Ita/323/2019 Of The Principal Commissioner Of Income Tax v. M/S. Peroorkada Service Co-Operative Bank Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 1 DAY OF NOVEMBER 2021 / 10TH KARTHIKA, 1943 ITA NO. 323 OF 2019 AGAINST THE ORDER IN ITA 67/2019 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAXTHIRUVANANTHAPURAM BY ADV SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT RESPONDENT/S: M/S. PEROORKADA SERVICE CO-OPERATIVE BANK LTDTC 845/1, PEROORKADA, TRIVANDRUM-695 005. BY ADV SRI.C.A.JOJO THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 01.11.2021,ALONG WITH ITA.142/2019, 5/2020, THE COURT ON THE SAME DAY DELIVEREDTHE FOLLOWING: -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 1 DAY OF NOVEMBER 2021 / 10TH KARTHIKA, 1943 ITA NO. 142 OF 2019 AGAINST THE ORDER/JUDGMENT IN ITA 196/2018 OF I.T.A.TRIBUNAL,COCHINBENCH, ERNAKULAM APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM. BY ADV SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT RESPONDENT/S: VILAPPIL SERVICE CO-OPERATIVE BANK LTD.,PEYAD P.O., THIRUVANANTHAPURAM-14.(PAN ) BY ADV SRI.BABU S. NAIR THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 01.11.2021,ALONG WITH ITA.323/2019 AND CONNECTED CASES, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: ITA Nos.142 & 323/2019; 5/2020 -3- IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 1 DAY OF NOVEMBER 2021 / 10TH KARTHIKA, 1943 ITA NO. 5 OF 2020 AGAINST THE ORDER/JUDGMENT IN ITA 47/2019 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAXTHIRUVANANTHAPURAM BY ADV SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT RESPONDENT/S: PEROORKADA SERVICE CO-OPERATIVE BANK LTDTC 845/1, PEROORKADA, THIRUVANANTHAPURAM-695005(PAN. ) BY ADV SRI.C.A.JOJO THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 01.11.2021,ALONG WITH ITA.323/2019 AND CONNECTED CASES, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: J U D G M E N T [ITA Nos.323/2019, 142/2019, 5/2020] S.V.Bhatti, J. Heard learned Standing Counsel Mr Christopher Abraham for appellant and Mr C A Jojo, learned counsel for respondent in ITA Nos.323/2019 and 5/2020. No representation for respondent in ITA No.142/2019. ITA No.142/2019[Assessment Year 2014-15] 2.The Principal Commissioner of Income Tax - Thiruvananthapuram/Revenue is the appellant. Vilappil ServiceCo-operativeBankLtd,Peyad, Thiruvananthapuram/assessee is the respondent. The appeal is at the instance of the Revenue under Section 260A of the ITA Nos.142 & 323/2019; 5/2020 Income Tax Act, 1961 (for short ‘the Act’) against the orderdated 19.09.2018 of the Income Tax Appellate Tribunal (forshort ‘Tribunal’), Cochin Bench, Cochin in ITA No.196/Coch/2018. The subject matter of the appeal relates to theissues arising from the return filed by the assessee for theAssessment Year 2014-15. 2.1The assessee is a Primary Agricultural Credit Societyregistered under the Kerala Co-operative Societies Act 1969.The assessee is engaged in banking activity and providing creditfacilities to its members. The assessee claimed completededuction of income under Section 80P(2)(a)(i) of the Act andalso claimed inclusion of interest income earned by the assesseefrom the deposit of idle funds with co-operative bank andtreasury treating the said income as business income fallingwithin the admissible ambit of deduction under Section 80P(2) ITA Nos.142 & 323/2019; 5/2020 2.1The assessee is a Primary Agricultural Credit Societyregistered under the Kerala Co-operative Societies Act 1969.The assessee is engaged in banking activity and providing creditfacilities to its members. The assessee claimed completededuction of income under Section 80P(2)(a)(i) of the Act andalso claimed inclusion of interest income earned by the assesseefrom the deposit of idle funds with co-operative bank andtreasury treating the said income as business income fallingwithin the admissible ambit of deduction under Section 80P(2) ITA Nos.142 & 323/2019; 5/2020 (a)(i) of the Act. The Assessing Officer rejected the claims of theassessee for deduction under Section 80P(2)(a)(i) and treatedthe interest income as income from other sources and also thatthe interest income does not come within the purview ofSection 80P(2)(d) of the Act the deduction claim made by theassessee has been rejected. The assessee aggrieved by the orderof Assessing Officer in Annexure-A filed appeal before theCommissioner of Income Tax (Appeals). The CIT (Appeals),through order in Annexure-B dated 28.02.2018, allowed theappeal of the assessee, thereby admitted the claim of assessee oftotal income eligible for deduction under Section 80P(2)(a)(i) ofthe Act. The appellate authority firstly accepted that theassessee is entitled to claim deduction as a registered co-operative society and that the interest income earned by theassessee from the investment with District Co-operative Bank ITA Nos.142 & 323/2019; 5/2020 and Treasury forms part of business income of the assessee. The Revenue, aggrieved by the order in Annexure-B dated28.02.2018, filed ITA No. 196/Coch/2018 before the Tribunal and through the order impugned the Tribunal dismissed the appealfiled by the Department. Hence, the instant appeal. 