M/s. The Manjoor Service Co-op Bank Ltd, Kottayam V. The ITO, Kottayam

CO 13/COCH/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3671 (ITAT-COCHIN)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 06-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: PA JOSEPH
• Keywords: Business income; Question of law; Competent authority
• Section: 56; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI CHANDRA POOJAR I, AM & SHRI GEORGE GEORGE K, JM ITA NO. 36 /COCH/201 7 : ASST.YEAR 201 2 - 201 3 ITA NO. 37 /COCH/201 7 : ASST.YEAR 2013 - 2014 THE INCOME TAX OFFICER WARD 3 KOTTAYAM. VS. M/S. MANJOOR SERVICE CO - OPERATIVE BANK LTD. MANJOOR P.O. KURUPPANTHARA KOTTAYAM 686 603 . PAN : AAAJT1153F . (APPELLANT) (RESPONDENT) CO NO. 12 /COCH/201 7 : ASST.YEAR 201 2 - 201 3 CO NO. 13 /COCH/201 7 : ASST.YEAR 2013 - 2014 M/S.MANJOOR SERVICE CO - OPERATIVE BANK LTD. MANJOOR P.O. KURUPPANTHARA KOTTAYAM 686 603. VS. THE INCOME TAX OFFICER WARD 3 KOTTAYAM. ( CROSS OBJECTOR ) (RESPONDENT) REVENUE BY : SRI. A.DHANARAJ, SR.DR ASSESSEE BY : SRI.P.A.JOSEPH , CA DATE OF HEARING : 1 8 .04.2018 DATE OF PRONOUNCEMENT : 20 .04.2018 O R D E R PER BENCH TH E S E APPEAL S AT THE INSTANCE OF THE REVENUE AND THE CROSS OBJECTION S FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A) DATED 19.12.2016. THE RELEVANT ASSESSMENT S YEAR ARE 2012 - 2013 AND 2013 - 2014. ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 2 2. SINCE COMMON ISSUES ARE RAISED IN THESE APPEALS AND CROSS OBJECTIONS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 3. WE SHALL FIRST ADJUDICATE THE COMMON ISSUE RAISED IN BOTH THE APPEALS. THE COMMON ISSUE THAT IS RAISED IN BOTH THE APPEALS IS WHETHER THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT THE BENEFIT OF DEDUCTION U/S 80P2)(A)(I) OF THE I.T.ACT. 3 . 1 THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: - THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY, REGISTERED UNDER THE KERALA CO - OPERATIVE SOCIETIES ACT, 1969. FOR THE ASSESSMENT YEAR S 2012 - 2013 AND 2013 - 2014, THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80P(2)(A)(I) OF THE I.T.ACT AMOUNTING TO RS.1,04,53,39 8 AND RS.3,37,43,805 , RESPECTIVELY. THE ASSESSMENTS WERE COMPLETED BY DENYING THE CLAIM OF DEDUCTION U/S 80P(2)(A)(I) OF THE I.T.ACT. THE ASSESSING OFFICER CONCLUDED THAT SINCE THE ASSESSEE WAS DOING THE BUSINESS OF BANKING, IT WAS NOT ENTITLED TO DEDUCTIO N U/S 80P(2) OF THE I.T.ACT IN VIEW OF INSERTION O F SECTION 80P(4) OF THE I.T.ACT, WITH EFFECT FROM 01.04.2007. 3.2 AGGRIEVED BY THE ASSESSMENT COMPLETED BY DENYING THE DEDUCTION U/S 80P(2) OF THE I.T.ACT, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APP ELLATE AUTHORITY. THE CIT(A) FOLLOWING THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF THE CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. AND OTHERS VS. CIT ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 3 [(2016) 384 ITR 490 (KER.)] HELD THAT THE ASSESSEES IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2) OF THE I.T.ACT. 3.3 THE REVENUE BEING AGGRIEVED BY THE ORDER OF THE CIT(A) IN GRANTING DEDUCTION U/S 80P(2) OF THE I.T.ACT, HAS RAISED THE ISSUE IN APPEALS FOR ASSESSMENT YEARS 2 012 - 2013 AND 2013 - 2014. THE REVENUE ALSO FILED ADDITIONAL GROUNDS CONCERNING THE ISSUE FOR BOTH THE ASSESSMENT YEARS. 3.4 THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE GROUNDS AND THE ADDITIONAL GROUNDS RAISED IN THE MEMORANDUM OF APPEAL. ON THE O THER HAND, THE LEARNED AR SUBMITTED THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF THE CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. AND OTHERS (SUPRA). 3 . 5 WE HAVE HEARD THE RIVAL SUBMISSIONS AN D PERUSED THE MATERIAL ON RECORD. ON PERUSAL OF THE GROUNDS NO.2, 3 AND THE ADDITIONAL GROUNDS RAISED BY THE REVENUE, WE FIND THAT IDENTICAL GROUNDS WERE ADJUDICATED BY THE TRIBUNAL IN THE FOLLOWING TRIBUNAL ORDERS: - ( I ) EDANAD - KANNUR SERVICE CO - OPERATIVE BAN K LTD. & ORS. IN ITA NO.431 TO 433/COCH/2017 & OTHERS , ORDER DATED 10.01.2018. ( II ) THE ITO V. M/S.NANNAMBRA SERVICE CO - OPERATIVE BANK LTD. IN ITA NO.436 TO 438/COCH/2016, ORDER DATED 08.02.2018. ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 4 3 . 