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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George George K, JM
Per George George K., JM
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 31.10.2017. The relevant assessment year is 2014-2015. The assessee has also filed a Stay Petition praying for stay of recovery of demand of Rs.1,32,56,500, till the disposal of the appeal.
The assessee is a primary agricultural credit society, registered under the Kerala Co-operative Societies Act, 1969. For the assessment year 2014-2015, the return of income was
ITA No.596/Coch/2017 2 SP No.68/Coch/2017. M/s.Karakulam SCB Limited. filed by the assessee on 19.03.2015 declaring `nil’ income after claiming deduction u/s 80P of the Income-tax Act, 1961. The assessment u/s 143(3) of the I.T.Act, was completed vide order dated 27.12.2016, wherein the total income was computed at Rs.2,76,70,369 consisting of the following -
(i) Income under the head business or Profession. Rs. 55,85,680
(ii) Income from other sources Rs.2,20,84,676
The Assessing Officer denied deduction u/s 80P of the Income-tax Act. The reasoning of the Assessing Officer to deny the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act was that the assessee was doing the business of banking and in view of insertion of section 80P(4) of the I.T.Act, the assessee was not entitled to the benefit of section 80P(2)(a)(i) of the I.T.Act. The specific claim of the assessee that it is entitled to deduction u/s 80P(2)(d) of the I.T.Act with regard to income under the head `other source’ amounting to Rs.2,20,84,676, the Assessing Officer held that interest was received from investments with a Co-operative Bank, viz., Trivandrum District Co-operative Bank Limited and not a Co- operative Society as contemplated u/s 80P(2)(d) of the I.T.Act.
Aggrieved by the order of assessment, the assessee preferred an appeal to the first appellate authority. The CIT(A) granted deduction u/s 80P(2)(a)(i) in respect of income under the head `business or profession’ for an amount of
ITA No.596/Coch/2017 3 SP No.68/Coch/2017. M/s.Karakulam SCB Limited. Rs.55,85,688. The CIT(A) followed the judgment of the Hon’ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. and Others [(2016) 384 ITR 490 (Ker.)] With regard to `income from other sources’, the CIT(A) rejected the claim of the assessee primarily for the reason that interest was received from a Co-operative Bank and not from a Co-operative Society.
Aggrieved by the order of the first appellate authority, the assessee has preferred the present appeal before the Tribunal, raising the following grounds:-
The Order of the learned Commissioner of Income Tax (Appeals), Trivandrum, in confirming the addition made by the Assessing Officer to the extent of Rs.2,20,84,676/-, is opposed to law, facts and circumstances of the case.
The CIT(A) went wrong in denying the claim for exemption/deduction u/s 80P(2)(d) with respect to the interest income earned from deposits with the Trivandrum District Co-operative Bank Ltd., Thiruvananthapuram.
It is respectfully submitted that the assessing and Appellate Authorities should have found that the interest income of Rs.2,20,84,676/- was from the cash reserve maintained by way of deposit with District Co-operative Bank, Thiruvananthapuram, as per Banking Regulation Act, 1949 and as such, the same qualified for deduction u/s 80P(2)(d).
The CIT(A) ought to have accepted the law laid down as per the Judgment in the case of M/s Totgars
ITA No.596/Coch/2017 4 SP No.68/Coch/2017. M/s.Karakulam SCB Limited. Co-operative Sale Society Ltd., Vs. The Income Tax Officer (reported in 322 ITR 283) and the judgment of the Hon'ble High Court of Karnataka, reported in 231 Taxman 794 in the case of M/s Totgars Co-op. Sale Society Ltd., Vs. The Income Tax Officer and allowed the claim for deduction u/s 80P(2)(d).
It is submitted that in view of the statutory provision contained in Sec.80P(2)(d), the claim should have been allowed. The contrary view taken by the Assessing Officer and the CIT(A), is illegal and unsustainable.
The CIT(A) also should have taken into account that the claim for the cost of funds and overhead expenses, administrative charges and establishment expenses as cost of fund invested in fixed deposits and accepted the working of cost of funds and expenses for earning interest income. This contention is made without prejudice.
The CIT(A) failed to appreciate that the Hon'ble Apex Court remanded the case of Mis Totgars Co- operative Society Ltd., to the Hon'ble High Court of Karnataka for re-consideration and the Hon'ble High Court of Karnataka specifically found that the expenditure incurred for earning the interest income, which the assessee earned from giving loans and advances to its members and the administrative expenses, should be allowed as deduction in computing the taxable income. At any rate, the CIT(A) should have accepted the above contention and allowed the admissible relief. This contention is made without prejudice.
The appellant humbly prays that the Hon'ble Appellate Tribunal may kindly be pleased to consider the grounds of appeal before the lower Appellate Authority as part of these grounds.
ITA No.596/Coch/2017 5 SP No.68/Coch/2017. M/s.Karakulam SCB Limited. 9. The appellant craves leave to file additional grounds in the above appeal.
For these and other grounds that may be urged at the time of hearing, the appellant humbly prays that the Hon'ble Income Tax Appellate Tribunal, Cochin Bench, Cochin, may kindly be pleased to set aside the assessment and Appellate Orders as regards the impugned addition and allow the appeal and render justice.”
