PRINCIPAL COMMISSIONER OF INCOME TAX vs. THE MUNDAKKAYAM SERVICE CO-OPERATIVE BANK LTD.

The Principal Commissioner of Income Tax/Revenue is the appellant. The Mundakkayam Service Co-operative Bank Ltd/assessee is the respondent.

1 The appeal, at the instance of the Revenue, is directed against the order dated 31.10.2016 of the Income Tax Appellate Tribunal (for short ‘Tribunal’) Cochin Bench in ITA No.106/Coch/2016. The subject matter of the appeal relates to the return filed by the assessee for the Assessment Year 2012- 13. -3-

The controversy between the Revenue and the assessee is substantially centring around Section 80P of the Income Tax Act, 1961 (for short ‘the Act’). The Counsel appearing for the parties invited the attention of the Court to the judgment in Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax1 that the issue is no more res integra. To appreciate the argument on the ancillary issue that arises from any one of the questions, we find it useful and appropriate to excerpt such of the paragraphs on which reliance has been placed by the counsel on Mavilayi Service Co-operative Bank Ltd. “Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under section 80P. Therefore, the Assessing Officer under the Act cannot be said to be going behind any registration certificate when he engages in a fact-finding enquiry as to whether the co- operative society concerned is in fact providing credit facilities to its members. Such fact finding enquiry would entail examining all relevant facts of the co-operative society in 1 (2021) 431 ITR 1 (SC)

The circumstances relevant for disposing of the appeal are stated in sufficient detail in the orders under appeal. Hence, are not reiterated. But a singular circumstance noted is that the assessee is a Primary Agricultural Credit Society/a Society registered under the Kerala Societies Registration Act. Therefore, deduction eligible under Section 80P(2) is the issue for consideration.

1 In the above background, the following substantial questions are considered: “(i) Whether, on the facts and circumstances of the case, and also in view of the decision in 363 ITR 268 (in the case of Perinthalmanna Service Co-operative Bank), the Tribunal is right in holding that deduction u/s 80P(2)(a)(i) of the Act be allowed to the assessee merely on the strength of the certificate of registration as "Primary Agricultural Credit Society"?

The learned counsel appearing for the Revenue argues that the order of assessment mainly concentrated on the entitlement of benefit under Section 80P(2) of the Act and has not considered the consequential examination i.e., assuming that the assessee is a Co-operative Society and entitled to the -7-

The learned counsel appearing for the assessee

1 We may hasten to add that in Peroorkada Service Co- operative Bank Ltd we have kept in our perspective the principles laid down by the Supreme Court in Mavilayi Service Co-operative Bank Ltd, the consequential consideration that would arise thereafter. We have, in the above-said background, held the deductions permissible under Section 80P(2) of the Act, what constitutes business income, and what is to be classified as income from other sources. In our considered view, by referring to the ratio in The Andhra Pradesh State Cooperative Bank Limited the matter need not be referred to a Full Bench. A Division Bench of this Court, of which one of us was a party (Justice S V Bhatti), has taken a view to remit the matter to the Assessing Officer in Principal Commissioner of Income-Tax v.

Question Nos.1 and 2: “(i) Whether, on the facts and circumstances of the case, and also in view of the decision in 363 ITR 268 (in the case of Perinthalmanna Service Co-operative Bank), the Tribunal is right in holding that deduction u/s 80P(2)(a)(i) of the Act be allowed to the assessee merely on the strength of the certificate of registration as "Primary Agricultural Credit Society"? (ii) Are not the findings of the Hon'ble Court reported in 363 ITR 268 and 384 ITR 490 inconsistent and contradictory with regard to the Assessing Officer's power to examine the assessee's eligibility for deduction u/s 80P(2)(a)(i) of the Act?

1 The above questions are covered by the principle laid down in Mavilayi Service Co-operative Bank Ltd, both on the extent of entitlement of benefit under Section 80P(2) of the Act and also the obligation to independently consider whether the benefit is limited only to such of the income which 4 (2021) 437 ITR (Ker)

Question No.3: (iii): Is not the judgement in 384 ITR 490 vitiated in confining itself to the provisions of the State Co-operative Societies Act?

1 In view of the answer given to question nos 1 and 2, learned Counsel would submit that the question covered by substantial question no.3 is purely academic and need not be answered.

Question Nos. 4 and 5: (iv) Whether the Hon'ble Tribunal is right in taking two different views in two different judgements in respect of "interest income" earned on fixed deposits by the Co-operative Societies? (v) Whether the interest earned on fixed deposits is assessable under the head "business income" also, in view of the decision of the Delhi High Court reported in [2014] 50 taxmann.com 278 (Delhi)?

1 Question nos. 4 and 5 refer to the extent to which the assessee is entitled to deduction under Section 80P(2) of the Act. By following Peroorkada Service Co-operative Bank Ltd the questions are answered in favour of the Revenue for statistical purposes and for determination of the actual income assessable to tax under the head applicable, the matter is remitted to the Assessing Officer.

Tribunal order, Appeal order and Assessment Order are set aside. Matter is remitted to Assessing Officer for disposal afresh.