6 THE ABOVE ORDERS OF THE TRIBUNAL FOLLOWED THE DICTUM LAID D OWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. AND OTHERS V. CIT (SUPRA) . THE RELEVANT FINDING OF THE TRIBUNAL IN THE CASE OF M/S.NANNAMBRA SERVICE CO - OPERATIVE BANK LTD. IN ITA NO.436 TO 438/COCH/2 016, READS AS FOLLOW: - 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE OF EDANAD - KANNUR SERVICE CO - OPERATIVE BANK LTD. AND OTHERS IN I.T.A. NOS. 431 TO 433/COCH/2017 & OTHERS DATED 10/01 /2018. THE TRIBUNAL FOLLOWED THE JUDGMENT OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. (SUPRA). THE TRIBUNAL HELD THAT THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF THE CITIZENS CO - OPERATIVE SOCIETY LI MITED VS ASSISTANT COMMISSIONER OF INCOME TAX, REPORTED IN 397 ITR 1 (SC) IS NOT APPLICABLE TO THE FACTS OF THE CASE . THE RELEVANT FINDING OF THE TRIBUNAL DATED 10/01/2018 IS REPRODUCED BELOW: 8. I HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIA L ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEES IN THESE CASES ARE ALL PRIMARY AGRICULTURAL CREDIT SOCIETY AND THEY ARE REGISTERED AS SUCH UNDER THE KERALA CO OPERATIVE SOCIETIES ACT. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OPERATIVE BANK LIMITED &, ORS. (SUPRA) HAD CATEGORICALLY HELD IN PARA 17 PAGE 14 OF THE JUDGMENT THAT WHEN A PRIMARY AGRICULTURAL CREDIT SOCIETY IS REGISTERED AS SUCH UNDER THE KERALA CO - OPERATIVE SOCIETIES ACT, 1969, SUCH SOCIETY IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2) OF THE INCOME - TAX ACT. THE HON'BLE HIGH COURT WAS CONSIDERING THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: 'A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION/ THE TRIBUNAL IS CORRECT IN LAW IN DECIDING AGAINST THE ASSESSEE/ THE ISSUE REGARDING ENTITLEMENT FOR EXEMPTION UNDER SECTION 8OP, IGNORING THE FACT THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY?' 8.1 IN CONSIDERING THE ABOVE QUESTION OF LAW, THE HON'BLE HIGH COURT RENDE RED THE FOLLOWING FINDINGS: ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 5 '15. APPELLANTS IN THESE DIFFERENT APPEALS ARE INDISPUTABLY SOCIETIES REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT 1969, FOR SHORT, KCS ACT AND THE BYE - LAWS OF EACH OF THEM, AS MADE AVAILABLE TO THIS COURT AS PART OF THE PAPER BOOKS, CLEARLY SHOW THAT THEY HAVE BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CREDIT SOCIETIES BY THE COMPETENT AUTHORITY UNDER THE PROVISIONS OF THAT ACT THE PARLIAMENT, HAVING DEFINED THE TERM 'CO - OPERATIVE SOCIETY' FOR THE PURPOSES OF THE BR ACT WITH REFERENCE TO, AMONG OTHER THING THE REGISTRATION OF A SOCIETY UNDER ANY STATE LAW RELATING TO CO - OPERATIVE SOCIETIES FOR THE TIME BEING; IT CANNOT BUT BE TAKEN THAT THE PURPOSE OF THE SOCIETIES SO REGISTERED UNDER THE STATE LAW AND ITS OBJECTS HAVE TO BE UNDERSTOOD AS THOSE WHICH HAVE BEEN APPROVED BY THE COMPETENT AUTHORITY UNDER SUCH STATE LAW. THIS, WE VISUALIZE AS DUE RECIPROCATIVE LEGISLATIVE EXERCISE BY THE PARLIAMENT RECOGNIZING THE PREDOMINANCE 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 AGRICULT URAL 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 CONFIN ED 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 PRIMA RY OBJECT OR PRINCIPAL BUSINESS OF EACH OF THE APPELLANTS. IT IS ALSO CLEAR FROM THE MATERIALS ON RECORD THAT THE BYE - LAWS OF EACH OF THE APPELLANTS DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS MEMBER, EXCEPT MAY BE, IN ACCORDANCE WITH THE PROVISO TO SUB - CLAUSE 2 OF SECTION 5(CCIV) OF THE BR ACT. THE DIFFERENT ORDERS OF THE TRIBUNAL WHICH ARE IMPEACHED IN THESE APPEALS DO NOT CONTAIN ANY FINDING OF FACT TO THE EFFECT THAT THE BYE - LAWS OF ANY OF THE APPELLANT OR ITS CLASSIFICATION BY THE COM PETENT AUTHORITY UNDER THE KCS ACT IS ANYTHING DIFFERENT FROM WHAT WE HAVE STATED HEREIN ABOVE. FOR THIS REASON, IT CANNOT BUT BE HELD THAT THE APPELLANTS ARE ENTITLED TO EXEMPTION FROM THE PROVISIONS OF SECTION 8OP OF THE IT ACT BY VIRTUE OF SUB SECTION 4 OF THAT SECT; ON. IN THIS VIEW OF THE MATTER, THE APPEALS SUCCEED. 17. IN THE LIGHT OF THE AFORESAID, WE ANSWER SUBSTANTIAL QUESTION: A IN FAVOUR OF THE APPELLANTS AND HOLD THAT THE TRIBUNAL ERRED IN LAW IN DECIDING THE ISSUE REGARDING THE ENTITLEMENT OF EXEMPTION UNDER SECTION 8OP AGAINST THE APPELLANTS. WE HOLD THAT THE PRIMARY AGRICULTURAL CREDIT SOCIETIES, REGISTERED AS SUCH UNDER THE KCS ACT; AND CLASSIFIED SO, UNDER THAT ACT INCLUDING THE APPELLANTS ARE ENTITLED TO SUCH EXEMPTION.' ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 6 8.2 IN THE INSTANT CASE, THE ASSESSEE'S ARE ALL PRIMARY AGRICULTURAL CREDIT SOCIETY REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969. THE CERTIFICATE HAS BEEN ISSUED BY THE REGISTRAR OF COOPERATIVE SOCIETIES TO THE ABOVE SAID EFFECT AND THE SAME IS ON REC ORD. THE HONBLE HIGH COURT, IN THE CASE CITED SUPRA, HAD HELD THAT PRIMARY AGRICULTURAL CREDIT SOCIETY, REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969, IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2). SINCE THERE IS A CERTIFICATE ISSUED BY THE REGISTRAR OF COOPERATIVE SOCIETIES, STATING THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY, GOING BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, ASSESSEE IS ENTITLED TO DEDUCTION U/S 80P(2). HOWEVER, THE REVENUE'S CONTENTION IS THAT THE HONBLE APEX COURT IN THE CASE OF CITIZENS CO OPERATIVE SOCIETY LTD. (SUPRA) CATEGORICALLY DECIDED WHEN DEPOSITS ARE RECEIVED FROM GENERAL PUBLIC / NOMINAL MEMBERS OR LOANS ARE DISBURSED TO GENERAL PUBLIC / NOMINAL MEMBERS, THE ASSESSEE WOULD BE D OING THE BUSINESS OF BANKING AND THEREFORE, WOULD NOT BE ENTITLED TO DEDUCTION U/S 80P(2) OF THE INCOME - TAX ACT. IN THE CONTEXT OF THE SUBMISSION MADE BY THE REVENUE LET ME EXAMINE WHETHER THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CITIZENS CO - O PERATIVE SOCIETY LTD. (SUPRA) HAS APPLICATION TO THE FACTS OF THE PRESENT CASE. 9. 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 CO - OPERATIVE 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 8OP 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 PROV ISIONS OF SECTION 80 P 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 80 P OF THE ACT. 9.1 THE ASSESSEE SOCIETY IN THE CASE CONSIDERED BY THE HON'BLE SUPREM E COURT WAS ESTABLISHED ON 31 - 5 - 1997 AND WAS REGISTERED UNDER SECTION 5 OF THE ANDHRA PRADESH MUTUALLY AIDED CO - OPERATIVE SOCIETIES ACT, 1995. THEREAFTER AS THE OPERATIONS OF THE ASSESSEE HAD INCREASED MANIFOLD AND SPREAD OVER STATES OF ERSTWHILE, ANDHRA P RADESH, MAHARASHTRA AND KARNATAKA, THE ASSESSEE - SOCIETY GOT ITSELF REGISTERED ON 26.07.2005 UNDER THE MULTI STATE CO - OPERATIVE SOCIETIES ACT, 2002 (MACSA) ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 7 9.2 THE HONBLE APEX COURT IN THE AFOREMENTIONED CASE SPECIFICALLY TOOK NOTE OF THE FACTUAL FINDIN GS OF THE ASSESSING OFFICER (WHICH WAS STATED IN PARA 15 OF THE JUDGMENT) REFERRING TO THE BYE LAWS AND THE PROVISIONS OF MUTUALLY AIDED CO OPERATIVE SOCIETIES ACT, 1995. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE THEREIN CANNOT ADMIT 'NOMINAL MEMBERS' AND MOST OF THE DEPOSITS WERE TAKEN FROM SUCH CATEGORY OF PERSON (AS THEY WERE NOT MEMBERS AS PER THE PROVISIONS REFERRED). THE APEX COURT IN PARA 25 OF THE JUDGMENT HAS POINTED OUT THAT THE MAIN REASON FOR DISENTITLING THE ASSESSEE FROM GETTING THE DEDUCTION PROVIDED UNDER SECTION 80 P OF THE ACT IS NOT SUB - SECTION (4) OF THE ACT. ON THE CONTRARY, THE HON'BLE APEX COURT HELD THAT THE CREDIT CO - OPERATIVE SOCIETY WAS NOT ENTITLED FOR DEDUCTION U/S 8OP OF THE ACT FOR THE REASON OF CATEGORICAL FINDIN G OF THE A.O. THAT THE ACTIVITIES OF THE ASSESSEE ARE IN VIOLATION OF THE PROVISIONS OF THE MACSA UNDER WHICH IT IS FORMED AS THE SUBSTANTIAL DEPOSITS WERE FROM 'NOMINAL MEMBERS' WHO ARE ACTUALLY NON - MEMBERS AS PER THE PROVISIONS OF LAW REFERRED. THE HONB LE APEX COURT SPECIFICALLY TOOK NOTE OF THE FACT THAT THE ASSESSEE THEREIN HAS CARVED OUT A CATEGORY OF 'NOMINAL MEMBERS' WHO ARE INFACT NOT THE MEMBERS IN THE REAL - SENSE. THEREFORE THE DEPOSITS RECEIVED FROM THE CARVED OUT CATEGORY VIZ NOMINAL MEMBERS WHO ARE NOT THE MEMBERS AS PER THE PROVISIONS OF THE LAW REFERRED TO THEREIN AND WITHOUT THE PERMISSION OF THE REGISTRAR OF SOCIETIES WAS HELD TO BE VIOLATIVE OF THE PROVISIONS AND WERE TREATED/ PROCEEDED WITH AS DEPOSITS FROM THE PUBLIC. IN OTHER WORDS, IN THE CASE BEFORE THE HONBLE SUPREME COURT, THE FINDING ON THE PRINCIPLE OF MUTUALITY WAS ARRIVED AT INTERALIA; ON THE FACTUAL FINDING THAT THE ASSESSEE WAS RECEIVING DEPOSITS MOSTLY FROM A CARVED OUT CATEGORY OF MEMBER VIZ 'NOMINAL MEMBER' WHO ARE NOT MEMB ERS AS PER THE PROVISIONS OF LAW REFERRED,, AND THAT MOST OF THE BUSINESS OF THE ASSESSEE THEREIN WAS WITH THIS CARVED OUT CATEGORY OF PERSON AND ALSO GRANTING LOANS TO PUBLIC AND WITHOUT THE APPROVAL FROM THE REGISTRAR OF THE SOCIETIES. 