M/S. KERALA STATE CO-OP.AGRICULTURAL & RURAL DEVELOPMENT BANK LTD. vs. COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM FRIDAY, THE 24TH DAY OF SEPTEMBER 2021 / 2ND ASWINA, 1943 ITA NO. 30 OF 2017 AGAINST THE ORDER IN ITA 101/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM. BY ADVS. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPT SRI.K.M.V.PANDALAI INCOME TAX DEPARTMENT RESPONDENT/S: KERALA STATE CO-OPERATIVE AGRICULTURAL & RURAL DEVELOPMENT BANK LTD STATUE, THIRUVANANTHAPURAM-695001(AAAAK4391F) BY ADVS. JOSE JACOB JAZIL DEV FERDINANTO THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 24.09.2021, ALONG WITH ITA.2/2017, 6/2017 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.2, 6, 30 & 31/2017 -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM FRIDAY, THE 24TH DAY OF SEPTEMBER 2021 / 2ND ASWINA, 1943 ITA NO. 2 OF 2017 AGAINST THE ORDER/JUDGMENT IN ITA 182/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: M/S. KERALA STATE CO-OP.AGRICULTURAL & RURAL DEVELOPMENT BANK LTD., TRIVANDRUM, REPRESENTED BY ITS GENERAL MANAGER & AUTHORISED SIGNATORY APARNA PRATHAP BY ADV SRI.JOSE JACOB RESPONDENT/S: COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, KOWDIAR, TRIVANDRUM 695 001 OTHER PRESENT: SC CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 24.09.2021, ALONG WITH ITA.30/2017 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.2, 6, 30 & 31/2017 -3- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM FRIDAY, THE 24TH DAY OF SEPTEMBER 2021 / 2ND ASWINA, 1943 ITA NO. 6 OF 2017 AGAINST THE ORDER IN ITA 26/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: KERALA STATE CO-OPERATIVE AGRICULTURAL & RURAL DEVELOPMENT BANK LTD TRIVANDRUM, REPRESENTED BY ITS MANAGING DIRECTOR & AUTHORISED SIGNATORY DR. P.SURESH BABU IAS. BY ADV SRI.JOSE JACOB RESPONDENT/S: COMMISSIONER OF INCOME TAX AAYAKAR BHAVAN, KOWDIAR, TRIVANDRUM-695001. SC CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 24.09.2021, ALONG WITH ITA.30/2017 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.2, 6, 30 & 31/2017 -4- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM FRIDAY, THE 24TH DAY OF SEPTEMBER 2021 / 2ND ASWINA, 1943 ITA NO. 31 OF 2017 AGAINST THE ORDER IN ITA 236/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM BY ADVS. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPT SRI.K.M.V.PANDALAI INCOME TAX DEPARTMENT RESPONDENT/S: M/S. KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD. STATUE, THIRUVANANTHAPURAM-695001.(AAAAK4391F) BY ADVS. JOSE JACOB JAZIL DEV FERDINANTO THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 24.09.2021, ALONG WITH ITA.30/2017 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.2, 6, 30 & 31/2017 -5- J U D G M E N T [ITA Nos.30/2017, 2/2017, 6/2017, 31/2017] S.V. Bhatti, J. Heard learned Advocates Mr Jose Jacob and Mr Christopher Abraham for parties. 2. The assessee and the Revenue being aggrieved by the orders of the Income Tax Appellate Tribunal on the issues arsing in the returns filed for the Assessment Years 2010-11 and 2011-12, have filed the four appeals. The details of the Assessment Years, appeals etc are stated in the following tabular form: Appeals filed by the assessee

ITA Nos.2, 6, 30 & 31/2017 -6- Sl. No. Assessment Year & Date of Assessment Order Order of Commissioner of Income Tax (Appeals) Income Tax Appellate Tribunal ITA No. 1 2010-11; dtd.19.03.2013 ITA NO.10/CIT(A), TVM/2013- 14 DT.30.01.2015 ITA NO.182/COCH/2015 DTD 03.11.2016 02/2017 2 2011-12; dtd.30.12.2013 ITA NO.115/TVM/CIT(A), TVM/2013-14 DT.28.11.2014 ITA NO.26/COCH/2015 DTD 03.11.2019 06/2017 Appeals filed by the Revenue Sl. No. Assessment Year & Date of Assessment Order Order of Commissioner of Income Tax (Appeals) Income Tax Appellate Tribunal ITA No. 1 2010-11; dtd.19.03.2013 ITA NO.10/CIT(A), TVM/2013- 14 DT.30.01.2015 ITA NO.101/COCH/2015 DTD 03.11.2016 30/2017 2 2011-12; dtd.30.12.2013 ITA NO.115/TVM/CIT(A), TVM/2013-14 DT.28.11.2014 ITA NO.236/COCH/2015 DTD 03.11.2019 31/2017 3. ITA No.2/2017 and ITA No.30/2017 are treated as representative appeals for disposing of the four appeals. The questions of law raised in these appeals are excerpted

