High Court of KeralaDivision Bench2022-09-29Appeal order and Assessment Orders are set asid...

The Kerala State Homeopathic Co-operative Pharmacy Limited, Pathirappally, Alappuzha v. The Assistant Commissioner of Income Tax, Circle-1, Alappuzha

Case / Petition Number:ITA Nos. 115/2019 and 174/2019

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: S. V. Bhatti
Basant Balaji
Judgment Date: 2022-09-29
Court Decision / Holding: Appeals are allowed; the Tribunal orders and the associated assessment orders are set aside. The matters are remitted to the Assessing Officer for disposal afresh in accordance with the Supreme Court and Kerala decisions on 80P(2)(d).
Final Disposition: Appeal order and Assessment Orders are set aside; the matters are remitted to the Assessing Officer for disposal afresh in light of the cited jurisprudence.

Parties to the Case

Appellants / Petitioners

The Kerala State Homeopathic Co-operative Pharmacy Limited, Pathirappally, Alappuzha

Respondents

The Assistant Commissioner of Income Tax, Circle-1, Alappuzha

Legal Representation & Advocates

Counsels for Petitioners

• Telma Raju
• Anil D. Nair
• R. Sreejith
• Achyut K Padmara j
• Arya Anil
• Gokulraj L.

Counsels for Respondents

• P. K. R. Menon (Senior Advocate)
• Jose Joseph, SC

Case Synopsis & Summary

This is a Kerala High Court judgment in ITA Nos. 115 and 174 of 2019, arising from the Assessment Years 2013-14 and 2014-15, challenging the ITAT Cochin Bench orders dated 30-11-2018. The appellant is The Kerala State Homeopathic Co-operative Pharmacy Limited, represented by its managing director. The core issue is eligibility for deduction underSection 80P(2)(d) of the Income Tax Act, 1961, in relation to interest income earned from the Aleppey District Co-operative Bank. The appellant contends that since the Aleppey bank is registered under the Banking Regulation Act and is a cooperative society, its interest income should be deductible under 80P(2)(d). The tribunal’s finding is criticized for not applying the ratio laid down in Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax and in Principal Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd, which the court treats as binding on the interpretation of 80P(2)(d) and the classification of income as business income or income from other sources. The court followed these authorities, stating that the questions must be decided in the assessee’s favour. Consequently, the Tribunal’s orders are set aside, and the matters are remitted to the Assessing Officer for fresh disposal in light of the cited jurisprudence.

Provisions of Law Cited

Section 80P(2)(d) of the Income Tax Act, 1961Banking Regulation Act, 1949

Legal Doctrines & Maxims

Deduction under Sec 80P(2)(d) for income of cooperative banks follows the ratio in Mavilayi Service Co-operative Bank Ltd v. CIT and Peroorkada Service Co-operative Bank Ltd; classification of income as business income vs income from other sources should be interpreted in line with those decisions.

Submissions & Arguments

Contentions of Appellants / Petitioners

The appellant contends that deduction under Sec 80P(2)(d) should extend to interest income from the Aleppey District Co-operative Bank, particularly since the bank is registered under the Banking Regulation Act and is a cooperative society. Relying on Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax and Peroorkada Service Co-operative Bank Ltd, the appellant submits that the 80P(2)(d) deduction is applicable and that income should be classified per these decisions; hence reassessment is required in light of these precedents.

Contentions of Respondents

The Revenue contends that the 80P(2)(d) deduction is limited to income of cooperative societies as contemplated by the statute and that interest from a financial institution registered under the Banking Regulation Act should not automatically qualify as 80P income. It argues that the Tribunal’s reasoning should be exclusive of the cited precedents and that proper classification of income under the 80P framework must be applied by the assessing officer consistent with the statutory scheme and relevant judicial interpretations.

Cited Precedents (2)

Case Name	Citation	Treatment	Explanation
Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax	431 ITR 1 (SC)	Positive	The court expressly follows the ratio in this Supreme Court decision to interpret 80P(2)(d) and to determine the admissibility of deductions for interest income from cooperative banks.
Principal Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd	2 (2022) 442 ITR 141 (Ker)	Positive	The court relies on the Peroorkada decision's ratio in conjunction with Mavilayi to decide in the assessee's favour regarding 80P(2)(d) deductions and income classification.

