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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 ..... h, 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 for the Assessment Year 2014-15. 2.1 The assessee is a Primary Agricultural Credit Society registered under the Kerala Co-operative Societies Act 1969. The assessee is engaged in banking activity and providing credit facilities to its members. The assessee claimed complete deduction of income under Section 80P(2)(a)(i) of the Act and also claimed inclusion of interest income earned by the assessee from the deposit of idle funds with co-operative bank and treasury treating the said income as business income falling within the admissible ambit of deduction under Section 80P(2) (a)(i) of the Act. The Assessing Officer rejected the claims of the assessee for deduction under Section 80P(2)(a)(i) and treated the interest income as income from other sources and also that the interest income does not come within the purview of Section 80P(2)(d) of the Act the deduction claim made by the assessee has been rejected. The assessee aggrieved by the order of Assessing Officer in Annexure-A filed appeal before the Commissioner of Income Tax (Appeals). The CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (No.2) Act, 1967 w.e.f 01.04.1968] of the Income Tax Act, 1961 in respect of cooperative societies/banks doing both agricultural and nonagricultural activities should not be 100% of the gross profits and gains of business of such societies etc., but should be limited to the profits generated from agricultural activities alone performed by such assessees? vi) Whether on the facts and in the circumstances of the case, the order of the ITAT is correct in not duly considering that the interest income earned from deposits with banks cannot be attributable as profit and gains from the business of providing credit facilities to its members u/s80P(2)(a)(i) & in not considering the case law in 322 ITR 283 M/s Totgar Cooperative Sales Society applicable in the case? Substantial Question nos.1 to 4 4. Learned counsel appearing for the Revenue and the assessee state that the substantial question nos.1 to 4 excerpted supra are covered by the judgment of the Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax [2021] 431 ITR 1 (SC); the assessee since is a registered Co-operative Society and the deduction claimed is interest earned from loans lent to membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0P(2)(d) of the Act. The Assessing Officer found that the District/State Co-operative Banks are treated as Co-operative Banks and not as Co-operative Societies. The Assessing Officer relied on the judgment of the Supreme Court in M/s. The Totgar's Co-operative Sale Society Ltd v. Income Tax Officer [2010] 322 ITR 283, and held as squarely applicable to the case on hand for rejecting the deduction of interest earned from investments made with Co-operative Banks/Treasury/Society. Further unless and until the interest income conforms to the eligibility requirement of Section 80P(2)(d), the income otherwise derived cannot be deducted from the income of the assessee under clause (d) of Section 80P(2). Thus, the Assessing Officer added Rs. 62,52,991/- to the income of the assessee. The CIT (Appeals) accepted the case of the assessee that the assessee is entitled to the claim of deduction under Section 80P(2)(a)(i); that the interest income earned by the assessee from Co-operative Banks/Treasury is entitled to deduction inasmuch as the surplus fund deposited with Co-operative Bank is entitled to deduction. The Tribunal confirmed the view taken by the CIT (Appeals). However, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Society, the Parliament desired to limit the admissible deduction only to the interest income received from investments of the assessee with any other Co-operative Society. The argument of the assessee, if is accepted, then, the plain meaning of Section 80P(2)(a)(i) and (d) is expanded by adjudication or interpretation and more deduction heads are added to the existing list. Such a course is, according to him, impermissible. The learned counsel places strong reliance on M/s. The Totgar's Co-operative Sale Society Ltd case and argues that the interest from investment made by the assessee firstly would fall under the category of 'income from other sources'. Once it is treated as income from other sources, the assessee is not entitled to claim deduction under Section 80P(2)(a)(i) of the Act, Then the area available to the assessee is under Section 80P(2)(d) of the Act. To attract Section 80P(2)(d) the assessee must show that the interest or dividend is received only from a Co-operative Society. Adverting to the facts of the case, it is argued that, admittedly, the interest income is received from Co-operative Banks which have licences from the Reserve Bank of India under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;" 8.1 Firstly, we keep in perspective the ratio of Supreme Court in Mavilayi Service Co-operative Bank Ltd. 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)(i) the whole of profits and gains from business of banking or providing credit facilities to the members of the Society is entitled to deduction. Clauses (ii) to (vii) are unnecessary for the purpose of this judgment, hence not included in the narrative. A Division Bench of High Court of Telangana and Andhra Pradesh in Vavveru Co-operative Rural Bank Ltd v. Chief Commissioner of Income Tax [2017] 396 ITR 371 (T&AP) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. So much of the profits and gains attributable to such activities not exceeding Rs. 100,000/- (one hundred thousand rupees). 