THE ITO, WD-2(1), TRIVANDRUM vs. M/S.ULLOOR SERVICE CO-OP BANK LTD, TRIVANDRUM

Per CHANDRA POOJARI, AM:

This appeal filed by the Revenue is directed against the order of the CIT(A),

Trivandrum dated 17/12/2018 and pertain to the assessment year 2015-16.

appeal exparte.

1) The Learned Commissioner of Income tax (Appeals), Trivandrum erred in concluding that "the appellant is eligible for deduction under section. 80P(2)(a!(i) of the Act on the business income including the interest income earned on the deposits with the other banks and the Treasury."

I.T.A. No.138/Coch/2019

2) It is respectfully submitted that the respondent is essentially, a Cooperative 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.

3) The present appeal involves substantial question of law and whether on the facts and in the circumstances of the case, the order of C1T(A) is correct:

(i) in deleting the additions made during the completion of assessment as per the provisions of Income tax Act, considering the provisions of section 80P(4) is correct?

(ii) in not duly considering that Trivandrum District Cooperative Bank Ltd is apex bank and not Co-operative Society and cannot be equated with PACs or PCARDB u/s 80P(4) r.w.s 8OP?

(iii) in considering the fact that reserve/provision is neither actual expenses nor ascertain liability and not entitled to deduction u/s. 80P(2)?

(iv) in not duly considering that the interest income received from deposits made with banks cannot be attributable as profit and gains from out of providing credit facilities to its members u/s 80P(2)(a)(i)?

(v) in not duly considering that the assessee has invested surplus funds like an ordinary investor and it has to be taxed as income from other sources?

(vi) in not duly considering the judgment of Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. vs. ACIT, Circle-9(l), Hyderabad dated 08.08.2017 reported in 397 ITR 1(SC), wherein it has been held that if a cooperative society is violating the principle of mutuality in the garb of persons who actually are not real members and indulging in banking business per se that it cannot claim the benefit of section 80P(2)(a)(i).

(vii) in not duly considering the following case laws:

(a) 203 ITR 1027 (SC) in the case of Sabargantha Zilla Kharid Vechar Sangh Ltd.

(b) 363 ITR 68 (Kerala) in the case of Perinthalmanna Service Co- operative Bank.

(c) 234 ITR 201 (Kerala) in the case of CIT Vs Kerala State Co-operative Marketing Federation. (d) 322 ITR 283 in the case of M/s Totgars Co-operative Sales Society.

I.T.A. No.138/Coch/2019 For these and other grounds that may be advanced at the time of hearing the order of the learned Commissioner of Income-tax(Appeals), Trivandrum on the above points may be set aside and that of the Assessing Officer restored.

banking business and filed its return of income for AY 2015-16 on 27.03.2016

declaring total income for the year at Rs. Nil after claiming deduction under section

8OP of the I.T. Act. The Assessing Officer denied the deduction claimed by the

assessee u/s. 80P of the Act vide order passed order u/s. 143(3) of the Act dated

07.12.2017 on the ground that the principal business carried out by the society was

not according to the objectives of the primary agricultural credit society. Further,

the Assessing Officer had also observed that the interest income received by the

assessee from other Banks and Treasury was not eligible for deduction under

section 80(P)(2)(d) as the interest income was received from other than co-

operative society.

Credit Society to claim deduction u/s. 80P was covered in favour of the assessee by

the judgment of the High Court of Kerala in the case of Chirakkal Service Co-

operative Bank Ltd. vs. CIT in 384 ITR 490. The CIT(A) also relied on the decision

of the ITAT, Cochin Bench in the case of Kararikanam Service Co-operative Bank Ltd. for AY 2009-10 in ITA No.293/Coch/2013 dated 14th October, 2016. Following

the above judgments, as the assessee is a registered Primary Agricultural Credit Co-

I.T.A. No.138/Coch/2019 operative Society, the CIT(A) held that the assessee is eligible for deduction u/s.

80P of the Act.

of the Assessing Officer.

Jurisdictional High Court in the case of Mavilayi Service Co-operative Bank Ltd. vs.

CIT reported in ITA No.97/2018 dated 19.03.2019 wherein it was held that the

Assessing Officer is not obliged to grant deduction by merely looking at the

certificate of registration issued by the competent authority under the Co-operative

Societies Act. Instead, he has to conduct an enquiry into the factual situation as to

the activities of the assessee and arrive at a conclusion whether the benefits of

section 80P can be extended or not. Thus, the Full Bench overruled the earlier

judgment of the Jurisdictional High Court in the case of Chirakkal Service Co-

operative Bank Ltd. vs. CIT (384 ITR 490). The Full Bench had followed the

judgment of the Supreme Court in the case of Citizen Co-operative Society Ltd. vs.

ACIT reported in 397 ITR 1 (SC). In view of the latest judgment of the

Jurisdictional High Court cited supra, this issue is remitted to the file of the

Assessing Officer with the direction to examine the actual activities carried on by the

assessee so as to grant deduction u/s. 80P of the Act. Accordingly, the issue in

dispute is remitted to the file of the Assessing Officer for fresh consideration in

I.T.A. No.138/Coch/2019 accordance with the above direction. This ground of appeal of the Revenue is

partly allowed for statistical purposes.

issue was allowed by the CIT(A) in the light of the order of the Tribunal in the case

of Kizhathadiyoor Co-operative Bank Limited for AY 2009-10 in ITA No.

525/Coch/2014, order dated 20.07.2016 wherein it was held that the interest

income earned from the investment in Treasury and Banks is part of the banking

activity and therefore, the said income is eligible for deduction under section

80P(2)(a)(i) of the Act.

of the Assessing Officer.

assessee from other Banks and Treasury on which deduction u/s. 80P(2)(i)(a) of the

Act is to be granted, there is no dispute that the assessee has made investments in

the course of banking activities and such interest income was received on

investments made with cooperative banks and other scheduled banks. The co-

ordinate bench of the Tribunal in the case of Kizhathadiyoor Co-operative Bank

Limited cited supra had held that such interest income received by the assessee

should be assessed as “income from business” instead of “income from other

sources”. In view of the order of the co-ordinate bench, we hold that the CIT(A) is

I.T.A. No.138/Coch/2019 justified in holding that interest income received by the assessee should be

assessed as “income from business”.

10.1 As regards grant of deduction u/s. 80P(2)(i)(a) of the Act, the Assessing

Officer shall follow the law laid down by the Larger Bench of the Jurisdictional High

Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT cited supra and

examine the actual activities of the assessee so as to grant deduction u/s.

80P(2)(i)(a) of the Act. Accordingly, we remit this issue to the file of the Assessing

Officer for fresh consideration in accordance with the above direction. Thus, this

ground of appeal of the Revenue is partly allowed for statistical purposes.

purposes. Order pronounced on this day of 20th May, 2019.

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 20th May, 2019 GJ Copy to: 1. M/s. Ulloor Service Co-operative Bank Ltd., Pongummoodu, Medical College P.O., Trivandrum-695 011. 2. The Income Tax Officer, Ward-2(1)/O/o Addl. CIT, Range-2, Trivandrum. 3. The Commissioner of Income-tax(Appeals), Trivandrum.

I.T.A. No.138/Coch/2019 4. The Pr. Commissioner of Income-tax, Trivandrum. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin