TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 1300
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.....T.Act with effect from 01.04.2007, the assessee was not entitled to deduction u/s 80P(2) of the I.T.Act. Further, the Assessing Officer treated interest income received on investments made with co-operative banks as `income from other sources', thereby denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act. The Assessing Officer also held that the assessee was not entitled to deduction u/s 80P(2)(d) of the I.T.Act since the interest income received by the assessee was not from a cooperative society but a co-operative bank. 4. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal to the first appellate authority. Before the first appellate authority, it was contended that the assessee was entitled to deduction u/s 80P(2) of the I.T.Act in view of the judgment of the Hon'ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. & Ors. vs. CIT [(2016) 384 ITR 490 (Ker.)]. As regards the interest received from co-operative banks, it was contended that it was part of the banking business of the assessee, hence, entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act or u/s 80P(2)(d) of the I.T.Act, since the interest rece....
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....o.212 of 2013, where it was held that the authorities under the Income tax Act cannot probe into question whether the assessee cooperative society is a "primary agricultural credit society", once it is registered and classified as "primary agricultural credit society" by the competent authorities under the provisions of the Kerala Co-operative societies Act 1969. (iii) The Ld. CIT(A) ought to have brought his attention to the decision of the Hon'ble High Court of Kerala in the case of Perinthalmanna service Cooperative Bank Ltd reported in (2014 363 ITR 68 (Kerala) wherein it was held that "with introduction of section 80P(4) necessarily, an enquiry has to be conducted into factual situation whether co-operative bank is conducting business as a primary agricultural and rural development Bank and depending upon transactions, Assessing officer has to extend benefits available, and he would not merely look at the registration certificate issued under the relevant Co-operative Societies Act or at nomenclature of cooperative bank. (iv) The appeal involving similar question is pending before the Hon'ble Supreme Court of India in the case of M/s Karakulam Service Co-operative Bank Ltd....
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....ted that the assessee is entitled to deduction u/s 80P(2) of the I.T.Act in view of the judgment of the Hon'ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. & Ors. (supra). As regards the interest receipt, whether it is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act, the issue is 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-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. As regards the issue whether the assessee is entitled to deduction u/s 80P(2) of the I.T.Act, the Cochin Bench of the Tribunal in the case of ITO v. The Chengala Service Co-operative Bank Ltd. [ITA No.434/Coch/2017 & Ors. - order dated 05th April, 2018], after elaborately considering all ....
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....e of decisions rendered under the relevant State Law. In this view of the matter, all the appellants having been classified as primary agricultural credit societies by the competent authority under the KCS Act it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes; the rate of interest on such loans and advances to be at the rate fixed by the Registrar of co-operative societies under the KCS Act and having its area of operation confined to a village, panchayat or a municipality. This is the consequence of the definition clause in section 2(oaa) of the KCS Act. The authorities under the IT Act cannot probe into any issue or such matter relating to such applicants. 16. The position of law being as above with reference to the statutory provisions, the appellants had shown to the authorities and the Tribunal that they are primary agricultural credit societies in terms of clause (cciv) of section 5 of the BR Act having regard to the primary object or principal business of each of the appellants. It is also clear from the materials on record that the bye-laws of....
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....x Court in the case of Citizens Co-operative Society Ltd. (supra) has application to the facts of the present cases. 8. The Hon'ble Apex Court judgment in the case of Citizen Co-operative Society (supra) Ltd. was rendered in the context of eligibility of a Credit Cooperative Society for deduction under section 80 P of the Act. The Apex Court, referring to the specific facts of the case held that the assessee therein is not entitled for deduction under section 80P of the Income-tax Act. In the aforesaid case, the Hon'ble Apex Court was not dealing with a case of eligibility of a Primary Agricultural Credit Society for deduction under section 80P of the Income-tax Act. The Hon'ble Supreme Court at Para 23 of the aforesaid judgment had emphasized that even after the amendment made to the provisions of section 80P of the Act by insertion of section 80P(4) of the Income-tax Act, the Primary Agricultural Credit Society is eligible for deduction under section 80P of the Act. 8.1 The assessee society in the case considered by the Hon'ble Supreme Court was established on 31-5-1997 and was registered under section 5 of the Andhra Pradesh Mutually Aided Co-operative Societies Act, 199....
