KUNDAYAM SERVICE CO-OP BANK LTD,KOLLAM vs. THE ITO,WD-4,, KOLLAM

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ITA 415/COCH/2018Status: DisposedITAT Cochin08 March 2023AY 2014-15Bench: SHRI GEORGE GEORGE K. (Judicial Member), Ms. PADMAVATHY S. (Accountant Member)7 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the interest income of Rs. 20,91,034 earned by the assessee from investments in the District Co-op. Bank and Sub-treasuries is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Tribunal reasoned that for a cooperative bank, earning interest on such investments constitutes a banking activity. It distinguished the Supreme Court's decision in Totgar Cooperative Sales Society, stating it was not applicable to cooperative societies whose business is banking. The Tribunal relied on its own previous decisions in The Kizhathadiyoor Service Coop Bank Ltd. vs. ITO and Ms. The Kizhathadiyoor Service Co-operative Bank Ltd., which held that interest earned on investments with sub-treasuries and banks was eligible for deduction under Section 80P(2)(a)(i). The AO was directed to grant the deduction. The issue regarding deduction under Section 80P(2)(a)(i) for primary agricultural credit society activities was implicitly allowed by the CIT(A) and not challenged by the revenue before the Tribunal.

What were the facts?

The assessee, Kundayam Service Co-operative Bank Ltd., filed its return for Assessment Year 2014-15 declaring NIL income after claiming deduction under Section 80P. The Assessing Officer (AO) denied this deduction, treating interest of Rs. 20,91,034 from deposits with Kollam District Co-op. Bank as income from other sources and Rs. 1,57,33,033 from money lent to non-members as business income. The CIT(Appeals) granted relief regarding denial of deduction under Section 80P(2)(a)(i) for primary agricultural credit society activities but upheld the addition of Rs. 20,91,034. The assessee's appeal to the Tribunal was initially dismissed in limine due to a delay, but the Kerala High Court directed the Tribunal to condone the delay and decide the appeal on merits. The AO's denial of deduction for interest income from the District Co-op. Bank was based on the assessee acting as an ordinary investor, not attributable to its main activities, and was confirmed by the CIT(A) citing the Supreme Court decision in Totgar Cooperative Sales Society.

What were the issues?

1. Whether the interest income of Rs. 20,91,034 received by the assessee from deposits with Kollam District Co-op. Bank is eligible for deduction under Section 80P of the Income Tax Act, 1961, or is to be treated as income from other sources. The assessee contends that as a cooperative bank, earning interest from investments in other cooperative societies and banks is part of its banking activity and thus eligible for deduction. The revenue argues that this interest income is not operational income and relies on the Supreme Court decision in Totgar Cooperative Sales Society. 2. Whether the assessee, being a primary agricultural credit society, is entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee claims entitlement based on its categorization. The revenue's stance on this specific point is not explicitly recorded, but the AO denied the benefit of Section 80P generally for the disputed interest income.

Which sections of the Income-tax Act were involved?

Section 80P,Section 80P(2)(a)(i),Section 80P(2)(d)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BENCH : COCHIN

Before: SHRI GEORGE GEORGE K. & Ms. PADMAVATHY S.

For Appellant: Shri Santosh P. Abraham, CA
For Respondent: Smt. JM Jamuna Devi, Sr. AR

O R D E R

Per Padmavathy S, Accountant Member:

1.

This appeal is arising at the instance of the decision of the Hon’ble Kerala High Court dated 7.6.2019 in ITA No.29/2019.

2.

The assessee is a cooperative society registered under the Kerala Co-operative Societies Act, 1969 and categorised as primary agricultural credit society by the Registrar of Co- operative Societies, Govt. of Kerala.

3.

The assessee filed a return of income for the AY 2014-15 on 19.12.2015 declaring NIL income after claiming deduction u/s. 80P. The case was selected for scrutiny. During the course of hearing, the AO denied the benefit of section 80P to the assessee where he has treated the interest received by the assessee out of deposits with Kollam District Co-op. Bank amounting to Rs.20,91,034 as income from other sources and a sum of Rs.1,57,33,033 as income from business which is arising out of money lent to non-members. Aggrieved, the assessee filed appeal before the CIT(Appeals).

4.

The CIT(A) gave relief with respect to denial of deduction u/s. 80P(2)(a)(i) by relying on the decision of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-op. Bank Ltd. v. CIT, dated 15.2.2016 by holding that the assessee being the Primary Agricultural Credit Society is entitled for deduction u/s. 80P(2)(a)(i). With regard to the income earned from District Co-op. Bank and Sub-treasuries for an amount of Rs.20,91,034 the CIT(A) sustained the addition. Aggrieved, the assessee preferred an appeal before the Tribunal.

The assessee before the Tribunal filed the appeal with a 5. delay of 132 days. The Tribunal vide order in 30.10.2018 declined to condone the delay and dismissed the appeal in limine. An appeal was preferred before the Hon’ble High Court of Kerala where the High Court directed the Tribunal to condone the delay and admit the appeal which shall be disposed of afresh on merits.

Accordingly, the appeal is arising to consider the issue on merits.

6.

