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The Padne Service Cooperative Bank Limited Versus The Income Tax Officer

2018 (1) TMI 602 - ITAT COCHIN

Entitlement to deduction u/s 80P(2) in respect of interest received on deposits with Sub-Treasuries - whether interest received on investments with sub-treasury is liable to be assessed under the head ‘income from other sources’ or ‘income from business’ - Held that:- In view of the judgment of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Coop Ltd (2015 (2) TMI 995 - KARNATAKA HIGH COURT) and Cochin Bench of the Tribunal in the case of Service Coop Bank Ltd.,( .....

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r.DR ORDER Per George George K., JM These appeals at the instance of the assessee are directed against the consolidated order of the CIT(A) dated 29.06.2017. The relevant assessment years are 2007-2008 and 2013-2014. 2. Since common issue is raised in these appeals, they were heard together and are being disposed off by this consolidated order. We shall first adjudicate ITA No.584/Coch/2017 concerning assessment year 2007-2008. ITA No.584/Coch/2017 : Asst Year 2007-2008 3. Two issues are raised .....

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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 .....

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. 5. Aggrieved by the order of the Assessing Officer denying the benefit of deduction u/s 80P(2) of the Act, the assessee preferred appeal to the first appellate authority. The CIT(A), following the judgment of the Hon ble jurisdictional High Court in the case of Chirakkal Service Co-op Bank Ltd vs CIT reported in 384 ITR 490, allowed the claim of deduction u/s 80P(2) of the income-tax Act. However, with regard to interest received on deposits with Sub Treasury, amounting to ₹ 3,30,886, th .....

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08 and ₹ 5,346/- in A.Y. 2011-12 on treasury deposits and claimed these amounts as deduction under section 80P of the Income Tax Act. However, the Hon ble Supreme Court has held in the case of M/s Tatgars Co-operative Sale Society Ltd. v. Income Tax Officer (322 ITR 283) that - such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P2)(a)(iii) of the Act. 7.1 Respectfully following the above decision, the i .....

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e Cochin Bench of the Tribunal in the case of M/s.Kuttiatoor Panchayath Service Co-operative Bank Ltd. v. ITO & Ors. In ITA No.226 & 227/Coch/2017 & Ors., order dated 1st December, 2017. The learned Departmental Representative, on the other hand, supported the orders of the CIT(A) and the AO. 7. We have heard the rival submissions and perused the material on record. The solitary issue for our consideration is whether interest received on investments with sub-treasury is liable to be .....

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epayable 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 ame .....

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ultural 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 Co-operative 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 .....

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d by the Assessing Authority. The said order was not prejudicial to the interest of the Revenue. The condition precedent for the commissioner to invoke the power under Section 263 is that the twin condition should be satisfied. The order should be erroneous and it should be prejudicial to the interest of the revenue. 7.1 From the above judgment of the Hon ble Karnataka High Court, it is quite clear that a primary agricultural credit society or a primary cooperative agricultural and rural develop .....

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t exclusively carrying on any banking facility; but 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 .....

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istinguishable 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 following substantial question of law: Whether the Tribunal failed in law to appreciate that the interest earned on short term deposits were only investment in the course of activity or providing credit facilities to members and that the same cannot .....

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eme 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 .....

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confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was net the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they ha .....

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nying 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 .....

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of Totgar s Cooperative Sale Society Ltd (supra). The relevant finding of the coordinate Bench of the Tribunal in the case 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 Cooperative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of su .....

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he 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 activities of the banking as per the Banking Regulation Act. Since the assessee co-operative society is in the 4 ITA No.372/Coch/2010 business of banking the investment in the state promoted tr .....

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