3.The appeal is admitted on the following substantialquestions of law: “i)Whether, on the facts and circumstances of the case andin law, is the Tribunal justified in holding that the assessee iseligible for claiming deduction under section 80P of the IncomeTax Act when the assessee failed to fulfil the principal objectiveof providing agricultural credits to agriculturists? ii)Whether, on the facts and circumstances of the case andin law, is the Tribunal justified in holding that the classificationof "Primary Agricultural Credit Society" made by thecompetent authority under Kerala Co-operative Societies Act isbinding on the authorities under the Income Tax Act fordetermining the eligibility for deduction under section 80P(4)of the Income Tax Act? iii)Is not the conclusion reached by the ITAT that the Assessing Officer cannot probe into details as to the fulfilmentof the principal objective of 'providing agricultural credits tomembers' by PACs, erroneous and unjustified in view of theprovisions of KCS Act? iv)Is not the above decision of the ITAT relying on the HighCourt decision in the case of Chirakkal Service Co-op bank&connected cases {[2016]384 ITR 490(Ker)} contradictory to thedecision rendered by this Hon'ble Court in an earlier case - M/sPerinthalmanna Service Co-operative Bank {reported in[2014]363 ITR 268(Ker)} v)Should not have the Tribunal noticed in the light of thefindings of the Hon'ble Apex Court in the case SabarkhantaZilla Kharid Vechan Sangh Ltd. Vs CIT reported in 203 ITR1027(SC), that eligible deduction under section 80(1)(d)[substituted by section 80P by the Finance (No.2) Act, 1967 w.e.f01.04.1968] of the Income Tax Act, 1961 in respect of co-operative societies/banks doing both agricultural and non-agricultural activities should not be 100% of the gross profitsand gains of business of such societies etc., but should belimited to the profits generated from agricultural activitiesalone performed by such assessees? vi)Whether on the facts and in the circumstances of thecase, the order of the ITAT is correct in not duly considering v)Should not have the Tribunal noticed in the light of thefindings of the Hon'ble Apex Court in the case SabarkhantaZilla Kharid Vechan Sangh Ltd. Vs CIT reported in 203 ITR1027(SC), that eligible deduction under section 80(1)(d)[substituted by section 80P by the Finance (No.2) Act, 1967 w.e.f01.04.1968] of the Income Tax Act, 1961 in respect of co-operative societies/banks doing both agricultural and non-agricultural activities should not be 100% of the gross profitsand gains of business of such societies etc., but should belimited to the profits generated from agricultural activitiesalone performed by such assessees? vi)Whether on the facts and in the circumstances of thecase, the order of the ITAT is correct in not duly considering that the interest income earned from deposits with bankscannot be attributable as profit and gains from the business ofproviding credit facilities to its members u/s80P(2)(a)(i) & innot considering the case law in 322 ITR 283 M/s Totgar Co-operative Sales Society applicable in the case? Substantial Question nos.1 to 4 4.Learned counsel appearing for the Revenue and theassessee state that the substantial question nos.1 to 4 excerptedsupra are covered by the judgment of the Supreme Court inMavilayi Service Co-operative Bank Ltd. v. Commissioner of IncomeTax[1]; the assessee since is a registered Co-operative Society andthe deduction claimed is interest earned from loans lent tomembers and amount invested with Co-operative Bank andTreasury, so the threshold eligibility of deduction is admissibleto assessee and accordingly the income earned by way ofinterest from members is eligible for deduction under Section1[2021] 431 ITR 1 (SC) ITA Nos.142 & 323/2019; 5/2020 80P(2)(a)(i) of the Act. Accordingly the questions can beanswered against the Revenue and in favour of the assessee. Statement is placed on record. Substantial question nos.1 to 4are answered in favour of the assessee and against the Revenue.Substantial Question nos.5 and 6 5.Substantial Question nos. 5 and 6 relate to the claimof deduction made by the assessee of interest income earned from the deposits the assessee has made with District/State Co-operative Banks and Treasury. The details of the interestearned from the investments with above three institutions arestated thus: 5.1The assessee, as per the certificate dated 01.11.2016 ITA Nos.142 & 323/2019; 5/2020 of the Joint Registrar of Co-operative Societies (General)Trivandrum, claims to be a Primary Agricultural Credit Co-operative Society registered under the Kerala Co-operativeSocieties Act 1969. Admittedly, the assessee is not engaged inthe banking business as defined in the Banking Regulation Act1949. In other words, the assessee does not have licence orauthorisation under the Banking Regulation Act to do businessin Banking. Principally, the assessee is engaged in the businessof providing credit facilities to its members by accepting loansfrom members as well as non-members. As stated above theassessee earned interest income amounting to Rs.62,52,991/-from the deposits made with Co-operative Banks/Treasury. TheAssessing Officer proposed to assess the said income under thehead: Income from Other Sources, inasmuch as, according toRevenue, the interest income does not form part of any receipt ITA Nos.142 & 323/2019; 5/2020 ITA Nos.142 & 323/2019; 5/2020 received by the assessee while carrying on the business ofproviding credit facilities to its members. The assessee objectedto the inclusion of interest income under the head 'Income fromOther Sources', on the ground that the District Co-operativeBank and Kerala State Co-operative Bank are registered as Co-operative Societies and the entire interest income