claimed deduction u/s.80P(2)(a)(i) of the Act. According to the Asessee it did not have license to carry on any banking business under the Banking Regulation Act, 1949. It was engaged in marketing agricultural produce of its members, providing credit facility to its members, sale and distribution of fertilizers, pesticides, agricultural equipment, farm products, providing warehousing facilities for storing agricultural produce. 3. The AO denied the benefit of deduction to the Assessee by applying the provisions of Sec.80P(4) of the Act and the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction under Section 80P when the section was originally introduced. However, as Section 22 of the Regional Rural Bank Act provides that a RRB shall be deemed to be co-operative society for the purposes of the Income-tax Act, 1961, in order to make such banks eligible for deduction under Section 80P, CBDT issued a beneficial Circular No. 319 dated 11-1-1982, which stated that for the purpose of Section 80P, a Regional Rural Bank shall be deemed to be a cooperative society. Section 80P was amended by the Finance Act, 2006, with effect from 1 -4-2007 introducing sub-section (4), which laid down specifically that the provisions of Section 80P will not apply to any co-operative bank other than a Primary Agricultural Credit Society or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore be said that a co-operative society which does not possess a license from RBI cannot be equated to a co-operative Bank, even though it might indulge in the business of banking. In this case the AO adopted the definition of co-operative Bank as given in the Banking Regulation Act, 1949, ignoring the specific exclusions given in Sec.80P(4) of the Act. The CBDT circular referred to above is also not applicable to the Assessee as it cannot be said to be a Regional Rural Bank. 8. In COMMISSIONER OF INCOME TAX AND ANOTHER vs. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT(2014) 369 ITR 0086 (Karn), the Hon'ble Karnataka High Court held: "8. In the assessment order, the Assessing authority has clearly stated that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and 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." Therefore, the intention of the legislature is clear. If a Co-operative Bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank Ltd. v. CIT 2021 TaxPub(DT) 273 (SC) : (2021) 431 ITR 1 (SC) while delivering the judgment in favour 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being given to non-members, profits attributable to such loans obviously could not be deducted." 11. The Hon'ble Supreme Court held that section 80P being a benevolent provision must be read liberally and reasonably and in case of any ambiguity it must be interpreted in favour of the assessee. Supreme Court observed that section 80P(2)(a)(i) which covers a co-operative society engaged in the business of banking or providing credit facilities to its members does not require that the assessee has to be a primary agricultural credit society. The Hon'ble Supreme Court noted that section 80P(2)(a)(i) does not require that the society has to give agricultural credit only. It further observed that once the co-operative society provides c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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