ITA Nos.2, 6, 30 & 31/2017 -7- hereunder: ITA No.2/2017 a. Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified in treating the Appellant as a co-operative bank' and denying the benefit under Section 80P(2)(a)(i) of the Act, without considering the fact that the Appellant does not fall within the definition of meaning assigned to 'co-operative bank' in Part V of the Banking Regulation Act, 1949 (10 of 1949)? b. Whether the Appellate Tribunal has failed to appreciate that the Appellant, not being a primary cooperative bank, central cooperative bank or a state cooperative bank, is not a co- operative bank and accordingly cannot be denied the benefit conferred on a cooperative society under Section 80P of the Act? c. Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified in treating the Appellant as a 'co-operative bank' and denying the benefit under Section 80P(2)(a)(i) of the Act, without considering the Information received under RTI from the Registrar of Co- operative Societies and NABARD stating that the Appellant is not a 'co-operative bank' and instead is a 'State Land Development Bank' in accordance with Section 2(v) of NABARD

ITA Nos.2, 6, 30 & 31/2017 -8- Act, 1981 or a 'Co-operative Credit Society' in accordance with Section 5(ccii) of Part V of Banking Regulations Act, 1949? d. Whether the Appellate Tribunal committed an error in failing to appreciate that the Appellant is a 'State Land Development Bank' as defined under NABARD Act, 1981 which is distinct from the "Co operative Bank"? e. Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified in not allowing deduction of contributions made to Staff Retirement Benefit Fund under Section 37 of the Act which is a special fund set up purely as a welfare measure for the benefit of employees which is also approved by the Registrar of Cooperative Societies? f. Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified in not allowing deduction of the contributions made to Staff Retirement Benefit Fund to the extent of actual withdrawals made by the employees from the Staff Retirement Benefit Fund solely for the reason that the same was not raised before any income tax authorities before? g. Whether a disallowance under Section 40A(9) of the Act, leading to additions in the "profits of business" is susceptible to taxation independently, if the Appellant would be entitled to a complete deduction of income from "Profit of business" available to a cooperative society under Section 80P of the Act?

ITA Nos.2, 6, 30 & 31/2017 -9- ITA No.30/2017 (i) After having held in the appeal filed by the assessee that the assessee is not entitled for the deduction under section 80P(2) (a)(i), is not the Tribunal contradicting itself when it holds that the assessee is entitled for deduction under section 80P(2)(a)(i) as a State Development Bank. Is not such an order perverse? (ii) Is not the decision of the Tribunal contrary to law and perverse, especially in view of the observation of the Madras High Court in CIT Vs Madras Autorickshaw Drivers' Co- operative Society Ltd. [1983] 143 ITR 981 (MAD) which is affirmed by the Apex Court in [2001] 249 ITR 330(SC): "The tax relief under section 80P(2)(a)(i) is a grant by Parliament not to a category of income but to a category of assessee, namely a co- operative society answering the description of a society engaged in carrying on the business of providing credit facilities to its members. If the society in question does not answer this description, it is not entitled to relief. For invoking or applying this provision, it is not permissible to make a break-up of the income of the society as so much derived from the provision of credit facilities and so much from other income." (iii) In view of the finding of this Hon'ble High Court in its decision in the case of very same assessee in respect of AY 2007-08 reported in 383 ITR 610 (Kerala) that the assessee is

ITA Nos.2, 6, 30 & 31/2017 -10- neither a primary agricultural credit society or a Primary Co operative agricultural and rural development bank, has not the ITAT erred in upholding the order of the CIT(A) granting deduction u/s 80P(2)(a)(i) treating it as a 'State Development Bank?” 3.1 The assessee claims deduction under Section 80P(2) of the Income Tax Act, 1961 (for short 'the Act') and the claim was disallowed both by the Tribunal and the authorities as well in the orders referred to in the tabular statement. Hence, the appeals at the instance of the assessee. 3.2 The Tribunal while rejecting the deduction under Section 80P(2) remanded the matter to the Assessing Officer for consideration of assessee's entitlement for deduction as a rural land development bank. Hence, the appeals at the instance of the Revenue. 3.3 The counsel appearing for the parties agreed that the principal claim for deduction of assessee, i.e., entitlement of deduction under Section 80P(2) of the Act, would have bearing

