High Court of KeralaDivision Bench2022-09-28Appeal allowed; matter remitted to Assessing Of...

Principal Commissioner of Income Tax, Kottayam v Kidangoor Service Co-operative Bank Limited

Case / Petition Number:ITA No.12/2017

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: S. V. Bhatti
Basant Balaji
Judgment Date: 2022-09-28
Court Decision / Holding: The Income Tax Appeal is allowed as indicated above; the Tribunal’s order and the Assessment Order are set aside, and the matter is remitted to the Assessing Officer for fresh disposal in light of the controlling precedents (Mavilayi and Peroorkada).
Final Disposition: Appeal allowed; matter remitted to Assessing Officer for fresh assessment in light of controlling precedents; final disposition per judgment: appeal allowed as indicated; remand for fresh disposal.

Parties to the Case

Appellants / Petitioners

Principal Commissioner of Income Tax, Kottayam

Respondents

Kidangoor Service Co-Operative Bank Limited, Kidangoor, Kottayam

Legal Representation & Advocates

Counsels for Petitioners

• Navneeth N Nath
• P. K. R. Menon (Senior Counsel)
• (senior counsel for Revenue)

Counsels for Respondents

• O. D. Sivadas

Case Synopsis & Summary

This High Court of Kerala ITA appeal arises from an order of the Income Tax Appellate Tribunal (Cochin Bench) in ITA No.300/Coch/2016 concerning the claim of deduction under Section 80P of the Income Tax Act, 1961 by a Primary Agricultural Credit Society (PACS) registered under the Kerala Societies Registration Act. The Revenue (appellant) challenges the Tribunal's decision allowing the deduction under 80P(2)(a)(i) merely on the strength of the PACS certificate, arguing that such entitlement cannot be automatic and requires independent examination of the assessee’s eligibility in light of 80P(2). The respondent bank counters that PACS registration should generally entitle the deduction to the extent the income falls within the 80P framework and that the Assessing Officer must determine eligibility in accordance with established jurisprudence, including Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax. The court notes several substantial questions of law: (i) whether deduction under 80P(2)(a)(i) can be granted merely on certificate; (ii) whether there is inconsistency with prior judgments about the AO’s power to examine eligibility; (iii) whether the 384 ITR 490 decision is limited to State Co-operative Societies Act provisions. It ultimately relies on Mavilayi and Peroorkada Service Co-operative Bank decisions, holds the questions in Revenue’s favor for statistical purposes, and remits the matter to the Assessing Officer for fresh assessment, notwithstanding the appeal being allowed. The operative order sets aside the Tribunal and assessment orders and directs fresh disposal.

Provisions of Law Cited

Section 80P of the Income Tax Act, 1961 (especially Section 80P(2)(a)(i))Section 80P(2)Section 144 of the Income Tax Act, 1961Kerala Societies Registration Act (registration of PACS)State Co-operative Societies Act (as invoked in arguments)

Legal Doctrines & Maxims

res integra

Submissions & Arguments

Contentions of Appellants / Petitioners

The Revenue contends that deduction under Section 80P(2)(a)(i) cannot be granted automatically merely on the certificate of registration as a Primary Agricultural Credit Society (PACS). It argues that the Assessing Officer must independently examine eligibility for the deduction and determine what portion, if any, of the income falls within the purview of Section 80P(2). Relying on Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax and Peroorkada Service Co-operative Bank Ltd, the Revenue asserts that the entitlement to the deduction cannot be inferred solely from registration; the Court should not accept a blanket entitlement based on registration alone. It further maintains that earlier decisions such as 363 ITR 268 and 384 ITR 490 are distinguishable or require contextual interpretation, and that the matter should be decided with regard to the statutory scheme of 80P and the independent verification by the AO. respondents|Bank’s counsel emphasizes PACS registration and the certificate as sufficient for claiming the 80P deduction to the extent the income falls within the 80P framework, arguing for a discharge of the AO’s inquiry into eligibility consistent with prior binding jurisprudence; the respondent relies on the Kerala Co-operative framework and associated precedents to support automatic entitlements under 80P(2).

