TMI Blog2020 (1) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... er the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. Interest on the investments with Cooperative Banks and other Banks , the co-ordinate Bench order of the Tribunal in the case of Kizhathadiyoor Service Cooperative Bank Limited [ 2016 (7) TMI 1405 - ITAT COCHIN] had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as `income from business instead of `income from other sources . However, as regards the grant of deduction u/s 80P on such interest income, the Assessing Officer shall follow the law laid down in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. It is ordered accordingly. - ITA No.646/Coch/2019, ITA No.647/Coch/2019, ITA No.648/Coch/2019, ITA No.649/Coch/2019, ITA No.650/Coch/2019, ITA No.651/Coch/2019 - - - Dated:- 6-1-2020 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.Act proposing to rectify his orders passed, in view of the subsequent judgment of the Full Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT [ITA No.97/2016 order dated 19th March, 2019]. The assessee objected to the issuance of notices. However, the CIT(A) rejected the objections raised by the assessee and passed orders u/s 154 of the I.T.Act, disallowing the claim of the assessee u/s 80P(2) of the I.T.Act. 5. Aggrieved by the orders of the CIT(A), the assessee has filed these appeals before the Tribunal raising the following identical grounds:- 1. The rectification order of the Honourable CIT (Appeals) is erroneous on the facts and in the law. That the appellant denies his liability to be assessed at a total income of ₹ 16,62,100/- .against returned income of Rs NIL and accordingly denies his liability to pay tax and interest demanded there on. The CIT(A) has not considered the written submission by the appellant's AR on 22.08.2019 in response to the letter from his office issued on 07.08.2019. 2. The CIT (A) has not considered the below points raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvation by the Assessing officer in this regard is that the agricultural finance by the society is only a small percentage of the total loans sanctioned is not true to facts. Though majority of the advances are agricultural in nature, the circumstances under which the appellant society and other societies are forced to classify them as non-agricultural should also been considered in the right perspective. The main source of funds of the appellant society is collection of fund by way of fixed deposits, the rate of interest which will come to 8.5% to 10.5%. but for agricultural advances the appellant can collect interest at the rate of 7% only from the borrowers as per law. Since there is no effective mechanism for refinancing the agricultural loans of the societies by the apex banks, the appellant society will not be in a position to lend to agriculturists classifying the loan as agricultural per se, as fund collected at 10% will have to be lent for 7%. This is the situation which compels a primary agricultural society to classify a part of the agricultural loans lend by it in general category. Hence the appellant is a primary agricultural credit society factually and theoretically. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case the credit facilities were extended only to the members who lives in a specified area, which is the operating territory of the Appellant hence principles of mutuality applies. 3. A1lowability of Investment Income deduction u/s 80(P)(2)(d). The extra funds generated from the operations of banking and not immediately required were kept as deposits with other banks mainly District Co-Operative Bank, Regional Rural banks and Government treasuries. The appellant total income from investment for the relevant AY was ₹ 5,77,5001- bifurcated as below. Kollam Co-Operative Urban Bank : ₹ 1,05,000/- Kollam DCB : Rs .4,72,500/- Total : ₹ 5,77,500/- The CIT (Appeals) has not considered the following judicial rulings while disallowing the interest income claimed by the appellant. The following decisions of the Honorable Courts and ITAT's support the appellant's claim f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We may herein observe that the term co-operative society had been defined under Sec. 2(19) of the Act, as under:- Co-operative society means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies; We are of the considered view, that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act. but however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of cooperative societies, therefore, the interest income derived by a co-operative society from its investmenrts held with a cooperative bank, would duly be entitled for claim of deduction under Sec.80P(2)(d) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein that the CIT(A) has erred in invoking the provisions of section 154 of the I.T.Act on a debatable issue. In support of the additional grounds, the learned AR had relied on the judgment of the Hon ble Apex Court in the case of Mepco Industries Ltd. (Civil Appeal Nos.7662-7663 of 2009) wherein it was held that the provisions of section 154 of the I.T.Act can be invoked only in cases where there is a mistake apparent from record . 6. The learned AR relied on the grounds raised. The learned Departmental Representative, on the other hand, strongly supported the orders of the Income-tax authorities. 7. We have heard the rival submissions and perused the material on record. The Hon ble jurisdictional High Court in the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT [(2016) 384 ITR 490 (Ker.)] had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society, necessarily, the deduction u/s 80P(2) of the I.T.Act has to be granted to the assessee. However, the Full Bench of the Hon ble Kerala High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd having its area of operation confined to a Village, Panchayat or a Municipality and as such, they are entitled for the benefit of sub-section (4) of Section 80P of the IT Act to ease themselves out from the coverage of Section 80P and that, the authorities under the IT Act cannot probe into any issues or such matters relating to such societies and that, Primary Agricultural Credit Societies registered as such under the KCS Act and classified so, under the Act, including the appellants are entitled to such exemption. 34. In Chirakkal [384 ITR 490] the Division Bench expressed a divergent opinion, without noticing the law laid down in Antony Pattukulangara [2012 (3) KHC 726] and Perinthalmanna [363 ITR 268]. Moreover, the law laid down by the Division Bench in Chirakkal [384 ITR 490] is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1], on a claim for deduction under Section 80P of the Income Tax Act, by reason of sub-section (4) thereof, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .525/Coch/2014 (order dated 20.07.2016), had held that interest income earned from investments with treasuries and banks in the course of assessees business is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as `income from business instead of `income from other sources . However, as regards the grant of deduction u/s 80P of the I.T.Act on such interest income, the Assessing Officer shall follow the law laid down by the Larger Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. 7.3 As regards the additional grounds are concerned, the Hon ble Kerala High Court in the case of Kil Kotagiri Tea Coffee Estates Co. Ltd. v. ITAT reported in 174 ITR 579 had held that when an authority has decided on the basis of a decision of the High Court which is subsequently reversed, there would be a rectifiable mistake coming within the section 154 of the Income-tax Act. The Larger Bench of the Hon ble Kerala High Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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