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Facts
The assessee, a cooperative society, filed an appeal against an order disallowing deduction under Section 80P(2)(a)(i) on interest income earned from cooperative banks. The appeal was delayed by 307 days due to communication breakdown between the assessee and its tax consultant.
Held
The Tribunal condoned the delay, finding sufficient cause. It held that interest income earned by the assessee society from its business activities, including deposits and lending to members, is attributable to its business and eligible for deduction under Section 80P(2)(a)(i).
Key Issues
Whether the delay in filing the appeal is condonable and if interest income earned by a cooperative society from deposits with other cooperative banks is attributable to its business for deduction under Section 80P(2)(a)(i).
Sections Cited
143(3), 80G, 143(2), 80P, 80P(2)(a)(i), 80P(2)(d), 56
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Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI
Jammanahally Prathamika Krishi Pattina Sahakara Sangha (the assessee/appellant) for the assessment year 2017-18 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 5.1.2024 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [the Act] dated 12.12.2019 was dismissed.
The assessee is aggrieved and in appeal before me. Only issue involved in this appeal is that the assessee has been denied deduction under section 80 P (2) (a) (i) of the act on account of the interest received from the cooperative banks which is attributable to the business of the assessee.
The registry has noted that the appeal is barred by 307 days. The appeal is filed on 1 February 2025 whereas the order of the learned CIT – A was issued and received by the assessee on 5 January 2024. The assessee has filed an affidavit and application for condonation of delay. It was stated that when the appellate order was passed the assessee approached its tax consultant for further course of action who has advised the appellant to approach the present counsel in Bangalore. Assessee approached the council in Bangalore and provided the details shortfall. The counsel drafted the appeal memo and send the soft copy by email on 19th of March 2024 to the tax consultant for signature of the appellant and for making payment of the appeal fees. The office of the tax practitioner Miss the mail due to the large volume of incoming mails and only upon an enquiry in the month of may 2025 from the appellant regarding the status of the appeal, the tax practitioner contacted the present counsel and was informed that the mail
was already sent on 19th of March 2024 and a second mail was also sent on 1 April 2024. The authorised signatory of the appellant made a payment of ₹ 10,000/– towards the appeal fee on 3 May 2024 however the appeal memo was not signed due to inadvertent is as the authorised signatory was the opinion that the tax practitioner will applaud the appeal online using his digital signature. Thus, there was a miscommunication between the tax practitioner and the appellant as the tax practitioner was of the opinion that the appellant will send the appeal papers directly to the counsel at Bangalore as per the instruction given in the mail and the needful would be done by the council at Bangalore. The incoming CEO of the assessee was not aware about the pending appeals to be filed before the ITAT. The managing committee enquired about the status of appeal in the last week of January 2025, and it was only then it was realised that the appeal was not filed despite making the payment is towards the appeal filing fees. The chief executive officer then signs the appeal papers, and which came to be filed on 1 February 2025 however the due date for filing of the appeal was 31st of March 2025 resulting in a delay of 307 days. It was the claim of the assessee is that that the delay in filing of the appeal is on account of inaction on the part of the tax counsel, therefore a lenient view may be taken. In the condonation of delay petition the assessee has relied upon the plethora of judicial precedents.
The learned authorised representative reiterated the same facts stated above as well as referred to the affidavit filed and submitted that delay deserves to be condoned as it is for bona fide reasons and not on account of any negligence.
The learned standing counsel for the Department advocate Shri Ganesh R Ghale vehemently objected to the same and stated that the delay is not shown on account of any sufficient cause and therefore it cannot be condoned. He further relied upon the decision of the honourable Supreme Court in case of Pathapati Subba Reddy (Died) by L. Rs. v. Special Deputy Collector (LA), reported in MANU/SC/0285/2024 : 2024:INSC:286,
6. the fact is required to be noted that the there are two appeals on the same subject matter for the same assessment year filed by the assessee in as well as ITA No. 341/Bangalore/2025. I do not have an intimation that filed by the assessee is also delayed. Therefore, as one of the appeals is in time on the same subject matter, for the same assessment year, the application for condonation of delay deserves to be considered in that facts. One of them is required to be treated as infructuous and to be dismissed.
