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The Kizhathadiyoor Service Coop Bank LTD. Versus The Income Tax Officer Ward 2 Kottayam

2016 (7) TMI 1405 - ITAT COCHIN

Eligibility deduction u/s 80P(2) - interest from treasury and banks - Held that:- In the instant case, the assessee is a cooperative Bank. The investment in treasury/banks and earning interest on the same is part of the banking activity of the assessee’s cooperative bank. Therefore, the said income is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, the Income Tax Authorities were not justified in treating interest income received by the assessee as ‘income from other source’ and d .....

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ts so far as it is prejudicial to the interests of the appellant; 2 The learned CIT(A) should have treated the appellant's income from investments amounting ₹ 8A2,219 as income from the business of banking eligible for deduction u/s 80P(2}{a}{i) instead of treating it as income from other sources. The CIT(A) should have followed the decision of the Cochin bench of ITAT in ITO vs. Muttom Service Co-operative Bank Ltd. (ITA No. 372/Coch/2010), wherein the jurisdictional ITAT held that th .....

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s decision of the Cochin bench of ITAT was followed by the Pune Bench of ITAT in ITO vs. Niphad Nagari Sahakari Patsanstha Ltd. (ITA NO. 1336/PN/2011). 3 The Learned CIT(A) should have noted that major portion of investment income was interest received from other co-operative societies, which is eligible for deduction u/s 80P(2}{d) of the Income Tax Act 1961. 4 For the above and other grounds, points and arguments that may be presented before or at the time of hearing of the appeal, it is submit .....

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tion u/s 80P(2)(a)(i) of the I T Act. The AO placed reliance on the judgment of the Hon ble Apex Court in the case of Totgar Cooperative Sale Society Ltd vs ITO reported in 322 ITR 283 in taking the above stand. The relevant findings of the AO in treating the interest income amounting to ₹ 8,42,219/- as income from other sources read as follows: It is also observed that apart from interest on loan it is getting interest from deposits with other banks. These cannot be categorized as providi .....

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other Source. However the assessee claimed that the investment income is also to be assessed as a income from banking. But this income is assessed as income from other source in view of the order of the Supreme Court in the case of Tot gar cooperative society limitedl.td (SLP Cno 7572 of2009) civil appeal no 1622 of2010 where it was held that interest on deposits with other banks and societies are to be assessed as income from other source and it will also not entitled to deduction under sectio .....

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on Act. It is not bound to deposit in any of the above organizations it at all there is an obligation it is to deposit in the District Cooperative societies. I therefore hold that the income from deposits in these societies is assessable under Other source. However only the net interest from deposits and investments amounting to ₹ 3,55,01,304/ is taxed under the head "Income from other sources". This is determined at ₹ 827510/- worked out in the following manner (3550130 x .....

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e CIT(A) reads as follows: 2.3 It is seen that deposits have been made with Sub-Treasury Meenachil, Kerala State Rubber Marketing Federation, Kerala State Consumer Cooperative Consumer Federation, FD with Treasury etc. The appellant submits that the ratio pronounced in the case of CIT vis. Navanshehar Central Cooperative Bank (2007) 289 ITR 6 (SC) is applicable, where it has been held that where a cooperative bank carrying on business of banking is statutorily required to place a part of its fun .....

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t required immediately for business purpose, from investment in short-term deposits and securities, has to be taxed as income from other sources such interest cannot be said to be attributable to the activities of the society, vis, carrying on the business of providing credit facility to its members or marketing of agricultural produce to its members. In the instant case although the appellant has tried to explain that the investment made by the assessee's cooperative society was statutorily .....

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the case of Totagar's Co-operative Society. 5 The assessee being aggrieved by the order of the CIT(A), is in appeal before us. The ld counsel for the assessee placed reliance on the ground raised in the memorandum of appeal. On the other hand, the ld DR placed reliance on the orders of the Income Tax Authorities. 7 We have heard the rival submissions and perused the material on record. The details of the total interest and how the AO had treated them as incomes from other sources are tabulat .....

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ank Ltd 0 Sun Total (1) 3,45,88,150/- Interest from Treasury and banks Sub treasury Meenachil 2,58,708/- The South Indian Bank Ltd 6,54,446/- State Bank of Travancore 0 Sub Total(2) 9,13,154/- Interest received Grand total (1) + (2)Rs. - (A) 3,55,01,304 Total receipts as shown in the assessment order Rs. - (B) 18,03,17,783/- Gross total income as per Assessment order Rs. - ( C) 42,02,695/- Percentage of interest received to total receipts (A)/(B)x100 - (D) 19.69% Income assessed as I come from o .....

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ssessed as income from other source. 7.2 As regards the interest from treasury and banks, we find on identical facts, the Cochin Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd in ITA No. 372/Coch/2010 had decided the matter in favour of the assessee. The Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Bank Ltd (supra) has distinguished the judgment of the Hon ble Apex Court in the case of Totgar s Cooperative Sale Society Ltd (supra). The rele .....

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or 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 co-operative 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. Admit .....

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