High Court of KeralaDivision Bench2022-09-29Appeal allowed; Tribunal order and assessment o...

Principal Commissioner of Income Tax, Kottayam v Kidangoor Service Co-Operative Bank Ltd

Case / Petition Number:ITA No.164/2019

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: S. V. Bhatti
Basant Balaji
Judgment Date: 2022-09-29
Court Decision / Holding: The Tribunal order and the Assessment Order are set aside. The matter is remitted to the Assessing Officer for fresh disposal, with directions to apply the principles laid down in Mavilayi Service Co-operative Bank Ltd v. CIT and Peroorkada Service Co-operative Bank Ltd, and to determine the correct quantum of deduction under Section 80P(2) (and 80P(2)(a), if applicable), as well as the appropriate income heads (business vs other sources). The Income Tax Appeal is allowed for statistical purposes and for the determination of actual taxable income, with fresh assessment ordered.
Final Disposition: Appeal allowed; Tribunal order and assessment order set aside; matter remitted to Assessing Officer for fresh disposal in light of established precedents on Section 80P and related heads of income.

Parties to the Case

Appellants / Petitioners

Principal Commissioner of Income Tax, Kottayam

Respondents

Kidangoor Service Co-Operative Bank Ltd.

Legal Representation & Advocates

Counsels for Petitioners

• Navneeth N Nath
• P K R Menon, Senior Counsel
• Joseph Joseph, SC, For Income Tax

Counsels for Respondents

• O. D. Sivadas

Case Synopsis & Summary

This is an Income Tax Appeal before the Kerala High Court (ITA No.164 of 2019) arising from the assessment year 2013-14. The Revenue challenges the Tribunal Cochin Bench’s order in ITA 508/Coch/2016, which dealt with deduction under section 80P of the Income Tax Act, 1961. The matter centers on whether a Primary Agricultural Credit Society, registered under the Kerala Societies Registration Act, is entitled to the deduction under 80P(2) and, if so, the scope of income that qualifies for such deduction (80P(2) and 80P(2)(a)). The court notes that Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax (cited) has established that the issue is not res integra, and the decision in Peroorkada/Mavilayi guides the interpretation of 80P(2) and the treatment of income heads. The High Court remands the matter to the Assessing Officer for fresh disposal, remitting the Tribunal and assessment order in light of these authorities. Ultimately, the court allows the ITA for statistical purposes and sets aside the Tribunal/Assessment orders, directing fresh proceedings by the AO. The decision integrates prior Supreme Court and Kerala High Court precedent on cooperative banks and 80P deductions to determine the assessable income under appropriate heads.

Provisions of Law Cited

Section 80P of the Income Tax Act, 196180P(2)80P(2)(a)Section 143(3)

Legal Doctrines & Maxims

res integra

Submissions & Arguments

Contentions of Appellants / Petitioners

The Revenue contends that the dispute centers on the entitlement to deduction under Section 80P(2) and argues that the deduction is restricted to the language of 80P(2). It relies on the precedents in Mavilayi Service Co-operative Bank Ltd and Peroorkada Service Co-operative Bank Ltd to hold that the Tribunal erred in extending or qualifying the deduction and that income must be examined to determine the correct head of tax. The Revenue emphasizes that the consequential examination – determining whether the assessee, as a Co-operative Society, is entitled to 80P(2)(a) – must be confined to 80P(2) itself, and that the assessment should reflect the law as applied in ITA No.22/2017 and related decisions, remitting for fresh computation consistent with the cited authorities.

Contentions of Respondents

The Bank argues that as a Primary Agricultural Credit Society, the institution is entitled to the 80P deduction, following the ratio in Mavilayi and Peroorkada. It contends that income arising from cooperative activities, including interest, should be regarded within the scope of business income or as per the guidance in the relevant case law, and that the Tribunal’s approach should not undermine theBank’s entitlement under 80P(2). The respondents stress need for correct classification of income heads and alignment with the established jurisprudence to avoid inconsistent tax treatment.

Cited Precedents (4)

Case Name	Citation	Treatment	Explanation
Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax	(2021) 431 ITR 1 (SC)	Positive	Cited as a controlling Supreme Court authority establishing the legal framework for 80P(2) deductions for co-operative banks and the scope of income eligible for deduction.
Principal Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd	(year not provided)	Positive	Used to reinforce the approach to 80P deductions and the independent consideration required in its application.
Peroorkada Service Co-operative Bank Ltd v. Commissioner of Income Tax	(year not provided)	Positive	Referenced for the ratio on 80P and income head classification; supports Revenue arguments in contextual analysis.
Unidentified case reported in Taxman 278	(2014) 50 Taxman 278	Mentioned Only	Referenced as a comparative decision on the classification of income (business vs other sources) but not central to the judgment.

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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 THURSDAY, THE 29[TH] DAY OF SEPTEMBER 2022 / 7TH ASWINA, 1944 ## ITA NO. 164 OF 2019 AGAINST THE ORDER ITA 508/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAX KOTTAYAM BY ADVS. NAVNEETH N NATH SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX ## RESPONDENT/S: THE KIDANGOOR SERVICE CO-OPERATIVE BANK LTD. KIDANGOOR P.O, KOTTAYAM-686 573 BY ADV SRI.O.D.SIVADAS THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 29.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **ITA No.164/2019** **-2-** **==> picture [102 x 14] intentionally omitted <==** 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 20.04.2018 of the Income Tax Appellate Tribunal (for short ‘Tribunal’) Cochin Bench in ITA No.508/Coch/2016. The subject matter of appeal relates to the return filed by the assessee for the Assessment Year 2013-14. 3. The controversy between the Revenue and the **ITA No.164/2019** **-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: 1. Whether on the facts and in the circumstances of the case > 1 (2021) 431 ITR 1 (SC) **ITA No.164/2019** **-4-** and in law, assessee is entitled to the benefit of section 80P of the Income tax Act? 2. The Tribunal is right in law in interfering with Assessment order on the issue of section 80P? 3. Whether the interest earned on fixed deposit is assessable under the head "business income"? 4. Or under the head "other sources" and is not the order of the Tribunal against decision reported in (2014) 50 Taxman 278? 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 deduction 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 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 **ITA No.164/2019** **-5-** 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. (1) and (2): 1. Whether on the facts and in the circumstances of the case and in law, assessee is entitled to the benefit of section 80P of the Income tax Act? 2. The Tribunal is right in law in interfering with Assessment order on the issue of section 80P? 6.1 The above questions are covered by the principle laid down in _Mavilayi Service Co-operative Bank Ltd_ , both on the extent 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 > 2 (2022) 442 ITR 141 (Ker) **ITA No.164/2019** **-6-** 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.(3) and (4): 3. Whether the interest earned on fixed deposit is assessable under the head "business income"? 4. Or under the head "other sources" and is not the order of the Tribunal against decision reported in (2014) 50 Taxman 278? 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 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. **ITA No.164/2019** **-7-** 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.164/2019** **-8-** ## APPENDIX OF ITA 164/2019 PETITIONER ANNEXURES ANNEXURE A ANNEXURE B ANNEXURE C ASSESSMENT ORDER U/S. 143(3) DATED 10/3/2016. CIT(A)'S ORDER NO. ITA NO. K-13/CIT(A) KTM/16-17 DATED 18.10.2016. ITAT'S ORDER IN ITA 508/COCH/2016 AND CO. NO. 4/COCH/2017 DATED 20.4.2018.