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TMI Blog2018 (1) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3.1 During the course of hearing of the appeal, the learned AR did not press issue No.(ii) viz., whether income of Rs. 64,925 received on account of sale of fertilizers amongst the agriculturists is eligible for deduction u/s 80P(2) of the income-tax Act. Hence the ground relating to deduction u/s 80P(2) of the Income-tax Act, with regard to the income on account of sale of fertilizers amongst the agriculturists is dismissed. 4. Briefly stated facts of the case are as follows: 4.1 The assessee is a primary agricultural credit society registered under the Kerala Cooperative Societies Act 1969. It is providing credit facilities to its members. For the assessment year 2007-2008, the assessments were completed u/s. 143(3) of the Act wherein, the claim of deduction u/s 80P(2) of the income-tax Act was denied by the Assessing Officer. The reason for denying the claim of deduction u/s 80P(2) of the Act was that the assessee was doing the business of banking and in view of insertion of sub section(4) to section 80P of the Income-tax Act, w.e.f. 01.04.2007, the assessee is not entitled to the benefit of section 80P(2) of the Income-tax Act. 5. Aggrieved by the order of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts with sub-treasury is liable to be assessed under the head 'income from other sources' or 'income from business'. If the same is to be assessed under the head 'income from business', the assessee would be entitled to deduction u/s 80P(2) of the I T Act, in respect of interest received on such investments. The assessee admittedly is providing credit facilities to its members. Section 5(b) of the banking regulation Act 1948 defines banking as 'the accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order, otherwise. Now the question is whether a cooperative society or a primary agricultural society can do banking business and whether by doing such an activity, it loses the eligibility for deduction u/s 80P(2) of the Income-tax Act. The Hon'ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamamitha vs ITO has clearly answered the issue. The Hon'ble High Court, after considering the amendment introduced by Finance Act 2006 w.e.f 1.4.2007 (insertion of section 80P(4) of the income-tax Act, had rendered the following findings: "Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is carrying on business of lending money to its members and therefore is covered u/s 80P(2) of the Act. The judgment of the Hon'ble Apex Court in the case of M/s Totgars Cooperative Sales Society Ltd. (supra) relied by the CIT(A) is distinguishable on facts. The Hon'ble Apex Court in the case of M/s Totgars Cooperative Sales Society Ltd (supra) was dealing with the case where the assessee apart from providing credit facilities to its members was also marketing agricultural produces grown by its members. Sale consideration received from the marketing of agricultural produce of its members was retained by the assessee in that case and was invested in short term deposits/securities. Such amount retained by assessee's society was shown as a liability in the balance sheet and therefore, to that extent interest income cannot be attributable neither to the activity mentioned in section 80P(2)(a)(i) or u/s 80P(2)(a)(iii) of the Act. This distinguishable feature has been taken note by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd in ITA No.307 of 2014 ( judgment dated 28th Oct 2014). The Hon'ble Karnataka High Court was considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore it is liable to be deducted in terms of Section 80P(l) of the Act. In tact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME- TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., reported in (2011) 200 TAXMAN 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order: Appeal is allowed." 7.4 The Cochin Bench of the Tribunal in the case of the Kizhathadiyoor Service Coop Bank Ltd., on identical facts has rendered a decision in favour of the assessee. The relevant finding of the Cochin Bench of the Tribunal in the case of Kizhathadiyoor Service Cooperative Bank (supra) in ITA No. 525/Coch/2014, read as follows: 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y/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 denying the benefit of section 80P(2) of the Act. It is ordered accordingly." 7.5 In view of the judgment of the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Coop Ltd (supra)and Cochin Bench of the Tribunal in the case of Service Coop Bank Ltd.,(supra), we are of the view that the assessee is entitled to the benefit of deduction u/s 80P(2) of the income-tax Act, with regard to interest received on deposits made by the assessee with sub treasury amounting to Rs. 3,30,866 for assessment year 2007-2008. It is ordered accordingly. 8. In the result, the appeal filed by the assessee is partly allowed. ITA No.585/Coch/2017 : Asst.Year 2013-2014 9. The only ground raised in ITA No.585/Coch/2017 is whether income of Rs. 2,01,617 received on account of sale of fertilizers amongst the agriculturists is eligible for deduction u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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