CHINNA PATTINA SOUHARDA SAHAKARI SANGHA NI,RAICHUR vs. INCOME TAX OFFICER, WARD-1, RAICHUR

PER SHRI WASEEM AHMED, ACCOUNTANT MEMBER: This appeal is filed by the Assessee against the order of Ld. NFAC vide DIN: ITBA/NFAC/S/250/2025-26/1080851756(1) dated 22-Sep-2025 for the Assessment Year 2020-21.

19.6 The Hon’ble High Court in the above stated case of Tumkur Merchants Souharda Credit Cooperative Ltd(supra) also found that ratio laid down by the Hon’ble Supreme in Totgars Co-operative Sale Society (supra) was in different context. It was found that said assessee retained the sale proceed payable to the members and deposited such retained money. The fund deposited was the liability of the said cooperative society and interest earned on such deposit was held to be not attributable to the business of the cooperative society. Hence, the Hon’ble High Court held that ratio laid down by the Hon’ble Supreme Court in Totgars Co-operative Sale Society(supra) shall not be applicable where cooperative society is carrying banking business or providing credit facility to members and earns interest on deposit of surplus/idle fund out of profit & gains or capital. 19.7 It is also noted that the identical view was taken by the Hon’ble Jurisdictional High Court of the Karnataka in the subsequent decision in case of Guttigedarara Credit Co- operative Society Ltd. vs. ITO, Ward 2(2), Mysore dated 9th June 2015 reported in [2015] 60 taxmann.com 215. 19.8 Furthermore, the Hon’ble Karnataka High Court followed the principle laid down Tumkur Merchants Souharda Credit Cooperative Ltd(supra) in the subsequent judgment dated 19th February 2018 in the case of Lalitamba Pattina Souharda Sahakari Niyamita vs. ITO in ITA No. 100004 of 2018.