With regard to the interest income of Rs.20,91,034, the AO treated the same as income from other sources for the reason that the assessee has invested the surplus funds as an ordinary investor and that the interest income is not attributable to the main activities of the assessee. The AO accordingly denied deduction claimed u/s.80P to this extent. The CIT(A) confirmed upheld the addition made by the AO by stating that the interest income is not the operational income of the assessee and relied on the decision of the Hon’ble Supreme Court in the case of Totgar Cooperative sales Society (322 ITR 283 (SC).

7.

We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of The Kizhathadiyoor Service Coop Bank Ltd. Vs. ITO in dated 20.7.2016, wherein held as under:

“7 We have heard the rival submissions and perused the material on record. The details of the total interest and how the AO had treated them as incomes from ‘other sources’ are tabulated below:

Interest from cooperative societies AY 2009-10 Meenachil Taluk Cooperative Employees Coop Society 22,67,391/- MRMPCS cooperative society 11,41,250/- Kerala State Cooperative Consumer Federation 6,18,749/- Rubco Cooperative Society 1,63,864/- Raidco Cooperative Society 7,78,356/- Kottayam District Cooperative bank 2,90,37,290/- Kerala State Cooperative Rubber Mktg Federation 3,00,000 Monipally Mktg Cooperative Society 2,81,250/- Poovarany Service Coop Bank Ltd 0 Thindanad Service Coop Bank Ltd 0 Sun Total (1) 3,45,88,150/- Interest from Treasury and banks Sub treasury Meenachil 2,58,708/- The South Indian Bank Ltd 6,54,446/- State Bank of Travancore 0 Sub Total(2) 9,13,154/- Interest received Grand total (1) + (2)Rs. – (A) 3,55,01,304 Total receipts as shown in the assessment order Rs.- (B) 18,03,17,783/- Gross total income as per Assessment order Rs. – ( C) 42,02,695/- Percentage of interest received to total receipts 19.69% (A)/(B)x100 – (D) Income assessed as I come from other sources (C) x (D) Rs.8,27,510/- i.e (E)

From the above, it is clear that a major portion of the investment income was interest receipt from other cooperative societies. Section 80P(2(d) provides for deduction in respect of any income by way of interest or dividend derived by a cooperative society from its investment in another cooperative society. Therefore, interest income received from other cooperative societies are eligible for deduction u/s 80P(2)(d) of the act and cannot be assessed as “income from other source.” As regards the interest from treasury and banks, we find on identical facts, the Cochin Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd in had decided the matter in favour of the assessee. The Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Bank Ltd (supra) has distinguished the judgment of the Hon’ble Apex Court in the case of Totgar’s Cooperative Sale Society Ltd (supra). The relevant finding of the coordinate Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd (supra) read as follows: “5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totgar’s Co-operative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co- operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar’s Co-operative Sale Society Ltd vs ITO (supra), the assessee co-operative society was to provide credit facility to its members and market the agricultural produce. The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in Totgar’s Co-operative Sale Society Ltd (supra) is not applicable in respect of the co-operative society whose business is banking. Admittedly, the assessee has invested funds in state promoted treasury small savings fixed deposit scheme. Since Government of India has withdrawn India Vikas Patra, as a small savings instrument, funds invested at the discretion of the bank is one of the activities of the banking as per the Banking Regulation Act. Since the assessee co-operative society is in the 4 business of banking the investment in the state promoted treasury small savings fixed deposit certificate scheme is a banking activity, therefore, the interest accrued on such investment has to be treated as business income in the course of its banking activity. Once it is a business income, the assessee is entitled for deduction u/s 80P(2)((a)(i). therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Cooperative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Co- operative Bank (supra), the order of the Commissioner of Income-tax(A) is upheld.” In the instant case, the assessee is a cooperative Bank. The investment in treasury/banks and earning interest on the same is part of the banking activity of the assessee’s cooperative bank. Therefore, the said income is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, the Income Tax Authorities were not justified in treating interest income received by the assessee as ‘income from other source’ and denying the benefit of section 80P(2) of the Act. It is ordered accordingly. 8. In the result, the appeal filed by the assessee is allowed.”

8.

Further, it is noted that in the case of Ms. The Kizhathadiyoor Service Co-operative Bank Ltd. in dated 23.7.2018, the Tribunal held as under:-

7. The only other ground in is with regard to the issue whether interest earned on investment with sub- treasuries and Banks was eligible for deduction u/s 80P(2)(a)(i) of the I.T. Act. 7.1 We have heard the rival submissions and perused the material on record. The Tribunal had decided the issue in favour of the assessee in assessee’s own case in in ITA No.525/Coch/2014 (order dated 20.7.2016) concerning the assessment year 2009-10. In view of the above order of the Tribunal in assessee’s own case, we hold that the CIT(A) is justified in directing the Assessing Officer to grant deduction in respect of interest income earned on investment in sub- treasuries and bank deposits u/s 80P(2)(a)(i) of the Act.

9.

Respectfully following the above decisions of the coordinate bench, we direct the AO to grant deduction in respect of interest income earned on investment in sub-treasuries and bank deposits u/s 80P(2)(a)(i) of the Act.

10.

In the result, the appeal by the assessee is allowed Pronounced in the open court on this 8th day of March, 2023.

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