is eligible fordeduction under Section 80P(2)(d) of the Act. The AssessingOfficer found that the District/State Co-operative Banks aretreated as Co-operative Banks and not as Co-operative Societies.The Assessing Officer relied on the judgment of the SupremeCourt in M/s. The Totgar's Co-operative Sale Society Ltd v. IncomeTax Officer[2], and held as squarely applicable to the case on handfor rejecting the deduction of interest earned from investmentsmade with Co-operative Banks/Treasury/Society. Furtherunless and until the interest income conforms to the eligibility2[2010] 322 ITR 283 ITA Nos.142 & 323/2019; 5/2020 requirement of Section 80P(2)(d), the income otherwise derivedcannot be deducted from the income of the assessee underclause (d) of Section 80P(2). Thus, the Assessing Officer addedRs.62,52,991/- to the income of the assessee. The CIT (Appeals)accepted the case of the assessee that the assessee is entitled tothe claim of deduction under Section 80P(2)(a)(i); that theinterest income earned by the assessee from Co-operativeBanks/Treasury is entitled to deduction inasmuch as thesurplus fund deposited with Co-operative Bank is entitled todeduction. The Tribunal confirmed the view taken by the CIT(Appeals). However, the Tribunal accepted the entire claim ofdeduction of interest income earned by the assessee as businessincome. These findings of the Tribunal are assailed withconsiderable force by the Revenue. 6.Mr Christopher Abraham appearing for the Revenue ITA Nos.142 & 323/2019; 5/2020 challenges the findings of the CIT (Appeals) and the Tribunal bycontending that the appellate authority and the Tribunalcommitted a serious error in law in appreciating the extent towhich the assessee is entitled to claim deduction under Section80P(2)(a)(i) of the Act and the eligible deduction is limited tointerest or dividend derived from investments made underSection 80P(2)(d) of the Act only to Co-operative Societies. Thedecision of the Supreme Court in Mavilayi Service Co-operativeBank Ltd is kept in mind while appreciating the case of theassessee whether to include the interest income frominvestments in Co-operative Banks/Treasury as income earnedby the assessee by providing credit facilities to its members.The learned counsel places emphasis on the summary inMavilayi Service Co-operative Bank Ltd, namely “clearly, therefore,once Section 80(P)(iv) is out of harm’s way, all the assessees in the ITA Nos.142 & 323/2019; 5/2020 present case are entitled to the benefit of deduction contained inSection 80P(2)(a)(i), notwithstanding that they may also be giving loanto their members which are not related to agriculture. Also in case itis found that there are instances of loans being given to non-members,profits attributable to such loans obviously cannot be deducted.”Therefore, he argues that, even the recent judgment of theSupreme Court notices that a Co-operative society could beengaging in the business of banking for providing creditfacilities to its member and also to non-members. The benefitor deduction admissible under Section 80P(2)(a)(i) is restrictedto the Co-operative Society engaged in the business of bankingor providing credit facilities to its members. The profitsderived from any other transaction is out of harm’s way andwill have to be treated as business income of theassessee/Society and not eligible for deduction under Section ITA Nos.142 & 323/2019; 5/2020 80P(2)(a)(i) of the Act. ITA Nos.142 & 323/2019; 5/2020 80P(2)(a)(i) of the Act. 6.1On the same analogy, according to him, theParliament has visualized the possibilities of the Societiesinvesting either the surplus funds or the funds at its disposalwith one or more financial institutions. In respect of suchinvestments made by the Co-operative Society, the Parliamentdesired to limit the admissible deduction only to the interestincome received from investments of the assessee with anyother Co-operative Society. The argument of the assessee, if isaccepted, then, the plain meaning of Section 80P(2)(a)(i) and (d)is expanded by adjudication or interpretation and morededuction heads are added to the existing list. Such a course is,according to him, impermissible. The learned counsel placesstrong reliance on M/s. The Totgar's Co-operative Sale Society Ltdcase and argues that the interest from investment made by the ITA Nos.142 & 323/2019; 5/2020 assessee firstly would fall under the category of ‘income fromother sources’. Once it is treated as income from other sources,the assessee is not entitled to claim deduction under Section80P(2)(a)(i) of the Act, Then the area available to the assessee isunder Section 80P(2)(d) of the Act. To attract Section 80P(2)(d)the assessee must show that the interest or dividend is receivedonly from a Co-operative Society. Adverting to the facts of thecase, it is argued that, admittedly, the interest income isreceived from Co-operative Banks which have licences from theReserve Bank of India under the Banking Regulation Act. Thereasoning of the appellate authority and the Tribunal iscompletely illegal and the reliance placed by the Tribunal on afew cases decided by them is fallacious and these findings areliable to be set aside. He prays for answering the questions infavour of the Revenue and against the assessee. ITA Nos.142 & 323/2019; 5/2020 7.Mr Jojo, learned counsel appearing for the assessee,who has made submissions in connected matters, contends thatthe investment made by the assessee is with the