M/S PERUMBAVOOR URBAN CO-OP BANK LTD,ALUVA vs. THE ITO WARD 2, ALUVA

This is an Appeal by the Assessee agitating the Order dated 23.03.2023 by the Commissioner of Income Tax (Appeals), Income Tax Department [CIT(A)], dismissing the assessee’s appeal contesting it’s assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter "the Act") for Assessment Year (AY) 2018-19 vide order dated 05.05.2021. The assessee has also filed a Stay Application qua the outstanding demand arising in pursuance of the impugned assessment.

The only issue in appeal is the non-grant of deduction u/s. 80P(2)(a)(i) of the Act on interest and dividend incomes received by the assessee, a primary agricultural credit society under the Kerala Co-operative Societies Act, 1969 (Kerala Act) from Ernakulam District Co-operative Bank, at Rs.47,75,444 and Rs. 2,25,000

Before us, the assessee’s case was of the same being in any case deductible u/s. 80P(2)(d) of the Act, as held by the Hon'ble jurisdictional High Court in Pr. CIT vs. Peroorkkada Service Co-operative Bank Ltd. [2022] 442 ITR 141 (Ker).

We have heard the parties, and perused the material on record. The Revenue authorities have, we find, denied the assessee’s claim in view of the decision in Totgar’s Co-operative Sales Society Ltd. vs. ITO [2010] 322 ITR 283 (SC) which, as argued by Shri Ramdas, the learned counsel for the assessee, stands considered in Peroorkkada Service Co-operative Bank Ltd. (supra). The entire premise of the decision in Totgars’ Co-operative Sales Society(supra), is whether the income arising to a society on it’s deposits with other co-operative society/bank arises to it in the normal course of business or is on it’s surplus funds for the time being. The Apex Court found it to be latter, so that the income was not assessable under section 28 of the Act, i.e., as business income, but only as income from other sources, as was by the Revenue u/s. 56 of the Act. The issue of the same being, in the alternative, deductible u/s.80P(2)(d) of the Act did not come up for consideration before it. Even if, therefore, as the Revenue contends, the income arises to the assessee on it’s surplus funds and, accordingly, is assessable u/s. 56 of the Act, the same, where otherwise eligible, stands to be deducted u/s.80P(2)(d) of the Act. Continuing further, whether assessable as business income or otherwise, where the same forms part of the gross total income, the same, on satisfaction of the condition/s therefor, would qualify for deduction under the relevant clause of section 80P of the Act. The matter has been explained by the Cochin Bench per it’s decisions in Mundakkayam SCB Ltd. v. ITO (ITA No. 73/Coch/2023, dated 28.12.2023) and ITO v. The Adichanalloor Farmers SCB Ltd. & Ors. (ITA No. 134/Coch/2019& Ors., dated 31.08.2023), also expressing it’s view in its respect, even as the decision in Page 2

In the result, the assessee’s appeal is allowed and the stay application is dismissed as infructuous.