19.9 We also find that the identical view was taken by the Hon’ble High Court of Andhra Pradesh in the case of Commissioner of Income-tax-III, Hyderabad vs. Andhra Pradesh State Cooperative Bank Ltd. dated 7th June 2011 reported in 12 taxmann.com 66. This decision of Hon’ble Andhra High Court was passed after considering the ratio of the Hon’ble Supreme Court in Totgars Co-operative Sale Society(supra) and before the ratio of the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd(supra). The relevant extract stands as under: 11. Does section 80P(2)( a) of the Act make a distinction between income received by a cooperative bank from statutory deposits and the income from non-statutory deposit of surplus funds? The answer must be in the negative. The income earned by the cooperative bank either by deposit of the prescribed percentage of its reserves or by deposit of their surplus funds is exempted. The income from either category of the deposits is certainly attributable to the business of banking. Indeed as a prudent business practice, no banking company or no entity engaged in the business of banking would keep its amount idle. By parking the funds, immediately not required for the business in other banks, interest can be earned to the benefit of the cooperative society. Every cooperative society is expected to make profits for the benefit of its members. As long as the deposit of the surplus funds in the other banks for the purpose of earning interest is not unauthorized or not barred by any of the applicable statutes, the income is certainly attributable to the business of banking. There is no concept of voluntary or non-statutory reserves as urged by the Revenue. 19.10 We further note that the ratio laid down by the Hon’ble Jurisdictional High Court of the Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd(supra) was subsequently followed by the Hon’ble Kerala High Court in the case of the PCIT vs. Sahyadri Co operative Credit Society Ltd. reported in [2024] 166 taxmann.com 445 (Kerala) and further by the Hon’ble Calcutta High Court in West Bengal State Co-Operative Agriculture & Rural Development Bank Ltd. vs. DCIT reported [2025] 177 taxmann.com 469 (Calcutta)[06- 08-2025]. The relevant finding of the Hon’ble Kerala High Court in above stated case is extracted as under: 7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co- operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee. 19.11 Likewise, the relevant finding of the Hon’ble Calcutta High Court in the above stated case is extracted as under: 11. In terms of the above decision, the expression 'attributable to' being a wider in 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. The facts in the said case were more or less identical to the facts before us. As the interest income so derived or the capital, if not immediately required to be lent to the members, the society/assessee cannot keep the said amount idle and 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. Bearing in mind the meaning of the words 'attributable to' the court proceeded to consider as to the applicability of the judgment of the Hon'ble Supreme Court in Totgars, Co operative Sale Society Ltd. (supra). It was pointed out that the Hon'ble Supreme Court was dealing with the case where the assessee therein, apart from providing credit facility to the members, was also in the business of marketing of agricultural produce grown by its members and the sale consideration received from marketing agricultural produce of its members was retained in many cases and retained amount which was payable to its members from whom produce was bought, was invested in a short term deposit/security. 12. The facts of the case of the assessee before us is entirely different as the amount which was deposited in the bank was not an amount due to the members and it was not the liability of the society to the members and, therefore, the interest earned from such deposits in the bank should be held to be eligible for deduction under section 80P(2)(a)(i) of the Act. Yet again in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO [2015] 55 taxmann.com 447/ 230 Taxman 309 (Kar) identical issue was considered and it was held that where Cooperative Society was engaged in the business of providing credit facilities to its members, they deposited excess amount for short term in banks, interest earned was entitled to be deducted under section 80P of the Act. 19.12 At this point, we also find it pertinent to refer the decision of Hon’ble Gujarat High Court in the case of State Bank of India (SBI) vs. CIT reported [2016] 72 taxmann.com 64 wherein ratio of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd(supra) was distinguished by holding the ratio of the Hon’ble Supreme Court in Totgars Co-operative Sale Society(supra) was properly interpreted. The relevant finding of the Hon’ble Gujarat High Court in this respect reads as under: 13. In the opinion of this court, in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall in any of the categories mentioned under section 80P(2)(a) of the Act. In the case of Totgars Co-operative Sale Society (supra), as rightly submitted by the learned counsel for the respondent, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. This is further clear when one peruses the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. For the above reasons, this court respectfully does not agree with the view taken by the Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) High that Court the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law. 19.13 From the preceding discussion of the ratio laid down by the Hon’ble Supreme Court, High Court of Karnataka, Andhra Pradesh, Kerala, Culutta and Gujarat, we note the dispute of whether the interest income earned from deposit or investment of surplus/idle fund out of profit & gains or capital by the cooperative societies engaged in providing credit facilities to the members is squarely covered in favour of the assessee by the ruling of Jurisdictional High Court in the cases of Tumkur Merchants Souharda Credit Cooperative Ltd(supra), Guttigedarara Credit Co-operative Society Ltd. and Lalitamba Pattina Souharda Sahakari Niyamita vs. ITO as well as by the decision of Hon’ble Kerala High court and Calcutta high court as mentioned in preceding paras. 19.14 It well settled position of the law that the Income-tax Appellate Tribunal, though the final fact-finding authority under the Income-tax Act, functions within the judicial hierarchy established under the Constitution. Under Articles 226 and 227 of the Constitution of India, the Hon’ble High Court exercises supervisory jurisdiction over all courts and tribunals within its territorial jurisdiction. Consequently, the Tribunal is bound to follow the law laid down by the jurisdictional High Court while deciding matters arising within that State.

