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TMI Blog2017 (7) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2012-13, the return of income was filed on 30.9.2012, by declaring 'nil' income after claiming the entire total income of Rs. 1,00,769/- as deduction u/s 80P of the I T Act. The assessment was taken up for scrutiny and the assessment u/s 143(3) was completed vide order dated 30.10.2014, wherein, the claim of deduction u/s 80P 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, the assessee is not entitled to the benefit of section 80P. 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 Act. However, with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove cases is not applicable to the appellant's case. The Hon. ITAT (Cochin Bench) in Muttom Service CoITA operative bank VS ITO has held that the decision of the Hon Supreme Court in Tortgar's Co-operative Sale Society VS. ITO is not applicable to Service Co-operative Banks as they are Co-operative societies carrying on the business of banking and not co-operative societies engaged in other activities like Tortgar's Co-operative Sale Society which is engaged in marketing the agricultural produce of the members. 4. On the above grounds and such other grounds as may be adduced at the time of hearing, it prayed that justice be done to the appellant by allowing the claim of deduction U/S 80P(2) for interest earned on investments in Sub Treasury." 6.1 The ld counsel for the assessee relied on the grounds of appeal. The ld DR, on the other hand, supported the order of the CIT(A). 7 I have heard the rival submissions and perused the material on record. The solitary issue for my consideration is whether interest received on investments with subtreasury is liable to be assessed under the head 'income from other sources' or 'income from business'. If the same is to be assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 development bank who do not have license from Reserve Bank of India to carry on the business of banking, is not a cooperative bank, hit by the provisions of section 80P(4) of the Act. The judgment of the Hon'ble jurisdictional High Court in the case of Chirakkal Service Co-op Bank Ltd (supra), is also in support of the assessee as regards the grant of 80P deduction. 7.2 In the instant case, the assessee do not posses any banking license from the Reserve Bank of India and is not 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) rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are 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 had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and 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 INCOMETAX III, HYDERABAD VS. ANDHRA PRADESH STAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 treasury small savings fixed deposit certificate scheme is a banking activity, therefore, the interest accrued on such investment has to be treated as business income in the course of its banking activity. Once it is a business income, the assessee is entitled for deduction u/s 80P(2)((a)(i). therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Cooperative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Cooperative Bank (supra), the order of the Commissioner of Income-tax(A) is upheld." 7.3 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 Au ..... X X X X Extracts X X X X X X X X Extracts X X X X
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