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TMI Blog2021 (12) TMI 1084X X X X Extracts X X X X X X X X Extracts X X X X ..... be answered against the Revenue and in favour of the assessee. Statement is placed on record. Substantial question nos.1 to 4 are answered in favour of the assessee and against the Revenue. Interest income earned from the deposits the assessee has made with District/State Cooperative Banks and Treasury - Whether the interest income earned by the assessee from the deposits made with District/State Cooperative Banks and Treasury, firstly, would fall as business income of the assessee, and, alternatively, whether the interest income is eligible for deduction under Section 80P(2)(d)? - HELD THAT:- Supreme Court in Mavilayi Service Co-operative Bank Ltd. [ 2021 (1) TMI 488 - SUPREME COURT] on the construction of Section 80P(2)(a)(i) read with sub-section 4 of Section 80P. Now provision in Section 80P(2)(a)(i) is read without reference to an activity viz. Primary Agriculture etc. It is noted that Section 80P provides for deduction in respect of income of Co-operative Societies and Section 80P(2) allows a straight deduction from the computation of total income of the assessee/Co-operative Society to the extent mentioned in respect of incomes referred therein. Under Section 80P(2)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t included in Section 80P(2)(d) and is not entitled for deduction from computation of income. - ITA NO. 323 OF 2019, 142 OF 2019 & 5 OF 2020 - - - Dated:- 1-11-2021 - THE HONOURABLE MR.JUSTICE S.V.BHATTI AND THE HONOURABLE MR.JUSTICE BASANT BALAJI APPELLANT: SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT RESPONDENT: SRI.C.A.JOJO, SRI.BABU S. NAIR JUDGMENT S.V.Bhatti, J. Heard learned Standing Counsel Mr Christopher Abraham for appellant and Mr C A Jojo, learned counsel for respondent in ITA Nos.323/2019 and 5/2020. No representation for respondent in ITA No.142/2019. ITA No.142/2019 [Assessment Year 2014-15] 2. The Principal Commissioner of Income Tax - Thiruvananthapuram/Revenue is the appellant. Vilappil Service Co-operative Bank Ltd, Peyad, Thiruvananthapuram/assessee is the respondent. The appeal is at the instance of the Revenue under Section 260A of the Income Tax Act, 1961 (for short the Act ) against the order dated 19.09.2018 of the Income Tax Appellate Tribunal (for short Tribunal ), Cochin Bench, Cochin in ITA No. 196/Coch/2018. The subject matter of the appeal relates to the issues arising from the return filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rala Co-operative Societies Act is binding on the authorities under the Income Tax Act for determining the eligibility for deduction under section 80P(4) of the Income Tax Act? iii) Is not the conclusion reached by the ITAT that the Assessing Officer cannot probe into details as to the fulfilment of the principal objective of 'providing agricultural credits to members' by PACs, erroneous and unjustified in view of the provisions of KCS Act? iv) Is not the above decision of the ITAT relying on the High Court decision in the case of Chirakkal Service Co-op bank connected cases {[2016]384 ITR 490(Ker)} contradictory to the decision rendered by this Hon'ble Court in an earlier case - M/s Perinthalmanna Service Co-operative Bank {reported in [2014]363 ITR 268(Ker)} v) Should not have the Tribunal noticed in the light of the findings of the Hon'ble Apex Court in the case Sabarkhanta Zilla Kharid Vechan Sangh Ltd. Vs CIT reported in 203 ITR 1027(SC), that eligible deduction under section 80(1)(d) [substituted by section 80P by the Finance (No.2) Act, 1967 w.e.f 01.04.1968] of the Income Tax Act, 1961 in respect of cooperative societies/banks doing both agricultur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a Primary Agricultural Credit Cooperative Society registered under the Kerala Co-operative Societies Act 1969. Admittedly, the assessee is not engaged in the banking business as defined in the Banking Regulation Act 1949. In other words, the assessee does not have licence or authorisation under the Banking Regulation Act to do business in Banking. Principally, the assessee is engaged in the business of providing credit facilities to its members by accepting loans from members as well as non-members. As stated above the assessee earned interest income amounting to ₹ 62,52,991/- from the deposits made with Co-operative Banks/Treasury. The Assessing Officer proposed to assess the said income under the head: Income from Other Sources, inasmuch as, according to Revenue, the interest income does not form part of any receipt received by the assessee while carrying on the business of providing credit facilities to its members. The assessee objected to the inclusion of interest income under the head 'Income from Other Sources', on the ground that the District Co-operative Bank and Kerala State Co-operative Bank are registered as Cooperative