TMI Blog2022 (8) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... par with other commercial banks and noted that as primary agricultural credit societies are not entitled for obtaining a banking license would not be hit by this provision. Assessee is entitled to deduction u/s.80P(2)(a)(i) of the Act as claimed and the same is directed to be allowed. Non deduction of tax at source on payment to pigmy agents - disallowance of those payments as expenses were made by the AO u/s.40(a)(ia) - plea of the Assessee before the Tribunal, that the said disallowance will only go to increase the income of the Assessee that is eligible for deduction u/s.80P(2)(a)(i) of the Act and deduction on the said enhanced income should be allowed - HELD THAT:- As revenue authorities erred in not allowing deduction u/s.80-P(2)(a)(i) of the Act on the income derived by the Assessee from providing credit facilities to its members as enhanced by the sum disallowed u/s.40(a)(ia) of the Act. The claim of the assessee in this regard is accepted and the AO is directed the give necessary relief to the assessee in this regard. Whether the rent income received by the Assessee from letting of Godowns is entitled to deduction u/s.80P(2)(e) of the Act ? - HELD THAT:- AO/CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit society have been taken as per the definition given in Part V of the Banking Regulation Act, 1949 (10 of 1949). The `primary co-operative agricultural and rural development bank have also been defined in the act to bring clarity. 5. Further, a new sub-section (viia) has also been inserted in clause (24) of Section 2 to provide that the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of income . 6. The CBDT vide Circular No. 6/2010 [F.No. 173(3)/44/2009-IT (A-I)] dated 20-9-2010 has also issued a circular for the sake of clarity the circular is reproduced as under Section 80P of the Income-tax Act, 1961 provides for a deduction from the income of co-operative societies referred to in that section. As Regional Rural Banks (RRB) are basically corporate entities (and not co-operative societies), they were considered to be not eligible 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 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 assessee is a Co-operative society and has not obtained any banking license. The business of the assessee is to provide credit facilities to its members. Since the assessee cannot carry on any banking business, the interest on investment is taxable as income from other source. Therefore, the aforesaid facts, which is not in dispute clearly establishes that it is not a Co-operative Bank. Infact, the Revisional Authority also in its order has categorically stated that the assessee is a Co-operative society, which provides credit facilities. Section 80P of the Act deals with the deduction of income of a society. In the case of any assessee being a Co-operative society, the whole of the amounts of profits and gains of business attributable to any of other activities refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Societies carrying on business of banking are therefore entitled to claim deduction u/s.80P(2)(a)(i). The AO/CIT(A) refused to follow the aforesaid decision of the Hon ble Karnataka High Court on the ground that SLP has been filed before the Hon ble Supreme Court against the said decision of High Court. 10. I am of the view that in the light of the decision of Hon ble High Court of Karnataka referred to above, the deduction u/s.80P(2)(a)(i) of the Act cannot be denied to the Assessee. The latest verdict by the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank 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 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit facility to its members, the fact that it also provides credit facility to non-members does not disentitle the society from availing of deduction. Supreme Court observed that the object of section 80P(4) was to exclude co-operative banks that function at par with other commercial banks and noted that as primary agricultural credit societies are not entitled for obtaining a banking license would not be hit by this provision. In the light of the law on the issue discussed above, I am of the view that the Assessee is entitled to deduction u/s.80P(2)(a)(i) of the Act as claimed and the same is directed to be allowed. 12. In the light of the law on the issue discussed above, I am of the view that the Assessee is entitled to deduction u/s.80P(2)(a)(i) of the Act as claimed and the same is directed to be allowed. 13. The other common issue that arises for consideration in the appeal for AY 2013-14 2014-15 is that for non deduction of tax at source on payment to pigmy agents, disallowance of those payments as expenses were made by the AO u/s.40(a)(ia) of the Act and that addition was partly sustained by the CIT(A). It is the plea of the Assessee before the Tribunal, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority on the ground that the assessee had failed to deduct tax at source under section 194C of I.T.Act? 6. Whether the Tribunal is justified in law in directing the assessing authority to allow deduction under section 10A in respect of amount disallowed under section 40(a)(ia) without appreciating the fact that the income enhanced on account of deeming provisions cannot be considered for the purpose of claiming benefit under the provisions of section 10A? 16. The Hon ble Karnataka High Court held as follows: 5. In so far as the substantial question of law Nos.5 and 6 are concerned, learned counsel for the Revenue submitted that the ITAT in its Order dated21.12.2012 has recorded the findings, the relevant portion of which is extracted below for ready reference:- 14. Having heard both the parties and having considered their rival contentions, we find that the disallowance u/s 40a (ia) is to be made of the expenses incurred and claimed by the assessee but before the payment of which, the assessee has failed to deduct tax at source. The genuineness of the expenditure is not in dispute. The dispute is whether TDS was to be made before making the payment. Without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 175 [Bom], wherein it is held thus: 13. By reason of the judgment of the Supreme Court in Commissioner of Income Tax v. Alom Extrusions Limited [2009] 319 ITR 306 the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the Assessing Officer has not, the Court is informed, been challenged by the assessee. As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards Provident Fund /ESIC and the only question which is canvassed on behalf of the Revenue is whether on that basis the Tribunal was justified in directing the Assessing Officer to grant the exemption under Section 10A. On this position, in the present case it cannot be disputed that the net consequence of the disallowance of the employer's and the employee's contribution is that the business profits have to that extent been enhanced. There w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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