High Court of KeralaDivision Bench2022-09-29Appeal allowed; Tribunal’s order and AO’s asses...

The Principal Commissioner of Income Tax, Kottayam v. M/s The Manjoor Service Co-Operative Bank Ltd

Case / Petition Number:ITA No.201 of 2019

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: S. V. Bhatti, J.
Basant Balaji, J.
Judgment Date: 2022-09-29
Court Decision / Holding: The Income Tax Appeal is allowed as indicated above. The Tribunal order, the assessment order, and the related proceedings are set aside. The matter is remitted to the Assessing Officer for disposal afresh in light of the judgments referred to above.
Final Disposition: Appeal allowed; Tribunal’s order and AO’s assessment set aside; matter remitted to AO for fresh disposal in light of cited authorities.

Parties to the Case

Appellants / Petitioners

The Principal Commissioner of Income Tax, Kottayam

Respondents

M/s The Manjoor Service Co-Operative Bank Ltd.

Legal Representation & Advocates

Counsels for Petitioners

• Navneeth N Nath
• Sri. Jose Joseph, SC

Counsels for Respondents

• A. Kumar
• P. J. Anil Kumar
• Smt. Mini(1748)
• P. S. Sree Prasad
• Shri Job Abraham
• Shri Ajay V. Anand

Case Synopsis & Summary

This Kerala High Court ITA appeal concerns the entitlement of a cooperative bank to deduction under section 80P of the Income Tax Act, 1961 for the assessment year 2013-14. The appellant Revenue assailed the ITAT Cochin Bench’s order in ITA 37/Coch/2017, challenging denial or misapplication of 80P at theAssessing Officer level. The central issue is whether the assessee, a Primary Agricultural Credit Society registered under the Kerala Societies Registration Act, qualifies for the deduction under 80P(2) and, if so, the scope of its entitlement (including interpretation of 80P(2) and 80P(2)(a) and the treatment of income from fixed deposits). The court notes the parties’ references to Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax, indicating the issue is no longer res integra, and cites Peroorkada Service Co-operative Bank Ltd and related authorities for guiding the interpretation of 80P(2). The questions framed include (i) entitlement to 80P, (ii) whether the Tribunal rightly interfered with the assessment order on 80P, (iii) the classification of fixed- deposit interest as business income or income from other sources, and (iv) the consistency with Taxman (2014) decisions. On analysis, the court remits the matter to the Assessing Officer for fresh assessment in light of the cited authorities. The appeal is disposed of in favour of the Revenue for statistical purposes, with the Tribunal’s and AO’s orders set aside. The Income Tax Appeal is allowed as indicated.

Provisions of Law Cited

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

Legal Doctrines & Maxims

res integra

Submissions & Arguments

Contentions of Appellants / Petitioners

The Revenue contends that deduction under Section 80P(2) must be interpreted in light of the statutory language and the controlling authorities (notably Mavilayi and Peroorkada). It argues that the Tribunal’s approach should be corrected, and the deduction must be determined consistently with 80P(2) and its sub-clause 80P(2)(a). The counsel also relies on precedents, including ITA No.22/2017, to support the view that the questions require a robust application of 80P(2) to the assessee’s income profile, including the treatment of interest income from fixed deposits. The court’s judgment frames the issues around entitlement, the Tribunal’s jurisdiction, and the proper tax classification of interest income, ultimately remitting the matter for fresh determination.

Contentions of Respondents

The respondent bank’s arguments center on entitlement to 80P for PACS under 80P(2); it emphasizes applying the principles from Mavilayi and Peroorkada to determine the scope and limits of deduction. It contends that the Income Tax Act’s language, as interpreted by earlier authoritative rulings, requires a careful delineation of what income falls within 80P’s permissible deduction, including the appropriate classification of interest income. The respondents rely on the cited precedents to argue for a proper, consistent application of 80P(2) and to resist broader readings that would extend the deduction beyond its statutory text.

Cited Precedents (5)

Case Name	Citation	Treatment	Explanation
Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax	—	Positive	Cited as the controlling authority establishing that the issue regarding 80P entitlement is not fresh and informs the current interpretation.
Peroorkada Service Co-operative Bank Ltd	(2022) 442 ITR 141 (Ker)	Positive	Cited to guide interpretation and application of 80P(2) and its connection to the relying authorities, reinforcing the Revenue’s position for remand to AO.
Principal Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd	—	Positive	Cited to align with the line of authority involving Peroorkada and Mavilayi on 80P entitlement.
(2014) 50 Taxman 278	(2014) 50 Taxman 278	Mentioned Only	Referenced in discussion of classification of income, not relied upon as the decisive basis for the current ruling.
(2021) 431 ITR 1 (SC)	(2021) 431 ITR 1 (SC)	Positive	Cited to support the proposition that certain issues concerning 80P were no longer res integra at the Supreme Court level.

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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. 201 OF 2019 AGAINST THE ORDER ITA 37/2017 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAX KOTTAYAM. BY ADV NAVNEETH N NATH; SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S. THE MANJOOR SERVICE CO-OPERATIVE BANK LTD. K-73, MANJOOR, KOTTAYYAM 686 603. BY ADVS. SRI.A.KUMAR; SRI.P.J.ANILKUMAR SMTG.MINI(1748); SRI.P.S.SREE PRASAD SHRI.JOB ABRAHAM; SRI.AJAY V.ANAND THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 29.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **ITA No.201/2019** **-2-** ## J U D G M E N T ## S.V. Bhatti, J. Heard Adv Navneeth N Nath, holding for learned Standing Counsel Mr Jose Joseph, and learned Counsel Mr A Kumar for parties. 2. The Principal Commissioner of Income Tax/Revenue is the appellant. M/s. The Manjoor 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.37/Coch/2017. The subject matter of appeal relates to the return filed by the assessee for the Assessment Year 2013-14. **ITA No.201/2019** **-3-** 3. The controversy between the Revenue and the 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 to dispose 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 (2021) 431 ITR 1 (SC) **ITA No.201/2019** **-4-** 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? 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 **ITA No.201/2019** **-5-** 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. (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 > 2 (2022) 442 ITR 141 (Ker) **ITA No.201/2019** **-6-** _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.(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 **ITA No.201/2019** **-7-** 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.201/2019** **-8-** ## APPENDIX OF ITA 201/2019 PETITIONER ANNEXURES ANNEXURE A ASSESSMENT ORDER U/S. 143 (3) DATED 10.3.2016 ANNEXURE B CIT (A) S ORDER NO. ITA NO. K-13 & K14 /CIT (A) /KTM /15-16 & 16/17 DATED 9.12.2016 ANNEXURE C ITATS ORDER IN ITA NO. 37/COCH/2017 & C.O. 13/COCH/17 DATED 20.4.2018