Societies and the entire inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, all the assessees in the present case are entitled to the benefit of deduction contained in Section 80P(2)(a)(i), notwithstanding that they may also be giving loan to their members which are not related to agriculture. Also in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. Therefore, he argues that, even the recent judgment of the Supreme Court notices that a Co-operative society could be engaging in the business of banking for providing credit facilities to its member and also to non-members. The benefit or deduction admissible under Section 80P(2)(a)(i) is restricted to the Co-operative Society engaged in the business of banking or providing credit facilities to its members. The profits derived from any other transaction is out of harm s way and will have to be treated as business income of the assessee/Society and not eligible for deduction under Section 80P(2)(a)(i) of the Act. 6.1 On the same analogy, according to him, the Parliament has visualized the possibilities of the Societies investing either the surplus funds or the funds at its disposal with one or more financial i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 48 (SC). He relies on the findings recorded by the Tribunal and contends that the questions be answered in favour of the assessee and against the Revenue. 8. We have noted the rival submissions of the counsel appearing for the parties. In the circumstances of this case, the question that falls for consideration is whether, in the facts and circumstances of this case, the interest income earned by the assessee from the deposits made with District/State Cooperative Banks and Treasury, firstly, would fall as business income of the assessee, and, alternatively, whether the interest income is eligible for deduction under Section 80P(2)(d) of the Act. Section 80P reads as follows: 80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), here shall be deducted, in accordance with and subject to the provisions of this Section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) in the case of a co-operative society engaged in- (i) carrying on the business of bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) (1) Co-operative society carrying on the business of banking or providing credit facilities to its members; (2) Co-op society engaged in Cottage Industry; (3) Co-operative engaged in marketing of agricultural produce grown by its members. (4) Co-operative society engaged in purchase of agricultural implements, seeds etc., for the purpose of supplying to its members; (5) Co-operative society engaged in processing of agricultural produce of its members without the aid of power (6) Cooperative society engaged in collective disposal of the labour of its members (7) Co-operative society engaged in fishing or allied activities. The whole of the amount of profits and gains of business attributable to any one or more of such activities. (b) Primary co-operative society engaged in supplying milk, oil seeds, fruits or vegetables grown by its members to 1) a federal co-operative society, engaged in the same business; 2) the Government or a local authority; 3) the Government company or Corporation engaged in the same business; The whole of the amount of profits and gains on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be engaged in activities other than those covered by Clauses (a) and (b) subject to the further condition that such profits and gains should not exceed a particular limit, (D) to be eligible for deduction under Clause (d), the income should be derived from investments with another Co- operative Society, (E) to be eligible for deduction under Clause (e), the income should be derived from letting of godowns or warehouses, etc. 8.2 Clause (a) of sub-section (2) of Section 80P is intended for the benefit of certain types of co-operative societies, but benefits are confined only to the activities listed in sub-clauses (i) to (vii) of clause (a). In other words, clause (a) of sub-section (2) of Section 80P confers benefit upon Co-operative Societies, but the benefit is restricted only to stated benefits and not to all the activities earning income for Co-operative Societies. Put it differently, an institution claiming the benefit of clause (a) of sub-section (2) of Section 80P should satisfy two requirements: At the first instance, the institution has to establish that it is a Co-operative Society. In the case on hand, such requirement is satisfied by the assessee. At the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surplus funds with it and invested in short term deposits with banks and in government securities. The assessee earned interest on such investments. The assessee provides credit facilities to its members and sells the agricultural produce of its members. The substantial question of law which was considered by the Supreme Court in M/s. The Totgars Co-operative Sale Society Limited is whether interest income earned from investments would qualify for deduction as business income under Section 80P(2)(a)(i) of the Act. The Supreme Court, in paragraph 10, has further noted that at the outset an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities, which surplus was not required for business purposes. The assessee markets the produce of its members whose sales proceeds, at times, are retained by it. In this case, we are concerned with the tax treatment of su ..... 