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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Prakash Chand Yadav
Asst.Year 2021-2022 Pallippuram Service Co-operative The Income Tax Officer Bank Limited No.1308 Ward 2 v. Alappuzha. 2/342, Pallippuram P.O. Cherthala, Alappuzha-688541. PAN : AACAP9907E. (Appellant) (Respondent) Appellant by :Sri.Alex Antony, CA Respondent by : Smt.Leena Lal, Senior AR Date of Pronouncement : 30.12.2024 Date of Hearing : 09.12.2024 O R D E R
Per Prakash Chand Yadav, JM :
The present appeal of the assessee is arising from the order of the learned Commissioner of Income-tax (Appeals) dated 5th September, 2023 and relates to the assessment year 2021-2022.
Brief facts of the case are that the assessee is a primary agricultural credit society registered under the Kerala Co- operative Societies Act. The main object of the assessee is to provide banking and credit facilities to its members. For the year under consideration, the assessee has filed its return of income on 23rd February, 2022 declaring `Nil’ income. During the course of assessment proceedings, the Assessing Officer observed that the assessee has claimed deduction u/s.80P of . Pallipuram SCB Limited. the Act amounting to Rs.1,64,39,672. The AO issued notice u/s.142(1) of the Act and asked the assessee to submit the bifurcation of interest received from members and non- members. In response thereto the assessee could not file any reply. Therefore, the AO completed the assessment on the basis of material available on record and finally disallowed the deduction of sec.80P(2)(a)(i) to the assessee in respect of miscellaneous income.
Aggrieved with the order of the AO, the assessee preferred appeal before the learned CIT(A) and claimed the deduction of sec.80P(2)(a)(i) in respect of miscellaneous income. The learned CIT(A) by relying upon the judgment of the Hon’ble Karnataka High Court in the case of Pr.CIT & Anr. v. Totagars Co- operative Sale Society reported in (2017) 395 ITR 611 (Kar.), disallowed the claim of the assessee u/s.80P(2)(a)(i) as well as u/s.80P(2)(d) of the Act.
Aggrieved with the order of the ld.CIT(A), the assessee has come up in appeal before us and contended that the claim of the assessee may kindly be allowed in view of the judgment of the Hon’ble jurisdictional High Court in the case of PCIT v. Peroorkada Service Co-operative Bank Ltd. 442 ITR 141 (Ker.) and Sahyadri Co-operative Credit Society Ltd. 301 Taxman 36(Ker.).
The learned Departmental Representative relied upon the orders of the authorities below.
. Pallipuram SCB Limited. 6. We have heard the rival submissions and perused the material on record. We observe that similar issue has been decided by us in the case of Thrissur District Electricity Board Employees Co-op So. Ltd. No.787 v. ITO in (order dated 10.12.2024), wherein we have observed as under:-
“6. We have heard the rival submissions and perused the material available on record. For deciding the issue whether the assessee is entitled for deduction u/s.80P(2)(a)(i), a reference can be made to the judgment of the Hon’ble Supreme Court in the case of Totagar’s Co-operative Sale Society Ltd. v. ITO reported in (2010) 322 ITR 283 (SC). The Hon’ble Apex Court in para 11 of the judgment, has observed as under:- “11. An alternative submission was advanced by the assessee(s) stating that, if interest income in question is held to be covered by section 56 of the Act, even then, the assessee-society is entitled to the benefit section 80P (2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80P (2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to section 80HHC, section 80HHD(3) and section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject- matter. For example, section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of section 80HHC is, therefore, different from the scope of section 80P of the Act, which deals with deduction in respect of income of co-operative societies. Even Explanation (baa) to section 80HHC was added to restrict the deduction in respect of profits retained for export business.The words used in Explanation (baa) to section 80HHC, therefore, cannot be cannot be compared with the words used in section 80P of the Act which grants deduction in respect of “the whole of the amount of profits and gains of business”. A number of judgments were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of section 80P of the Act. We find no merit because all the judgments cited were cases relating to co-operative banks and the assessee-society is not carrying on banking business. We . Pallipuram SCB Limited. are confining this judgment to the facts of the present case. To say that the source of income is not relevant for deciding the applicability of section 80P of the Act would not be correct because we need to give weightage to the words “the whole of the amount of profits and gains of business” attributable to one of the activities specified in section 80P(2)(a) of the Act. An important point needs to be mentioned. The words “the whole of the amount of profits and gains of business” emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. In this particular case, the evidence shows that the assessee- society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of “Other income” which has been rightly taxed by the Department under section 56 of the Act.”
8. We further observed that recently Hon’ble jurisdictional High Court in the case of Sahyadri Co- operative Credit Society Ltd. 301 Taxman 36(Ker),after observing that the assessee has not used the surplus funds andafter considering the judgment of Totagar SC(Supra),has gone to the extent of saying that the making of investment is the business activity of the society. The observations of the High Court in Shayadri in Para 8 are reproduced hereunder: - ‘’We also find force in the submission of the learned Senior counsel, distinguishing the decision of theSupreme Court in M/s. The Totgars' Cooperative Sale Society Limited (supra), on the ground that theCourt in that case had found that the Society concerned had appropriated amounts forming part of surplusreceipts which were due to its members, and invested the same to earn interest during the period whenthe surplus receipts were in its hands. It was therefore that the court found that the interest earned bythe Society through deposit of such receipts with banks in fact ought to have accrued to the benefit of theindividual members and not to the Society itself; that in relation to the Society, it was to be treated asincome from other sources since the interest income had lost its nexus with the principal income earnedby the Society. The facts in the instant cases are entirely different and the investment concerned was of amounts that had already attained the character of surplus profits in the hands of the assessee. On this issue, therefore, we find ourselves in agreement with the view taken by the Andhra Pradesh and Karnataka High Courts respectively in The Vavveru Co-operative Rural Bank Ltd. (supra) and Tumkur Merchants Souharda Credit Co- operative Limited (supra).”
While interpretating the provisions of section 80-P Hon’ble Apex Court in the case of Mavilayi reported in 431 ITR 1(SC) has observed as under:- “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”
Following the above decisions we are of the view of the that the matter would go back the file of the AO with to decide the issue afresh after considering the above judgments. We also direct the assessee to file proper bifurcation of miscellaneous income.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 30th day of December, 2024.