THE PRINCIPAL COMMISSIONER OF INCOME TAx vs. THE NADAKKAL SERVICE CO-OPERATIVE BANK LTD
What did the High Court hold?
The High Court followed its common judgment in I.T.A. No. 323/2019 dated 01.11.2021. The Court held that interest income earned from the Treasury by the assessee is not eligible for deduction under Section 80P(2)(d) and should be computed and taxed as income from other sources. The questions were answered in favour of the Revenue and against the assessee. Specifically, for ITA No. 7/2020, a sum of Rs. 52,01,501/- representing interest income earned from the Treasury was directed to be deleted from the deduction claimed by the assessee and added to the income from other sources. Similarly, for ITA No. 14/2020, a sum of Rs. 28,77,189/- representing interest income earned from the Treasury was directed to be deleted from the deduction claimed by the assessee and added to the income from other sources. The appeals were allowed to this extent.
What were the facts?
The appeals were filed by the Principal Commissioner of Income Tax, Thiruvananthapuram (Revenue) against the orders of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The respondent is M/s. The Nadakkal Service Co-operative Bank Ltd (assessee). ITA No. 7/2020 pertains to Assessment Year 2014-15, and ITA No. 14/2020 pertains to Assessment Year 2013-14. The dispute revolves around the taxability of interest income earned by the assessee on surplus funds invested. The ITAT's orders, which are under challenge, apparently allowed certain deductions to the assessee. The High Court was considering these appeals against the ITAT's orders.
What were the issues?
1. Whether, on the facts and in the circumstances of the case, the order of the ITAT is correct in not duly considering that the assessee had invested surplus funds like an ordinary investor and the interest on such deposits has to be taxed as "Income from other sources"? (Question of law or mixed law and fact, concerning the classification of income and eligibility for deduction under Section 80P). Assessee's Contention: The assessee invested surplus funds like an ordinary investor, and the interest earned should be taxed as "Income from other sources." (Implied by the question framed by the court). Revenue's Contention: The Revenue argued that the ITAT failed to consider that the interest income should be taxed as "Income from other sources" and not be eligible for deduction under Section 80P in its entirety. The Revenue relies on a common judgment in I.T.A. No. 323/2019 dated 01.11.2021, which held that interest income earned from Co-operative Banks/Societies/Federation registered under the Co-operative Societies Act is eligible for deduction under Section 80P(2)(d), but income earned from Treasury is not included in Section 80P(2)(d) and is not entitled for deduction.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
J U D G M E N T [ITA No.7/2020 & 14/2020] S.V. Bhatti, J.
The Principal Commissioner of Income Tax, Thiruvananthapuram/Revenue is the appellant. M/s. The Nadakkal Service Co-operative Bank Ltd/assessee is the respondent. The appeals are filed being aggrieved by the orders stated hereunder: Sl. No. Assessment Year and Date of Order Order of Commissioner of Income Tax (Appeals) Income Tax Appellate Tribunal ITA No. 1 2014-15 Order dated 31.01.2013 ITA No.250/EF/TVM/CIT(A)/TV M/2017-18 dt.10.12.2018 dt.17.05.2019 7/2020 2 2013-14 Order dated 12.12.2017 ITA No.251/EF/TVM/CIT(A)/TV M/2017-18 dt.10.12.2018 dt.17.05.2019 14/2020 -4-
The appeals raise the following substantial question of law: ITA 7/2020 “ Whether on the facts and in the circumstances of the case, the order of the ITAT is correct in not duly considering that the assessee had invested surplus funds like an ordinary investor and the interest on such deposits has to be taxed as "Income from other sources"?” ITA 14/2020 “Whether on the facts and in the circumstances of the case, the order of the ITAT is correct in not duly considering that the assessee had invested surplus funds like an ordinary investor and the interest on such deposits has to be taxed as "Income from other sources"?”
The question deals with the income earned by way of interest from the investment made by the assessee of the surplus fund as an ordinary investor. Such income whether is entitled for deduction under Section 80P in its entirety or shall be -5-
computed and taxed as income from other sources.
The counsel appearing for the parties bring to the notice of the Court the common judgment in I.T.A. No.323/2019 dated 1.11.2021 deciding a similar question as follows:
“15. In ITA NO.142/2019 it has been held that the interest income earned by the Society comes with the category of income from other sources and Section 80P(2)(d) deals with the eligible deduction in this behalf. It has been held in the connected cases that the assessee is entitled to deduction of interest income earned from Co-operative Banks/Societies/ Federation registered under the Co-operative Societies Act and the income earned from Treasury is not included in Section 80P(2)(d) and is not entitled for deduction from computation of income. The Assessing Officer passes Effect Order on the lines indicated above.”
The view taken in I.T.A. No.323/2019 is followed. The questions are answered in favour of the Revenue and against the assessee. Having held so, we further hold that a sum of Rs.52,01,501/- is the interest income earned from the Treasury -6-
by the assessee in I.T.A. No.7/2020 and Rs.28,77,189/- is the interest income earned from the Treasury by the assessee in I.T.A. No.7/2020
1 In view of the answers to the question considered in the appeals, we direct that a sum Rs.52,01,501/- is deleted from the deduction claimed by the assessee and added to the income of other sources in I.T.A. No.7/2020; and sum Rs.28,77,189/- is deleted from the deduction claimed by the assessee and added to the income of other sources in I.T.A. No.14/2020. The appeals are allowed to the extent indicated above. S.V.BHATTI JUDGE BASANT BALAJI JUDGE
jjj -7-
Appendix — schedule of exhibits
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