SRI GAYATHRI CREDIT CO-OPERATIVE SOCIETY LIMITED ,HASSAN vs. INCOME TAX OFFICER, WARD-1 & TPS, HASSAN

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE

BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER

ITA No. 2139/Bang/2025 Assessment Year : 2021-22

M/s. Sri Gayathri Credit Co- operative Society Ltd., The Income Tax No. 1, Sampige Road, Officer, K R Puram, Ward – 1 & TPS, Hassan – 573 201. Hassan. Vs. PAN: AABAS2700F APPELLANT RESPONDENT

: Shri Narendra Sharma, Assessee by Advocate : Shri Subramanian S., JCIT- Revenue by DR

Date of Hearing : 03-02-2026 Date of Pronouncement : 30-04-2026

ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER

This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 25/07/2025 in respect of the A.Y. 2021-22 and raised the following grounds. “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.

Page 2 of 8 ITA No. 2139/Bang/2025 2. The learned Commissioner of Income tax [Appeals] erred in upholding the total income of the appellant at Rs. 73,79,396/- as against the returned income of Rs.2,35,130/- under the facts and in the circumstances of the appellant's case. 3. The learned CIT[A] is not justified in law in upholding the denial of deduction claimed by the appellant under the provision of section 80P of the Act in respect of the interest of Rs. 77,20,234/- earned by the appellant from investments in co-operative banks and other banks and holding the same to be liable for assessment under the head "Other Sources" under the facts and in the circumstances of the appellant's case. 4. The learned CIT[A] ought to have appreciated that the interest income earned by the appellant on deposits in banks was part of the business of providing credit facilities to the members of the appellant and hence, the said interest was liable for assessment under the head "Business" and not under the head "Other Sources" and therefore, the deduction claimed by the appellant u/s 80P[2][a][i] of the Act ought to have been allowed under the facts and in the circumstances of the appellant's case. 5. Without prejudice to the above, the learned CIT[A]/NFAC ought to have appreciated that the interest earned from co- operative banks was alternatively entitled to deduction u/s. 80P[2][d] of the Act under the facts and in the circumstances of the appellant's case. 6. Without prejudice to the above, the learned CIT[A]/NFAC ought to have appreciated that in the event the interest income is assessed under the head "Other Sources", the appellant was entitled to deduction for cost of funds of Rs. 76,62,457/- and therefore, the income assessed is excessive and liable to be reduced substantially. 7. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 8. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in

Page 3 of 8 ITA No. 2139/Bang/2025 prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 2. The brief facts of the case are that the assessee is a co-operative society registered under the provisions of the Karnataka Co-operative Societies Act. The assessee is providing credit facilities to its members and they are not having any business with the non-members. The assessee filed their return of income and claimed deduction u/s. 80P(2)(a)(i) of the Act. The assessment proceedings has been completed and the AO had treated the income from the investments made with the co-operative banks as income from other sources since the said income could not be treated as the operational income of the assessee. Therefore the AO had taxed the said income u/s. 56 of the Act. The assessee had challenged the said order before the Ld.CIT(A) and contended that the income earned from the investments made with the co-operative banks are eligible for deduction u/s. 80P(2)(a)(i) of the Act. The assessee had relied on the judgments of the Hon’ble Supreme Court as well as the Hon’ble Jurisdictional High Court and also the Hon’ble Kerala High Court. The assessee had also made an alternate submission that the proportionate deduction towards the administrative expenses and other expenses were not granted. The Ld.CIT(A) had also held that the interest income earned from the deposits made with the co-operative banks are liable to be treated as income from other sources and dismissed the appeal filed by the assessee.

Page 4 of 8 ITA No. 2139/Bang/2025 5. The Ld.DR submitted that the assessee had claimed deduction u/s. 80P(2)(a)(i) of the Act which could not be granted since the interest income was not earned out of the business activities of the assessee. The Ld.DR further submitted that at the maximum the interest income could be classified as income from other sources which was rightly done by the authorities below and therefore prayed to dismiss the appeal filed by the assessee.

Page 5 of 8 ITA No. 2139/Bang/2025 Merchants Souharda Credit Co-operative Ltd. vs. ITO wherein it was held as follows:

“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.’ 8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the

Page 6 of 8 ITA No. 2139/Bang/2025 members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee- Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State co-operative Bank Ltd., [2011] 200

Page 7 of 8 ITA No. 2139/Bang/2025 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order:” 9. In the above said judgment, the Hon’ble Jurisdictional High Court had held that the interest income is attributable to the business of the assessee societies and therefore the deduction u/s. 80P(2)(a)(i) of the Act could not be denied.

Page 8 of 8 ITA No. 2139/Bang/2025 11. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 30th April, 2026.

Sd/- Sd/- (PRASHANT MAHARISHI) (SOUNDARARAJAN K.) Vice President Judicial Member

Bangalore, Dated, the 30th April, 2026. /MS /

Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order

Assistant Registrar, ITAT, Bangalore