TMI Blog2018 (9) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the I.T.Act in respect of interest income that was received on such investments. - Decided in favour of assessee - ITA No.180/Coch/2018 - - - Dated:- 24-9-2018 - Shri Chandra Poojari, AM And Shri George George K, JM For The Appellant : Smt. A.S.Bindhu For The Respondent : Sri. Prasanth Srinivas ORDER Per George George K., JM This appeal at the instance of the Revenue is directed against the order of the CIT(A) dated 28.02.2018. The relevant assessment year is 2014-2015. 2. The solitary issue that is raised in this appeal 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 assessee is a primary agricultural credit society, 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 year under consideration, the assessment was completed by treating interest income received from investment with treasury and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of the Assessing Officer restored. 6. The learned Departmental Representative relied on the grounds raised in the memorandum of appeal. The learned AR, 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 perused the material on record. The solitary issue for our consideration is whether interest income received by the assessee on investments with sub-treasuries and banks was 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)(a)(i) of the I.T.Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 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 Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales 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 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 instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 activities of the banking as per the Banking Regulation Act. Since the assessee cooperative society is in the 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 considered the rival contentions and perused the orders of the authorities below. Hon'ble Jurisdictional High Court had remitted the appeal back to us with a clear direction to consider circular No.18/2015, dated 02.11.2015 and judgment of their lordship in the case of Chirakkal Service Co-operative Bank Ltd. vs. CIT 384 ITR 490. Circular No.18/2015, dated 02.11.2015 is reproduced hereunder:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, 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. v CIT (supra) had also decided on identical issue in favour of the assessees. The Hon ble High Court had held that co-operative societies engaged in providing credit facilities to its members had in course of business made investments with treasury, bank etc. and earned interest income, such income was eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. The rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgars struck a different note. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, ..... 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