THE ITO, WD-2(5), TRIVANDRUM vs. M/S.KIZHUVILAM SERVICE CO-OP BANK , TRIVANDRUM

Two issues are raised in these appeals – (i) whether the assessee is entitled to deduction u/s 80P of the I.T.Act; (ii) whether the interest income received on investments can be treated as ‘income from business’ and granted deduction u/s 80P of the I.T.Act.

Brief facts of the case are as follows: The assessee in this case is a registered as co-operative societies under the Kerala State Co-operative Societies Act, 1969. The assessment was completed in the assessee’s case by

Aggrieved by the orders of the assessment, the assessee filed appeal before the first appellate authority. The CIT(A) by following the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. (384 ITR 490) allowed the claim of deduction u/s 80P of the I.T.Act. As regards interest received on investments, the CIT(A) held that the same should be assessed as `income from business’ since these investments were made in the course of business of the assessee. It was concluded by the CIT(A) that such interest income was entitled to deduction u/s 80P of the I.T.Act. In holding so, the learned CIT(A) relied on the order of the Tribunal in the case of Kizhathadiyoor Service Co-operative (Order dated Bank Limited in ITA No.525/Coch/2014 20.07.2016). On further appeal, the ITAT confirmed the view taken by the CIT(A). Aggrieved by the order of the ITAT, the Revenue filed an appeal u/s 260A of the I.T.Act before the Hon’ble High Court. The Hon’ble High Court vide its judgment dated 07.06.2019 in ITA No.21/2019 restored the case to the ITAT. The relevant finding of the Hon’ble High Court reads as follow:-

Pursuant to the Hon’ble High Court judgment, the case was heard on 14.08.2019. The Larger Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co- operative Bank Ltd. (supra) held that the Assessing Officer has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P of the I.T.Act. It was held by the Hon’ble High Court that the Assessing Officer is not bound by the registration certificate issued by the Registrar of Kerala Co- operative Society classifying the assessee-society as a co- operative society. The Hon’ble High Court held that each assessment year is separate and eligibility shall be verified by the Assessing Officer for each of the assessment years. The finding of the Larger Bench of the Hon’ble High Court reads as follows:-

In view of the dictum laid down by the Full Bench of the Hon’ble High Court, the issue of deduction u/s 80P(2)(a)(i) is restored to the Assessing Officer. The Assessing Officer shall examine the activities of the assessee and determine whether their activities are in compliance with the activities of a co- operative society functioning under the Kerala Co-operative Societies Act, 1969 and grant deduction u/s 80P(2) in accordance with law.

As regards the interest on the investments with Co- operative Banks and other Banks, the co-ordinate Bench order of the Tribunal in the case of Kizhathadiyoor Service Co- operative Bank Limited (supra) 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

In the result, the appeal filed by the Revenue is allowed for statistical purposes.