SRI VASAVI SOUHARDHA PATTINA SAHAKARI SANGHA NIYAMITHA ,HOSAKOTE vs. INCOME TAX OFFICER, WARD-1, TUMAKURU

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

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

ITA No. 2887/Bang/2025 Assessment Year : 2020-21 M/s. Sri Vasavi Souhardha Pattina Sahakari Sangha The Income Tax Niyamitha, Officer, 1 1st Cross, M G Road, Ward – 1, Y N Hosakote, Tumakuru. Vs. Karnataka – 572 141. PAN: AAJAS6597E APPELLANT RESPONDENT

Assessee by : Shri Madhukar G Hegde, CA Revenue by : Shri Pradeep S, Addl. CIT-DR

Date of Hearing : 18-06-2026 Date of Pronouncement : 30-06-2026

ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER

This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 30/10/2025 in respect of the A.Y. 2020-21.

Page 2 of 7 ITA No. 2887/Bang/2025 earned from the deposits made with the co-operative banks and treated the said income as income from other sources. Similarly, the AO disallowed the miscellaneous operational income received.

Page 3 of 7 ITA No. 2887/Bang/2025 dated 25/03/2026 in the case of Shri Basaveshwara Pattina Souharda Sahakari Sangha Niyamitha and prayed to allow the appeal.

Page 4 of 7 ITA No. 2887/Bang/2025 10. In the present case, the facts are different. Therefore the Hon’ble Jurisdictional High Court judgment reported in (2015) 55 taxmann.com 447 (Karnataka) in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO would apply. The findings of the Hon’ble Jurisdictional High Court are as follows: “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 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

Page 5 of 7 ITA No. 2887/Bang/2025 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 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:” 11. The above said principle has been followed by the Coordinated Bench of this Tribunal in ITA No. 2313/Bang/2025 dated 25/03/2026 in the case of Shri Basaveshwara Pattina Souharda Sahakari Sangha Niyamitha wherein it was held as follows: “9. Thus amount earned by the assessee from amount deposited in the bank account is business income of the assessee as it is not shown as a liability in their account, not an amount due to any member and it is not a liability but in fact it is in the nature of profits and gains which was not immediately required by the assessee for lending onwards to its members as there were no takers. Therefore, they deposited the money in bank to on the interest income said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of provisions of section 80 P of the act 10. Decision relied upon by the learned revenue authorities of Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka)/[2017] 395 ITR 611 (Karnataka)/[2017]

Page 6 of 7 ITA No. 2887/Bang/2025 297 CTR 158 (Karnataka)[16-06-2017] is with respect to the interest income earned by the assessee which is chargeable to tax under the head income from other sources. Here it is not the case of the assessee that such income is chargeable to tax as income from other sources as there is no finding that the income of bank interest earned by the assessee is not covered by the decision of the honourable Karnataka High Court stated above wherein it has been held that this income is part of the business profits of the assessee. 11. In view of facts of the present case, as the assessee has not claimed any deduction under section 80 P (2) (d) of the act, but u/s 80 P (2) (a) (i) of the act, we do not find any reason to hold that the decision of the honourable Karnataka High Court in case of Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka)/[2017] 395 ITR 611 (Karnataka)/[2017] 297 CTR 158 (Karnataka)[16-06-2017] applies to the facts of the case.” 12. In view of the settled legal position, we hold that the assessee is entitled for deduction u/s. 80P(2)(a)(i) of the Act on the interest income earned by them, as business income.

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

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

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

Page 7 of 7 ITA No. 2887/Bang/2025 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order

Assistant Registrar, ITAT, Bangalore