State/DistrictCo-operative Banks. The banks even if have licences under theBanking Regulation Act, still they are Co-operative Societiesregistered under the Kerala Co-operative Societies Act 1969.The investment made by the assessee is part of business activityof the assessee, namely by not keeping the funds idle with theassessee. Therefore, firstly the income has to be treated asincome earned by the assessee while engaging in bankingbusiness and providing credit facilities to its members. Thecounsel relies on the judgment of the Supreme Court inCommissioner of Income Tax v. Nawanshahar Central Co-operativeBank Ltd[3]. He relies on the findings recorded by the Tribunaland contends that the questions be answered in favour of the3[2007] 160 Taxman 48 (SC) ITA Nos.142 & 323/2019; 5/2020 assessee and against the Revenue. 8. We have noted the rival submissions of the counsel appearing for the parties. In the circumstances of this case, thequestion that falls for consideration is whether, in the facts andcircumstances of this case, the interest income earned by theassessee from the deposits made with District/State Co-operative Banks and Treasury, firstly, would fall as businessincome of the assessee, and, alternatively, whether the interestincome is eligible for deduction under Section 80P(2)(d) of theAct. Section 80P reads as follows: “80P (1) Where, in the case of an assessee being a co-operativesociety, the gross total income includes any income referred toin sub-section (2), here shall be deducted, in accordance withand subject to the provisions of this Section, the sumsspecified in sub-section (2), in computing the total income ofthe assessee. (2) The sums referred to in sub-section (1) shall be thefollowing, namely :- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing creditfacilities to its members, or …… “80P (1) Where, in the case of an assessee being a co-operativesociety, the gross total income includes any income referred toin sub-section (2), here shall be deducted, in accordance withand subject to the provisions of this Section, the sumsspecified in sub-section (2), in computing the total income ofthe assessee. (2) The sums referred to in sub-section (1) shall be thefollowing, namely :- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing creditfacilities to its members, or …… (d) In respect of any income by way of interest or dividendsderived by the co-operative society from its investments withany other co-operative society, the whole of such income;” 8.1Firstly, we keep in perspective the ratio of Supreme Court in Mavilayi Service Co-operative Bank Ltd. on theconstruction of Section 80P(2)(a)(i) read with sub-section 4 ofSection 80P. Now provision in Section 80P(2)(a)(i) is readwithout reference to an activity viz. Primary Agriculture etc. Itis noted that Section 80P provides for deduction in respect ofincome of Co-operative Societies and Section 80P(2) allows astraight deduction from the computation of total income of theassessee/Co-operative Society to the extent mentioned in ITA Nos.142 & 323/2019; 5/2020 respect of incomes referred therein. Under Section 80P(2)(a)(i) the whole of profits and gains from business of banking orproviding credit facilities to the members of the Society isentitled to deduction. Clauses (ii) to (vii) are unnecessary forthe purpose of this judgment, hence not included in thenarrative. A Division Bench of High Court of Telangana andAndhra Pradesh in Vavveru Co-operative Rural Bank Ltd v. ChiefCommissioner of Income Tax[4], has succinctly tabulated theSocieties and the benefits to which each one of the category ofSocieties is entitled to, would be benefiting in our narrative toexcerpt the relevant portion as under: “28. We have carefully considered the above submissions. Beforeconsidering the effect of the various decisions cited on both sides,we think it would be ideal to look at the statutory prescription inpure and simple form. As we have indicated earlier, Section 80P(2) isactually divided into six parts, categorised under clauses (a), (b), (c),(d), (e), and (f). Each one of these clauses deal with different types of co-operative societies engaged in different types of activities. Thebenefit made available to each one of them is also different from theother. Therefore, it may be useful to present a tabular form, the sixcategories of co-operative societies covered by clause (a) to (f) andthe nature and extent of the benefit available to each one of them,as follows: Category of Co-Op., Societies covered byNature and Extent of benefit availablesub-clauses (a) to (f)(a) (1) Co-operative society carrying onThe whole of the amount of profits andthe business of banking or providinggains of business attributable to any onecredit facilities to its members;or more of such activities. (2) Co-op society engaged in CottageIndustry; (3) Co-operative engaged in marketingof agricultural produce grown by itsmembers. (4) Co-operative society engaged inpurchase of agricultural implements,seeds etc., for the purpose of supplying toits members; (5) Co-operative society engaged inprocessing of agricultural produce of itsmembers without the aid of power (6) Co-operative society engaged in collectivedisposal of the labour of its members (7)Co-operative society engaged in fishingor allied activities. (b) Primary co-operative societyThe whole of the amount of profits andengaged in supplying milk, oil seeds,gains on such business fruits or vegetables grown by