ITA Nos.2, 6, 30 & 31/2017 -11- on the outcome of the appeals filed by the Revenue. ITA No.2 & 6/2017 4. It is matter of record that the assessee claimed deduction under Section 80P(2) of the Act for the Assessment Year 2007-08 and the said claim of assessee was finally considered by this Court in ITA No.103/2011, vide judgment dated 26.11.2015, the appeal of the assessee was dismissed. The assessee filed appeal before the Supreme Court and the matter is pending before the Supreme Court. 4.1 The Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax1 considered the scope, extent and applicability of Section 80P of the Act to co- operative societies registered under the Co-operative Societies Act. The dictum laid down by the Apex Court in Mavilayi Service Co-operative Bank Ltd. case is relied on by the assessee with 1 [2021] 431 ITR 1 (SC)

ITA Nos.2, 6, 30 & 31/2017 -12- considerable force to claim the deduction under Section 80P(2) of the Act notwithstanding the judgment in assessee's own case. The assessee invites our attention to a few details received from the Reserve Bank of India under Right to Information Act and the assessee's standing or status under the National Bank for Agricultural and Rural Development Act, 1981 (for short 'Act 1981'). The judgment of this Court in ITA No.103/2011, it is argued, does not come in the way of this Court following the binding precedent of the Supreme Court in Mavilayi Service Co- operative Bank Ltd. and allow the deduction claimed under Section 80P(2) of the Act. Therefore, the assessee prays for setting aside the orders under appeal and extend the benefit of deduction claimed under Section 80P(2) of the Act to the assessee. 5. Per contra, Mr Christopher Abraham contends that the assessee relies on a few details, now furnished by either

ITA Nos.2, 6, 30 & 31/2017 -13- Reserve Bank of India or with reference to Act 1981 and apply the dictum of Mavilayi Service Co-operative Bank Ltd., to the circumstances already considered by the Tribunal and the authorities. He contends that while the Department is not disputing the principle laid down in Mavilayi Service Co-operative Bank Ltd., its applicability to the case on hand with reference to basic circumstances established by the assessee ought to be considered by either the Tribunal or authorities under the Act. 5.1 It is contextual to refer to the following paragraphs from Mavilayi Service Co-operative Bank Ltd. on which substantial reliance has been made by the assessee. “39. The above material would clearly indicate that the limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society as such co-

ITA Nos.2, 6, 30 & 31/2017 -14- operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society shall carry on banking business in India, unless it is a co- operative bank and holds a licence issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. …..... …..... 45. To sum up, therefore, the ratio decidendi of Citizen Co- operative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into section

ITA Nos.2, 6, 30 & 31/2017 -15- 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co- operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.” 5.2 The assessee, by referring to the definition of “Co- operative Bank”; “Central Co-operative Bank”; “State Co- operative Bank”; and “Primary Co-operative Bank” as defined in the Banking Regulation Act, 1949 read with State Land Development Bank in Section 2(v) of the Act 1981, contends that the assessee was and is a Co-operative Society catering to the

ITA Nos.2, 6, 30 & 31/2017 -16- needs of its constituent members, who are none other than the District Level Land Development Banks and the assessee is not into banking business, therefore, is entitled to the deduction of Section 80P(2). 6. We have taken note of the circumstances adverted to above. Firstly, in assessee's own case in ITA No.103/2011, this Court has considered the standing of the assessee vis-a-vis Section 80P(2) of the Act and denied the claim for deduction as a Co-operative Society. The said judgment is in appeal before the Supreme Court. In Mavilayi Service Co-operative Bank Ltd. case, from the paragraphs excerpted above, it is argued by refering to additional details, brought on record that the assessee is entitled to the claim as Co-operative Society registered under the Kerala Co-operative Societies Act, 1969 and merits acceptance of its claim for deduction under Section 80P(2) of the Act. There is consensus in the arguments of both

