THE CHITTATUKARA SERVICE CO OPERATIVE BANK LIMITED NO F 1642,CHITTATTUKARA vs. INCOME TAX OFFICER, GURUVAYUR

Brief facts of the case are that is that appellant is a co- operative society registered under the Kerala State Co-operative Societies Act, 1969. It is engaged in the business of accepting deposits from members and providing credit facilities to members. The appellant society filed the return of income for AY 2020-21 on 13.01.2021 declaring Nil income after claiming deduction u/s. 80P(2)(a)(i) of the Income Tax Act, 1961 (the Act). Against the said Chittatukara Service Co-op. Bank Ltd. return of income, the assessment was completed by the Assessment Unit, Income Tax Department (hereinafter called "the AO") vide order dated 19.09.2022 passed u/s. 143(3) r.w.s. 144B of the Act at total income of Rs. 51,44,838/-. While doing so, the AO disallowed the claim for deduction u/s. 80P(2)(a)(i) of Rs. 51,44,838/- in respect of interest income earned from banks and treasury.

Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.

Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.

I heard the rival contentions and perused the material available on record. Regarding the interest income received from Treasury, Scheduled Banks, etc., this issue is no longer res integra, as it is covered by the judgement of the Hon'ble Jurisdictional High court in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in of 2019, wherein it was held as under: - “ The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount (the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited Chittatukara Service Co-op. Bank Ltd. the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity) does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.”

Respectfully following the above decisions of the Hon'ble Jurisdictional High Court, I hold that the assessee is entitled for deduction under sections 80P(2)(a)(i) of the Act in respect of interest received from Treasury, Scheduled Banks, etc.

In the result, the appeal filed by the assessee is allowed.