TMI Blog2018 (10) TMI 1592X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and same is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. On identical facts, the Cochin Bench of the Tribunal in the case of The Azhikode Service Cooperative Bank Ltd. & Ors.[2017 (7) TMI 1138 - ITAT COCHIN] after considering all the judicial pronouncements had decided the issue in favour of the assessee. - ITA No.420/Coch/2018, ITA No.421/Coch/2018, ITA No.418/Coch/2018 And ITA No.419/Coch/2018 - - - Dated:- 25-10-2018 - Shri Chandra Poojari, AM And Shri George George K, JM For The Appellant : Smt. A.S.Bindhu, Sr.DR For The Respondent : None ORDER Per George George K., JM These appeals at the instance of the Revenue are directed against separate orders of CIT(A). The relevant assessment years are 2012-2013 and 2015-2016. 2. In the grounds raised, two issues are involved, viz., ( i) Whether the assessee is entitled to deduction u/s 80P(2) of the I.T.Act? ( ii) Whether the interest income received from investments with co-operative banks is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act? 3. Brief facts of the case are as follows:- The assessees are primary agricultural credit societies. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in concluding that the appellant being a Primary Agricultural Credit Cooperative Society registered under the Kerala Cooperative Societies Act is entitled for exemption of its entire income u/s 80P(2)(a)(i) as originally claimed and they cannot be treated as Primary Co-operative Bank so as to invoke the provisions of section 80P(4) of the Act. 1.1 It is respectfully submitted that the respondent is essentially, a Co- operative bank and not merely a primary agricultural credit Society and hence the allowance of deduction u/s 80P to the respondent assessee while computing the total income was irregular in nature and also against law. 1.2 The present appeal involves substantial question of law. ( i) The Ld.CIT(A) ought to have seen that the Honble Supreme Court in the case of Sabarkhanta Zilla Kharid Vechar Sangh Ltd. Vs CIT reported in 203 ITR 1027 (SC) has held that eligible deduction u/s 81(1)(d) (substituted by section 80P by Finance (No.2)Act, 1967 w.e.f. 01.04.1968) of the Income tax Act, 1961 in respect of co-operative societies/banks doing both agricultural and non agricultural activities should not be 100% of the gross profits and gains of business of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80P are not available to the assessees merely on the basis of professed agricultural credits: ( a) Rodier Mill Employees Co-operative Stores Ltd Vs CIT 135 ITR 355 (Mad) ( b) CIT Vs Kerala State Co-operative Marketing Federation Ltd (1998) 234 ITR 301 (Ker) ( c) Kerala State Co-operative Agricultural Rural Development Bank Ltd Vs ACIT (ITA No.506/Coch/ 2010 SP No.67/Coch/2010) 2. The Learned Commissioner of Income tax (Appeals), Trivandrum erred in concluding that the income which was brought to tax as income from other sources is exempted from tax by virtue of the provisions of section 80P(2)(d) and in deleting the amount, which was brought to tax as income from other sources . 2.1 While relying on the decision of Hon 'ble High Court in the case of Ottoor Service Co-operative Bank Ltd, the CIT(A) ought to have noticed that the matter is not reached finality in the said order as it is an order on writ petition on stay application, and not on the appeal on disallowance. Further, there is no findings or conclusions in the order, on this issue rather a prima facie observation. 2.2 While stating that, the Honble Supreme Court decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO v. The Chengala Service Co-operative Bank Ltd. [ITA No.434/ Coch/2017 Ors. order dated 05th April, 2018] , after elaborately considering all the judicial pronouncements had decided the issue in favour of the assessee. The Cochin Bench of the Tribunal had followed the dictum laid down by the Hon ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. Ors. (supra) . The relevant finding of the Cochin Bench of the Tribunal reads as follows:- 7. We have heard the rival submission and perused the material on record. The undisputed facts are that the assessees in these cases are primary agricultural credit societies, registered as such under the Kerala Co-operative Societies Act. The Hon ble jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Limited Ors. (supra) had categorically held in para 17 page 14 of the judgment that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. The Hon'ble High Court was considering the following substantial question of law: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 5 of the BR Act having regard to the primary object or principal business of each of the appellants. It is also clear from the materials on record that the bye-laws of each of the appellants do not permit admission of any other co-operative society as member, except may be, in accordance with the proviso to sub-clause 2 of section 5(cciv) of the BR Act. The different orders of the Tribunal which are impeached in these appeals do not contain any finding of fact to the effect that the bye- laws of any of the appellant or its classification by the competent authority under the KCS Act is anything different from what we have stated herein above. For this reason, it cannot but be held that the appellants are entitled to exemption from the provisions of section 8OP of the IT Act by virtue of sub-section 4 of that sect; on. In this view of the matter, the appeals succeed. 