PUNALUR SERVICE COOPERATIVE BANK LTD,PUNALUR V. INCOME TAX OFFICER, WARD 2, KOLLAM, KOLLAM

ITA 668/COCH/2023

AI Insights

The case involves Punalur Service Co-op. Bank Ltd., a primary agricultural credit co-operative society, which appealed against the order of the National Faceless Appeal Centre, Delhi, for the Assessment Year 2017-18. The society had declared nil income in its return by claiming a deduction under section 80P of the Income Tax Act, 1961, which was not accepted by the Income Tax Officer, leading to an assessment of income. The main contention was whether the interest income received from the District Co-operative Bank and Treasury was eligible for deduction under section 80P. The Tribunal, referencing decisions from the Hon'ble Jurisdictional High Court, ruled in favor of the assessee, allowing the deductions claimed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474719 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Other Referred Cases: PCIT & Anr. v. Totagars Co-operative Sales Society (2017) 395 ITR 611 (Kar.), PCIT v. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker), CIT vs. Sahyadri Co-operative Credit Society Ltd. in ITA No. 63 of 2019
• Laws Referred To: Income Tax Act, 1961, Kerala Co-Operative Societies Act, 1969
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIT KUMAR DAS
• Assessee Lawyers: SANTOSH P. ABRAHAM
• Keywords: Co-operative Credit Society
• Section: 64; 80P

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI SOUNDARARAJAN K., JM ITA No. 668/Coch/2023 Assessment Year: 2017-18 Punalur Service Co-op. Bank Ltd. Punalur Post, Kollam 691305 [PAN: AAGAS6524C] .......... Appellant Vs. The Income Tax Officer Ward - 2, Kollam .......... Respondent Appellant by: Shri Santosh P. Abraham, Advocate Respondent by: Shri Sanjit Kumar Das, CIT-DR Date of Hearing: 28.11.2024 Date of Pronouncement: 27.01.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 27.07.2023 for Assessment Year (AY) 2017-18. 2. Brief facts of the case are that the assessee is primary agricultural credit co- operative society registered under the Kerala Co-Operative Societies Act, 1969The assessee filed the return of income of AY 2017-18 declaring Nil income by claiming deduction of Rs. 33,12,240/- u/s. 80P of the Income Tax Act, 1961 (the Act). Against the said return of income the Income Tax Officer, Ward-2, Kollam (hereinafter “the 2 ITA No. 668/Coch/2023 Punalur Service Co-op. Bank Ltd. AO”) completed the assessment at a total income of Rs. 4,91,56,768/- by making an addition of Rs. 2,41,56,768/- on account of interest received from District Co- operative Bank and Treasury. 3. Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO. 4. Being aggrieved, the assessee is in appeal before us in the present appeal. 5. We have heard the rival contentions of both the parties and perused the material available on record. 6. Learned CIT- DR vehemently argued that such interest income could have hardly be held even derived from assessee’s regular credit facilities made available to the members concerned. He further quotes PCIT & Anr. v. Totagars Co- operative Sales Society reported in (2017) 395 ITR 611 (Kar.) and submitted that the impugned disallowance has been rightly made in assessee’s hand. 7. We notice that the issue related to interest income received from the District Co-operative bank stands adjudicated by Hon'ble Jurisdictional High Court’s decision in the case of PCIT v. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker) wherein their Lordships have rejected the Revenue’s identical stand as under: - “12.2 Section 80P deals with Co-operative Societies' computation of income. As already noted, it has four sections and several sub-sections and clauses. The Parliament has considered the various situations in which the exigible income 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 3 ITA No. 668/Coch/2023 Punalur Service Co-op. Bank Ltd. 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 consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co-operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.” 8. Regarding the interest income received from Treasury, Scheduled Banks, etc., this issue is no longer res integra, as it is covered by the judgement of the Hon'ble Jurisdictional High court in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in ITA No. 63 of 2019, wherein it was held as under: - “ The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount (the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal 4 ITA No. 668/Coch/2023 Punalur Service Co-op. Bank Ltd. income [profits earned by the assessee from its lending activity) does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.” 9. Respectfully following the above decisions of the Hon'ble Jurisdictional High Court we hold that the assessee is entitled for deduction under sections 80P(2)(d) and 80P(2)(a)(i) of the Act on account of interest received from District Co-operative Bank and Treasury. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 27th January, 2025. Sd/- Sd/- (SOUNDARARAJAN K.) JUDICIAL MEMBER (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 27th January, 2025 n.p. Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order Assistant Registrar ITAT, Cochin "