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

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. 2. The facts in brief are that, the assessee is a credit co-operative society engaged in the business of providing credit facilities to its members. For the Assessment Year 2018-19, the assessee has filed the return of income on 23.10.2018 declaring a gross total income of Rs. 41,63,32,549/- and total income of Rs. Nil after claiming deduction of Rs. 41,63,32,549/- u/s 80P (chapter VI-A) of the Act. The return of income filed by the assessee has been selected for complete scrutiny by issuing statutory notice u/s 142(1) dated 23/01/2020 alongwith reminders dated 12/03/2021, 22/03/2021 and 28/032021. The assessee was asked to furnish a break- up of the interest income received from investment and to explain why the interest received from District Co Op Banks and other Banks and Treasuries etc. should not be assessed as Income From Other Sources. The assessee informed the AO that during the year under consideration, the assessee has earned an interest income of Rs.6,81,68,024 from deposits with various Commercial banks, Co-operative banks/ and other The Jackson Coop Credit Society of the Employees of Western Railway Limited financial institutions; and has claimed the entire interest income as deduction u/s 80P(2)(a)(i) / 80P(2)(d) of the Act. The details of the said investments /deposits in the various Commercial banks are at para no. 6 of the order of AO. It was further noticed by the AO that the said deposits /investments in commercial banks, cooperative banks etc. are out of the surplus funds of the society. The AO was of the view that any interest income arising from deposit /investment of funds in banks is in the nature of income from other sources' taxable u/s 56 of the Act and cannot be categorized as the income from the 'Profits and gains of business' of the assessee. In response to the notice u/s 142(1) and the questionnaire issued, the assessee submitted that since the Society is engaged in the Business of Banking/providing credit facilities to their members and interest income on investment of funds in banks as per the Statutory Provisions of Section 62 of the Multi-State Co-operative Societies Act, 2002, the society is eligible to claim deduction u/s 80P(2)(a)(i) of the Act. The AO was not convinced by the submission of the assessee and accordingly made the addition of the total amount of deduction claimed by the assessee and the total income was determined at Rs. 6,81,68,024/-. Penalty proceedings were also initiated separately. 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. 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. 7. We have considered the rival submissions and examined the orders passed by the AO as well as Ld. CIT(A). The contention raised by the The Jackson Coop Credit Society of the Employees of Western Railway Limited assessee before the AO were dealt with and rejected by the AO in its order at para no. 8 to 9.2, is reproduced as under:- “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. The head note to section 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Section 80P( 1), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the The Jackson Coop Credit Society of the Employees of Western Railway Limited specified activities mentioned in section 80P(2) would be eligible for deduction. The word 'income' has been defined under section 2(24)(i) of the Act to include profits and gains of business. This subsection is an inclusive provision. The Parliament has included specifically 'business profits' into the definition of the word 'income'. Therefore, one is required to give a precise meaning to the words' profits and gains of business' mentioned in section 80P(2). In the instant case.the assessee-society regularly invested funds not immediately required for business purposes. Interest on such investments, therefore, could not fall within the meaning of the expression' profits and gains of business' as held by Hon'ble Supreme Court in the case of Totgars, Cooperative Sale Society Ltd. vs. Income-tax Officer, Karnataka [2010] 188 Taxman 282 (SC). Such interest income could not be said to be attributable to the activities or the society, viz..carrying on the business of providing credit facilities to its members. 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. " 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.” 8. The findings and the order of the AO was set aside by the Ld. CIT(A) while deciding Ground no. 1 in para no. 5.6 to 5.9 of its order are reproduced as under:- “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 juri ictional 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 juri ictional 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 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. 19. Resultantly, aforesaid appeals filed by the assessee society are hereby allowed.” 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 juri ictional 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 Juri ictional 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 ITA No. 4880, 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 &