9.3 AS FAR AS T HE KERALA CO - OPERATIVE SOCIETIES ACT WHICH IS APPLICABLE TO THE PRESENT CASES ARE 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 FO LLOWS: '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' ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 8 9.4 THE 'NOMINAL 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;' 9.5 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. 9.6 IN THIS CONTEXT, IT IS RELEVANT TO MENTION THAT THE HONBLE SUPREME COURT IN THE CASE OF U.P. CO - OPERATIVE CANE UNION V. COMMISSIONER OF INCOME - TAX (1999) 237 ITR 574 (S C) - PARA 8 OF THE JUDGMENT HAS OBSERVED AS UNDER: - '8. THE EXPRESSION 'MEMBERS' IS NOT DEFINED IN THE ACT. SINCE A CO - OPERATIVE SOCIETY HAS TO BE ESTABLISHED UNDER THE PROVISIONS OF THE LAW MADE BY THE STATE LEGISLATURE IN THAT REGARD, THE EXPRESSION 'MEMB ERS' IN SECTION 80P(2)(A)(I) MUST, THEREFORE, BE CONSTRUED IN THE CONTEXT OF THE PROVISIONS OF THE LAW ENACTED BY THE STATE LEGISLATURE UNDER WHICH THE CO OPERATIVE SOCIETY CLAIMING EXEMPTION, HAS BEEN FORMED. IT IS, THEREFORE, NECESSARY TO CONSTRUE THE EX PRESSION 'MEMBERS' IN SECTION 80P(2)(A)(I) OF THE ACT IN THE LIGHT OF THE DEFINITION OF THAT EXPRESSION AS CONTAINED IN SECTION 2(N) OF THE CO - OPERATIVE SOCIETIES ACT.' 9.7 THE BOMBAY HIGH COURT IN JALGAON DISTRICT CENTRAL V. UOI (2004) 265 ITR 423 (BOM) IN THE LIGHT OF THE ABOVE SUPREME COURT JUDGMENT HAD HELD THAT NOMINAL MEMBER IS ALSO MEMBER UNDER THE MAHARASHTRA CO - OPERATIVE SOCIETIES ACT AND ENTITLED FOR BENEFITS UNDER SECTION 8OP. [PARA 17 TO 20 OF THE JUDGMENT], AS UNDER: - '17. IN CASE OF M/S U. P. CO - OP. CANE UNION FEDERATION LTD., LUCKNOW (CITED SUPRA), THE SUPREME COURT HAS HELD THAT THE EXPRESSION 'MEMBER' IS NOT DEFINED IN THE INCOME TAX ACT. SINCE THE CO - OPERATIVE SOCIETY HAS TO BE ESTABLISHED UNDER THE PROVISIONS OF LAW MADE BY THE STATE LE GISLATURE IN THAT REGARD, THE EXPRESSION 'MEMBER' IN SECTION 80P(2)(A)(I) MUST, THEREFORE, BE CONSTRUED IN THE CONTEXT OF THE PROVISIONS OF LAW ENACTED BY THE STATE LEGISLATURE UNDER WHICH THE CO - OPERATIVE SOCIETY CLAIMING EXEMPTION HAS BEEN FORMED. THE SU PREME COURT HAS FURTHER OBSERVED THAT IT IS NECESSARY TO CONSTRUE THE EXPRESSION 'MEMBER' IN SECTION 80P(2)(A)(I) OF THE ACT IN THE LIGHT OF THE DEFINITION OF 'MEMBER' GIVEN UNDER SECTION 2(N) OF THE U.P. CO - OPERATIVE SOCIETIES ACT, 1965. ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 9 18. THE DEFINITION OF 'MEMBER' GIVEN IN SECTION 2(19) OF THE MAHARASHTRA CO - OPERATIVE SOCIETIES ACT, 1960 TAKES WITHIN ITS SWEEP EVEN A NOMINAL MEMBER, ASSOCIATE MEMBER AND SYMPATHIZER MEMBER. THERE IS NO DISTINCTION MADE BETWEEN DULY REGISTERED MEMBER AND NOMINAL , ASSOCIATE AND SYMPATHIZER MEMBER. 19. IN THE CASE OF K.K.ADHIKARI (CITED SUPRA), DIVISION BENCH OF THIS COURT HAS HELD THAT THE DEFINITION OF A MEMBER UNDER SECTION 2(19) OF THE MAHARASHTRA CO - OPERATIVE SOCIETIES ACT, 1960 INCLUDES A NOMINAL MEMBER OR A SYMPATHIZER 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 MEM BER. 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.' 9.8 AS PER SECTION 3 OF THE BANKING REGULATION ACT, 1949 THE PROVISIONS OF BANKING REGULATION ACT SHALL NOT APPLY TO PRIMA RY 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 AFT ER 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 ANY CO - OPERATIVE SOCIETY REFERRED TO IN CLAUSES (CCIV), (CCV) AND (CCVI), A DETERMINATIO N THEREOF BY THE RESERVE BANK SHALL BE FINAL. THE RESERVE BANK OF INDIA, WHICH IS THE COMPETENT AUTHORITY AS PER THE BANKING REGULATION ACT, TREATS ASSESSEE SOCIETY AND SIMILAR SOCIETIES AS ONLY 'PRIMARY AGRICULTURAL CREDIT SOCIETY' NOT FALLING WITHIN THE AMBIT OF BANKING REGULATION ACT. THE RESERVE BANK OF INDIA HAS GIVEN LETTERS TO THE SOCIETIES SIMILAR TO ASSESSEE STATING THAT THEY ARE PRIMARY AGRICULTURAL CREDIT SOCIETIES AND THEREFORE IN TERMS OF SECTION 3 OF THE BANKING REGULATION ACT ARE NOT ENTITLED FOR BANKING LICENSE; (COPIES OF SUCH LETTER FROM RBI ARE PLACED ON RECORD). 