KUNDAYAM SERVICE CO-OP BANK LTD,KOLLAM vs. THE ITO,WD-4,, KOLLAM
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Income Tax Appellate Tribunal, BENCH : COCHIN
Before: SHRI GEORGE GEORGE K. & Ms. PADMAVATHY S.
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH : COCHIN BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND Ms. PADMAVATHY S., ACCOUNTANT MEMBER
ITA No.415/Coch/2018 Assessment Year : 2014-15
Kundayam Service Co-operative Bank Ltd., Vs. The Income Tax Officer, Kundayam P.O., Ward 1(2), Pathanapuram, Kollam. Kollam. PAN : APPELLANT RESPONDENT
Assessee by : Shri Santosh P. Abraham, CA Revenue by : Smt. J M Jamuna Devi, Sr. AR
Date of hearing : 02.03.2023 Date of Pronouncement : 08.03.2023
O R D E R Per Padmavathy S, Accountant Member: 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.
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.
The assessee filed a return of income for the AY 2014-15 on 19.12.2015 declaring NIL income after claiming deduction
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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).
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, ITA No.212/2013 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 ITA No.415/Coch/2018 dated 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.
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Accordingly, the appeal is arising to consider the issue on merits.
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).
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 ITA No.525/Coch/2014 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:
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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 ITA No. 372/Coch/2010 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
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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 ITA No.372/Coch/2010 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
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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.”
Further, it is noted that in the case of Ms. The Kizhathadiyoor Service Co-operative Bank Ltd. in ITA No.140/Coch/2018 dated 23.7.2018, the Tribunal held as under:-
“7. The only other ground in ITA No.140/Coch/2018 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.
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In the result, the appeal by the assessee is allowed
Pronounced in the open court on this 8th day of March, 2023.
Sd/- Sd/-
( GEORGE GEORGE K ) ( PADMAVATHY S ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore, Dated, the 8th March, 2023. /Desai S Murthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar, ITAT, Bangalore/Cochin.
