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TMI Blog2018 (9) TMI 1550X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investments - Decided in favour of assessee. - ITA No.189/Coch/2018, CO No.47/Coch/2018, ITA No.192/Coch/2018, CO No.41/Coch/2018 - - - Dated:- 18-9-2018 - Shri Chandra Poojari, AM Shri George George K, JM For the Revenue : Smt. A.S.Bindhu For the Assessee : Sri.P.Anil ORDER PER GEORGE GEORGE K., JM These appeals at the instance of the Revenue and the Cross Objections filed by the assessees are directed against separate orders of the CIT(A). Since common issue is raised in these appeals and cross objections, they were heard together and are being disposed off by this consolidated order. 2. The solitary issue that is raised in these appeals is whether the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received by the assessee on investments made with Sub-Treasuries, Banks etc. 3. Brief facts of the case are as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such interest income earned by assessee would come in category of 'income from other sources' taxable U/S 56 of the income tax act and would not quality for deduction as business income 80P (2)(i). 4. The Ld. CIT (A) ought to have noticed that, in a communication received from the office of the PCCIT, Kochi on 13/12/2016, it has been informed that the department has filed SLP before SC in the case of M/s Karakulam Service Co-operative Bank Ltd., and the judgment is awaited. 5. For these and other grounds that may be advanced at the time of hearing, the order of the learned Commissioner of Income tax (Appeals) on the above points may be set aside and that of the Assessing Officer restored. 6. The learned Departmental Representative relied on the grounds raised in the memorandum of appeal. The learned AR, on the other hand, submitted that the issue in question is squarely covered in favour of the assessee by the following judicial pronouncements :- (i) CIT v. Karnataka State Co-operative Bank [251 ITR 194 (SC)] (ii) Vaveru Co-operative Rural Bank Ltd. v CIT [(2017) 396 ITR 371 (The Telungana And Andhra Pradesh High Court) (iii) Muttom Service Co-operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 Co-operative 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 not possess a licence from Reserve Bank of India to carry on business, it is not a Co-operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilities to its members. The object of the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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? 7.3 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 facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, deposit/ security. was invested In a short-term S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 cooperative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts considered by me in the case of the Azhikode Service Cooperative Bank Ltd in ITA no.261/Coch/2017. In the case of Azhikode Service Cooperative Bank I have held that interest on deposits with sub treasury is entitled to the benefit of deduction u/s 80P(2).Therefore, I hold that assessee s in the above appeals is entitled to deduction u/s 80P(2) for interest received as investment with sub-treasury. It is ordered accordingly. 10 To sum-up, the appeals of the assessee s are allowed. 7.1 In view of the above orders of the Tribunal, we are of the view that the assessees are entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received on investments made with sub-treasuries and banks. 7.2 Before concluding, it is to be mentioned that the order of the Cochin Bench of the Tribunal in the case of M/s.Mutholy SCB Ltd. v. ITO [ITA No.11/Coch/2014 order dated 24.09.2014] which was relied on by the learned AO, was set aside by the Hon ble High Court and was remitted to the Tribunal for de novo consideration. Subsequent to the remand, the Tribunal vide its order dated 23.03.2017 decided the issue in favour of the assessee by holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awn/not pressed upon. This may be brought to the notice of all concerned . It may be true that for application of Sec. 80P(2)(a)(i) of the Act assessee was considered as a primary agricultural credit society based on certificate issued by Joint Registrar, Kottayam. In our opinion para 3.2 of the circular reproduced above has accepted the judgment of Hon'ble Apex Court in the case of CIT vs. Nawanshahar Central Cooperative Bank Ltd 289 ITR 6, as correct for cooperative societies /banks claiming deduction u/s. 80P(2)(a)(i) of the Act. In other words, the Board has taken a view that interest earnings of a cooperative society which was having as its primary business, providing credit facilities to its members who were agriculturists, could be considered under the head income from business and not from income from other sources. Similar view was taken by the Co-ordinate Bench in the case of The Kizathadiyoor Service Cooperative Bank Ltd vs. ITO (in ITA No.525/Coch/2014) dated 20.07.2016. In the circumstances, we are of the opinion that assessee has to succeed in this appeal. Interest earned by the assessee from its deposits placed in Sub-Treasury and banks are eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch an understanding of section 80P(2) is impermissible for one simple reason. The benefits under Clauses (d) and (e) are available in general to all Co-operative Societies, including Societies engaged in the activities listed in Clause (a). Section 80P(2) is not intended to place all types of cooperative societies on the same pedestal. The section confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit. 34. The case before the Supreme Court in Totgars was in respect of a Co-operative Credit Society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the Society. It is also found from Paragraph-3 of the decision of the Karnataka High Court in Totgars that the business activity other than marketing of the agricultural produce actually resulted in net loss to the Society. Therefore, it appears that the assessee in Totgars was carrying on some of the a ..... 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