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

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ITA/7/2020HC KeralaKLHC01072816201915 March 2022Bench: HONOURABLE MR.JUSTICE S.V.BHATTI,HONOURABLE MR.JUSTICE BASANT BALAJI8 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court followed its common judgment in ITA No. 323/2019 dated 01.11.2021, which dealt with a similar question. In that judgment, it was held that interest income earned by a society falls under the category of "income from other sources." While Section 80P(2)(d) provides for eligible deductions, the income earned from Treasury deposits is not included within the scope of Section 80P(2)(d) and is therefore not entitled to deduction. The High Court answered the substantial questions of law in favour of the Revenue and against the assessee. Consequently, for ITA No. 7/2020, a sum of Rs. 52,01,501/- (interest income earned from Treasury) was directed to be deleted from the deduction claimed by the assessee and added to the income from other sources. For ITA No. 14/2020, a sum of Rs. 28,77,189/- (interest income earned from Treasury) was similarly directed to be deleted from the deduction 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, had allowed the assessee to claim deductions under Section 80P for this interest income. The Revenue is aggrieved by this treatment.

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, concerning Section 80P). Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The interest income earned by the assessee from surplus funds invested should be taxed as "Income from other sources" and not be eligible for deduction under Section 80P. The assessee invested surplus funds like an ordinary investor, and the ITAT failed to consider this aspect properly.

Which sections of the Income-tax Act were involved?

Section 80P

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI TUESDAY, THE 15TH DAY OF MARCH 2022 / 24TH PHALGUNA, 1943 ITA NO. 7 OF 2020 AGAINST THE ORDER IN ITA 132/2019 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S:

THE PRINCIPAL COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM

BY ADV SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT

RESPONDENT/S:

M/S. THE NADAKKAL SERVICE CO-OPERATIVE BANK LTD KALLUVATHUKKAL P.O, KOLLAM 691 578 (PAN AABAT3582G)

BY ADV SRI.C.A.JOJO

THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 15.03.2022, ALONG WITH ITA.14/2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.7 & 14/2020

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IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI TUESDAY, THE 15TH DAY OF MARCH 2022 / 24TH PHALGUNA, 1943 ITA NO. 14 OF 2020 AGAINST THE ORDER IN ITA 131/2019 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S:

THE PRINCIPAL COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM

BY ADV SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT

RESPONDENT/S:

M/S. THE NADAKKAL SERVICE CO-OPERATIVE BANK LTD KALLUVATHUKKAL P.O, KOLLAM 691 578 (PAN AABAT3582G)

BY ADV SRI.C.A.JOJO

THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 15.03.2022, ALONG WITH ITA.7/2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.7 & 14/2020

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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 ITA No.132/Coch/2019 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 ITA No.131/Coch/2019 dt.17.05.2019 14/2020

ITA Nos.7 & 14/2020

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2.

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

ITA Nos.7 & 14/2020

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computed and taxed as income from other sources. 3. 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.”

4.

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

ITA Nos.7 & 14/2020

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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

4.1 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.

Sd/- S.V.BHATTI JUDGE

Sd/- BASANT BALAJI JUDGE

jjj

ITA Nos.7 & 14/2020

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APPENDIX OF ITA 14/2020

PETITIONER ANNEXURES ANNEXURE A TRUE COPY OF THE ORDER U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 OF THE ASSESSING OFFICER DATD 12/12/2017 ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) TRIVANDRUM DATED 10/12/2018 ANNEXURE C TRUE COPY OF THE ORDER OF THE ITAT IN ITA NO. 131/COCH/2019, FOR THE ASST. YEAR 2013-14 DATED 17/05/2019

ITA Nos.7 & 14/2020

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APPENDIX OF ITA 7/2020

PETITIONER ANNEXURES ANNEXURE A TRUE COPY OF THE ORDER U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 OF THE ASSESSING OFFICER DATED 12/12/2017 ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), TRIVANDRUM DATED 10/12/2018 ANNEXURE C TRUE COPY OF THE ORDER OF THE ITAT IN ITA NO. 132/COCH/2019, FOR THE ASST. YEAR 2014-15 DATED 17/05/2019

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