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Supreme Court Clarifies Eligibility for Section 80P Deduction under IT Act

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LI Network

Published on: 15 September 2023 at 15:41 IST

The Supreme Court has overturned a judgment by the Kerala High Court, affirming that the Kerala State Co-operative Agricultural and Rural Development Bank Ltd. is eligible for Section 80P deduction under the Income Tax Act.

The Supreme Court clarified that the Assessee in question is not a cooperative bank under the Banking Regulation Act, 1949, and thus, qualifies for the benefits of deduction under Section 80P of the Income Tax Act, 1961.

The two-judge bench consisting of Justice B.V. Nagarathna and Justice Ujjal Bhuyan emphasized that the Assessee operates as an apex cooperative society under the Kerala State Co-operative (Agricultural and Rural Development Banks) Act, 1984. It is not classified as a cooperative bank as defined by the Banking Regulation Act, 1949.

The Court’s ruling underscores that the Assessee’s primary objective is to provide financial assistance to its members, who are other cooperative societies, rather than the general public. This distinction is crucial in determining its eligibility for Section 80P deduction.

The Supreme Court delved into the definition of a “cooperative bank” as per Section 56 of the Banking Regulation Act, 1949, in conjunction with Section 2(u) of the NABARD Act, 1981.

The Court clarified that only a state cooperative bank, upon obtaining a license under Section 22 of the Banking Regulation Act, 1949, would fall within the scope and meaning of a banking company under Section 2(c) of the same Act.

The Supreme Court’s decision underscores that, according to the relevant statutory provisions under the Banking Regulation Act, NABARD Act, and Kerala State Acts, the Assessee does not meet the criteria for a cooperative bank as defined in Section 80P(4). Instead, it is categorized as a cooperative society primarily focused on providing financial assistance to its cooperative society members, not the general public.

The Court referred to the Citizen Co-operative Society case, highlighting that when an Assessee is entitled to avail the deduction, the entire amount of profit and gains of business attributable to activities mentioned in Section 80P(2) is eligible for deduction.

Section 80P(4) specifically excludes cooperative banks, which the Assessee is not, leading to the Supreme Court’s decision to allow the Assessee’s appeal.