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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI SATBEER SINGH GODARA & SHRI AMARJIT SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA.No.703/Coch./2023 Assessment Year – 2018-2019 The Teekoy Service Co-Operative Bank Ltd., KOTTAYAM – 686 580 KERALA. M/s. Jacob & Jacob Income Tax Officer, vs. C.As, 2nd Floor, KOTTAYAM. Municipal Market KERALA. Complex, Market Road, Pala, Kottayam District, KERALA – 686 575. (Appellant) (Respondent) -None- Assessee by : Revenue by : Smt. V. Swarnalatha, Sr. DR Date of Hearing : 20.08.2024 Date of Pronouncement : 07.11.2024 ORDER PER BENCH :
This assessee’s appeal, for the assessment year 2018-2019, arise against the National Faceless Appeal Centre [in short the “NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/2023-
2 ITA.No.703/Coch./2023 24/1055041521(1), dated 10.08.2023, in proceedings u/s.143(3) of the Income Tax Act, 1961 (in short “the Act”).
Case called twice. None appears at assessee’s behest. It is accordingly proceeded ex-parte.
The assessee pleads the following substantive grounds in the instant appeal :
I. Denial of deduction u/s 80P(2)(a)(i) on interest received from other co-operative societies/banks
1.1. The Assessing Authority disallowed the deduction amounting to Rs.2,67,99,330/- claimed under section 80P(2)(a)(i) by the appellant while making the assessment. 1.2. Against this disallowance your appellant filed an Appeal before the Honorable Commissioner of income Tax (Appeals), National Faceless Appeal Centre (NFAC). Delhi. 1.3. The Honorable Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi while passing the order u/s 250 allowed the appellants claim for deduction under section 80P(2)(a)(i).
3 ITA.No.703/Coch./2023 1.4. But the Honorable Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi went wrong by ordering that the interest received on deposits shall be taxed under the head 'income from other source'. 1.5. The learned CIT (A) ought to have seen that by virtue of section 80P(2)(a)(i) in the case of a cooperative society carrying on the business of banking or providing credit facilities to its members, whole of the profits and gains attributable to such activities is eligible for deduction. If the income is derived by a cooperative society from the business of banking or providing credit facility to its members, it will fall within the exemption. In the case of CIT vs Karnataka State Cooperative Apex Bank, reported in (2001) 251 ITR 194 (SC), it was held that interest from surplus funds kept as deposits in banks, being ancillary and incidental to the carrying on of the business of providing credit facility by the assessee cooperative society to its members is entitled to deduction u/s 80P(2)(a)(i). In banking business, it is normal to invest money in a manner that are readily available and that is
4 ITA.No.703/Coch./2023 just as much as a part of the mode of conducting banking business as receiving deposits of or lending money. The returns following from them would form part of its profits from its business. 1.6. In the case of CIT v. Nawanshahar Central Co-Operative Bank Ltd. [2007] 160 Taxman 48 (SC), the apex court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and gains of business and profession". 1.7. Circular No.18/2015 dated 02/11/2015 clearly state that interest from deposits on Non- SLR securities are taxable under the head 'Income from Business' and are eligible for deduction under section 80P(2)(a)(i) in case of co-operative banks/societies carrying on the business of banking. It further states that the issue is well settled. (Copy of Circular No.18/2015 dated 02/11/2015 is attached herewith as Exhibit No. 5)
5 ITA.No.703/Coch./2023 1.8. The Hon'ble Income Tax Appellate Tribunal, Cochin Bench in The Kizhathadiyoor Service Co-Operative Bank Ltd. Vs. The Income Tax Officer in ITA No.525/Coch/2014 dated 20/07/2016 held that the investment in treasury/bank and earning interest on the same is part of banking activity and the said income is eligible for deduction u/s. 80P(2) )(a)(i) of the Act. (Copy of the Order of The Kizhathadiyoor Service Co-Operative Bank Ltd. Vs. The Income Tax Officer in ITA No.525/Coch/2014 dated 20/07/2016 is attached herewith as Exhibit No. 6) 1.9. The Hon'ble Income Tax Appellate Tribunal, Cochin Bench in Mutholy SCB v. ITO Ward 4, Kottayam in ITA No.11/Coch/2014 dt.23/03/2017 held that interest income earned by an assessee co-operative society providing credit facilities to its members from its deposits placed in sub-treasury and banks etc. are eligible for deduction under Section 80P(2)(a)(i). (Copy of the Order of Mutholy SCB v. ITO Ward 4, Kottayam in ITA No 11/Coch/2014 dt. 23/03/2017 is attached herewith as Exhibit No. 7)
6 ITA.No.703/Coch./2023 2. For these and other grounds that may be urged at the time of the hearing, it is prayed that the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi be modified and appropriate reliefs may be granted.”
We now coming to the assessee’s sole substantive grievance challenging both the learned lower authorities action disallowing it’s sec.80P deduction for the first and foremost reason that it has in fact a co-operative bank than a credit cooperative society as per The Mavilayi Service Co-operative Bank Ltd. & Ors. vs. CIT [2019] 414 ITR 67 (FB) (Ker.). The Revenue could hardly dispute the clinching fact that hon’ble apex court’s subsequent decision in Mavilayi Service Co-oprative Bank Ltd., vs. CIT [2021] 431 ITR 1 (SC) and Kerala State Cooperative Cooperative Agricultural and Rural Development Bank [2023] 458 ITR 384 (SC) have settled the very issue in assessee’s favour and against the department that the impugned deduction could not be disallowed once the taxpayer concerned neither carries any banking business with general public nor does it have any corresponding banking license issued by the Reserve Bank of India {“RBI”] under the
7 ITA.No.703/Coch./2023 Banking Regulation Act, 1949. We wish to make it clear that there is no such material supporting the Revenue’s case regarding the foregoing twin conditions. We thus reject the Revenue’s instant first and foremost technical argument.
The Revenue’s second substantive argument quotes PCIT & Anr. vs. Totagars Cooperative Sales Society [2017] 395 ITR 611 (Kar.) and The Totagars Cooperative Sales Society vs. ITO [2010] 322 ITR 283 (SC) that the assessee’s interest income derived from deposits in cooperative bank(s) could not be treated as it’s regular business income so as to be eligible for the impugned sec.80P deduction which could hardly dispute that hon’ble jurisdictional high court’s recent decision in PCIT v. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker) has settled the very issue in assessee’s favour therby concluding that such interest income derived from cooperative bank(s) and similar other institution(s) indeed qualifies for the impugned deduction.
The Revenue’s third vehement contention is that the assessee had already violated the relevant cap regarding loans extended to agricultural sector and therefore, it is an instance of diversion of agricultural loans to non-agricultural purposes which renders it as not eligible for sec.80P deduction claim. We are of the
8 ITA.No.703/Coch./2023 considered view that their lordships’ above stated decision in Mavilayi Service Co-operative Bank Ltd., vs. CIT [2021] 431 ITR 1 (SC) has already settled the issue against the department seeking to impose such a cap on credit facility(ies) extended to member(s). We accordingly conclude that the assessee is indeed entitled for claiming the impugned sec.80P deduction herein. Learned Assessing Officer is directed to compute assessee’s income in very terms as per law. Ordered accordingly. 6. This assessee’s appeal is allowed in above terms.
Order pronounced in the open court on this 7th day of November, 2024.
Sd/- Sd/- (AMARJIT SINGH) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Cochin ; Dated : 7th November, 2024. VBP/- Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT Concerned. 4. The DR, ITAT, Cochin. 5. Guard File. Asst.Registrar/ITAT, Cochin