ITA Nos.2, 6, 30 & 31/2017 -17- sides that even for applying the principle of Mavilayi Service Co- operative Bank Ltd. case, independent of the judgment in ITA No.103/2011, a few details are examined, a finding recorded and then the principle laid down in Mavilayi Service Co-operative Bank Ltd. case could be applied. 6.1 We are of the view that instead of following the assessee's own case in ITA No.103/2011 and dismissing the appeals of the assessee or alternatively follow Mavilayi Service Co-operative Bank Ltd. without examination of a few details and grant the status of Society for enabling the assessee for deduction under Section 80P(2), the matter requires to be reconsidered by the Tribunal. These questions could be answered in favour of the assessee to the limited extent that the matter requires reconsideration by the Tribunal on the claim of assessee as a Co-operative Society and the entitlement to deduction under Section 80P(2) of the Act. The assessee and the

ITA Nos.2, 6, 30 & 31/2017 -18- Department are given liberty to place additional materials, now brought on record in the appeals before the Tribunal for decision and consideration. The questions are answered in favour of the assessee, against the Revenue, resulting in the order under appeal in ITA Nos.2 & 6/2017 being set aside, and remitted to Tribunal for adjudication afresh. ITA Nos.30 & 31/2017 7. The Revenue being aggrieved by the relief granted by the Tribunal, particularly after rejecting the claim of assessee for deduction under Section 80P(2), the alternate prayer which, according to Revenue, is unavailable under the Act and should not have been granted. It is not in dispute that the alternate prayer now granted is definitely dependent on the outcome of entitlement of assessee for deduction under Section 80P(2) of the Act. The consideration of the questions of law now raised

ITA Nos.2, 6, 30 & 31/2017 -19- by the Revenue in these appeals would pre-empt consideration of the issue by the Tribunal. The Assessment Years are same in both the appeals. For facilitating comprehensive adjudication, the portion by which the Revenue is aggrieved is also set aside, matter remitted to Tribunal for decision afresh in accordance with law. The questions in ITA Nos.2, 6 30 and 31/2017 are answered setting aside the portion by which the assessee and the Revenue are aggrieved, and cases remanded to the Tribunal for decision afresh. Sd/- S.V.BHATTI JUDGE Sd/- VIJU ABRAHAM JUDGE jjj

ITA Nos.2, 6, 30 & 31/2017 -20- APPENDIX OF ITA 31/2017 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 OF THE ASSESSING OFFICER DATED 30.12.2013. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THIRUVANANTHAPURAM DATED 28.11.2014. ANNEXURE C TRUE COPY OF THE ORDER OF THE ITAT, COCHIN BENCH, COCHIN IN ITA No. 236/COCH/2015, FOR THE ASST.YEAR 2011-12 DATED 03.11.2016.

ITA Nos.2, 6, 30 & 31/2017 -21- APPENDIX OF ITA 2/2017 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2), TRIVANDRUM FOR THE AY 2010-11 ANNEXURE B TRUE COPY OF THE ASSESSMENT ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2), TRIVANDRUM FOR THE AY 2011-12 ANNEXURE C TRUE COPY OF THE CIT(A) ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TRIVANDRUM FOR THE AY 2010-11 ANNEXURE D TRUE COPY OF THE CIT(A) ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TRIVANDRUM FOR THE AY 2011-12 ANNEXURE E TRUE COPY OF THE ITAT ORDER ISSUED BDY THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN FOR AY 2010-11 AND AY 2011-12 ANNEXURE F TRUE COPY OF THE INFORMATION RECEIVED ON ACCOUNT OF RTI APPLICATIONS MADE TO NABARD, REGISTRAR OF CO-OP SOCIETIES

ITA Nos.2, 6, 30 & 31/2017 -22- APPENDIX OF ITA 6/2017 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2), TRIVANDRUM FOR THE AY 2011-12 ANNEXURE B TRUE COPY OF THE CIT(A) ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TRIVANDRUM FOR THE AY 2011-12 ANNEXURE C TRUE COPY OF THE ITAT ORDER ISSUED BDY THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN FOR AY 2011-12 ANNEXURE D TRUE COPY OF THE INFORMATION RECEIVED ON ACCOUNT OF RTI APPLICATIONS MADE TO NABARD, REGISTRAR OF CO-OP SOCIETIES

ITA Nos.2, 6, 30 & 31/2017 -23- APPENDIX OF ITA 30/2017 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 OF THE ASSESSING OFFICER DATED 19.03.2013. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THIRUVANANTHAPURAM DATED 30.01.2015. ANNEXURE C TRUE COPY OF THE ORDER OF THE ITAT, COCHIN BENCH, COCHIN IN ITA No. 101/COCH/2015, FOR THE ASST.YEAR 2010-11 DATED 03.11.2016.