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TMI Blog2018 (6) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee is a primary agricultural credit society, registered under the Kerala Co-operative Societies Act, 1969. It is carrying on the business of banking / providing credit facilities to its members. For the assessment years 2009-2010 to 2012-2013, the assessments were completed by denying the claim of deduction u/s 80P(2) of the I.T.Act. The Assessing Officer in the impugned orders had disallowed the claim stating that the assessee could not be treated as a primary agricultural credit society as it is engaged in the business of banking and in view of insertion of section 80P(4) with effect from 01.04.2007, the assessee was not entitled to deduction u/s 80P(2) of the I.T.Act. 4. Aggrieved by the assessment orders completed for the assessment years 2009-2010 to 2012-2013, the assessee preferred appeals to the first appellate authority. The first appellate authority following the judgment of the Hon'ble Kerala High Court in the case of The Chirakkal Service Cooperative Bank Ltd. and Others vs. CIT [(2016) 384 ITR 490 (Ker.)] held that the assessee was entitled to deduction u/s 80P(2) of the I.T.Act. Further, the CIT(A) held that interest earned on investments made with sub-tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinguishable? In this case the assessee is a Co-Operative society classified as PACS by the competent authority and not a Co- Operative Bank, and hence the reliance on the above decision seems erroneous. Even going by the reliance placed on the decision of Hon'ble Supreme Court in the case of Karnataka State Co-Operative Apex Bank, our assessee has maintained part of its funds with District Co-Operative Bank. 5. Is not the reliance placed on the decision of ITAT, Cochin Bench on M/s Muttom Service Co- Operative Bank Ltd by the Commissioner of Income Tax(appeals) against law, facts and circumstances of the case? The said decision discusses that the decision of Hon'ble Supreme Court on MIs Totgars Co-Operative Sale Society is not applicable in the case of the assessee, since the activities of both the assessee's are different. This cannot be accepted since exemptions granted under section 80P provides for a common platform for all Co-Operative Societies engaged in any kind of activity. On scrutiny of the decision of Supreme Court in the case of M/s Totgars Co-Operative Sale Society, it is evident that the crux of the decision applies to all the Co- Operative societies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 17.10.2017) 7. We have heard the rival submissions and perused the material on record. The solitary issue for our consideration is whether interest income received by the assessee on investments with sub-treasuries was liable to be assessed under the head "income from other sources" or "income from business". If the same is to be assessed under the head "income from business", the assessee would be entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. We noticed that an identical issue was considered by the Cochin Bench of the Tribunal in the case of The Azhikode Service Co-operative Bank Ltd. & Others (ITA No.261/Coch/2017 & others - order dated 12th July, 2017. The Tribunal after considering the judicial pronouncement, decided the issue in favour of the assessee. The Relevant finding of the Tribunal reads as follows:- "7 I have heard the rival submissions and perused the material on record. The solitary issue for my consideration is whether interest received on investments with sub-treasury is liable to be assessed under the head 'income from other sources' or 'income from business'. If the same is to be assessed under the head 'income from business', the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he condition precedent for the commissioner to invoke the power under Section 263 is that the twin condition should be satisfied. The order should be erroneous and it should be prejudicial to the interest of the revenue." 7.1 From the above judgment of the Hon'ble Karnataka High Court, it is quite clear that a primary agricultural credit society or a primary cooperative agricultural and rural development bank who do not have license from Reserve Bank of India to carry on the business of banking, is not a cooperative bank, hit by the provisions of section 80P(4) of the Act. The judgment of the Hon'ble jurisdictional High Court in the case of Chirakkal Service Co-op Bank Ltd (supra), is also in support of the assessee as regards the grant of 80P deduction. 7.2 In the instant case, the assessee do not posses any banking license from the Reserve Bank of India and is not exclusively carrying on any banking facility; but it is carrying on business of lending money to its members and therefore is covered u/s 80P(2) of the Act. The judgment of the Hon'ble Apex Court in the case of M/s Totgars Cooperative Sales Society Ltd. (supra) relied by the CIT(A) is distinguishable on facts. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was net the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In tact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME- TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., reported in (2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank is one of the activities of the banking as per the Banking Regulation Act. Since the assessee cooperative 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 Cooperative Bank (supra), the order of the Commissioner of Income-tax(A) is upheld." 7.3 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 trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered the rival contentions and perused the orders of the authorities below. Hon'ble Jurisdictional High Court had remitted the appeal back to us with a clear direction to consider circular No.l8/2015, dated 02.11.2015 and judgment of their lordship in the case of Chirakkal Service Co-operative Bank Ltd. vs. CIT 384 ITR 490. Circular No.18/2015, dated 02.11.2015 is reproduced hereunder:- "Subject Interest from Non-SLR securities of Banksreg. It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, "expenses relatable to investment in non- SLR securities need to be disallowed under section 57(i) of the Act as interest on non-SLR securities is income from other sources". 2. Clause (id) of sub-section (1) of section 56 of the Act provides that income by way of interest on securities shall be chargeable to income-tax under the head "Income from other sources", if, the income is not chargeable to income-tax under the head "Profits and gains of business and profession" . 3. The matter has been examined in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Co-operative Bank Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also held that the co-operative societies engaged in providing credit facilities to its members / business of banking had made investments with subtreasuries, co-operative banks and other nationalized banks, was entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received on such investments. The relevant finding of the Hon'ble High Court reads as follows:- "32. In simple terms, the position can be summarized like this. If there is a Co-operative Society, which is carrying on several activities including those activities listed in sub- Clauses (i) to (vii) of Clause (a), the benefit under Clause (a) will be limited only to the profits and gains of business attributable to anyone or more of such activities. But, in case the same Co-operative Society has an income not attributable to anyone or more of the activities listed in sub-Clauses (i) to (vii) of Clause (a), the same may go out of the purview of Clause (a), but still, the Cooperative Society may claim the benefit of Clause (d) or (e) either by investing the income in another Cooperative Society or investing the income in the construction of a godown or warehouse and letting out the same. 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgars struck a different note. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other Co-operative Societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under Clause (d) or (e), as the case may be." 7.4 In the instant case the assessee had made investments with sub-treasuries in the course of its business of banking / providing credit facilities to its members. Therefore, it was entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income that was received on such investments in view of the above judicial pronouncements. It is ordered accordingly. 8. In the result, the appeals filed by the Revenue are dismissed. Cross Objections 9. The Cross Objections at the instance of the assessee are only supporting the orders of the CIT(A). Since we have already dismissed the R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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