KANMANAM SERVICE CO-OPERATIVE BANK LTD,MALAPPURAM vs. ITO,WARD 1, MALAPPURAM

Brief facts of the case are that the appellant is a co-operative society registered under the Kerala State Co-operative Societies Act, 1969 and classified as a primary agricultural credit co-operative society. The return of income for AY 2022-23 was filed on 31.10.2022 disclosing Nil income after claiming deduction u/s. 80P Kanmanam Service Co-op. Bank Ltd. of the Income Tax Act, 1961 (the Act) of Rs. 5,23,18,065/-. Against the said return of income, the assessment was completed by the Income Tax Officer,Ward-1, Tirur (hereinafter called "the AO") at a total income of Rs. 4,80,00,619/-. While doing so the AO had denied the claim u/s. 80P(2)(1)(a) of the Act in respect of interest income earned on investments with various banks of Rs. 4,80,00,619/- by holding that said income was not earned either from the members or other co-operative societies. Such interest income is assessable under the head ‘income from other sources’.

Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order held that the interest income from co- operative bank qualifies for deduction u/s. 80P(2)(d) of the Act. However, proceeded to hold that the income from non-co-operative banks, i.e. treasures and other financial institutions of Rs. 2,08,713/- does not qualify for deduction either u/s. 80P(2)(i)(a) of 80P(2)(d) of the Act.

Being aggrieved, the appellant is in appeal before us in the present appeal.

At the outset, we find that there is a delay of 3 days in filing the present appeal. The appellant filed a petition seeking condonation of delay in filing the appeal, wherein it is stated that the delay had occurred due to postal delays. Therefore it is prayed that the delay in filing the appeal may be condoned and the appeal may Kanmanam Service Co-op. Bank Ltd. be admitted for adjudication. On a perusal of the averments made in the condonation petition, it is evident that the appellant is prevented by reasonable cause from filing the appeal. Therefore, we condone the delay and admit the appeal for adjudication.

We have heard 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 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 Kanmanam Service Co-op. Bank Ltd. intended to discourage prudent financial conduct on the part of an assessee.”

Respectfully following the above decisions of the Hon'ble Jurisdictional High Court we hold that the assessee is entitled for deduction under sections 80P(1)(a) of the Act on account of interest received from scheduled banks and Treasury.

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