DEPUTY COMMISSIONER OF INCOME TAX, MANGALURU vs. SHREE VIJAYALAXMI SOUHARDA SAHAKARI NIYAMITA, SIRSI, KARNATAKA

आदेश / ORDER

PER SANDEEP SINGH KARHAIL, JUDICIAL MEMBER:

The Revenue has filed the present appeal against the impugned order dated 21/08/2024, 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.

2. At the outset, it is noticed from the appeal record that there is a delay of 407 days in filing the appeal before the Tribunal. In the application filed by the Deputy Commissioner of Income-tax, Central Circle-2, Mangaluru, it is stated that the order of the learned CIT(A) was received in the office of the Principal Commissioner of Income-tax, Hubballi on 21/08/2024 and thereafter the authorisation for filing the appeal before the Tribunal at Bangalore was issued on 15/10/2024. It is submitted that the appeal was filed within the time limit, but the same was automatically allotted to the Panaji Bench of the Tribunal. The Panaji Bench, vide order dated 10/12/2024, dismissed the appeal since the jurisdiction of the Assessing Officer who framed the assessment, being Mangaluru, falls beyond the jurisdiction of that Bench. It is submitted that the said order was received in the office of the Principal Commissioner of Income-tax (Central), Panaji on 16/10/2025 and the authorisation for filing the appeal again before the Bangalore Bench was issued on 25/11/2025. After considering the reasons stated in the application seeking condonation of delay, we are of the considered view that there was sufficient cause which prevented the Revenue from filing the present appeal within the prescribed statutory period. Accordingly, the delay in filing the present appeal is condoned, and we proceed to decide the present appeal on merits.

consideration the decision of the Apex Court in the case Totgars Co-operative Sale Society Limited Vs Income Tax Officer Karnataka[2010] 188 Taxman 282(SC) wherein it was held that the interest income earned by the society not attributable to the business activities of the society would be ineligible the deduction u/s 80P(2)(i). 3. On the facts and circumstances of the case, the the Ld CIT(A) has erred in understanding the Circular No 18/2015 issued by the Board is only applicable to Cooperative societies/co-operative Banks registered under Banking Regulation Act, 1949. 4. The sole issue that arises for our consideration, in the present case, pertains to the allowability of deduction under section 80P(2)(a)(i) of the Act in respect of the interest earned on deposits made with co-operative banks under statutory compulsion.

providing credit facilities to its members. Following the decision of the Hon’ble Supreme Court in Totgars’ Co-operative Sale Society Ltd. vs. ITO, reported in [2010] 188 Taxman 282 (SC), and the decision of the Hon’ble Jurisdictional High Court in PCIT v. Totagars Co-operative Sale Society Ltd. [2017] 83 taxmann.com 140 (Kar), the AO disallowed the deduction claimed under section 80P(2)(a)(i) of the Act, and assessed the interest income of ₹ 2,22,33,375 as “income from other sources” under section 56 of the Act.

the decision of the Coordinate Bench in Moodbidri Co-operative Service Bank Ltd. v. ITO [2024] 159 taxmann.com 1233 (Bangalore-Trib.). The learned CIT(A) directed the AO to identify and allow income arising from deposits made under statutory compulsion, after verification and after affording the assessee a proper opportunity of hearing. However, the learned CIT(A), following the decision of the Hon’ble Jurisdictional High Court in PCIT v. Totagars Co-operative Sale Society Ltd. [2017] 83 taxmann.com 140 (Kar), rejected the claim of the assessee for deduction on the interest earned from the investment of surplus funds, whether under section 80P(2)(a)(i) or under section 80P(2)(d) of the Act. Further, the learned CIT(A) directed the AO to allow proportionate deduction under section 57 of the Act against the balance interest income chargeable under section 56 of the Act, after proper verification. Accordingly, the assessee's appeal was partly allowed. Aggrieved by the relief granted to the assessee, the Revenue is in appeal before us.

“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.' 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." 9.7 However, we are also conscious to the fact that the details of quantum of amount necessary to be deposited to comply with the Karnataka Co-operative Society Act, 1959 is not provided by the assessee to the AO. Therefore, we, in the interest of justice and fair play are inclined to set aside this issue to the file of AO with a direction to compute the required quantum of amounts needs to be deposited as per the statutory requirement and allow the claim of the deduction u/s 80P(2)(a)(i) of the Act of the corresponding interest income irrespective of the fact that the investment were made by the co- operative society in co-operative Banks or scheduled banks.“

“11. The Assessment Years involved in the present batch of appeals are Assessment Years 2007-2008 to 2011- 2012. The bone of contention is that the deduction under Section 80P(2) of the Act is now claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), the assessee has shifted the deposits and investments from Schedule Banks to Co-operative Bank and such Co- operative Bank is essentially a Co-operative Society also and Clause (d) allows

deduction of income by way of interest or dividends derived by the assessee Co- operative Society from its investments with any other Co-operative Society.” (Emphasis supplied) 14. The learned CIT(A) has followed the said decision of the Hon’ble Jurisdictional High Court in rejecting the claim of the assessee under section 80P(2)(d) of the Act and in denying the deduction on the interest earned from the investment of surplus funds, which are not assailed further by the assessee. The relief granted by the learned CIT(A) under section 80P(2)(a)(i) of the Act is confined to the deposits made under statutory compulsion, an aspect which was not the subject matter of the decision of the Hon’ble Jurisdictional High Court relied upon by the learned DR. Accordingly, the findings of the learned CIT(A) on the issue of deduction under section 80P(2)(a)(i) of the Act in respect of the interest earned on statutory deposits are upheld. As a result, the grounds raised by the Revenue are dismissed.

Order pronounced in the open court on 26-Oct-2026. Sd/- Sd/- (PRASHANT MAHARISHI) (SANDEEP SINGH KARHAIL) VICE PRESIDENT JUDICIAL MEMBER Bangalore, Dated, the 26-Oct-2026 *VM* Copy to:

DEPUTY COMMISSIONER OF INCOME TAX, ALBUQUERQUE HOUSE, GROUND 1 FLOOR, PANDESHWAR, MANGALURU 575001, MANGALURU-575001, KARNATAKA SHREE VIJAYALAXMI SOUHARDA SAHAKARI NIYAMITA, 2 3, GP CENTRE, YELLAPUR ROAD, NEAR COURT, SIRSI KARNATAKA 581401, SIRSI-581401, KARNATAKA 3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE

BY ORDER

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

Digitally signed P G by P G RAJANI Date: RAJANI 2026.10.30 16:22:44 +05'30'