ITO-19(3)(1), MUMBAI vs. THE JACKSON COOP CREDIT SOCIETY OF THE EMPLOYEES OF WESTERN RAILWAY LIMITED, MUMBAI

O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the revenue against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”], The Jackson Coop Credit Society of the Employees of Western Railway Limited passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 24.02.2025 for the A.Y. 2018-19 wherein the assessment order dated 5th April 2021 passed by AO was set aside and the addition made u/s 80P(2)(a)(i) of the Act was deleted.

The Jackson Coop Credit Society of the Employees of Western Railway Limited 3. Aggrieved by the order of AO, assessee preferred the appeal before the Ld. CIT(A) who has set aside the assessment order and deleted the addition made by the AO while passing the impugned order.

4. Aggrieved by the impugned order, the revenue is in appeal before us raising the following ground:-

1. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs. 6,81,68,024/- the appellant as a interest made by the AO, u/s 80P(2)(a)(i) of the Act, being claimed by income yielded from co-operative banks, which were registered as co- operative Societies?"

2. " Whether on the facts and circumstances the entire addition of of the case and in law, Ld. CIT(A) has erred in deleting Rs. 6,81,68,024/- made by the AO, u/s 80P(2)(a)(i) of the Act, being claimed by the appellant as a interest income yielded from co-operative banks, without appreciating co-operative banks the facts that are function at par with the other commercial banks, which do not enjoy any tax benefit. Therefore, section 80P of the income-Tax Act was amended by inserting a new sub section (4) so as to provide that provisions of the said section shall not apply in relation to any co-operative other than a primary agricultural bank credit society or a primary co- operative agricultural and rural development bank?"

3. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not considering the fact that the Hon'ble Apex Court in the case of The Mavilayi Service Co-op Bank Ltd & Others Vs. CIT. Civil Appeals Nos.7343-7350 of 2019 dt. 12-01-2021, different views. Section have The Jackson Coop Credit Society of the Employees of Western Railway Limited expressed as to provide that the provisions 80P of the Income tax Act was amended by inserting a new sub section (4) so other than of the said section shall not apply in relation to any co-operative bank a primary agricultural credit Society or a primary co-operative agricultural and rural development bank?"

4. " Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the considering entire addition of Rs. 6,81,68,024/- made by the AO, u/s 80P(2)(a)(i) of the Act, without the decision of the Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. Vs. ACIT vide its order dated 08/08/2017 [[2017] 84 taxmann.com 114 (SC)] which was further affirmed in its order dated 21/11/2017 in response to a review petition [[2017] 88 taxmann.com 279 (SC)], wherein the Hon'ble Apex Court held that the co-operative bank cannot be treated as co-operative society and cannot take benefit of deduction u/s 80P of the Act and accordingly, as per the Act the deduction u/s 80P(2)(d) of the Act is allowable only with the deposit made with co- operative society not with co-operative bank?"

5. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs. 6,81,68,024/- made by the AO, u/s 80P(2)(a)(i) of the Act, even if Hon'ble Supreme Court as well as Hon'ble Karnataka High Court in the case of Totagar Cooperative sale interest society earned (2010) 322 ITR 283(SC) and (2017)392 ITR 74(Kar) held that the income by way of by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co- operative bank?" bank and thus, clause (d) of section 80P(2) of the Act would not apply in case of co-operative necessary The Jackson Coop Credit Society of the Employees of Western Railway Limited 6. The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary.

5. We have heard Ld. DR and Ld. AR and examined the record. At the outset, Ld. DR on behalf of the revenue argued that Ld. CIT(A) had committed illegality in not following the judgment of Hon’ble Supreme Court as well as Hon'ble Karnataka High Court in the case of Totagar Cooperative Sale Interest Society (2010) 322 ITR 283 (SC) and (2017) 392 ITR 74 (Kar). It was further argued that the case of the assessee was covered by section 80P sub section 4 of the Act and further the case was covered by the judgment of Hon’ble Apex Court in the case of Mavilayi Service Co-op Bank Ltd & Others Vs. CIT. Civil Appeals Nos. 7343-7350 of 2019 dated 12-01-2021. It was further argued that Ld. CIT(A) has not followed the another judgment of Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. Vs. ACIT vide its order dated 08/08/2017 [[2017] 84 taxmann.com 114 (SC)]. Therefore, Ld. DR submitted that the assessment order was rightly passed by the AO and the impugned order passed by the Ld. CIT(A) is not legally sustainable and accordingly liable to be set aside.

