High Court of KeralaDivision Bench2022-09-29Appeals allowed; remitted to Assessing Officer ...

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

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

Neutral Citation:/

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 allowed; the orders of the ITAT are set aside and the matters are remitted to the Assessing Officer for disposal afresh in light of the judgments cited (Mavilayi and Peroorkada). The overall outcome is that the issues require reconsideration by the AO with reference to the clarified jurisprudence on 80P(2)(d).
Final Disposition: Appeals allowed; remitted to Assessing Officer for fresh disposal in accordance with the above reasoning and precedents.

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
• Sreejith R. Nair
• Achyut K. PadmaraJ
• Gokulraj L.

Counsels for Respondents

• P K Ravindrath Menon (Sr.)
• Jose Joseph, SC, For Income Tax

Case Synopsis & Summary

These ITA Nos.115/2019 and 174/2019 arise from the assessees’ challenge to the ITAT Cochin Bench orders dated 30-11-2018 in ITA Nos.283 & 284/Coch/2018 for AY 2013-14 and 2014-15. The core issue is whether the deduction under Section 80P(2)(d) of the Income Tax Act, 1961 can be claimed on interest income earned from the Alleppey District Co-operative Bank, a financial institution registered under the Banking Regulation Act. The assessee contends that interest income received from a cooperative bank constitutes income of a co‑operative society and is therefore deductible under 80P(2)(d), especially since the bank operates as a cooperative entity. The Revenue challenges this, arguing that 80P(2)(d) contemplates the income of a cooperative society and that interest earned from a bank does not automatically fall within that category; the status of the lending bank under the Banking Regulation Act does not by itself confer 80P eligibility. The High Court places reliance on the ratio in Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax (SC) and Principal Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd (Ker HC), noting that the scope of 80P(2)(d) must accommodate the evolving jurisprudence on what constitutes the income of a co‑operative society. The Tribunal’s conclusions are set aside and the matters are remitted to the Assessing Officer for fresh disposal in light of these precedents and the statutory framework, with the appeals allowed to that extent.

Provisions of Law Cited

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

Legal Doctrines & Maxims

Ratio in Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax (SC) on 80P(2)(d) and its application to cooperative banking income
Peroorkada Service Co-operative Bank Ltd and its follow‑up interpretation (Ker HC) on 80P(2)(d)
Classification of income into business income vs income from other sources for 80P purposes

Submissions & Arguments

Contentions of Appellants / Petitioners

The appellant contends that deduction under Section 80P(2)(d) extends to interest income earned from a cooperative bank, where the bank is registered as a cooperative institution under the Banking Regulation Act. It asserts that the interest income is part of the co‑operative society’s income and thus falls within 80P(2)(d). The case relies on the ratio of Mavilayi and Peroorkada to support that 80P aims to protect and foster the cooperative sector and that the income from cooperative banks qualifies where there is a direct link to the cooperative society’s activities, including lending and interest. The argument emphasizes that merely being a bank registered under the Banking Regulation Act should not bar such interest from eligible 80P treatment.

Contentions of Respondents

The Revenue argues that 80P(2)(d) applies to income of a co‑operative society and does not automatically cover interest income earned from a cooperative bank registered under the Banking Regulation Act, unless there is a direct, statutory linkage showing the bank’s income is the society’s income. It contends that interest from a banking institution cannot be indiscriminately treated as income of the co‑operative society, and 80P allowance should be restricted to defined cooperative activities and entities, in line with statutory interpretations and precedents.

Cited Precedents (2)

Case Name	Citation	Treatment	Explanation
Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax	1 (2021) 431 ITR 1 (SC)	Positive	High Court follows the SC ratio on 80P(2)(d) to determine eligibility of deductions on income of cooperative societies.
Principal Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd	2 (2022) 442 ITR 141 (Ker)	Positive	Ker HC applies Peroorkada's ratio, supporting the assessee’s case in context of 80P(2)(d).

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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