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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. 115 OF 2019 AGAINST THE ORDER ITA 283/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE KERALA STATE HOMEOPATHIC CO-OPERATIVE PHARMACY LIMITED, PATHIRAPPALLY, ALAPPUZHA -688 521, REPRESENTED BY ITS MANAGING DIRECTOR, MR.JOY PONNAPPAN BY ADVS. TELMA RAJU; ANIL D. NAIR SRI.R.SREEJITH; SRI.ACHYUT K PADMARAJ SMT. ARYA ANIL; SHRI.GOKULRAJ L. RESPONDENT/S: THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE-1, ALAPPUZHA ## BY SR. ADVOCATE MR P K R MENON THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 29.09.2022, ALONG WITH ITA.174/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **ITA Nos.115 & 174/2019** **-2-** 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. 174 OF 2019 AGAINST THE ORDER ITA 284/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE KERALA STATE HOMEOPATHIC CO-OPERATIVE PHARMACY LIMITED PATHIRAPPALLY, ALAPPUZHA 688 521 REPRESENTED BY ITS MANAGING DIRECTOR MR. JOY PONNAPPAN BY ADVS.TELMA RAJU; ANIL D. NAIR SRI.SREEJITH R.NAIR; SRI.ACHYUT K PADMARAJ SMT. ARYA ANIL; SHRI.GOKULRAJ L. ## RESPONDENT/S: THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-1, ALAPPUZHA 688 001 BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 29.09.2022, ALONG WITH ITA.115/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **ITA Nos.115 & 174/2019** **-3-** ## J U D G M E N T ## [ITA Nos.115/2019, 174/2019] S.V. Bhatti, J. Heard Adv Telma Raju and learned Senior Advocate Mr P K R Menon for parties. 2. The Kerala State Homeopathic Co-operative Pharmacy Ltd/assessee is the appellant. The Assistant Commissioner of Income Tax/Revenue is the respondent. The appeals, at the instance of the assessee, are directed against the order dated 30.11.2018 of the Income Tax Appellate Tribunal (for short ‘Tribunal’) Cochin Bench in ITA Nos.283 & 284/Coch/2018. The appeals relate to the return filed by the assessee for the Assessment Year 2013-14 and 2014-15 respectively. **ITA Nos.115 & 174/2019** **-4-** 3. The circumstances relevant to dispose of the appeal are stated in sufficient detail in the orders under appeal. Hence, are not reiterated. 3.1 The following substantial questions of law are raised for our consideration in both the appeals: i. In the facts and circumstances of the case, ought not the Tribunal have held that the appellant is entitled for deduction under Sec.80P(2)(d) to the extent of interest returned from Aleppey District Co-operative Bank. ii. In the facts and circumstances of the case, ought not the Tribunal have held that Alleppey District Co-operative Bank who has been registered under the Banking Regulation Act also is a Co-operative Society and therefore the interest earned therefrom is entitled for deduction under Sec.80P (2)(d).? 4. The controversy between the assessee and the Revenue is substantially centering around the eligibility of deduction under Section 80P of the Income Tax Act, 1961 (for **ITA Nos.115 & 174/2019** **-5-** short ‘the Act’). The learned Counsel invited the attention of the Court to the judgment in _Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax_[1] and _Principal Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd_[2] . In _Peroorkada Service Co-operative Bank Ltd_ we have kept in our perspective the ratio laid down by the Supreme Court in _Mavilayi Service Co-operative Bank Ltd_ , the consequential consideration that would arise thereafter, and we have, in the said background, decided 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 _Mavilayi Service Co-operative Bank Ltd_ & _Peroorkada Service Co-operative Bank Ltd_ the questions are answered in favour of the assessee and against the Revenue. 5. Resultant to the above discussion, the Tribunal order, > 1 (2021) 431 ITR 1 (SC) 2 (2022) 442 ITR 141 (Ker) **ITA Nos.115 & 174/2019** **-6-** Appeal order and Assessment Orders are set aside. The matters are remitted to Assessing Officer for disposal afresh. The Income Tax Appeals are allowed, and the matter is remitted to Assessing Officer as indicated above. Sd/S.V.BHATTI JUDGE Sd/BASANT BALAJI JUDGE jjj **ITA Nos.115 & 174/2019** **-7-** ## APPENDIX OF ITA 174/2019 PETITIONER ANNEXURES ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 30-112016 FOR THE YEAR 2014015 ISSUED TO THE APPELLANT ANNEXURE B TRUE COPY OF THE ORDER DATED 18-04-2018 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ISSUED TO THE APPELLANT. ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 15-10-2018 **ITA Nos.115 & 174/2019** **-8-** ## APPENDIX OF ITA 115/2019 PETITIONER ANNEXURES ANNEXURE-A TRUE COPY OF THE ASSESSMENT ORDER DATED 29.9.2015 FOR THE YEAR 2013-14 ISSUED TO THE APPELLANT ANNEXURE-B TRUE COPY OF THE ORDER DATED 18.43.2018 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ISSUED TO THE APPELLANT ANNEXURE-C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 15.10.2018