itsmembers to 1) a federal co-operative society,engaged in the same business; 2) the Government or a local authority; 3) the Government company or Corporation engaged in the same (4) Co-operative society engaged inpurchase of agricultural implements,seeds etc., for the purpose of supplying toits members; (5) Co-operative society engaged inprocessing of agricultural produce of itsmembers without the aid of power (6) Co-operative society engaged in collectivedisposal of the labour of its members (7)Co-operative society engaged in fishingor allied activities. (b) Primary co-operative societyThe whole of the amount of profits andengaged in supplying milk, oil seeds,gains on such business fruits or vegetables grown by itsmembers to 1) a federal co-operative society,engaged in the same business; 2) the Government or a local authority; 3) the Government company or Corporation engaged in the same 29. From the Tabular form presented above, it may be clear that thedeductions available under Clauses (a) to (c) are activity-based. Thededuction available under Clauses (d) and (e) are investment-based and the deduction under Clause (f) is institution-based. To put itdifferently, (A) to be eligible for deduction under Clause (a), the claim shouldrelate to the profits and gains of business attributable to anyone ormore of the activities listed in Clause (a), (B) to be eligible for deduction under Clause (b), the society should be a primary society engaged in supplying milk, oilseeds, fruits, etc.to named institutions, such as, Government, Local Authority,Federal Co-operative Society, or Government Company, (C) to be eligible for deduction under Clause (c), the institution mustbe engaged in activities other than those covered by Clauses (a) and(b) subject to the further condition that such profits and gainsshould not exceed a particular limit, (D) to be eligible for deduction under Clause (d), the income shouldbe derived from investments with another Co- operative Society, (E) to be eligible for deduction under Clause (e), the income shouldbe derived from letting of godowns or warehouses, etc.” 8.2Clause (a) of sub-section (2) of Section 80P is intended for the benefit of certain types of co-operative societies, but benefits are confined only to the activities listed in sub-clauses (i) to (vii) of clause (a). In other words, clause (a) of sub-section ITA Nos.142 & 323/2019; 5/2020 (2) of Section 80P confers benefit upon Co-operative Societies, but the benefit is restricted only to stated benefits and not to allthe activities earning income for Co-operative Societies. Put itdifferently, an institution claiming the benefit of clause (a) ofsub-section (2) of Section 80P should satisfy two requirements:At the first instance, the institution has to establish that it is aCo-operative Society. In the case on hand, such requirement issatisfied by the assessee. At the second instance, the institutionhas to establish that the interest income earned by it is from thebusiness of banking or by providing credit facilities to itsmembers. In such an eventuality, the entire income earned bythe assessee is entitled for deduction under Section 80P(2)(a)(i)of the Act. 8.3Further, clause (d) deals with interest in respect ofany income by way of interest or dividends derived by the Co- 8.3Further, clause (d) deals with interest in respect ofany income by way of interest or dividends derived by the Co- operative Societies from its investments with any other Co-operative Society, the whole of such interest income is eligiblefor deduction. It is upon plain construction inferable thatclause (d) deals with income derived by a Co-operative Society,other than the income covered by clauses (a) to (c) of Section80P(2). Clause (d) deals with yet another type of income earnedby the Co-operative Society which is deducted while computingthe total income of the assessee. However, to merit acceptanceof deduction under clause (d) of Section 80P(2) of the Act, theclause referring to interest or dividend derived frominvestments with any other Co-operative Society is satisfied. Inthe case on hand, the argument of assessee is that the interestearned by the assessee is from Co-operative Banks/Treasury.The Co-operative Banks are registered under the Kerala Co-operative Societies Act. Therefore, the interest earned could be ITA Nos.142 & 323/2019; 5/2020 treated as meriting consideration under clause (d) of Section80P(2) of the Act. It is not in dispute that the District/State Co-operative Banks have licence from the Reserve Bank of Indiaunder the Banking Regulation Act and are registered Co-operative Societies under the Act. Suffice to observe that bybeing a Society doing banking business such society will standon par with a Co-operative Society registered under the KeralaCo-operative Societies Act would come within the purview ofclause (d) of Section 80P(2). 