19.15 The principle that subordinate authorities must follow the judgments of superior courts has been firmly established by the Hon’ble Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs [1962] 3 SCR 338 / AIR 1962 SC 1893, wherein it was held that the law declared by the Hon’ble High Court is binding on all authorities and tribunals within its territorial jurisdiction. The relevant finding is extracted below: Section 167 (8) of the Sea Customs Act can be invoked only if an order issued under s. 3 of the Act was infringed during the course of the import or export. The division Bench of the High Court held that a contravention of a condition imposed by a licence issued under the Act is not an offence under s. 5 of the Act. This raises the question whether an administrative tribunal can ignore the law declared by the highest court in the State and initiate proceedings in direct violation of the law so declared. Under Art 215, every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for contempt of itself. Under Art. 226, it has a plenary power to issue orders or writs for the en- forcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under Art. 227 it has jurisdiction over all courts and tribunals throughout the territories in relation to which it exercise jurisdiction. It would be anomalous to suggest that a tribunal over which the High Court has superint- endence can ignore the law declared by that court and start proceedings in direct violation of it. If a tribunal can do so, all the sub-ordinate courts can equally do so, for there is no specific, provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer. We, therefor, hold that the law declared by the highest court in the State is binding on authorities or tribunals under its supreintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. If that be so, the notice issued by the authority signifying the launching of proceedings contrary to the law laid down by the High Court would be in. valid and the proceedings themselves would be without jurisdiction. 19.16 Further, the binding nature of Hon’ble Jurisdictional High Court decisions on the Tribunal has been reiterated in CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 by the Hon’ble Bombay High Court, wherein it was held that the Tribunal is bound by the decision of the Hon’ble High Court within whose jurisdiction it functions. The Hon’ble Court also clarified that decisions of other High Courts have only persuasive value. The relevant finding is extracted below: For deciding whose decision is binding on whom, it is necessary to know the hierarchy of the courts. In India, the Supreme Court is the highest court of the country. That being so, so far as the decisions of the Supreme Court are concerned, it has been stated in article 141 of the Constitution itself that : "The law declared by the Supreme Court shall be binding on all courts within the territory of India." In that view of the matter, all courts in India are bound to follow the decisions of the Supreme Court. Though there is no provision like article 141 which specifically lays down the binding nature of the decision of the High Courts, it is a well-accepted legal position that a single judge of a High Court is ordinarily bound to accept as correct judgments of courts of co-ordinate jurisdiction and of the Division Benches and of the Full Benches of his court and of the Supreme Court. Equally well-settled is the position that when a Division Bench of the High Court gives a decision on a question of law, it should generally be followed by a co-ordinate Bench of the same High Court. If the co- ordinate Bench in the subsequent case wants the earlier decision to be reconsidered, it should refer the question at issue to a larger Bench. It is equally well-settled that the decision of one High Court is not a binding precedent on another High Court. The Supreme Court in Vattiama Champaka Pillai v. Sivathanu Pillai, AIR 1979 SC 1937, dealing with the controversy whether a decision of the erstwhile Travancore High Court can be made a binding precedent on the Madras High Court on the basis of the principle of stare decisis, clearly held that such a decision can at best have persuasive effect and not the force of binding precedent on the Madras High Court. Referring to the States Reorganisation Act, it was observed that there was nothing in the said Act or any other law which exalts the ratio of those decisions to the status of a binding law nor could the ratio decidendi of those decisions be perpetuated by invoking the doctrine of stare decisis. The doctrine of stare decisis cannot be stretched that far as to make the decision of one High Court a binding precedent for the other. This doctrine is applicable only to different Benches of the same High Court. It is also well-settled that though there is no specific provision making the law declared by the High Court binding on subordinate courts, it is implicit in the power of supervision conferred on a superior Tribunal that the Tribunals subject to its supervision would confirm to the law laid down by it. It is in that . ITA No.2552 & 2553/Bang/2025 Page 40 of 44 view of the matter that the Supreme Court in East India Commercial Co, Ltd. v. Collector of Customs, AIR 1962 SC 1893 (at page 1905) declared : "We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it. ... 19.17 In the absence of a decision of the jurisdictional High Court, the Tribunal may rely upon judgments of other Hon’ble High Courts as persuasive precedents. The Hon’ble Bombay High Court in CIT v. Thana Electricity Supply Ltd. (supra) explained that when conflicting decisions of Hon’ble Non-Jurisdictional High Courts exist, the Tribunal may adopt the view it considers more reasonable. 19.18 Thus, under the constitutional scheme and the doctrine of judicial discipline, a decision of the Hon’ble jurisdictional High Court is binding on the Tribunal, while decisions of other Hon’ble High Courts carry persuasive value and may be followed in the absence of a contrary jurisdictional precedent. 