The Jackson Coop Credit Society of the Employees of Western Railway Limited 6. On the other hand, Ld. AR submitted that Ld. CIT (A) has passed a well reasoned order while following the relevant case laws of the Jurisdictional Tribunal in the case of New Satara Zilla Nagrik Sahakari Patsanstha Maryadit vs. National Faceless Appeal Centre [2024] 164 taxmann.com 413 (Mumbai-Trib.) order dated 27-04-2023. Ld. AR further relied on the impugned order of Ld. CIT(A) and submitted that the impugned order does not suffer any illegality and perversity and the assessee being a cooperative society doing its business for its members and it was not engaged in taking deposits or giving loans to any outsiders and the available /surplus funds from the deposits of its members were being deposited in cooperative banks and commercial banks, etc and as such the interest income is earned during the main as well as ancillary business of the assessee/society which is very well eligible to be deducted u/s 80P(2)(a)(i) of the Act. Therefore, Ld. AR submitted that that there is no illegality and perversity in the order passed by the Ld. CIT, hence the appeal of the revenue is liable to be dismissed.

“8. The details and contentions of the assessee have been carefully considered. However, the assessee‟s contention regarding the eligibility of the interest income on investments of funds in banks being eligible for deduction u/s80P(2)(a)(i) as it is made as per the Statutory Provisions of Section 62 of Multi-State Co operative Societies Act, 2002 are devoid of merit for the following reasons:

8.1 Interest income earned by the assessee-society is not eligible for deduction u/s 80P(2)(a)(i) as:

Section 80P(2)(a)(i) allows deduction to a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members in respect of whole of the amount of profits and gains attributable to such activity.

8.2 In the instant case, the 'interest income' under question was not the interest received from the members of the assessee-society for providing credit facilities to them. What is sought to be taxed is the interest income arising on the surplus invested in co-operative banks and financial institutions other than the 'co-operative societies'.

9.1 Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. Vs Income Tax Officer, Karnataka (supra) held in Para 11as under:

"To say that the source of income is not relevant for deciding the applicability of section 80P would not be correct because one needs to give weightage to the words 'the "'whole of the amount of profits and gains of business' attributable to one of the activities specified in section 80P(2)(a). The words „ the whole of the amount of profits and gains of the business emphasize that the income, in respect of which deduction is sought, must constitute the operational income and not the other income which accrues to the society . In the instant case, the evidence showed that the assessee- society earned interest on funds which were not required for business purposes at the given point of time. Therefore, on the facts and circumstances of the instant case such interest income fell in the category of. 'Other income' which had rightly been taxed by the department under section 56. " Page | 9 The Jackson Coop Credit Society of the Employees of Western Railway Limited 9.2. As can be seen from the above decision of Hon'ble Supreme Court, it is clear that the deduction u/s 80P(2)(a) is available to only the 'operational income' from business, but not the 'other income' which accrues to the assessee-society.”

“5.6 In Ground No.1 the appellant has challenged the disallowance of interest income of Rs.6,81,68,024/- from investment with other banks claimed u/s 80P(2)(a)(i) of the I.T. Act. From the assessment order, it is seen that the appellant earned interest from the following commercial banks as mentioned below:

The Jackson Coop Credit Society of the Employees of Western Railway Limited 5.7 It has not been disputed by the AO that the appellant is a co-operative credit society registered under the Maharashtra Co-operative Societies Act 1960, providing credit facilities to its members and the appellant being also registered cooperative credit society under Multi State Co-operatives Act, 2002 is required to transfer certain part of the net profits to various fund, reserve fund complying to the provisions of the Multi State Co-operatives Act, 2002. Besides, as per the provisions of the Multi State Co-operatives Act, 2002, the appellant society was bound to make investments of the surplus funds as per the aforesaid provisions which stipulated investments in cooperative banks/ other banks. It has also not been disputed by the AO that the appellant in the year under consideration has earned interest income of Rs.6,81,68,024/- only, from various commercial banks, by way of investments from such funds.