9.9 THAT BEING THE CASE, THE ASSESSING OFFICER WAS NOT COMPETENT AND DID NOT POSSESS THE JURISDICTION TO RESOLVE / DECIDE THE ISSUE AS ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 10 TO WHETHER THE ASSESSEE WAS A 'PRIMARY AGRICULTURAL CREDIT SOCIETY' OR A 'CO - OPERATIVE BANK', WITHIN THE MEANING ASSIGNED TO IT UNDER THE PROVISIONS OF THE BANKING REGULATION ACT AND TO TAKE A CONTRARY VIEW ESPECIALLY IN VIEW OF THE EXPLANATION PROVIDED AFTER THE CLAUSE (CCVI) OF SECTION 5 R.W. S SECTION 56 OF THE BANKING REGULATION ACT. 9.10 IN VIEW OF THE AFORESAID REASONING, I HOLD THAT THE JUDGMENT OF THE HONBLE APEX COURT IN CITIZEN CO - OPERATIVE SOCIETY LTD. IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. ACCORDING TO ME, THE JUDGMEN T OF THE HONBLE JURISDICTIONAL HIGH COURT IS IDENTICAL TO THE FACTS OF THE PRESENT CASES AND IS SQUARELY APPLICABLE. THEREFORE, I HOLD THAT THE CIT(A) HAS CORRECTLY ALLOWED THE CLAIM OF DEDUCTION IN THE ABOVE CASES AND I UPHOLD THE ORDERS OF THE CIT(A). I T IS ORDERED ACCORDINGLY. 10. IN THE RESULT, THESE APPEALS FILED BY THE REVENUE ARE DISMISSED. 7.1 THE FACTS OF THE INSTANT CASES ARE IDENTICAL TO THE FACTS CONSIDERED BY THE TRIBUNAL IN THE ABOVE CASES. FOLLOWING THE ORDER OF THE TRIBUNAL IN THE AB OVE MENTIONED CASES, WE HOLD THAT THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT DEDUCTION U/S. 80P(2) OF THE ACT. 7.2 BEFORE CONCLUDING, IT HAS TO BE MENTIONED THAT THE CASE LAW RELIED ON BY THE REVENUE IN THE GROUNDS, ADDITIONAL GROUNDS ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. UNDISPUTEDLY, THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY AND IS PROVIDING CREDIT FACILITIES TO ITS MEMBERS FOR AGRICULTURE AND AGRICULTURE ALLIED ACTIVITIES. THE COMPETENT AUTHORITY OF CO - OPERATIVE DEPARTMENT OF GOVERNMENT OF KERALA HAVING BEEN SATISFIED WITH THE ACTIVITIES OF THE ASSESSEE, HAS CLASSIFIED THE ASSESSEE AS PACS (PRIMARY AGRICULTURAL CREDIT SOCIETY). THE HONBLE KERALA HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OPER ATIVE BANK LIMITED &, ORS. (SUPRA) HAS ELABORATELY CONSIDERED THE ISSUE AND HAS CATEGORICALLY HELD THAT THE CERTIFICATE ISSUED BY THE COMPETENT AUTHORITY IN THIS REGARD IS BINDING AND THE INCOME TAX AUTHORITIES HAVE NO RIGHT TO PROBE FURTHER. 7.3. IN GROUND NOS. 4, 5 & 6 OF THE MEMORANDUM OF APPEAL, IT IS MENTIONED THAT THE CIT(A) HAS ERRED IN NOT PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. PERINTHALMANA SERVICE CO - OPERATIVE BANK LTD. VS. CIT REPORTED IN 363 ITR 268. THE HONBLE HIGH COURT IN THE ABOVE MENTIONED CASE WAS DISPOSING OF THE APPEAL FILED BY THE ASSESSEE, CHALLENGING THE ORDER PASSED BY THE ITAT UPHOLDING THE VALIDITY OF THE ORDER ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 11 PASSED BY THE COMMISSIONER U/S 263 OF THE ACT. IN T HE SAID JUDGMENT, THE HONBLE HIGH COURT UPHELD THE ORDER OF THE ITAT, AFTER DIRECTING THE ASSESSING OFFICER TO PASS A FRESH ASSESSMENT ORDER UNTRAMMELED BY ANY OF THE VIEWS EXPRESSED BY THE REVISIONARY AUTHORITY. WHEREAS THE JUDGMENT OF THE HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. (SUPRA) WAS IN RESPECT OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER DENYING THE DEDUCTION U/S. 80P AND IS IDENTICAL TO THE FACTS OF THE PRESENT CASE. 7.4 FURTHER TH E RESERVE BANK OF INDIA, WHICH IS THE AUTHORITY UNDER THE BANKING REGULATIONS ACT TO DECIDE AS TO WHETHER A CO - OPERATIVE SOCIETY IS A PRIMARY AGRICULTURAL CREDIT SOCIETY OR NOT, HAS VIDE LETTER UBD(T) NO. 438/12 - 01 - 008/2013 - 14 DATED 25/10/2013 INFORMED THE SECRETARY, THE MADAI CO - OPERATIVE RURAL BANK LTD. NO. F.1233, HEAD OFFICE, PAYANGADI KANNUR - 670303 AND VIDE LETTER NO. UBD(T) NO.440/12 - 01 - 008/2013 - 14 DATED 25/10/2013, THE KADIRUR SERVICE CO - OPERATIVE BANK LTD. NO.F 1262 HO KADIRUR, KANNUR - 670 642 THAT AN INSTITUTION REGISTERED AS A PRIMARY AGRICULTURAL CREDIT SOCIETY (PACS) IS NOT ENTITLED TO OBTAINING A BANKING LICENSE, WHICH IMPLIES THAT AN ENTITY WHICH IS REGISTERED AS A PRIMARY AGRICULTURAL CREDIT SOCIETY CANNOT BE A BANK. A COPY OF SAID LETTER IS ON RECORD. 