9. The above discussion takes us to the next point forconsideration namely, whether the interest income comesunder Section 28 or 56 of the Act. In other words, the fulcrumof assessee's case is that investment in Bank is business ofassessee. Mr Christopher Abraham relied on both thecircumstances and the ratio finally laid by the Supreme Court in M/s. The Totgar's Co-operative Sale Society Limited. '-M/s. The Totgars Cooperative Sale Society Limited 9.1M/s.Totgar's Co-operative Sale Society had surplusfunds with it and invested in short term deposits with banks andin government securities. The assessee earned interest on suchinvestments. The assessee provides credit facilities to itsmembers and sells the agricultural produce of its members. Thesubstantial question of law which was considered by the SupremeCourt in M/s. The Totgars Co-operative Sale Society Limited iswhether interest income earned from investments would qualifyfor deduction as business income under Section 80P(2)(a)(i) ofthe Act. The Supreme Court, in paragraph 10, has further notedthat “at the outset an important circumstance needs to behighlighted. In the present case, the interest held not eligiblefor deduction under Section 80P(2)(a)(i) of the Act is not the ITA Nos.142 & 323/2019; 5/2020 interest received from the members for providing creditfacilities to them. What is sought to be taxed under Section 56of the Act is the interest income arising on the surplus investedin short term deposits and securities, which surplus was notrequired for business purposes. The assessee markets theproduce of its members whose sales proceeds, at times, areretained by it. In this case, we are concerned with the taxtreatment of such amount since the fund created by suchretention was not required immediately for business purposes. Itwas invested in specified securities. The question before us(Supreme Court) is whether interest on such deposits/securitieswhich, strictly speaking, accrues to the members account couldbe taxed as business income under Section 28 of the Act? Itwas further held that an income which is attributable to any ofthe specified activities in Section 80P(2) of the Act could be eligible for deduction”. 9.2While dealing with the definition of the word ‘income’, eligible for deduction”. 9.2While dealing with the definition of the word ‘income’, it is held: “the word ‘income’ has been defined under Section2(24)(i) of the Act to include profits and gains. This sub-sectionis an inclusive provision. Parliament has included specificallybusiness profits into the definition of the word ‘income’.Therefore, we are required to give a precise meaning to thewords ‘profits and gains of business’ mentioned in Section 80P(2)of the Act. In the present case, as stated above, theassessee/Society regularly invests funds not immediatelyrequired for business purposes. Interest on such investmentstherefore cannot fall within the meaning of the expression‘profits and gains of business’. Such interest income cannot besaid also to be attributable to the activities of the Society,namely carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members.When the assessee/society provides credit facilities to itsmembers, it turns interest income. As stated above, in this case,interest held ineligible for deduction under Section 80P(2)(a)(i) isnot in respect of the interest received from members. In thiscase, we are only concerned with interest which accrues on fundsnot required immediately by the assessee for its businesspurposes and which have been invested in specified securities asinvestment. Further, as stated above, the assessee markets theagricultural produce of its members. It retains the salesproceeds in many cases. It is this retained amount which waspayable to its members from whom produce was brought whichwas invested in short term deposits/securities. Such an amount,which was retained by the assessee/Society was a liability and itwas shown in the balance sheet on the liability side. Therefore, ITA Nos.142 & 323/2019; 5/2020 to that extent such interest income cannot be said to beattributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or Section 80p(2)(a)(iii) of the Act. Therefore,looking to the facts and circumstances of this case, we are of theview that the Assessing Officer was right in taxing the interestincome indicated above, under Section 56 of the Act”. 10.The thrust of consideration in M/s. The Totgar's Co-operative Sale Society Limited is that the investment made by theassessee of surplus funds whether to be treated as forming partof regular business activity of assessee/Society or not. TheSupreme Court, no doubt, has considered that the assessee inthe reported case was also retaining the sales proceeds of itsmembers and was investing in the bank accounts and wasshowing the amount payable to the members on the liabilityside of the balance sheet. In our consideration, M/s. The Totgar's ITA Nos.142 & 323/2019; 5/2020 Co-operative Sale Society Limited deals with what constitutesbusiness income of the Society and what does not constitutebusiness income of the Society. Interest earned frominvestments is not straight profits or gains from business, but areturn by way of interest from investments in Bank etc. Theemphasis in Section 80P(2)(a)(i) is that in a case of a Co-operative Society engaged in carrying on the business ofbanking or providing credit facilities to its members fordeduction of such income from computation. Mavilayi ServiceCo-operative Bank Ltd. has differentiated between interest earnedfrom members of the Society and non-members and held thatthe interest income from later portion i.e., non-members is noteligible for deduction. It is difficult to treat the interest earnedfrom a Treasury as better positioned than interest receivedfrom non-members. After appreciating the circumstances of the ITA Nos.142 & 323/2019; 5/2020 case on hand and the view taken by the Supreme Court in M/s. ITA Nos.142 & 323/2019; 5/2020 case on hand and the view taken by the Supreme Court in M/s. The Totgar's Co-operative Sale Society Limited, together withMavilayi Service Co-operative Bank Ltd., we are of the view thatthe interest income earned by the assessee, in the case on hand,does not straight away fall under Section 80P(2)(a)(i) of the Actcommending for deduction. 