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.... 8.3 As far as the Kerala Co-operative Societies Act which is applicable to the present case is concerned, the definition of a 'member' as provided in Section 2(1) of the Kerala Co-operative Societies Act includes a nominal member. Section 2 (1) of the said Act is as follows: "Member" means a person joining in the application for the registration of a co-operative society or a person admitted to membership after such registration in accordance with this Act, the Rules and the Bye law and includes a nominal or associate member" 8.4 The `normal member' is defined under 2(M) of the Kerala Co-operative Societies Act, 1969, which reads as follow:- "(m) `nominal or associate member' means a member who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in the bye-laws;" 8.5 Therefore, in the present cases, the nominal members are members as provided in law and deposits from such nominal members cannot be considered or treated as from the non-members or from public as was noted by the Apex Court judgment cited supra. 8.6 In this context, it is relevant to mention that the Hon'ble Supreme Cour....
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....er member. It is further held that notwithstanding the fact that a nominal member does not enjoy all the rights and privileges which are available to an ordinary member, his status is that of a member as defined in Section 2(19) of the Act. 20. Division Bench of this Court in the case of The Commissioner of Income Tax, Nasik (cited supra) has also taken a similar view that the definition of "Member" under section 2(19)(a) of the Maharashtra Co-operative Societies Act, 1960 includes a nominal member. It is further held by the Division Bench that there is nothing in Section 80P(2)(iii) of the Income Tax Act to the contrary." 8.8 As per section 3 of the Banking Regulation Act, 1949, the provisions of Banking Regulation Act shall not apply to Primary Agricultural Credit Societies. The explanation to section 80P(4) states that 'Primary Agricultural Credit Society' and 'Co-operative Bank' will have the same meaning as provided in Part V of the Banking Regulation Act, 1949. The explanation provided after clause (ccvi) of section 5 r.w.s 56 of the Banking Regulation Act specifically provides that if any dispute arises as to the primary object or principal business of an....
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.... of the I.T.Act cannot be granted. Further, we find that the investments are made by the assessee-society in the course of its banking business / providing credit facilities to its members and hence such income will form part of banking activities of the assessee and same is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. On identical facts, the Cochin Bench of the Tribunal in the case of The Azhikode Service Cooperative Bank Ltd. & Ors. [ITA No.261/Coch/2017 & Ors. - order dated 12th July, 2017] after considering all the judicial pronouncements had 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 solitary issue for my consideration is whether interest received on investments with sub-treasury is 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) of the I T Act, in respect of interest received on such investments. The assessee admittedly is providing credit facilities to its members.....
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....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 facility; but it is carrying on business of lending money to its members and therefore is covered u/s 80P(2) of the Act. The judgment of the Hon'ble Apex Court in the case of M/s Totgars Cooperative Sales Society Ltd. (supra) relied by the CIT(A) is distinguishable on facts. The Hon'ble Apex Court in the case of M/s Totgars Cooperative Sales Society Ltd (supra) was dealing with the case where the assessee apart from providing credit facilities to its mem....
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.... 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 banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME- TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., reported in (2011) 200 TAXMAN 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. ....
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....tment 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 investment in treasury/banks and earning interest on the same is part of the banking activity of the assessee's cooperative bank. Therefore, the said income is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, the Income Tax Authorities were not justified in treating interest income received by the assessee as 'income from other source' and denying the benefit of section 80P(2) of the Act. It is ordered accordingly." 7.5 In view of the judg....
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....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 Banks-reg. 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 from other sources", if, the income is not chargeable to income-tax under the head "Profits and gains of business and profession" . 3. The matter has been examined in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Co-operative Bank Ltd. [2007] 160 Taxman 48 (SC), the apex court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attrib....
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....s 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 (a), the same may go out of the purview of Clause (a), but still, the Cooperative Society may claim the benefit of Clause (d) or (e) either by investing the income in another Cooperative Society or investing the income in the construction of a godown or warehouse and letting out the same. 33. In other words, the benefit conferred by Clause (d) upon all types of Co-operative Societies is restricted only to the investments made in other Cooperative Societies. Such a restri....