5.8 In the context of admissibility of such interest income u/s 80P, it would be pertinent to make reference here the observation made by the jurisdictional ITAT, Mumbai Bench, in a similar situation, in the case of New Satara Zilla Nagrik Sahakari Patsanstha Maryadit vs. National Faceless Appeal Centre, Vide: [2024] 164 taxmann.com 413 (Mumbai - Trib.). The hon‟ble jurisdictional tribunal, Mumbai, by their order, dated: 27-04-2023, has held as under.

“17. Aforesaid factual position as to deposit of funds by the assessee society with the nationalized/commercial banks, earning interest thereon with total cost of investment shows that the investment made by the assessee society was in compliance to the mandatory provisions of Maharashtra Co-operative Society Act thus integral part of its business and profession. Furthermore, when the assessee is wholly and exclusively doing its business for its members, the earning of interest on FDs with the banks is incidental to the assessee society's business of accepting the deposit and provision of credit facilities from/to its Page | 11 The Jackson Coop Credit Society of the Employees of Western Railway Limited members. Hence, the interest income has rightly been treated as business income by the assessee society and assessed to tax under the head "profit and gains of business". We are of the further view that in the present scenario parking of funds with nationalized and commercial banks is safe and easy for ease of business of the assessee society because many of co-operative banks have crumbled during the last many years.

18. In view of what has been discussed above, we are of the considered view that the Ld. CIT(A) has erred in disallowing the deduction claimed by the assessee society under section 80P(2)(a)(i) of the Act and consequently we direct the AO to allow the deduction claimed by the assessee society.

5.9 In the above noted decision, it has been held that Interest income, from investments with commercial banks, of Co-operative societies registered under Co-operative Societies Act is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act. Considering the above noted decision and ratio of facts in the case under consideration, I am inclined to hold that the action of the AO in denying deduction u/s 80P to the appellant in respect of the interest income of Co-operative societies from commercial banks is not sustainable. Respectfully following the order of the jurisdictional ITAT, Mumbai, in the case of New Satara Zilla Nagrik Sahakari Patsanstha Maryadit vs. National Faceless Appeal Centre, Vide: [2024] 164 taxmann.com 413 (Mumbai - Trib.) dated: 27-04-2023, the AO is directed to allow deduction u/s 80P(2)(a)(i) on interest income of Rs.6,81,68,024/- only. The appeal on ground is allowed, accordingly.”

The Jackson Coop Credit Society of the Employees of Western Railway Limited 9. We have considered the above findings of Ld. CIT(A) vis-à-vis grounds raised in the present appeal. Now, we proceed to refer various cases of Jurisdictional Tribunal wherein the issue raised in Ground no. 2 to 4 in the present appeal has been decided in favour of assessee by the Coordinate Bench of ITAT in 4859 & 4872/Mum/2025 order dated 22.09.2025 in which both of us were the member of the bench. The relevant findings of this order from para 3 to 5 reproduced as under:-

“3. Briefly stated, facts of the case are that the assessee is a registered Co- operative Credit Society, incorporated in the year 1979 under the Maharashtra State Co-operative Societies Act, 1960. It was established with the avowed object of providing credit facilities exclusively to its members in accordance with the principles of co-operation, mutual aid, and self-help. The Society is governed and regulated by the Commissioner & Registrar of Co-operative Societies, Maharashtra State.

3.1 The assessee filed its returns of income for the Assessment Years (AYs) 2017–18, 2018–19 and 2020–21 on 23.10.2017, 26.09.2018 and 13.11.2020, declaring incomes of ₹6,63,32,186/-, Nil and Nil respectively. The returns were duly processed under section 143(1) of the Income-tax Act, 1961 (“the Act”). The cases were thereafter selected for scrutiny and statutory notices were issued and complied with. In the assessments framed for the respective years, the Assessing Officer disallowed the assessee‟s claim of deduction under section 80P(2)(a)(i) of the Act on the reasoning that the assessee was The Jackson Coop Credit Society of the Employees of Western Railway Limited in substance functioning as a co-operative bank and, in view of section 80P(4), was not entitled to deduction.