7.5 IN THE ADDITIONAL GROUNDS OF APPEAL, THE REVENUE HAS PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF SABARKANTHA ZILLA KHARID VECHAN SANGH LTD. VS. CIT REPORTED IN 203 ITR 1027 (SC). IN THE CASE OF SABARKAN THA ZILLA KHARID VECHAN SANGH LTD. (SUPRA), THE ASSESSEE - SOCIETY WAS EFFECTING SALES OF AGRICULTURAL INPUTS OF BOTH MEMBERS AS WELL AS NON MEMBERS. THE ASSESSEE CLAIMED SHARE OF THE GROSS PROFIT OUT OF THE TRANSACTIONS WITH MEMBERS AS A DEDUCTION FROM THE COMBINED NET PROFIT. ON THE CONTRARY, IN THE INSTANT CASE, THE ASSESSEE HAD EXTENDED CREDIT FACILITIES ONLY TO THE MEMBERS. THE REVENUE DOES NOT HAVE A CASE THAT SUCH CREDIT FACILITIES ARE EXTENDED TO THE OUTSIDERS. THEREFORE THE INCOME GENERATED IN THE INSTANT CASE IS ONLY OUT OF THE TRANSACTION WITH THE MEMBERS. DEDUCTION U/S. 80P IS ALLOWED ONLY FOR THE SAID INCOME. THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80P ONLY IN RESPECT OF NET INCOME WHICH IS DERIVED BY EXTENDING CREDIT FACILITIES TO THE MEMBER S. FOR THE AFORESAID REASONS, THE JUDICIAL PRONOUNCEMENTS RELIED ON BY THE REVENUE IN THE GROUNDS AND THE ADDITIONAL GROUNDS DOES NOT HAVE APPLICATION TO THE INSTANT CASE. THEREFORE, WE HOLD THAT CIT(A)S ORDER IS CORRECT AND IN ACCORDANCE WITH LAW. IT IS ORDERED ACCORDINGLY. ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 12 3 . 7 IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD. AND OTHERS (SUPRA) AND THE ORDERS OF THE TRIBUNAL MENTIONED ABOVE, WE HOLD THAT THE CIT(A) IS JUSTIFIED IN DIRECTING THE A.O. TO GRANT THE BENEFIT OF DEDUCTION U/S 80P(2) OF THE I.T.ACT FOR ASSESSMENT YEARS 2012 - 2013 AND 2013 - 2014. ALL THE GROUNDS AND THE ADDITIONAL GROUNDS RAISED IN ITA NO.32/COCH/2017 (ASST.YEAR 2013 - 2014) IS RELATING TO THE COMM ON ISSUE ADJUDICATED ABOVE, HENCE, THE DEPARTMENTS APPEAL IN ITA NO.37/COCH/2017 IS DISMISSED. THE CO NO.13/COCH/2017 FILED BY THE ASSESSEE IS ONLY SUPPORTING THE ORDER OF THE CIT(A) AND SINCE WE HAVE ALREADY DISMISSED THE REVENUES APPEAL, THE C.O. FILED BY THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. 4 . APART FROM THE COMMON ISSUE ADJUDICATED ABOVE, THE ONLY OTHER ISSUE RAISED IN ITA NO.36/COCH/2017 CONCERNING ASSESSMENT YEAR 2012 - 2013 IS REGARDING DISALLOWANCE OF INTEREST INCOME OF RS.2,33,750 EARNED ON FDS WITH KADUTHURUTHY URBAN CO - OPERATIVE BANK ETC. THE ASSESSING OFFICER HAD DENIED BENEFIT OF DEDUCTION U/S 80P(2) WITH REGARD TO THE INTEREST RECEIPT OF RS.2,33,750, BY OBSERVING AS UNDER: - 3.1 FOR THE YEAR UNDER CONSIDERATION THE ASSESS EE RECEIVED A N INTEREST OF RS. 2,33,750 FROM KADUTHURUTHY URBAN CO - OP. BANK LTD. 3.2 AS FOR THE PLAIN READING OF SECTION 80P(2)(D) OF THE ACT, IT DERIVES THAT THE DEDUCTION IS TO ENCOURAGE INVESTMENTS IN SIMILAR CO - OPERATIVE SOCIETIES AND NOT ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 13 IN BANKS OR TREASURIES. MO REOVER, THE TERM 'CO - OPERATIVE SOCIETY' IS DEFINED IN THE INCOME - TAX ACT ITSELF VIDE SECTION 2(19) AS A CO - OPERATIVE SOCIETY REGISTERED UNDER THE CO - OPERATIVE SOCIETIES ACT, 1912 (2 OF 1912), OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE IN ANY STATE FOR THE REGISTRATION OF CO - OPERATIVE SOCIETIES; ON THE OTHER HAND, THE ACT SPECIFIES UNDER EXPLANATION TO SECTION 80P THAT (A) 'CO - OPERATIVE BANK' AND 'PRIMARY AGRICULTURAL CREDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V O F THE BANKING REGULATION ACT, 1949 (10 OF 1949) AND ACCORDINGLY 'CO - OPERATIVE BANK' MEANS A STATE CO - OPERATIVE BANK, A CENTRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK. HENCE THE DISTINCTION IS EVIDENT AND THE INTENTION - IS SPECIFIC SO THAT THE RECEIPT BECOME DEDUCTIBLE UNDER SECTION 80P(2)(D) ONLY WHEN IT IS FROM ANOTHER CO - OPERATIVE SOCIETY AND NOT FROM BANKS. IN VIEW OF THE ABOVE THE INTEREST INCOME OF RS. 2,33,750 IS ASSESSED UNDER INCOME FROM SOURCES AND NO DEDUCTION UNDER SECTION 80P IS ALLO WED THEREON. 4 . 1 AGGRIEVED BY THE ORDER OF THE ASSESSMENT IN DENYING THE BENEFIT OF DEDUCTION U/S 80P(2), THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) HELD THAT THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.2,33,750 IN THE COURSE OF ITS BAN KING BUSINESS AND THE SAME WOULD FALL WITHIN THE AMBIT OF SECTION 80P(2)(A)(I) OF THE I.T.ACT. IN TAKING THE ABOVE DECISION, THE CIT(A) RELIED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT V. KARNATAKA STATE CO - OPERATIVE APEX BANK [251 ITR 1 94] AND THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S.PUTHUPALLY VILLAGE SERVICE CO - OPERATIVE BANK LTD. IN ITA NO.279/COCH/2016 DATED 31.10.2016 . ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 14 4 . 2 THE REVENUE BEING AGGRIEVED, HAS FILED APPEAL BEFORE US RAISING THE ABOVE ISSUE. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. THE LEARNED AR, ON THE OTHER HAND, SUBMITTED THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S.PUTHUPALLY VILLAGE SERVICE CO - OPERATIVE BANK LTD. (SUP RA). 4 .3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON IDENTICAL FACTS, THE TRIBUNAL IN THE CASE OF THE PADNE SERVICE CO - OPERATIVE BANK LTD. V ITO IN ITA NOS.584 & 585/COCH/2017 DATED 11.01.2018, HAD HELD THAT WHEN INVESTMENT S ARE MADE IN THE COURSE OF ASSESSEES NORMAL BANKING BUSINESS AND INTEREST IS EARNED, THE SAME WOULD FALL UNDER THE HEAD INCOME FROM BUSINESS AND NOT AS INCOME FROM OTHER SOURCES. IT WAS CONCLUDED BY THE TRIBUNAL IN THE ABOVE SAID CASE THAT THE SAID INTEREST RECEIVED IS ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) OF THE I.T.ACT. THE TRIBUNAL BY RELYING ON THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD. IN ITA NO.307 OF 2014 (JUDGMENT DATED 28 TH OCTOBER, 2014), DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDING OF THE TRIBUNAL IN THE CASE OF THE PADNE SERVICE CO - OPERATIVE BANK LTD. READS AS FOLLOW: - 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SOLITARY ISSUE FOR OUR CONSIDERATION IS WHETHER INTEREST RECEIVED ON INVESTMENTS WITH SUB - TREASURY IS LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 15 OR INCOME FR OM 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 FACI LITIES TO ITS MEMBERS. SECTION 5(B) OF THE BANKING REGULATION ACT 1948 DEFINES BANKING AS THE ACCEPTING FOR THE PURPOSE OF LENDING OR INVESTMENT OF DEPOSITS OF MONEY FROM THE PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE AND WITHDRAWAL BY CHEQUE, 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 80P(2) OF THE INCOME - TAX ACT. THE HONBLE HIGH COUR T OF KARNATAKA IN THE CASE OF SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMAMITHA VS ITO HAS CLEARLY ANSWERED THE ISSUE. THE HONBLE HIGH COURT, AFTER CONSIDERING THE AMENDMENT INTRODUCED BY FINANCE ACT 2006 W.E.F 1.4.2007 (INSERTION OF SECTION 80P( 4) OF THE INCOME - TAX ACT, 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 C OMPUTING 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 CO - OPERATIVE BANK WHICH IS EXCLUSIVELY CARRY ING 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 CO - OPERATIVE 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 EXCLUDE THE BENEFIT EXTENDED UNDER SECTION ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 16 80P(1) TO SUCH SOCIETY, THEREFORE, THERE WAS NO ERROR COMMITTED BY THE ASSESSING AUTHORITY. THE SAID ORDER WAS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CONDITION PR ECEDENT FOR THE COMMISSIONER TO INVOKE THE POWER UNDER SECTION 263 IS THAT THE TWIN CONDITION SHOULD BE SATISFIED. THE ORDER SHOULD BE ERRONEOUS AND IT SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. 7.1 FROM THE ABOVE JUDGMENT OF THE HONBLE KARNA TAKA 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 BAN K, HIT BY THE PROVISIONS OF SECTION 80P(4) OF THE ACT. THE JUDGMENT OF THE HONBLE 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 DEDUCTION U/S 80P OF THE INCOME - TAX ACT. 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 COVE RED U/S 80P(2) OF THE ACT. THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF M/S TOTGARS COOPERATIVE SALES SOCIETY LTD. (SUPRA) RELIED BY THE CIT(A) IS DISTINGUISHABLE ON FACTS. THE HONBLE APEX COURT IN THE CASE OF M/S TOTGARS COOPERATIVE SALES SOCIE TY LTD (SUPRA) WAS DEALING WITH THE CASE WHERE THE ASSESSEE APART FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS WAS ALSO MARKETING AGRICULTURAL PRODUCES GROWN BY ITS MEMBERS. SALE CONSIDERATION RECEIVED FROM THE MARKETING OF AGRICULTURAL PRODUCE OF ITS M EMBERS WAS RETAINED BY THE ASSESSEE IN THAT CASE AND WAS INVESTED IN SHORT TERM DEPOSITS/SECURITIES. SUCH AMOUNT RETAINED BY ASSESSEES SOCIETY WAS SHOWN AS A LIABILITY IN THE BALANCE SHEET AND THEREFORE, TO THAT EXTENT INTEREST INCOME CANNOT BE ATTRIBUTA BLE NEITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OR U/S 80P(2)(A)(III) OF THE ACT. THIS ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 17 