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TMI Blog2019 (5) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s 80P(2)(a)(i) is restored to the Assessing Officer. The Assessing Officer shall examine the activities of the assessee and determine whether its activities are in compliance with the activities of a cooperative society functioning under the Kerala Co-operative Societies Act, 1969 and grant deduction u/s 80P(2) in accordance with law. Interest on the investments with Cooperative Banks and other Banks - `income from business or `income from other sources - HELD THAT:- As in the case of Kizhathadiyoor Service Cooperative Bank Limited [ 2016 (7) TMI 1405 - ITAT COCHIN] held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as `income from business instead of `income from other sources . As regards the grant of deduction u/s 80P(2) on such interest income, the AO shall examine the assessee s activities whether it is in tune with the activities expected of a co-operative society registered under the Kerala Co-operative Societies Act, 1969 and grant deduction on such interest income u/s 80P(2). - ITA No.67/Coch/2019, CO No.12/Coc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Kizhathadiyoor Service Co-operative Bank Limited in ITA No.525/Coch/2014 (Order dated 20.07.2016). 5. Aggrieved by the order of the CIT(A), the department has filed the present appeal before the Tribunal, raising following grounds:- 1. The Learned Commissioner of Income tax (Appeals), Thiruvananthapuram erred in concluding that the appellant is eligible for deduction under section 80P of the Act on the business income including the interest income earned on the deposits with the other banks and the Treasury. 2. It is respectfully submitted that the respondent is essentially, a Co-operative bank and not merely a primary agricultural credit Society and hence the allowance of deduction u/s 80P to the respondent assessee while computing the total income was irregular in nature and also against law. 3. The present appeal involves substantial question of law : (i) Whether on the facts and in the circumstances of the case the order of CIT(A) deleting the additions made during the completion of assessment as per the provisions of Income tax Act, considering the provisions of section 80P(4) is cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank Ltd. V. CIT [ITA No.97/2016 order dated 19th March, 2019] . The learned AR relied on the orders of the CIT(A). The learned AR had filed a brief written submission. The relevant portion of the same reads as follow:- 1. The appellant is a cooperative society registered under the Kerala Cooperative Societies Act (KCS Act). The appellant was classified as Primary Agricultural Credit Society (PACS) as per the KCS Act by the Registrar. During the assessment, the assessing officer denied: a) Deduction u/s BOP on business income treating the appellant as a cooperative bank and not as a Primary Agricultural Credit Society. b) Deduction u/s BOP on interest received from investments for the reason that interest received is to be treated as income from other sources. 2. Following the decision of the Hon'ble High Court of Kerala in the case of Chirakkal Service Cooperative Bank [(2016) 239 Taxmann 417], the learned CIT(A), Kottayam allowed the deduction u/s 80P. Learned CIT(A), Kottayam, treated the interest received on investment as income from business following the decision of Hon'ble IT AT, Cochin Bench in the case of K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the characteristics of a PACS. The Bench finally observed that such societies loose the identity of a PACS irrespective of whether the Registrar has made changes or not. Thus, the Larger Bench concluded that the facts need to be verified each year. 8. In Para 21, the Larger Bench expresses the observations about the decision of Hon'ble Apex Court in the case of Citizen Cooperative Credit Society. Hon'ble Larger Bench observed that the Hon'ble Apex Court denied deduction u/s 80P in the case of Citizen Credit Cooperative Society not u/s 80P(4) but because it violated the provisions of the Multi State Cooperative Societies Act under which it was registered. 9. In the present case, the appellant do not claim to be a PACS. Thus the factual verification of providing agricultural loans is irrelevant. The assessing officer has analysed the definition of cooperative bank in the assessment order but erroneously concluded that the appellant is a cooperative bank. 10. The appellant is a cooperative society registered under the Kerala Cooperative Societies Act. As per Section 2(1) of KCS Act, a member includes a nominal or associate me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (ccv) of BR Act: primary co-operative bank means a co-operative society, other than a primary agricultural credit society,- (l)the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are not less than one lakh of rupees; and (3)the bye-laws of which do not permit admission of any other co-operative society as a member. Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose. 14. The appellant is registered as a cooperative society under the Kerala Cooperative Societies Act. Hence the appellant falls within the definition of 'cooperative society'. 14.1. It is an undeniable fact that the appellant is a cooperative society. 14.2. To classify the appellant as a cooperative bank , the appellant shall fall within the definition of Cooperative Bank. It is undisputable that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive banks and others is to be treated as income from business. This view was upheld by Hon'ble IT AT, Cochin Bench in the case of M/s. Postal Telecom BSNL Employees Cooperative Society Ltd.in ITA 68 to 72/COCH/2019, order dated 30/04/2019. 7. We have heard the rival submissions and perused the material on record. The Assessing Officer denied deduction u/s 80P of the I.T.Act to the assessee by treating that its activities are that of a co-operative bank and not a cooperative society. The assessee is admittedly registered as a primary agricultural society under the Kerala Co-operative Societies Act, 1969 by the Registrar of Societies. The Full Bench of the Hon ble High Court in the case of The Mavilayi Service Co-operative Bank Ltd. (supra) held that the Assessing Officer has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P of the I.T.Act. It was held by the Hon ble High Court that the Assessing Officer is not bound by the registration certificate issued by the Registrar of Kerala Co-operative Society classifying the assessee-society as a cooperative society. The Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kkal [384 ITR 490] is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1], on a claim for deduction under Section 80P of the Income Tax Act, by reason of sub-section (4) thereof, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under subsection (4) of Section 80P of the IT Act. In view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1] the law laid down by the Division Bench Perinthalmanna [363 ITR 268] has to be affirmed and we do so. 35. In view of the law laid down by the Apex Court in Ace Multi Axes Systems case (supra), since each assessment year is a separate unit, the intention of the legislature is in no manner defeated by not allowing deduction under Section 80P of the IT Act, by reason of sub-section (4) thereof, if the assessee society ceases to be the specified class of societies for which the deduction is provided, even if it was eligible in the initial years. 7.1 In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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