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) of the Act or Section 80p(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income indicated above, under Section 56 of the Act . 10. The thrust of consideration in M/s. The Totgar's Cooperative Sale Society Limited is that the investment made by the assessee of surplus funds whether to be treated as forming part of regular business activity of assessee/Society or not. The Supreme Court, no doubt, has considered that the assessee in the reported case was also retaining the sales proceeds of its members and was investing in the bank accounts and was showing the amount payable to the members on the liability side of the balance sheet. In our consideration, M/s. The Totgar's Co-operative Sale Society Limited deals with what constitutes business income of the Society and what does not constitute business income of the Society. Interest earned from investments is not straight profits or gains from business, but a return by way of interest from investments in Bank etc. The emphasis in Section 80P(2)(a)(i) is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12. We have gone through the order of the Supreme Court in Nawanshahar Central Co-operative Bank Ltd case, for immediate reference it is excerpted: This Court has consistently held that investments made by a banking concern are part of the business of banking. The income arising from such investments would, therefore, be attributable to the business of bank falling under the head profits and gains of bunisess and thus deductable under Section 80P(2)(a)(i) of the Income Tax Act, 1961. This has been so held in Bihar State Co-operative Bank Ltd v. CIT [1960] 39 ITR 114 (SC); CIT v. Karnataka State Co-operative Apex Bank [2001] . ITR 194 (SC) and CIT v. Ramanandapuram District Co-operative Central Bank Ltd [2002] 255 ITR 423 (SC). The principle in these cases would also cover a situation where a Co-operative bank carrying on the business of banking is statutorily required to place a part of its funds in approved securities. The appeals are accordingly dismissed without costs. 12.1 The decisions relied on by the Supreme Court refer to Co-operative Banks but not Co-operative Societies. The issue on hand is about the interest income earned by way of investments made wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapuram/assessee is the respondent. The appeal is at the instance of the Revenue under Section 260A of the Act against the order dated 17.05.2019 of the Income Tax Appellate Tribunal (for short Tribunal ), Cochin Bench, Cochin in ITA No. 67/Coch/2019. The subject matter of the appeal relates to the issues arising from the return filed by the assessee for the Assessment Year 2011-12. 13.1 The details of the orders etc leading up to the filing of the appeal are tabulated hereunder: Assessment Year 2011-12 Assessing Officer Order No.AAAAP3974B/W-2(1)/ TVM/2018-19 dated 12.12.2018 Commissioner of Income Tax (Appeals) ITA No.296/EF/TVM/CIT(A)/TVM/2017 -18 dated 27.11.2018 Income Tax Appellate Tribunal ITA No.67/Coch/2019 dated 17.05.2019 Income under the head Other Sources: On verification of financial statements, it is seen that assessee has surplus funds, which the assessee invested as deposits with different institutions like Co-operative Banks, Treasuries, etc. and is in receipt of interest income, which is credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal are tabulated hereunder: Assessment Year 2013-14 Assessing Officer Order No.AAAAP3974B/W-2(1)/ TVM/2017-18 dated 19.12.2017 Commissioner of Income Tax (Appeals) ITA No.293/EF/TVM/CIT(A)/TVM/2017 -18 dated 07.11.2018 Income Tax Appellate Tribunal ITA No.47/Coch/2019 dated 16.06.2019 Income under the head 'Other Sources': (i) Interest income on deposits: (a) Vide Order u/s.263, Principal Commissioner of Income Tax has directed to ensure that interest income on deposits is accounted for in accordance with provisions of Section 145. During the course of assessment proceedings, assessee has furnished break up of interest received during the period, on investments at various institutions, totaling to ₹ 14,18,62,743/-, details of which are as under: Name of Institution Amount District Treasury 36,00,000 Consumer Federation 53,23,353 Rubber Marketing Federation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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