DISTINGUISHABLE FEATURE HAS BEEN TAKEN NOTE BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD IN ITA NO.3 07 OF 2014 ( JUDGMENT DATED 28TH OCT 2014). THE HONBLE 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 INVESTMEN T 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 LA W, THE HONBLE 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 CA SE 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/ SECU RITY. WAS INVESTED IN A SHORT - TERM SUCH AN AMOUNT WHICH WAS RETAINED BY THE ASSESSEE - SOCIETY WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EI THER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR UNDER SECTION 80P(2)(A)(III) OF THE ACT. THEREFORE IN THE FACTS OF THE SAID CASE, THE APEX COURT HELD THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME INDICATED ABOVE UNDER S ECTION 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 N O T THE LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNT. IN FACT ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 18 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 80 P(L) OF THE ACT. IN TACT 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. ACCORDINGLY, IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER: APPEAL IS ALLOWED. 7.4 THE COCHIN BENCH OF THE TRIBUNAL 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 COCH IN 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 TH E 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 HONBLE APEX COURT IN THE CASE OF TOTGARS 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 TOTGARS CO - OPERATIVE SALE SOCIETY LTD VS I TO (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 TOTGARS CO - OPERATIVE SALE SOCIETY LTD VS ITO (SUPRA), THE ASSESSEE CO - OPERATIVE S OCIETY WAS TO PROVIDE CREDIT ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 19 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 TOTGARS CO - OPERATIVE SALE SOCIETY L TD (SUPRA) IS NOT APPLICABLE IN RESPECT OF THE CO - OPERATIVE SOCIETY WHOSE BUSINESS IS BANKING. ADMITTEDLY, THE ASSESSEE HAS INVESTED FUNDS IN STATE PROMOTED TREASURY SMALL SAVINGS FIXED DEPOSIT SCHEME. SINCE GOVERNMENT OF INDIA HAS WITHDRAWN INDIA VIKAS PA TRA, AS A SMALL SAVINGS INSTRUMENT, FUNDS INVESTED AT THE DISCRETION OF THE BANK IS ONE OF THE ACTIVITIES OF THE BANKING AS PER THE BANKING REGULATION ACT. SINCE THE ASSESSEE CO - OPERATIVE SOCIETY IS IN THE 4 ITA NO.372/COCH/2010 BUSINESS OF BANKING THE INV ESTMENT 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 BUSINES S 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 CO - OPERATIVE 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/BANK S AND EARNING INTEREST ON THE SAME IS PART OF THE BANKING ACTIVITY OF THE ASSESSEES 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 IN TEREST 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 JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARD A CREDIT COOP LTD (SUPRA)AND COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF SERVICE COOP BANK LTD.,(SUPRA), WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2) OF THE INCOME - TAX ACT, WITH REGARD TO INTEREST RECEIVED ON DEPO SITS MADE BY THE ASSESSEE WITH SUB TREASURY AMOUNTING TO RS.3,30,866 FOR ASSESSMENT YEAR 2007 - 2008. IT IS ORDERED ACCORDINGLY. ITA NO S . 36 & 37 / COCH /201 7 CO 12 & 13 /COCH/2017 . M/S. THE MANJOOR SERVICE CO - OP BANK LTD. 20 4 . 4 IN VIEW OF THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE PADNE SERVICE CO - OPERATIVE BANK LTD. (SUPRA), WE HOLD THAT THE CIT(A) IS JUSTIFIED IN DIRECTING THE A.O. TO GRANT THE BENEFIT OF DEDUCTION U/S 80P(2) OF THE I.T.ACT IN RESPECT OF INTEREST INCOME AMOUNTING TO RS.2,33,750. 4 . 5 THE CROSS OBJECTION FILED BY THE ASSESSEE IS SUPPORTIVE OF THE ORDER OF THE CIT(A) , IS DISMISSED AS INFRUCTUOUS. 5 . IN THE RESULT, THE APPEAL S FILED BY THE REVENUE AND THE CROSS OBJECTION S FILED BY THE ASSESSEE, ARE DISMISSED. ORDER PRONOUNCED ON THIS 20 TH DAY OF APRIL, 2018 . SD / - SD/ - ( CHANDRA POOJARI ) ( GEORGE GEORGE K. ) ACCOUNTANT MEMBER JUDICIA L MEMBER COCHIN ; DATED : 20 TH APRIL, 2018 . DEVDAS* COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, COCHIN 1. THE APPELLANT 2. THE RESPONDENT. 3. THE PR. CIT KOTTAYAM . 4. THE CIT (APPEALS) - KOTTAYAM. 5. DR, ITAT, COCHIN 6 . GUARD FILE.