AKSHAYA SOUHARDHA CREDIT COOPERATIVE SOCIETY LIMITED,GAURIBIDANUR vs. ITO WARD-1, CHIKKABALLAPUR, CHIKKABALLAPUR

PER SANDEEP SINGH KARHAIL, JUDICIAL MEMBER: The assessee has filed the present appeal against the impugned order dated 20/01/2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2020-21.

1) The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case 2) The Ld.CIT A, NFAC has erred in not giving a sufficient opportunity to explain the case as per the principles of natural justice as only one notice had been issued and the same has not been served to the appellant by mail/post. 3) Under the facts and circumstances of the case, the authorities below failed to appreciate that the surplus funds which is not immediately required for business activity is invested and the interest on such deposits is eligible for deduction u/s 80P(2)(a)(i) of the Act. 4) The authorities below erred in treating the appellant society on par with Totagars Co-operative Sale Society without appreciating the fact that the appellant is only in the business of providing credit facility to members unlike Totagars which is in to marketing activity and the funds invested are out of the amount payable to customers. 5) Without prejudice, if the interest earned on investments with banks is considered as income from other sources, then the the Ld. AO ought to have allowed deduction towards proportionate expenditure as held by the Honble Apex Court in the case of Totagars Co- operative Sale Society 6) The impugned orders passed by the authorities are illegal and are liable to be set aside in view of the judgment of the Honble ITAT, Bengaluru in the case of Sri Guru Vappathina Swamy Pattin Sahakari Sanga Ni, Hosadurga Vide ITA No.2483/Bang/2025 dt 11.02.2026 for AY 2017-18 7) The impugned orders passed by the authorities are illegal and are liable to be set aside in view of the judgment of the Honble ITAT, Bengaluru in the case of Sri Bhyraveswara Credit Co-op Society Ltd, Bengaluru Vide ITA No.2315/Bang/2025 dt 09.02.2026 for AY 2022- 23 8) The impugned orders passed by the authorities are illegal and are liable to be set aside in view of the judgment of the Honble High Court of Karnataka in ITA 29/2015 in the case of M/s. Guttigedarara Credit Co-op. Society Ltd. Mysore Vs. ITO, Ward 2(2), Mysore and ITA 307/2014 - M/s. Tumkur Merchants Souharda Credit Co-op. Ltd. Vs. ITO,Ward-1, Tumkur.

3. The solitary grievance of the assessee is against the denial of deduction under section 80P(2)(a)(i) of the Act in respect of interest on statutory deposits kept in co-operative bank.

“9.2 Further, on considering the argument raised by the AR of the assessee that the assessee is entitled for the deduction u/s 80P(2)(a)(i) of the Act to such portion of the interest from cooperative banks in respect of mandatorily maintenance of fluid resources as statutorily required under the Karnataka Cooperative Societies Act and rules thereunder and only the balance of interest over and above the mandatory SLR was liable to be charged u/s 56 of the Act, we take a note of the fact that the certain deposits in question as contended by the AR of the assessee was not voluntarily made by the assessee society for the investment purposes but were instead statutorily mandated by the Karnataka Cooperative Societies Act, 1959. We find that this statutory requirement imposes a legal obligation on the assessee society to maintain such deposits thereby restricting its ability to freely use or withdraw these funds for its business operation without prior approval from the Registrar of Cooperative Society. We also take note of the fact that if the statutory funds are not invested in the prescribed mode, the business of the assessee may also get hampered/effected due to the violation of these statutory provisions. Given this statutory compulsion, we find that interest income is attributable to the profits and gains of business and therefore, the interest income derived from the statutory deposits made with the Cooperative banks are entitled for deductions u/s 80P(2)(a)(i) of the Act. In holding so, we also draw our support and guidance from the judgement of Hon'ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) which has considered the term "attributable" and held as follows: "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business" of the specific industry (here generation and distribution of society) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from" been used, it could have with some force been contented that a balance charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General, it has used the expression "derived from", as for instance, in Section 80J. In our view, since the expression of wider import, namely "attributable to" has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity" 9.3 Further, we also draw support and guidance from the judgment of Hon'ble Supreme Court in the case of CIT v. Karnataka State Co-operative Apex Bank [2001] 118 Taxman 321 / 251 ITR 194 (SC) wherein it was held as under: "There is no doubt, and it is not disputed, that the assessee co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income tax thereon. The placement of such funds being imperative for the purpose of carrying on the banking business, the income derived there from would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of M.P. Co-operative Ltd. (supra) that only income derived from circulating or working capital would fall within section 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital."

9.4 Further, the Apex Court in the case of Mehsana District Central Co- operative Bank Ltd. v. ITO [2001] 119 Taxman 785/ 251 ITR 522 (SC) had again reiterated by relying on its own judgment delivered in the case of Karnataka State Co-operative Apex Bank's case (supra) as under- "Insofar as the interest income upon statutory reserves is concerned, the question must be answered in favour of the assessee, in the light of the judgment delivered by us in Karnataka State Co-operative Apex Bank's case (supra)." In view of the above principles laid down by Hon'ble Supreme Court if the income is attributable to the profits & gains of business of the society, then the assessee society is entitled for deduction u/s 80P(2)(a)(i) of the Act. 9.5 Further, In the case of ClT v. Nawanshahar Central Cooperative Bank Ltd. [2007] 160 Taxman 48 (SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession". Even though the abovementioned decision was in the context of cooperative societies /Banks claiming deduction under section 80P (2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 as per the CBDT Circular No. 18/2015 dated 02/11/2015. 9.6 The Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income-tax officer [2015] 55 taxmann.com 447 / 230 Taxman 309 (Karnataka) had also held as under- "7. The word 'attributable' used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v.CIT [1978] 113 ITR 84 (SC) as under: 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature, has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General, it has used the expression ''derived from", as, for instance, in section-80J. In our view, since the expression of wider import, namely, "attributable to'', has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.'

Sd/- Sd/- (WASEEM AHMED) (SANDEEP SINGH KARHAIL) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore Dated, the 23-July-2026. *VM* Copy to: AKSHAYA SOUHARDHA CREDIT COOPERATIVE SOCIETY LIMITED, B H ROAD CROSS, GAURIBIDANUR, 1 CHIKKABALLAPUR DISTRICT, CHIKKABALLAPUR-561208, KARNATAKA ITO WARD-1, CHIKKABALLAPUR, ITO WARD 1, INCOME TAX 2 DEPARTMENT, CHIKKABALLAPUR, CHIKKABALLAPUR-562101, KARNATAKA 3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE BY ORDER

ASSISTANT REGISTRAR I.T.A.T., BANGALORE