17. In the light of the aforesaid, we answer substantial question: A in favour of the appellants and hold that the Tribunal erred in law in deciding the issue regarding the entitlement of exemption under section 80P against the appellants. We hold that the primary agricultural credit societies, registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety in the case considered by the Hon ble Supreme Court was established on 31-5- 1997 and was registered under section 5 of the Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995. Thereafter as the operations of the assessee had increased manifold and were spread over states of Erstwhile, Andhra Pradesh, Mahrashtra and Karnataka, the assessee-society got itself registered on 26.07.2005 under the Multi State Co-operative Societies Act, 2002 (MACSA) 8.2 The Hon ble Apex Court in the aforementioned case specifically took note of the factual findings of the Assessing Officer (which was stated in para 15 of the judgment) referring to the bye laws and the provisions of Mutually Aided Co-operative Societies Act, 1995. The Assessing Officer was of the view that the assessee therein cannot admit nominal members and most of the deposits were taken from such category of person (as they were not members as per the provisions referred). The Apex Court in para 25 of the Judgment has pointed out that the main reason for disentitling the assessee from getting the deduction provided under section 80P of the Act is not sub-section (4) of the Act. On the contrary, the Hon ble Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nominal members cannot be considered or treated as from the non-members or from public as was noted by the Apex Court judgment cited supra. 8.6 In this context, it is relevant to mention that the Hon ble Supreme Court in the case of U.P.Cooperative Cane Union v. Commissioner of Income-tax (1999) 237 ITR 574 (SC)-para 8 of the judgment has observed as under:- 8. The expression members is not defined in the Act. Since a co-operative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression members in section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption, has been formed. It is, therefore, necessary to construe the expression members in Section80P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Co-operative Societies Act. 8.7 The Bombay High Court in Jalgaon District Central v. UOI (2004) 265 ITR 423 (Bom) in the light of the above Supreme Court judgment had held that nominal member is also member und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning as provided in Part V of the Banking Regulation Act, 1949. The explanation provided after clause (ccvi) of section 5 r.w.s 56 of the Banking Regulation Act specifically provides that if any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final. The Reserve Bank of India, which is the competent authority as per the Banking Regulation Act, treats assessee society and similar societies as only Primary Agricultural Credit Society not falling within the ambit of Banking Regulation Act. The Reserve Bank of India has given letters to the societies similar to assessee stating that they are Primary Agricultural Credit Societies and therefore in terms of section 3 of the Banking Regulation Act are not entitled for banking license; (Copies of such letter from RBI are placed on record). 8.9 That being the case, the Assessing Officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society' or a 'Cooperative bank', within the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 80P2(1). 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) had rendered the following findings: Therefore, the intention of the legislature is clear. If a cooperative bank is exclusively carrying on banking business, then the income de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 following substantial question of law: Whether the Tribunal failed in law to appreciate that the interest earned on short term deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh 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 assessee. The Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Bank Ltd (supra) has distinguishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Merchantgs Souharda Credit Coop Ltd (supra)and Cochin Bench of the Tribunal in the case of Service Coop Bank Ltd.,(supra), I am of the view that the assessee is entitled to the benefit of deduction u/s 80P(2) with regard to interest received on deposits made by the assessee with sub treasury. It is ordered accordingly. 8 In the result, the appeal filed by the assessee in ITA No.261/Coch/2017 is allowed. ITA No. 208/Coch/2017; ITA No 209/Coch/2017 ITA No. 210/Coch/2017; ITA No. 263/Coch/2017 ITA No. 268/Coch/2017 ITA No. 269/Coch/2017 9 The ld counsel for the assessee and the ld DR agreed that the facts involved in the above appeals are identical to the facts considered by me in the case of the Azhikode Service Cooperative Bank Ltd in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax under the head Profits and gains of business and profession . 3. The matter has been examined in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Co-operative Bank Ltd. [2007] 160 Taxman 48 (SC), the apex court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head Profits and gains of business and profession . 3.2 Even though the abovementioned decision was in the context of co-operative societies/Banks claiming deduction under section 80P(2)(a)(i) of the Act, the principle is equally applicable to all banks/ commercial banks, to which Banking Regulation Act, 1949 applies. 4. In the light of the Supreme Court's decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn /not pressed upon. This may be brought to the notice of all concerned . It may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o out of the purview of Clause (a), but still, the Cooperative Society may claim the benefit of Clause (d) or (e) either by investing the income in another Cooperative Society or investing the income in the construction of a godown or warehouse and letting out the same. 33. In other words, the benefit conferred by Clause (d) upon all types of Co-operative Societies is restricted only to the investments made in other Cooperative Societies. Such a restriction cannot be read into Clause (a), as the temporary parking of the profits and gains of business in nationalized Banks and the earning of interest income therefrom is only one of the methods of multiplying the same income. To accept the stand of the Department would mean that Co-operative Societies carrying on the activities listed in Clauses (i) to (vii), which invest their profits and gains of business either in other Cooperative Societies or in the construction of godowns and warehouses, may benefit in terms of Clause (d) or (e), but the very same Societies will not be entitled to any benefit, if they invest the very same funds in Banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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