PRATHAMIKA KRUSHI PATTINA SAHAKARA SANGA NIYAMITA,TIDIGOL, SINDHANUR TALUK vs. INCOME TAX OFFICER, WARD 1, RAICHUR, RAICHUR

The assessee’s sole grievance is that deduction under section 80P(2)(a)(i) of the Act was denied in respect of interest income of ₹ 13,51,036earned from deposits with scheduled and cooperative Page 1 of 4

Briefly stated, the assessee is a primary agricultural credit cooperative society registered under the Karnataka Cooperative Societies Act, 1959 and is engaged in providing credit facilities to its members. It filed its return of income on 3 December 2020 declaring total income of ₹ 2,210 after claiming deduction under section 80P of the Act. The return was selected for verification ofthe deduction claimed.

During assessment, the learned Assessing Officer proposed to disallow the assessee’s claim in respect of interest income, including interest from deposits with banks. The assessee explained that the income was attributable to its business of providing credit facilities to members. However, the learned Assessing Officer rejected the claim, relying on the decision of the Hon’ble Karnataka High Court in Pr. Commissioner of Income Tax v. Totagars Co-operative Sale Society, and completed the assessment on 12 September 2022.

Aggrieved, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A) confirmed the action of the learned Assessing Officer by relying on the same line of decisions of the Hon’ble Karnataka High Court. Though the assessee relied on decisions favorable to it, the learned CIT(A) applied decisions adverse to the assessee and dismissed the appeal.

We have considered the submissions of Shri Pranav Krishnan, learned Advocate for the assessee, and Shri Ganesh R. Ghale, learned Standing Counsel for the Department, and have perused the orders of the lower authorities.

The assessee is a cooperative society primarily engaged in accepting deposits from, and providing credit facilities to, its members. The dispute concerns the treatment of interest income from cooperative banks. The learned Assessing Officer treated such receipts as income from other sources, while the assessee contends that they are business income attributable to its activity of providing credit facilities to members. The learned Authorized Representative submitted that the issue is covered in favour of the assessee by the decisions of the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income Tax Officer, Ward-1, Tumkur [2015] 55 taxmann.com 447 (Karnataka), and Pr. Commissioner of Income Tax v. Totagars Co-operative Sale Society.

The learned Departmental Representative, however, submitted that the issue is covered in favour of the Revenue by the decision in Totagars Co-operative Sale Society, including [2017] 395 ITR 611 and [2017] 83 taxmann.com 140 (Karnataka).

Section 80P provides that where a cooperative society’sgross total income includes income specified in sub-section (2), such income is deductible. In the case of a cooperative society engaged inthe business of banking or providing credit facilities to its members, the whole of the profits and gains attributable to such activity isdeductible. The question, therefore, is whether interest received from cooperative banks qualifies for deduction under section 80P(2)(a)(i) of the Act. The assessee contends that the receipts are business income attributable to its activity of providing credit facilities to members. We find that the issue is covered in favour of the assessee by decisions of the Hon’ble Karnataka High Court.

We also note that the learned Assessing Officer relied on another decision of the Hon’ble Karnataka High Court holding that interest income earned from cooperative banks is taxable as income from Page 3 of 4

Several coordinate benches have held that, where conflicting decisions of the Hon’ble Karnataka High Court exist, the decision whose facts are closer to the case before the Tribunal should be followed. In the present case, the facts are closer to the decisions relied upon by the assessee. Accordingly, the interest income is eligible for deduction under section 80P(2)(a)(i) of the Act, and the assessee’s claim is allowed.

In the result, the appeal filed by the assessee is allowed.