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TMI Blog2019 (1) TMI 948X X X X Extracts X X X X X X X X Extracts X X X X ..... bank etc. and earned interest income, such income was eligible for deduction u/s 80P(2)(a)(i) - decided against revenue - ITA No.435/Coch/2018, ITA No.499/Coch/2018 - - - Dated:- 16-1-2019 - Shri Chandra Poojari, AM Shri George George K, JM For the Appellant : Smt. A.S.Bindhu For the Respondent : Sri.M.K.Kuruvilla ORDER PER GEORGE GEORGE K. (JM) These appeals at the instance of the Revenue are directed against separate orders of the CIT(A). Since common issue is raised in these appeals, they were heard together and are being disposed off by this consolidated order. 2. The solitary issue that is raised in these appeals is whether the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received by the assessee on investments made with Sub-Treasuries, Banks etc. 3. Brief facts of the case are as follows:- The assessees are primary agricultural credit societies, registered under the Kerala Co-operative Societies Act, 1969. It is carrying on the business of banking / providing credit facilities to its members. For the assessment years under consideration, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmunication received from the office of the PCCIT, Kochi on 13/12/2016, it has been informed that the department has filed SLP before SC in the case of M/s Karakulam Service Cooperative Bank Ltd., and the judgment is awaited. 5. For these and other grounds that may be advanced at the time of hearing, the order of the learned Commissioner of Income tax (Appeals) on the above points may be set aside and that of the Assessing Officer restored. 6. The learned Departmental Representative relied on the grounds raised in the memorandum of appeal. The learned ARs, on the other hand, submitted that the issue in question is squarely covered in favour of the assessee by the following judicial pronouncements :- (i) CIT v. Karnataka State Co-operative Bank [251 ITR 194 (SC)] (ii) Vaveru Co-operative Rural Bank Ltd. v CIT [(2017) 396 ITR 371 (The Telungana And Andhra Pradesh High Court) (iii) Muttom Service Co-operative Bank Ltd. (ITA No.372/Coch/2010) (iv) Mundakkayam Service Co-operative Bank Ltd. (ITA No.106/Coch/2016). (v) The Mangalam Service Co-operative Bank Ltd. v. ITO (ITA No.495/Coch/2017 order dated 17.10.2017) 7. We have heard the rival submissions and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Banking Regulation Act includes the primary agricultural credit society or a primary cooperative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary cooperative agricultural and rural development bank. They did not want to extend the said benefit to a Cooperative bank which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, as the assessee is not a Co- operative bank carrying on excursively banking business and as it does not possess a licence from Reserve Bank of India to carry on business, it is not a Cooperative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(1) to such society, Therefore, there was no error committed by the Assessing Authority. The said order was not prejudicial to the interest of the Revenue. The condition precedent for the commissioner to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning interest income and consequently passed a perverse order? 7.3 In answering the above question of law, the Hon ble Karntaka High Court distinguished the judgment of the Apex Court in the case of Totgars Cooperative Sales Society Ltd (supra) and rendered the following findings: 9. In this context when we look at the judgment of the Apex Court in the case of M/s Totgars Cooperative Sales society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, deposit/ security. was invested In a short-term Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Muttom Service Cooperative Bank Ltd (supra) read as follows: 5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totgar s Co-operative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co-operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar s Co-operative Sale Society Ltd vs ITO (supra), the assessee cooperative society was to provide credit facility to its members and market the agricultural produce. The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in Totgar s Co-operative Sale Society Ltd (supra) is not applicable in respect of the co-operative society whose business is banking. Admittedly, the assessee has invested funds in state promoted treasury small savings fixed deposit scheme. Since Government of India has withdrawn India Vikas Patra, as a small savings instrument, funds invested at the discretion of the bank is one of the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove appeals is entitled to deduction u/s 80P(2) for interest received as investment with sub-treasury. It is ordered accordingly. 10 To sum-up, the appeals of the assessee s are allowed. 7.1 In view of the above orders of the Tribunal, we are of the view that the assessees are entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received on investments made with sub-treasuries and banks. 7.2 Before concluding, it is to be mentioned that the order of the Cochin Bench of the Tribunal in the case of M/s.Mutholy SCB Ltd. v. ITO [ITA No.11/Coch/2014 order dated 24.09.2014] which was relied on by the learned AO, was set aside by the Hon ble High Court and was remitted to the Tribunal for de novo consideration. Subsequent to the remand, the Tribunal vide its order dated 23.03.2017 decided the issue in favour of the assessee by holding that interest income received on investments with sub-treasuries and cooperative banks was entitled to the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. The relevant finding of the Tribunal subsequent to the remand by the Hon ble High Court (order dated 23.03.2017) reads as follows:- 4. We have con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced above has accepted the judgment of Hon'ble Apex Court in the case of CIT vs. Nawanshahar Central Cooperative Bank Ltd 289 ITR 6, as correct for cooperative societies /banks claiming deduction u/s. 80P(2)(a)(i) of the Act. In other words, the Board has taken a view that interest earnings of a cooperative society which was having as its primary business, providing credit facilities to its members who were agriculturists, could be considered under the head income from business and not from income from other sources. Similar view was taken by the Co-ordinate Bench in the case of The Kizathadiyoor Service Cooperative Bank Ltd vs. ITO (in ITA No.525/Coch/2014) dated 20.07.2016. In the circumstances, we are of the opinion that assessee has to succeed in this appeal. Interest earned by the assessee from its deposits placed in Sub-Treasury and banks are eligible for deduction u/s. 80P(2)(a)(i) of the Act. Ordered accordingly. 5. In the result, the appeal of the assessee stands allowed. Order pronounced in the open court on 23-03-2017. 7.3 The latest judgment of the Hon ble Telangana Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same pedestal. The section confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit. 34. The case before the Supreme Court in Totgars was in respect of a Co-operative Credit Society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the Society. It is also found from Paragraph-3 of the decision of the Karnataka High Court in Totgars that the business activity other than marketing of the agricultural produce actually resulted in net loss to the Society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in Clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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