TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 320
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....imary agricultural credit society, registered under the Kerala Co-operative Societies Act, 1969. It is carrying on the business of banking / providing credit facilities to its members. For the assessment year under consideration, the assessment was completed by treating interest income received from investment with treasury and 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 appeals 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 Treasury and Banks are part of the banking activity of the 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 ....
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....draft, order, otherwise. Now the question is whether a cooperative society or a primary agricultural society can do banking business and whether by doing such an activity, it loses the eligibility for deduction u/s 80P2(1). The Hon'ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamamitha vs ITO has clearly answered the issue. The Hon'ble High Court, after considering the amendment introduced by Finance Act 2006 w.e.f 1.4.2007 (insertion of section 80P(4) had rendered the following findings: "Therefore, the intention of the legislature is clear. If 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....
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....erm deposits/securities. Such amount retained by assessee's society was shown as a liability in the balance sheet and therefore, to that extent interest income cannot be attributable neither to the activity mentioned in section 80P(2)(a)(i) or u/s 80P(2)(a)(iii) of the Act. This distinguishable feature has been taken note by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd in ITA No.307 of 2014 (judgment dated 28th Oct 2014). The Hon'ble Karnataka High Court was considering the following substantial question of law: "Whether the Tribunal failed 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 t....
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....al in the case of the Kizhathadiyoor Service Coop Bank Ltd., on identical facts has rendered a decision in favour of the assessee. The relevant finding of the Cochin Bench of the Tribunal in the case of Kizhathadiyoor Service Cooperative Bank (supra) in ITA No.525/Coch/2014, read as follows: 7.2 As regards the interest from treasury and banks, we find on identical facts, the Cochin Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd in ITA No. 372/Coch/2010 had decided the matter in favour of the assessee. The Cochin Bench of the Tribunal in the case of Muttom Service 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....
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.... of deduction u/s 80P(2) with regard to interest received on deposits made by the assessee with sub treasury. It is ordered accordingly. 8 In the result, the appeal filed by the assessee in ITA No.261/Coch/2017 is allowed. ITA No. 208/Coch/2017; ITA No 209/Coch/2017 ITA No. 210/Coch/2017; ITA No. 263/Coch/2017 ITA No. 268/Coch/2017 & ITA No. 269/Coch/2017 9 The ld counsel for the assessee and the ld DR agreed that the facts involved in the above appeals are identical to the facts considered by me in the case of the Azhikode Service Cooperative Bank Ltd in ITA no.261/Coch/2017. In the 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 order 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 sub....
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....ncluding Societies engaged in the activities listed in Clause (a). Section 80P(2) is not intended to place all types of co-operative societies on the same pedestal. The section confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit. 34. The case before the Supreme Court in Totgars was in respect of a Co-operative Credit Society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the Society. It is also found from Paragraph-3 of the decision of the Karnataka High Court in Totgars that the business activity other than marketing of the agricultural produce actually resulted in net loss to the Society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in Clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but....