Contentions of Respondents

The Bank argues that the deduction under 80P(2)(a)(i) should be available to the PACS upon registration, and that the AO’s role is limited to verifying that the income qualifies under 80P; it contends that the tribunal’s emphasis on a certificate’s validity was appropriate and in line with statutory interpretation and prior Kerala decisions. It argues that Mavilayi and Peroorkada guide the need to consider the nature of income and the precise scope of 80P(2), but that the registration alone should not defeat the deduction or extend it beyond the statutory boundaries.

Cited Precedents (4)

Case Name	Citation	Treatment	Explanation
Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax	1 (2021) 431 ITR 1 (SC)	Positive	Supreme Court judgment clarifies that the 80P deduction for PACS is not automatically granted based solely on registration; it requires alignment with 80P(2) and independent consideration of income.
Peroorkada Service Co-operative Bank Ltd	2 (2022) 442 ITR 141 (Ker)	Positive	Kerala decision aligning with Mavilayi; supports re-evaluation of eligibility and remittance to AO for proper assessment under 80P.
Perinthalmanna Service Co-operative Bank Ltd	363 ITR 268	Mentioned Only	Cited in relation to AO’s power to examine eligibility; not adopted as controlling authority in the present rationale.
384 ITR 490	384 ITR 490	Mentioned Only	Cited regarding the scope of the State Co-operative Societies Act considerations; not treated as governing the outcome here.