7. I have carefully considered the rival contention and perused the reasons given before us showing the sufficient cause for filing appeal late. It is always a vexed question that what is sufficient
cause for which delay can be condoned in filing of the appeal. The honourable Supreme Court in Shivamma (Dead) by L.Rs. Vs. Karnataka Housing Board and Ors. Equivalent/Neutral Citation: 2025 (4) C C C 75, 2025 INSC 1104 has laid down certain principles for condonation of delay that 212. The law as it presently stands, post the decision of Postmaster General (supra), is unambiguous and clear. Condonation of delay is to remain an exception, not the rule. Governmental litigants, no less than private parties, must demonstrate bona fide, sufficient, and cogent cause for delay. Absent such justification, delay cannot be condoned merely on the ground of the identity of the applicant. [Shivamma (Dead) by L.Rs. vs. Karnataka Housing Board and Ors. (12.09.2025 - SC): MANU/SC/1262/2025]
8. On the basis of the above principle, I find that there is a delay of 307 days in filing of the appeal by the assessee which is for the sufficient cause and therefore I condone the delay and admit the appeal of the assessee.
Brief facts of the case shows that the assessee is a co-operative society registered under the Karnataka cooperative societies act, 1959 filed its return of income for the assessment year 2017 – 18 on 1 October 2017 declaring a total taxable income at rupees Nil after claiming deduction under section 80 G of the act. The case of the assessee was selected for scrutiny by way of issuance of notice under section 143 (2) of the act on 14 August 2018 and thereafter an assessment order under section 143 (3) of the act was passed on 12/12/2019 where the income of the assessee was assessed at ₹ 3,467,991/– disallowing the deduction claimed under section 80 P of the act. The learned assessing officer held as under:-
"7.2. The assessee is engaged in carrying on the business of banking or providing credit facility to its members. However, it is to be noted that the assessee has declared total loss of Rs. 1,90,280/- from its business activities and income from other sources of Rs. 36,58,271/-. After setting off of business loss of Rs. 1,90,280/-, the assessee has declared income of Rs. 34,67,991/- in the return of income.
7.3. Section 80P(2)(a)(i) provides deduction of the whole of the amount of profits and gains of business attributable to such activities of the societies. In the instant case, the assessee has declared business loss of Rs. 1,90,280/- from providing credit facility to its members. In view of this, the assessee does not qualify to claim the deduction u/s. 80P(2)(a)(i) of the I T Act., as the assessee has incurred business loss during the year.
8. Further, as per the income and expenditure statement submitted, the assessee has declared income on deposits of Rs. 36,58,271/-. Hence, it is evident that the assessee is having
interest income, which has to be considered under the head income from other sources. It has been held by the Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society (2017) reported in 395 ITR 611 (KAR) in which it is held that interest earned by the assessee from surplus deposits kept with a cooperative bank is not eligible for deduction u/s 80P(2)(d). The Court held that Section 80P(2)(d) allows interest or dividend earned by an assessee out of the investments with any other co-operative society and not co-operative bank to be exempt.
10. The learned CIT – A has confirmed the disallowance for one reason that the assessee did not appear before the learned CIT A despite given many opportunities for the hearing, holding as under :-
"DECISION:
As per the income and expenditure statement submitted, the assesse has declared income on deposits of Rs. 36,58,271/-. Hence, it is evident that the assesse is having interest income, which has to be considered under the head income from other sources. It has been held by the Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society (2017) reported in 395 ITR 611 (KAR) in which it is held that interest or dividend earned by an assesse out of the investments with any other co-operative society and not co-operative bank to be exempt. The court also observed as under:
“The income by way of interest earned by deposit or investment of idle or surplus fund does not change its character irrespective of the fact whether such income of interest is earned from a scheduled bank or a co-operative bank and thus clause d of section 80P(2) of the act would not apply in the facts and circumstances of the present case. The person or body corporate from which interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible or deduction under section 80P of the Act, as held by the Hon’ble Supreme Court.”
In view of this, the assesse does not qualify to claim the deduction u/s 80P(2)(d) of the IT Act. also."
11. The learned authorised representative and the learned departmental representative were heard.
We have carefully considered the rival contention and perused the orders of the learned lower authorities. I find that the assessee is a member's credit cooperative society who has earned interest from the cooperative societies which was forming part of the business income arising to the assessee from the activities of the business was claimed as deduction under section 80 P (2) (a) (i) of the act. I have carefully considered the decision of the learned assessing officer I do not find any reason that why the interest income should not be considered as business income of the assessee. Merely because the assessee has received interest income from cooperative societies it cannot be said that such income should always be taxed under the head income from other sources only. The stand of the assessing officer is that such interest income is income from other sources, not income from business, therefore, not eligible for deduction under section 80 P (2) (d) of the act. Claim of the assessee is that such interest income is attributable to the business of the assessee of borrowing and lending with members and therefore it is eligible for deduction u/s 80 P (2) (a) (i) of the Act.