3.2 On appeal, the learned Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction by placing reliance on the binding decisions of the Tribunal in assessee‟s own cases for AYs 2013–14 and 2014–15 (ITA Nos. 7752/Mum/2019, 7753/Mum/2019 and 1288/Mum/2021), wherein the assessee was held not to fall within the mischief of section 80P(4).

4.1 Since the assessee is not a „primary agriculture credit society‟ or „primary co-operative agricultural and rural development bank‟, therefore, the decisive question is whether the assessee is a “co-operative bank” within the meaning of section 80P(4).

4.2 Under the Explanation to section 80P(4) of the Act co-operative bank has been defined that as the meaning assigning to them under part 5 of Banking Regulation Act, 1949. Before us, the Ld. counsel for the assessee has referred to section 56 of the Banking Regulation wherein the banking is Page | 14 The Jackson Coop Credit Society of the Employees of Western Railway Limited defined as accepting deposits from the public, withdrawal facilities through cheques and drafts. The Ld. counsel submitted that the respondent society meet this criteria as it deals exclusively with its members and not the public and cannot provide withdrawal facility through banking instruments. This fact has not been controverted by the Ld. Departmental Representative (DR). Thus, it is undisputed that the assessee does not accept deposits from, nor extend facilities to, the general public. Its activities are confined exclusively to its members, and it does not provide withdrawal facilities through cheques, drafts or other banking instruments. Thus, the essential attributes of “banking” under section 56 of the Banking Regulation Act, 1949 are not satisfied. Hence, the assessee does not fulfil the definition of a Co- operative Bank provided under the Explanation to section 80P(4) of the Act and thus assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act.

4.3 The Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [(2021) 431 ITR 1 (SC)] has categorically held that so long as a co-operative society is engaged in providing credit facilities to its members, the income so earned is deductible under section 80P(2)(a)(i). The Court clarified that section 80P(4) carves out an exception only in respect of co-operative banks, as defined under the Banking Regulation Act, and does not affect societies confining their activities to members.

4.4 On the other hand, the ruling in Citizen Co-operative Society Ltd. v. ACIT [(2017) 397 ITR 1 (SC)] demonstrates the converse position, where a society, though registered as a co-operative society, was in fact engaged in accepting deposits from the public and advancing loans to non-members, thereby functioning as a full-fledged co-operative bank. It was held therein that such a society would fall within the exclusionary clause of section 80P(4).

The Jackson Coop Credit Society of the Employees of Western Railway Limited 4.5 Tested against these authoritative pronouncements, the assessee‟s case is squarely governed by the ratio of Mavilayi (supra) and stands on a completely different footing from Citizen Co-operative Society (supra). The assessee operates solely within the co-operative fold of its members and does not satisfy the statutory test of being a “co-operative bank”.

4.6 In view of the above legal position and following the consistent orders of the Tribunal in assessee‟s own cases for earlier years, we uphold the order of the learned CIT(A) granting deduction under section 80P(2)(a)(i). No infirmity has been pointed out warranting interference.

4.7 The grounds raised by the Revenue in all the three appeal are dismissed.

“3. Whether the revenue is justified in its reliance upon the judgment of the Hon'ble Supreme Court in M/s. Totagar Cooperative Sales Society Ltd. (322 ITR 285) as find mentioned in ground no. 3 in the appeal?

The Jackson Coop Credit Society of the Employees of Western Railway Limited 15. Question No. 3: To decide this question, knowing the provisions of Section 80P(2)(a)(i) is necessary and reproduced as under:

“80-P. Deduction in respect of income of cooperative societies.-(1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.

(2) The sums referred to in sub-section (1) shall be the following, namely:

(a) in the case of a cooperative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or”

The Jackson Coop Credit Society of the Employees of Western Railway Limited 17. “In the present case, as stated above, the assessee Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression “profits and gains of business”. Such interest income cannot be said also to be attributable to the activities of the Society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80-P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested f in specified securities as “investment”.

Order pronounced in the open court on 19.11.2025.