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

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 28TH DAY OF SEPTEMBER 2022 / 6TH ASWINA, 1944 ITA NO. 205 OF 2019 AGAINST THE ORDER ITA 127/2018 OF I.T.A.TRIBUNAL, COCHIN BENCH APPELLANT/S:

THE PRINCIPAL COMMISSIONER OF INCOME TAX KOTTAYAM.

BY ADVS.NAVNEETH N NATH P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S:

M/S.VAZHAPPALLY SERVICE CO-OPERATIVE BANK LTD VAZHAPPALLY, KOTTAYAM.

BY ADVS.MR RAJA KANNNAN SRI.M.GOPIKRISHNAN NAMBIAR SRI.K.JOHN MATHAI; SRI.JOSON MANAVALAN SRI.KURYAN THOMAS; SRI.PAULOSE C. ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 28.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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J U D G M E N T

S.V. Bhatti, J. Heard Adv Navneeth N Nath, holding for learned Senior Counsel Mr P K R Menon, and learned Counsel Mr Raja Kannan for parties.

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1 (2021) 431 ITR 1 (SC)

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4 In the above background, the following substantial questions are considered: 1. a) Whether on the facts and in the circumstances of the case, the assessee is entitled to the benefit of Section 80P of the Income tax Act? b) Whether on the facts and in the circumstances of the case does the assessee satisfy the conditions to be qualified as a primary agricultural society? c) Are the functions of the society such as to qualify as a Primary Agricultural Society as defined under Banking Regulations Act? d) Whether on the facts and circumstances of the case, the assessee is entitled to the benefit of section 80P with reference to the transaction held to be contrary to the object? 2. Whether on the facts and in the circumstances of the case and in law, Tribunal justified in holding that the interest from surplus fund is "Income from business" and not as "Income from other sources"? 5. The learned counsel appearing for the Revenue argues that the order of assessment mainly concentrated on the

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entitlement of deduction 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 deduction of Section 80P(2)(a) of the Act. But the deduction is restricted to the language of Section 80P(2) of the Act. In ITA No.22/2017, Revenue’s appeal, this Court has considered similar substantial questions of law in detail and the reasoning in ITA No.22/2017 squarely covers the question of law formulated in the instant appeal too. By applying the principle laid down by the Apex Court in Mavilayi Service Co-operative Bank Ltd and this Court in Peroorkada Service Co-operative Bank Ltd, the substantial questions raised in the appeal are answered thus: 6. Question no.1(a): Whether on the facts and in the circumstances of the case, the assessee is entitled to the benefit of Section 80P of the Income tax Act?

6.1 A comprehensive issue on the eligibility of deduction under Section 80P(2) arises. The central issue is no more res

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integra in view of the principle laid down in Mavilayi Service Co- operative Bank Ltd. The question is answered in favour of the Revenue and against the Assessee. The matter is remitted to the Assessing Officer. 7. Question no.1(b), (c) and (d): b) Whether on the facts and in the circumstances of the case does the assessee satisfy the conditions to be qualified as a primary agricultural society? c) Are the functions of the society such as to qualify as a Primary Agricultural Society as defined under Banking Regulations Act? d) Whether on the facts and circumstances of the case, the assessee is entitled to the benefit of section 80P with reference to the transaction held to be contrary to the object?

7.1 The counsel appearing for the parties submit that question nos. 1(b), (c) and (d) are ancillary or academic, therefore need not be considered and answered.

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8.1 In Principal Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd2 we have kept in our perspective the principle laid down by the Supreme Court in Mavilayi Service Co- operative Bank Ltd, the consequential consideration that would arise thereafter, and we have, in the above-said background, held what all are 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. By following the ratio laid down in 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 these head, the matter is remitted to the Assessing Officer. 9. Resultant to the above discussion, the Tribunal order,

2 (2022) 442 ITR 141 (Ker)

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Appeal order and Assessment Order are set aside. The matter is remitted to Assessing Officer for disposal afresh.

The Income Tax Appeal is allowed as indicated above.

Sd/- S.V.BHATTI JUDGE

Sd/- BASANT BALAJI JUDGE

jjj

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APPENDIX OF ITA 205/2019

PETITIONER ANNEXURES ANNEXURE A ASSESSMENT ORDER U/S.143(3)DT.30/12/2016 ANNEXURE B CIT(A)/S ORDER NO.ITA NO.T-59/CIT(A)/KTM/16-17 DATED 31.01.2018 ANNEXURE C ITAT'S ORDER IN ITA.NO.127/COCH/2018 CO.45/COCH/18 DATED 04.09.2018.