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Extracted Judgment Text

Exact text extracted from official judgment records.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 28[TH] DAY OF SEPTEMBER 2022 / 6TH ASWINA, 1944 ## ITA NO. 12 OF 2017 AGAINST THE ORDER ITA 300/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOTTAYAM BY ADVS. SRI NAVNEETH N NATH SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX ## RESPONDENT/S: THE KIDANGOOR SERVICE CO-OPERATIVE BANK LIMITED, KIDANGOOR, KOTTAYAM. BY ADV SRI.O.D.SIVADAS THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 28.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **ITA No.12/2017** **-2-** ## J U D G M E N T S.V. Bhatti, J. Heard Adv Navneeth N Nath, holding for learned Senior Counsel Mr P K R Menon, and learned Counsel Mr O.D. Sivadas for parties. 2. The Principal Commissioner of Income Tax/Revenue is the appellant. M/s. Kidangoor Service Co-operative Bank Ltd/assessee is the respondent. The appeal, at the instance of the Revenue, is directed against the order dated 31.10.2016 of the Income Tax Appellate Tribunal (for short ‘Tribunal’) Cochin Bench in ITA No.300/Coch/2016. The subject matter of appeal relates to the return filed by the assessee for the Assessment Year 2012-13. 3. The controversy between the Revenue and the **ITA No.12/2017** **-3-** assessee is substantially centering around Section 80P of the Income Tax Act, 1961 (for short ‘the Act’). The Counsel appearing for the parties invited the attention of the Court to the judgment in _Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax_[1] _,_ that the issue is no more _res integra_ . The circumstances relevant for disposing of the appeal are stated in sufficient detail in the orders under appeal. Hence, are not reiterated. But a singular circumstance relevant for decision is noted _viz_ . the assessee is a Primary Agricultural Credit Society, a Society registered under the Kerala Societies Registration Act. Therefore, deduction eligible under Section 80P(2) is the issue for consideration. 4 In the above background, the following substantial questions are considered: (i) Whether, on the facts and circumstances of the case, > 1 (2021) 431 ITR 1 (SC) **ITA No.12/2017** **-4-** and also in view of the decision in 363 ITR 268 (in the case of Perinthalmanna Service Co-operative Bank), the Tribunal is right in holding that deduction u/s 80P(2)(a)(i) of the Act be allowed to the assessee merely on the strength of the certificate of registration as "Primary Agricultural Credit Society" ? (ii) Are not the findings of the Hon'ble Court reported in 363 ITR 268 and 384 ITR 490 inconsistent and contradictory with regard to the Assessing Officer's power to examine the assessee's eligibility for deduction u/s 80P(2)(a)(i) of the Act? (iii) Is not the judgement in 384 ITR 490 vitiated in confining itself to the provisions of the State Co-operative Societies Act? 5. The learned counsel appearing for the Revenue argues that the order of assessment mainly concentrated on the entitlement of deduction under Section 80P(2) of the Act and has not considered the consequential examination _i.e.,_ assuming that the assessee is a Co-operative Society and entitled to the benefit of Section 80P(2)(a) of the Act. But the deduction is restricted to the language of Section 80P(2) of the Act. In ITA **ITA No.12/2017** **-5-** No.22/2017, Revenue’s appeal, this Court has considered similar substantial questions of law in detail and the reasoning in ITA No.22/2017 squarely covers the question of law formulated in the instant appeal too. By applying the principle laid down by the Apex Court in _Mavilayi Service Co-operative Bank Ltd_ and this Court in _Principal Commissioner of Income Tax v. Peroorkada Service_ _Co-operative Bank Ltd_[2] , the substantial questions raised in the appeal are answered thus: 6. Question nos. (i) and (ii): (i) Whether, on the facts and circumstances of the case, and also in view of the decision in 363 ITR 268 (in the case of Perinthalmanna Service Co-operative Bank), the Tribunal is right in holding that deduction u/s 80P(2)(a)(i) of the Act be allowed to the assessee merely on the strength of the certificate of registration as "Primary Agricultural Credit Society" ? (ii) Are not the findings of the Hon'ble Court reported in 363 ITR 268 and 384 ITR 490 inconsistent and contradictory with regard to the Assessing Officer's power to examine the assessee's eligibility for deduction u/s 80P(2)(a)(i) of the Act? ## 6.1 The above questions are covered by the principle laid down in _Mavilayi Service Co-operative Bank Ltd_ , both on the extent > 2 (2022) 442 ITR 141 (Ker) **ITA No.12/2017** **-6-** of entitlement of benefit under Section 80P(2) of the Act and also the obligation to independently consider whether the deduction is limited to such of the income which falls within the purview of in _Mavilayi Service Co-operative Bank Ltd_ and _Peroorkada Service Co-operative Bank Ltd_ . Hence, the questions are answered in favour of the Revenue for statistical purposes, and the matter is remitted to the Assessing Officer for making fresh assessment order by keeping in view the judgments referred to above. 7. Question no.(iii): Is not the judgement in 384 ITR 490 vitiated in confining itself to the provisions of the State Co-operative Societies Act? 7.1 In _Peroorkada Service Co-operative Bank Ltd_ we have kept in our perspective the principle laid down by the Supreme Court in _Mavilayi Service Co-operative Bank Ltd_ , the consequential consideration that would arise thereafter, and in the said background, held what all are the deductions permissible under **ITA No.12/2017** **-7-** Section 80P(2) of the Act, what constitutes business income, and what is to be classified as income from other sources. By following the ratio laid down in _Peroorkada Service Co-operative Bank Ltd_ the questions are answered in favour of the Revenue for statistical purposes and for determination of the actual income assessable to tax under these head, the matter is remitted to the Assessing Officer. 9. Resultant to the above discussion, the Tribunal order, Appeal order and Assessment Order are set aside. The matter is remitted to Assessing Officer for disposal afresh. The Income Tax Appeal is allowed as indicated above. Sd/S.V.BHATTI JUDGE Sd/BASANT BALAJI JUDGE jjj **ITA No.12/2017** **-8-** ## APPENDIX OF ITA 12/2017 PETITIONER ANNEXURES ANNEXURE A ASSESSMENT ORDER U/S.144 DT.19.03.2015. ANNEXURE B CIT (APPEALS) ORDER NO.K-11/KTM/CIT(A)/KTM/201516 DT.20.01.2016. ANNEXURE C ITAT'S ORDER NO.300/COCH/2016 DT.31.10.2016.