19.19 Hence in our considered view, while deciding the issue of deductibility of interest income from deposit of surplus/idle fund by the cooperative societies engaged in providing credit facilities, we are bound to follow the principles laid down in the case of Tumkur Merchants Souharda Credit Cooperative Ltd(supra), unless material brought on record that the said principle/finding has been overruled by the Hon’ble Supreme Court or the larger bench of the Hon’ble Karnataka High Court or disturbed by the Hon’ble Karnataka High Court in subsequent case. 19.20 Be that as may be and without prejudice to the above, we find that there is statutory requirement & legal obligation imposed on the cooperative society into the business of carrying banking business or providing credit facility to maintain certain deposits, thereby restricting its ability to freely use or withdraw these funds for its business operations without prior approval from the Registrar of Co-operative Societies. Given this statutory compulsion, we find that the interest income arising from these deposits cannot be said that the same is not attributable to carrying banking business or providing credit facility to the members. Therefore, in our considered opinion, such interest income earned from such statutory deposits should be considered as operational income derived in the course of the assessee’s business and consequently qualifies for deduction under section 80P(2)(a)(i) of the Act. In holding so, we also draw support and guidance from the Judgment of Hon’ble Supreme court in case CIT versus Karnataka State cooperative apex bank reported in 251 ITR 194 where in 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 purposes of carrying on the banking business, the income derived therefrom 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 Bank 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. 19.21 Applying the principle culled out from the elaborate discussion of various judicial pronouncements in the preceding paragraphs of this order, we hold that the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act on the above-compulsory deposit, fixed deposit as well as saving bank interest and dividend income. 19.22 At this juncture it is equally important to note that in several earlier decisions, this Tribunal had taken a view that interest income earned by a co-operative society from deposits placed with banks would not qualify for deduction under section 80P(2)(a)(i) of the Act and the same was liable to be taxed under the head “Income from other sources”. Accordingly, the claim of deduction under section 80P(2)(a)(i) in respect of such interest income was rejected in those cases. 19.23 However, the legal position now stands clarified by the judgment of the Hon’ble jurisdictional High Court of Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), and other case laws as discussed in preceding paragraphs wherein it has been held that where a co-operative society engaged in the business of providing credit facilities to its members temporarily parks its surplus funds with banks, the interest earned therefrom is attributable to the business of the society and is therefore eligible for deduction under section 80P(2)(a)(i) of the Act. 19.24 Since the decision of the Hon’ble Jurisdictional High Court is binding on this Tribunal, judicial discipline requires that the same be followed. Therefore, to the extent our earlier decisions have taken a contrary view, we respectfully depart from the earlier stand and follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Accordingly, the issue is now decided in favour of the assessee by granting deduction under section 80P(2)(a)(i) in respect of the interest income in question. 19.25 Before parting it is also equally important to highlight that the learned DR before us quoted the recent judgment of Hon’ble Jurisdictional High Court of Karnataka in the case of BELVE VYAVASAYA SEVA SAHAKARI SANGHA LTD vs. ITO in ITA No. 118 of 2025 dated 21st January 2026. The relevant finding of the Hon’ble High Court in the said case is extracted as under: 6. Section 80P(1) of the I.T. Act enables a co-operative society to claim deduction of the income referred to in sub-section (2). Sub-section (2) provides for deduction in respect of the profits and gains of business attributable to the business of banking or providing credit facilities to its members. Section 80P(2)(d) provides deduction of interest income derived by the Co-operative Societies from its investments with any other Co-operative societies. The assessee as made investments in SCDCC Bank which is a Co-operative Bank. Interest income derived from Co-operative Bank is not included as deduction under Section 80P of the I.T. Act. This Court, in M/s. Judicial Employees House Building Co-operative Society Limited v. Income Tax Officer [ITA No.93/2024, dated 16.09.2025], has held that the interest income received from co operative banks is not eligible for deduction under Section 80P of the I.T. Act. We find that the facts and the legal position considered in the aforesaid d ecision apply to the present case in all force. 19.26 From the perusal of the said finding we note that the decision of the Hon’ble High Court in the case of BELVE VYAVASAYA SEVA SAHAKARI SANGHA LTD vs. ITO (supra) was in relation to deduction under section 80P(2)(d) of the Act which deals with deduction of interest and dividend income on investments with other cooperatives society/ bank. As the SCDCC bank is a cooperative bank and not cooperative society, it was held that interest income from such cooperative bank is not eligible for deduction u/s 80P(2)(d) of the Act. However, in the present case, we are dealing with deduction under section 80P(2)(a)(i) of the Act which state the whole of the amount of profits and gains of business attributable to business of banking or providing credit facilities to its members shall be deducted. Therefore, the ratio of the Hon’ble Karnataka High court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. is applicable in the given fact whereas ratio in case of BELVE VYAVASAYA SEVA SAHAKARI SANGHA LTD vs. ITO (supra) is distinguished. 19.27 In view of the above detailed discussion, we hereby set aside the findings of the learned CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal raised by the assessee is hereby allowed. 8.1 Respectfully following the above-mentioned finding of the coordinate bench of this Tribunal, in identical facts and circumstances, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal raised by the assessee with respect to the claim of deduction u/s 80P(2)(a)(i) of the Act on interest income is hereby allowed. 9. In the result, the appeal of the assessee is hereby allowed. Order pronounced in the open court on 21st August, 2026 Sd/- Sd/- KESHAV DUBEY WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 21st August, 2026 Vms

Copy to: CHINNA PATTINA SOUHARDA SAHAKARI SANGHA NI, 1ST FLOOR BABA COMPLEX, KOTA 1 CROSS HUTTI LINGASGUR HUTTI, RAAYACHURU-584115, KARNATAKA

INCOME TAX OFFICER, WARD-1, 2 INCOME TAX OFFICER, WARD-1, RAAYACHURU-, KARNATAKA

3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE

By Order

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