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TMI Blog2018 (9) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments made with Sub-Treasuries, Banks etc. 3. Brief facts of the case are as follows:- 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 under consideration, the assessments were completed by treating interest income received from investment with treasury and bank as income from other sources; thereby denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act. 4. Aggrieved by the assessment orders completed, the assessee preferred appeals to the first appellate authority. The CIT(A) following the order of the Cochin Bench of the Tribunal in the case of Kizhathadiyoor Service Co-operative Bank Ltd. for assessment year 2009-2010 in ITA No.525/Coch/2014 (order dated 20.07.2016) decided the issue in favour of the assessee. The CIT(A) held that interest income earned on investment made with Treasury and Banks are part of the banking activity of assessee and therefore the said income was eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. 5. The Revenue being aggrieved by the orders of the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ana And Andhra Pradesh High Court) (iii) Muttom Service Co-operative Bank Ltd. (ITA No.372/Coch/2010) (iv) Mundakkayam Service Co-operative Bank Ltd. (ITA No.106/Coch/2016). (v) The Mangalam Service Co-operative Bank Ltd. v. ITO (ITA No.495/Coch/2017 - order 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 and banks 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(1) to such society, Therefore, there was no error committed by the Assessing Authority. The said order was not prejudicial to the interest of the Revenue. The 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 faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was invested In a short-term Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety 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 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 investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved on investments with sub-treasuries and cooperative banks was entitled to the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. The relevant finding of the Tribunal subsequent to the remand by the Hon'ble High Court (order dated 23.03.2017) reads as follows:- "4. We have 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly. 5. In the result, the appeal of the assessee stands allowed. Order pronounced in the open court on 23-03-2017." 7.3 The latest judgment of the Hon'ble Telangana & Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. v CIT (supra) had also decided on identical issue in favour of the assessee. The Hon'ble High Court had held that co-operative societies engaged in providing credit facilities to its members had in course of business made investments with treasury, bank etc. and earned interest income, such income was eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by 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 and banks 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 inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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