We find that the decision of the honourable Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer Word-V, Tumkur [2015] 55 taxmann.com 447 (Karnataka)/[2015] 230 Taxman 309 (Karnataka)[28-10-2014] has categorically discussed this issue and held that assessee is eligible for deduction under section 80 P (2) (a) (i) of the act as under:-
From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short-term deposits and from savings bank account. The assessee is a Cooperative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i): "Deduction in respect of income of co-operative societies: 80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to xx xx xx (vii) the whole of the amount of profits and gains of business attributable to any one or more of such activities."
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. 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 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:
In the above decision it is held that if the interest income is attributable to the business of the assessee cooperative societies, deduction u/s 80 P (2) (a) (i) of The Act cannot be denied to the assessee. Further the decision of the honourable Supreme Court was also considered in paragraph no 9 of the decision.
In Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/ [2017] 392 ITR 74 (Karnataka) [05-01-2017] it is held that:
7. However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Co- operative Bank should be considered as a Co-operative Society or not?
For, if a Co-operative Bank is considered to be a Co-operative Society, then any interest earned by the Co-operative Society from a Co- operative Bank would necessarily be deductible under Section 80P(1) of the Act.
The issue whether a Co-operative Bank is considered to be a Co- operative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover, the word "Co- operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co-operative Societies. Co-Operative Society can be of different nature, and can be involved in different activities; the Co- operative Society Bank is merely a variety of the Co- operative Societies. Thus the Co-operative Bank which is a species of the genus would necessarily be covered by the word "Co- operative Society".
9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-Operative Society bank as the meaning of Co-Operative Society. Therefore, a Co- operative Society Bank would be included in the words 'Co- operative Society'.
Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co- operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.
The learned counsel has relied on the case of Totgars Co- operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.
12. For the reasons stated above, this Court does not find any merit in the present appeal. Hence, the appeal is dismissed.
Further in 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] the honourable High court was also drawn attention to both the above decisions and in Para no 19 it held as under: - "19. In our opinion, it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co-operative Bank. Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court."
Thus, all the three decisions of the honourable Karnataka High court considered the decision of Totgars, Co-operative Sale Society Ltd. vs. Income-tax Officer, Karnataka [2010] 188 Taxman 282 (SC)/ [2010] 322 ITR 283 (SC)/ [2010] 229 CTR 209 (SC) [08-02-2010]. All the above three decisions are on the issue of deduction u/s 80 P of the Act in respect to interest income earned by the assessee from cooperative societies either u/s 80 P (2) (a) (i) or 80 P (2) (d) of The Act. Before us, the claim of the assessee is not u/s 80P (2) (d) of the Act but 80P (2) (a) (i) of the Act. In this case there are three decisions of the Honourable High court, which cannot stand together, present an issue before us and that in such circumstances the correct thing is to follow that judgment which appears t to state the law accurately or nearer to facts before us.
We find that the issue before us the facts of the case are more nearer to the decision of the Honourable Karnataka High court in case of Tumkur Merchants [ supra] and Decision of Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/[2017] 392 ITR 74 (Karnataka)[05-01-2017] as those decision deals with deduction u/s 80 P (2) (a) (i) of the Act.
In the case of the Decision of Honourable Supreme court of Mavilayi Service Co-operative Bank Ltd. vs. Commissioner of Income Tax, Calicut [2021] 123 taxmann.com 161 (SC)/[2021] 279 Taxman 75 (SC)/[2021] 431 ITR 1 (SC)[12-01-2021] has also held that Section 80P being a beneficial provision must be construed with the object of furthering the co-operative movement generally.
In view of above facts , respectfully following the decision of the honourable High Court Tumkur Merchants [ supra] and Decision of Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/[2017] 392 ITR 74 (Karnataka)[05-01-2017] I direct the learned assessing officer to allow the deduction to the assessee of the interest earned by the assessee from cooperative societies of ₹ 34,67,991/- under section 80 P (2) (a) (i) of the income tax act 1961, I reverse the orders of the learned lower authorities. filed by the assessee is allowed.
vide letter dated 4 June 2025, the assessee has submitted that filed by the assessee is a duplicate appeal of and therefore is treated as infructuous and dismissed.
Pronounced in the open court on this 22nd day of December 2025.