The learned Counsel for the assessee submitted that there is no dispute that income of Rs.2,20,84,676 is to be assessed as `income from other sources’. It was submitted that though the income is to be assessed as `income from other sources’, the same is entitled to deduction u/s 80P(2)(d) of the I.T.Act. The learned Counsel has filed the brief written submission. The relevant portion of the same reads as follow:-
“In this connection, it is respectfully submitted that Trivandrum District co-operative Bank Limited is a Co-operative Society registered under the Travancore- Cochin Cooperative Societies Act, 1951. A true copy of the certificate of registration obtained from the Trivandrum District Co-operative Bank Ltd. dated 1.8.1958 is submitted herewith for your kind reference. The Circular NO.52/17 dated 16.12.2017 issued by the Registrar of Co-operative Societies, Trivandrum along with English Translation is also submitted herewith to substantiate the fact that interest paid by the assessee on deposits received from its members is the same which is paid by the District Co-operative Bank to the assessee. That is to say, whatever interest is paid by District Co- operative Bank on deposits made therewith is passed on to its members who keep deposits in the appellant's Society. The deposit with the District co-
ITA No.596/Coch/2017 6 SP No.68/Coch/2017. M/s.Karakulam SCB Limited. operative Bank is made on a percentage of the statutory provisions under the Kerala Co- operative Societies Act and the regulations thereunder. In other words, the interest earned from the District Co-operative Bank is entirely passed on to the member depositors and there is no gain or loss made therefrom. Hence, no part of the interest is liable to be assessed.”
The learned Departmental Representative, on the other hand, supported the orders of the Assessing Officer and the CIT(A).
We have heard the rival submission and perused the material on record. The only issue raised for our adjudication is whether a sum of Rs.2,20,84,676 assessed as `income from other sources’ whether is entitled to deduction u/s 80P(2)(d) of the I.T.Act. The assessee in the written submission, submitted that the Trivandrum District Co-operative Bank Limited from whom the assessee had received interest to the tune of Rs.2,20,84,676 is a Co-operative Society and not a Co-operative Bank. The assessee had submitted a copy of certificate of registration obtained from Trivandrum District Co-operative Bank Limited (certificate dated 01.08.1958). From the perusal of the said certificate, it is not very discernible whether Trivandrum District Co-operative Bank Limited is a Co-operative Society or a Co-operative Bank. Section 80P(2)(d) of the I.T.Act states as follows:-
“In respect of any income by way of interest or dividends derived by the Co-operative Society from
ITA No.596/Coch/2017 7 SP No.68/Coch/2017. M/s.Karakulam SCB Limited. its investments with any other Co-operative Society, the whole of such income.”
7.1 The above provision provides for deduction u/s 80P(2)(d) of the Income-tax Act, intereset or dividends derived by Co- operative Society from its investments with another Co- operative Society. The Hon’ble Karnataka High Court in the case of Principal Commissioner of Income-tax & Anrs. Vs. Totagars Co-operative Sale Society [(2017) 395 ITR 611 (Karn.) had categorically held that deduction u/s 80P(2)(d) of the I.T.Act is only for income received on investments with a Co-operative Society and not a Co-operative Bank. Whereas earlier Bench of the Hon’ble Karnataka High Court in the case of Principal Commissioner of Income-tax & Anrs. Vs. Totagars Co-operative Sale Society [(2017) 392 ITR 74 (Karn.) and held that Co-operative Society includes a Co-operative Bank and interest earned from deposits with a Co-operative Bank is also entitled to deduction u/s 80P(2)(d) of the I.T.Act.
7.2 The assessee had specifically raised the contention that the assessee is only a Co-operative Society and not a Co- operative Bank. In the interest of justice and equity, we are of the view that the matter needs to be examined by the A.O. afresh in the light of the certificate issued by the Registrar of Co-operative Societies regarding the status of Trivandrum District Co-operative Bank Limited. Accordingly, the matter is restored to the file of the Assessing Officer to consider whether Trivandrum District Co-operative Bank Limited is a Co-operative Society or not. If the same a Co-operative
ITA No.596/Coch/2017 8 SP No.68/Coch/2017. M/s.Karakulam SCB Limited. Society, the interest received by the assessee from Trivandrum District Co-operative Bank Limited would be entitled to deduction u/s 80P(2)(d) of the I.T.Act. It is ordered accordingly.
Stay Petition No.68/Coch/2017 8. Since we have already adjudicated the ITA No.596/ Coch/2017, the Stay Petition filed by the assessee has become infructuous and we dismiss the same.
In the result, appeal filed by the assessee is allowed for statistical purposes and the Stay Petition is dismissed as infructuous.
Order pronounced on this 29th day of January, 2018.
Sd/- Sd/- (Chandra Poojari) (George George K.) ACCOUNTANT MEMBER JUDICIAL MEMBER
Cochin ; Dated : 29th January, 2018. Devdas* Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The Pr.CIT, Trivandrum. 4. The CIT(A) Trivandrum. 5. DR, ITAT, Cochin 6. Guard file.
BY ORDER,
(Asstt. Registrar) ITAT, Cochin