11.That being so, the next question is such interest income falls under Section 56 and even if it falls under Section56 of the Act, whether the assessee is entitled to any deductionor not. 11.1 Mr Christopher Abraham argues that the Parliament in its wisdom is aware of the activities being undertaken by allthe Societies to whom relief is provided by way of deduction inSection 80P of the Act. It is with this background theParliament has provided for the deductions in respect of a few ITA Nos.142 & 323/2019; 5/2020 other incomes earned by the assessee/Society. Such deductionsare specifically attributable to the source from which suchinterest is received. Expanding the institutions or categories ofbenefits is contrary to the intent of the Legislature. Accordingto him clause (d) of Section 80P(2) is clear in its application, viz.that interest/dividend received from Co-operative Societiesalone is entitled for deduction. Once interest is received from aBank or Treasury, such interest income is out of the purview ofthe eligible deduction in the computation of assessee's income. 11.2 Mr Jojo appearing for the respondent, in reply to thesaid argument, relies on the judgment of the Supreme Court inNawanshahar Central Co-operative Bank Ltd case and argues thatirrespective of the source from which the income is earned,according to the principle laid down in Nawanshahar Central Co-operative Bank Ltd case, the assessee is entitled for deduction -36- under Section 80P(2)(a)(i). 12.We have gone through the order of the Supreme Court in Nawanshahar Central Co-operative Bank Ltd case, forimmediate reference it is excerpted: “This Court has consistently held that investments made by abanking concern are part of the business of banking. Theincome arising from such investments would, therefore, beattributable to the business of bank falling under the head‘profits and gains of bunisess’ and thus deductable underSection 80P(2)(a)(i) of the Income Tax Act, 1961. This has beenso held in Bihar State Co-operative Bank Ltd v. CIT [1960] 39 ITR114 (SC); CIT v. Karnataka State Co-operative Apex Bank [2001] ….ITR 194 (SC) and CIT v. Ramanandapuram District Co-operativeCentral Bank Ltd [2002] 255 ITR 423 (SC). The principle in these cases would also cover a situation wherea Co-operative bank carrying on the business of banking isstatutorily required to place a part of its funds in approvedsecurities. The appeals are accordingly dismissed withoutcosts.” 12.1 The decisions relied on by the Supreme Court refer to Co-operative Banks but not Co-operative Societies. The issue on ITA Nos.142 & 323/2019; 5/2020 hand is about the interest income earned by way of investmentsmade with institutions other than Co-operative Societies. Weare of the view that by referring to the order in NawanshaharCentral Co-operative Bank Ltd case it cannot be held that theincome has to be brought under Section 80P(2)(a)(i) of the Act.12.2 Section 80P deals with Co-operative Societies'computation of income. As already noted, it has four sectionsand several sub-sections and clauses. The Parliament hasconsidered the various situations in which the exigible incomeand the deductable income of the assessee is considered whilecomputing the income of the assessee. For getting deduction, inour considered view, the assessee must also establish that theinterest income earned by the assessee is from a Co-operativeSociety. As a matter of fact, in the case on hand, there is nodispute that it is not from a Co-operative Society registered ITA Nos.142 & 323/2019; 5/2020 ITA Nos.142 & 323/2019; 5/2020 under Kerala Co-operative Societies Act. The interest incomeearned from District Co-operative Bank/State Co-operativeBank, in the facts and circumstances of the case, do come withinSection 80P(2)(d). Therefore, the income constitutes incomefrom other sources and the only eligible deduction is covered bySection 80P(2)(d) viz. Interest or dividend derived by theassessee from its investments with any other Co-operativeSociety. The source of interest income is from Bank andTreasury, interest income received from Treasury be includedin the computation of total income of the assessee. In otherwords, interest earned from Treasury is inadmissible fordeduction and interest income from Co-operative Societiesregistered under the Kerala Co-operative Societies Act areeligible for deduction. The contra consideration ofCommissioner of Income Tax (Appeals) and the Tribunal is ITA Nos.142 & 323/2019; 5/2020 incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does notcome within the ambit of Section 80P(2)(a)(i) and permissiblededuction of interest income is limited to Co-operativeSocieties/Banks registered under Kerala Co-operative SocietiesAct under clause (d) of the Act and effect order on the abovelines is made by the Assessing Officer. The questions areaccordingly answered. ITA No.323/2019[Assessment Year 2011-12] 13.The Principal Commissioner of Income Tax -Thiruvananthapuram/Revenue is the appellant. M/s. PeroorkadaServiceCo-operativeBankLimited,Thiruvananthapuram/assessee is the respondent. The appeal isat the instance of the Revenue under Section 260A of the Actagainst the order dated 17.05.2019 of the Income Tax Appellate Tribunal (for short ‘Tribunal’), Cochin Bench, Cochin in ITA No. 67/Coch/2019. The subject matter of the appeal relates to theissues arising from the return filed by the assessee for theAssessment Year 2011-12. 