2) Co-operative society other than a consumer co-operative society engaged in activities other than those specified in clauses (a) and (b). So much to these profits and gains attributable to such activities not exceeding Rs. 50,000/- (fifty thousand rupees). (d) Interest or dividends derived by the co-operative society from its investments with any other cooperative society; The whole of such income. (e) Any income derived by the cooperative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities; The whole of such income. (f) A co-operative society other than 1) A housing society; 2) An urban consumer society; 3) A society carrying on transport business; 4) A society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed Rs. 20,000/- (twenty thousand rupees) The income by way of interest on securities and the income from house property chargeable under Section 22. 29. From the Tabular form presented above, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments with any other Cooperative Society, the whole of such interest income is eligible for deduction. It is upon plain construction inferable that clause (d) deals with income derived by a Co-operative Society, other than the income covered by clauses (a) to (c) of Section 80P(2). Clause (d) deals with yet another type of income earned by the Co-operative Society which is deducted while computing the total income of the assessee. However, to merit acceptance of deduction under clause (d) of Section 80P(2) of the Act, the clause referring to interest or dividend derived from investments with any other Co-operative Society is satisfied. In the case on hand, the argument of assessee is that the interest earned by the assessee is from Co-operative Banks/Treasury. The Co-operative Banks are registered under the Kerala Cooperative Societies Act. Therefore, the interest earned could be treated as meriting consideration under clause (d) of Section 80P(2) of the Act. It is not in dispute that the District/State Cooperative Banks have licence from the Reserve Bank of India under the Banking Regulation Act and are registered Cooperative Societies under the Act. Suffice to observe that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act could be eligible for deduction". 9.2 While dealing with the definition of the word 'income', it is held: "the word 'income' has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically business profits into the definition of the word 'income'. Therefore, we are required to give a precise meaning to the words 'profits and gains of business' mentioned in Section 80P(2) of the Act. In the present case, as stated above, the assessee/Society regularly invests funds not immediately required for business purposes. Interest on such investments therefore cannot fall within the meaning of the expression 'profits and gains of business'. Such interest income cannot be said also to be attributable to the activities of the Society, namely carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. When the assessee/society provides credit facilities to its members, it turns interest income. As stated above, in this case, interest held ineligible for deduction under Section 80P(2)(a)(i) is not in respect of the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better positioned than interest received from non-members. After appreciating the circumstances of the case on hand and the view taken by the Supreme Court in M/s. The Totgar's Co-operative Sale Society Limited, together with Mavilayi Service Co-operative Bank Ltd., we are of the view that the interest income earned by the assessee, in the case on hand, does not straight away fall under Section 80P(2)(a)(i) of the Act commending for deduction. 11. That being so, the next question is such interest income falls under Section 56 and even if it falls under Section 56 of the Act, whether the assessee is entitled to any deduction or not. 11.1 Mr Christopher Abraham argues that the Parliament in its wisdom is aware of the activities being undertaken by all the Societies to whom relief is provided by way of deduction in Section 80P of the Act. It is with this background the Parliament has provided for the deductions in respect of a few other incomes earned by the assessee/Society. Such deductions are specifically attributable to the source from which such interest is received. Expanding the institutions or categories of benefits is contrary to the intent of the Legislature. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the deductable income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co-operative Society registered under Kerala Co-operative Societies Act. The interest income earned from District Co-operative Bank/State Co-operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety 2,32,500 Trivandrum Taluk Co-operative Employees Society 1,05,000 Total 9,85,38,230 This interest income is liable to be taxed under the head "Income from other sources" and during the course of assessment proceedings, it was proposed to treat Rs. 9,85,38,230/- as income under the head 'Other Sources'. The dispute relates to the extent to which the deduction claimed by the assessee is legal. The substantial question raised reads as follows: 1. Whether on the facts and in the circumstances of the case, the order of the ITAT is correct in not duly considering that the assessee had invested surplus funds like an ordinary investor and it has to be taxed as Income from Other Sources? ITA No.5/2020 [Assessment Year 2013-14] 14. The Principal Commissioner of Income Tax - Thiruvananthapuram/Revenue is the appellant. M/s. Peroorkada Service Co-operative Bank Limited, Thiruvananthapuram/assessee is the respondent. The appeal is at the instance of the Revenue under Section 260A of the Act against the order dated 26.06.2019 of the Income Tax Appellate Tribunal (for short 'Tribunal'), Cochin Bench, Cochin in ITA No. 47/Coch/2019. The subject matter of the appeal relates t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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