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2019 (5) TMI 423

..... , registered under the Kerala Co-operative Societies Act, 1969 - 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”? - HELD THAT:- In the instant case the assessee had made investments with sub-treasuries, District Co-operative Banks, other Banks in the course of its business of banking / providing credit facilities to its members. Therefore, it was entitled to deduction u/s 80P(2)(a)(i) in respect of interest income that was received on such investments in view of the above judicial pronouncements. Since we have found that the interest income was earned in course of carrying on business of banking and entitled to deduction u/s 80P(2)(a)(i), the claim u/s 80P(2)(d) is not considered. See THE VAVVERU CO-OPERATIVE RURAL BANK LTD. VERSUS THE CHIEF COMMISSIONER OF INCOME TAX, VIJAYAWADA [2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT] - Decided against revenue. - ITA No.111/Coch/2019, ITA No.112/Coch/2019 - 2-5-2019 - Shri Chandra Poojari, AM And Shri George George K, JM For the Appellant : Smt. A.S.Bindhu, Sr.DR For the Respo .....

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..... 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. We noticed that an identical issue was considered by the Cochin Bench of the Tribunal in the case of The Azhikode Service Co-operative Bank Ltd. & Others (ITA No.261/Coch/2017 & others - order dated 12th July, 2017. The Tribunal after considering the judicial pronouncement, decided the issue in favour of the assessee. The Relevant finding of the Tribunal reads as follows:- 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 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. Sec .....

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..... o 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) 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 mark .....

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..... ndicated 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(1) of the Act. In fact 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 .....

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..... ificate 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 Co-operative 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 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 Souh .....

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..... ore of the activities listed in sub-Clauses (i) to (vii) of Clause (a), the same may go out of the purview of Clause (a), but still, the Co-operative 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 Co-operative 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 Co-operative 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. Suc .....

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