13.1The details of the orders etc leading up to the filing of the appeal are tabulated hereunder: Income under the head Other Sources: On verification of financial statements, it is seen that assessee has surplus funds, which the assessee invested as deposits with ITA Nos.142 & 323/2019; 5/2020 different institutions like Co-operative Banks, Treasuries, etc.and is in receipt of interest income, which is credited in Profitand Loss Account, in order to arrive at net profit. During thecourse of assessment proceedings, assessee has furnished breakup of interest received during the period, on investments atvarious institutions, totaling to Rs.9,85,38,230/-, details ofwhich are as under: ITA Nos.142 & 323/2019; 5/2020 -42- This interest income is liable to be taxed under the head"Income from other sources" and during the course of assessment proceedings, it was proposed to treatRs.9,85,38,230/- as income under the head 'Other Sources'. The dispute relates to the extent to which the deduction claimed bythe assessee is legal. The substantial question raised reads asfollows: 1. Whether on the facts and in the circumstances of the case,the order of the ITAT is correct in not duly considering that theassessee had invested surplus funds like an ordinary investorand it has to be taxed as Income from Other Sources? ITA No.5/2020[Assessment Year 2013-14] 14.The Principal Commissioner of Income Tax - Thiruvananthapuram/Revenue is the appellant. M/s.PeroorkadaServiceCo-operativeBankLimited, ITA Nos.142 & 323/2019; 5/2020 Thiruvananthapuram/assessee is the respondent. The appeal isat the instance of the Revenue under Section 260A of the Actagainst the order dated 26.06.2019 of the Income Tax AppellateTribunal (for short ‘Tribunal’), Cochin Bench, Cochin in ITA No.47/Coch/2019. The subject matter of the appeal relates to theissues arising from the return filed by the assessee for theAssessment Year 2013-14. ITA No.5/2020[Assessment Year 2013-14] 14.The Principal Commissioner of Income Tax - Thiruvananthapuram/Revenue is the appellant. M/s.PeroorkadaServiceCo-operativeBankLimited, ITA Nos.142 & 323/2019; 5/2020 Thiruvananthapuram/assessee is the respondent. The appeal isat the instance of the Revenue under Section 260A of the Actagainst the order dated 26.06.2019 of the Income Tax AppellateTribunal (for short ‘Tribunal’), Cochin Bench, Cochin in ITA No.47/Coch/2019. The subject matter of the appeal relates to theissues arising from the return filed by the assessee for theAssessment Year 2013-14. 14.1The details of the orders etc leading up to the filingof the appeal are tabulated hereunder: ITA Nos.142 & 323/2019; 5/2020 Income under the head 'Other Sources': (i) Interest income on deposits: (a) Vide Order u/s.263, Principal Commissioner of Income Tax has directed to ensure that interest income on deposits isaccounted for in accordance with provisions of Section 145.During the course of assessment proceedings, assessee hasfurnished break up of interest received during the period, on investments at various institutions, totaling to Rs.14,18,62,743/-, details of which are as under: ITA Nos.142 & 323/2019; 5/2020 -45- 14.2 This interest income is liable to be taxed under the head "Income from other sources" and during the course ofassessment proceedings, it was proposed to treatRs.14,18,62,743/- as income under the head 'Income from Other Sources'. The dispute relates to the extent to which thededuction claimed by the assessee is legal. The substantialquestion raised reads as follows: 1. Whether on the facts and in the circumstances of the case, isthe order of the ITAT correct, in not duly considering that theassessee had invested surplus funds like an ordinary investorand the interest on such deposits has to be taxed as “Incomefrom Other Sources”? 15.In ITA NO.142/2019 it has been held that the interest income earned by the Society comes with the category ofincome from other sources and Section 80P(2)(d) deals with theeligible deduction in this behalf. It has been held in the ITA Nos.142 & 323/2019; 5/2020 connected cases that the assessee is entitled to deduction ofinterest income earned from Co-operative Banks/Societies/Federation registered under the Co-operative Societies Act andthe income earned from Treasury is not included in Section80P(2)(d) and is not entitled for deduction from computation ofincome. The Assessing Officer passes Effect Order on the linesindicated above. Appeals are allowed as indicated above. No order as tocosts. Sd/-S.V.BHATTIJUDGESd/- BASANT BALAJIJUDGE jjj APPENDIX OF ITA 142/2019 PETITIONER ANNEXURE ANNEXURE ATRUE COPY OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 OF THE ASSESSING OFFICER DATED 28.12.2016. ANNEXURE BTRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), TRIVANDRUM DATED 28.02.2018. ANNEXURE CTRUE COPY OF THE ORDER OF THE ITAT IN ITA NO.196/COCH/2018, FOR THE ASST. YEAR 2014-15 DATED17.09.2018. APPENDIX OF ITA 5/2020 PETITIONER ANNEXURE ANNEXURE ATRUE COPY OF THE ORDER U/S 143(3) RWS 263 OF THE INCOME TAX ACT, 1961 FOR AY 2013-14 DATED 19/12/2017 ANNEXURE BTRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), THIRUVANANTHAPURAM DATED 07.11.2018 ANNEXURE C TRUE COPY OF THE ORDER OF THE ITAT, COCHIN BENCH IN ITA NO.47/COCH/2019, FOR THE THE AY 2013