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TMI Blog2018 (6) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The reason for denying the claim of deduction u/s 80P(2) of the Act was that the assessee was doing the business of banking and in view of insertion of sub section(4) to section 80P of the Income-tax Act, w.e.f. 01.04.2007, the assessee is not entitled to the benefit of section 80P(2) of the Income-tax Act. 4. Aggrieved by the order of the Assessing Officer denying the benefit of deduction u/s 80P(2) of the Act, the assessee preferred appeal to the first appellate authority. The CIT(A), following the judgment of the Hon'ble jurisdictional High Court in the case of Chirakkal Service Co-op Bank Ltd vs CIT reported in 384 ITR 490, allowed the claim of deduction u/s 80P(2) of the income-tax Act. However, with regard to interest received on deposits with Sub Treasury, amounting to Rs. 14,51,262, the CIT(A) held the same to be income from other sources and not income from business, thereby denied the benefit of deduction u/s 80P of the income-tax Act for Rs. 14,51,262. In taking the above view, the CIT(A) relied on the judgment of the Hon'ble Apex Court in the case of M/s Totgars Cooperative Sales Society Ltd vs ITO reported in 322 ITR 283. The relevant findings of the CIT(A) in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamamitha vs ITO has clearly answered the issue. The Hon'ble High Court, after considering the amendment introduced by Finance Act 2006 w.e.f 1.4.2007 (insertion of section 80P(4) of the income-tax Act, had rendered the following findings: "Therefore, the intention of the legislature is clear. If a cooperative bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Cooperative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary cooperative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary cooperative agricultural and rural development bank. They did not want to extend the said benefit to a Cooperative bank which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, as the assessee is not a Co- operative bank carrying on excursively banking business and as it does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activity mentioned in section 80P(2)(a)(i) or u/s 80P(2)(a)(iii) of the Act. This distinguishable feature has been taken note by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd in ITA No.307 of 2014 ( judgment dated 28th Oct 2014). The Hon'ble Karnataka High Court was considering the following substantial question of law: "Whether the Tribunal failed in law to appreciate that the interest earned on short term deposits were only investment in the course of activity or providing credit facilities to members and that the same cannot be considered as investment made for the purpose of earning interest income and consequently passed a perverse order?" 6.3 In answering the above question of law, the Hon'ble Karntaka High Court distinguished the judgment of the Apex Court in the case of Totgars Cooperative Sales Society Ltd (supra) and rendered the following findings: "9. In this context when we look at the judgment of the Apex Court in the case of M/s Totgars Cooperative Sales society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Kizhathadiyoor Service Cooperative Bank (supra) in ITA No. 525/Coch/2014, read as follows: "7.2 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 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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