AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 423
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess of banking / providing credit facilities to its members. For the assessment years under consideration, the assessments were completed by treating interest income received from investment with bank as income from other sources; thereby denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act. 4. Aggrieved by the assessment orders completed, the assessee preferred appeal to the first appellate authority. The CIT(A) following the order of the Cochin Bench of the Tribunal in the case of Kizhathadiyoor Service Co-operative Bank Ltd. for assessment year 2009-2010 in ITA No.525/Coch/2014 (order dated 20.07.2016) decided the issue in favour of the assessee. The CIT(A) held that interest income earned on investment made with District Co-operative Banks and other Banks are part of the banking activity of assessee and therefore the said income was eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. 5. The Revenue being aggrieved by the orders of the CIT(A) directing the A.O. to grant the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received on investments made with District Co-operative Banks and other Banks has filed these appeals before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 Cooperative 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 Cooperative 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 aforesaid amendment is not to excl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 Such an amount which was retained by the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 whose business is banking. Admittedly, the assessee has invested funds....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 assessee is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received on investments made with District Co-operative Banks and other Banks. 7.2 The latest judgment of the Hon'ble Telangana & Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. v CIT (supra) had also decided on identical issue in favour of the assessee. The Hon'ble High Court had held that co-operative societies engaged in providing credit facilities to its members had in course of business 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 s....