SHREE JAGADGURU MOUNESHWAR PATTIN SAHAKARI SANGH NIYAMIT KERUR,BAGALKOT vs. INCOME TAX OFFICER, WARD-1, BAGALKOT

PER PRASHANT MAHARISHI, Vice President:

CASS for the reason “High liabilities/low income in-comparison to high loans/advances/investments and to verify the deduction u/s chapter VI-A.”
The assessee was questioned that assessee has earned interest from cooperative societies and which is not eligible for deduction u/s 80P as claimed.
4. Assessee submitted that that interest of Rs.7,25,971/- on deposits with Co-operative Banks and Interest on reserve fund deposits to the tune of Rs.1,90,331/- was received during the year under consideration. As regards deduction u/s 80P of the I.T. Act 1961, the assessee society has quoted various case laws as under:- “Deduction claimed U/s. 80P(2)(a)(i) as per the Case Laws The ITAT Bangalore Benches-A Order Dated 26-08-
2019 ITAT No.707/Bang/2019/A.Y.2016-17 of M/s. Kodavoor Vyavasaya
Seva Sahakari Sangha Niyamiyha, Kodavoor, Udupi and Other V/s. ITO
Ward-1 and TPS Udupi and others and (Kar-HC) 2015 ITL 152 (2015) 230
Taxman 309 Tumkur Merchants Souharda Credit Co-operative Ltd V/s
Income-Tax Officer Ward-V, Tumkur and it is eligible for deduction.
5. The ld AO held that With regard to submission of the assessee that the co- operative banks are also cooperative societies and therefore interest earned therefrom is eligible for deduction u/s 80P(2)(d) of the I.T.Act,
1961 placing reliance is placed on the decision of the Hon’ble Karnataka
High Court in the case of the Pr. Commissioner Of Income-tax vs. The Totagars Co- Operative Sale Society delivered on 16th June 2017. He further held that t is also pertinent to note that vide finance act 2006, deduction from income of co-operative bank u/s 80P has been withdrawn.
In the Memorandum explaining the Provisions of the Finance Bill 2006, for insertion of Sub-section (4) restricting the deduction for Co-operative banks, following explanation has been given (281 ITR 178). Therefore the ld AO held that n view of the above discussion, it is clear that co-operative banks are commercial banks and does not fall under the purview of a “Co- operative Society” referred in section 80P(2)(d) of the Income tax Act, The assessee society has claimed interest of Rs.7,25,971/- on deposits with Co-operative Banks and Interest on reserve fund deposits to the tune of Page 3 of 10

Rs.1,90,331/- . The said interest income of Rs.9,16,302/- earned from cooperative banks cannot be treated in nature of profit and gains and is treated as income from other sources. Therefore, the interest income of Rs.9,16,302/- earned from co-operative bank is treated as income from other sources u/s 56 of the I.T. Act, 1961 and deduction claimed u/s 80P(2)(d) of the I.T. Act, 1961 is being disallowed. Assessment order u/s 143(3) read with section 144B of the Income tax Act was passed on 20/09/2022. 6. The assessee preferred an appeal before the learned CIT – A unsuccessfully wherein after considering the submissions of the assessee he relying on the decision of the honourable Karnataka High Court in case of principal Commissioner of income tax versus Totgars sales cooperative society (2017) 83 taxmann.com 140 has decided the issue against the assessee holding that assessee is not eligible for deduction under section 80 P (2) (a) (i) or alternatively under section 80 P (2) (d) of the act. Thus, the assessee is in appeal before us.
7. The learned authorised representative vehemently supported the claim of the assessee in the return of income and stated that assessee is entitled to deduction under section 80 P (2) (a) (i) of the act as the interest income received from the cooperative banks is business income of the assessee. He further submitted that there is no finding in the assessment order that such interest income is income from other sources. He submits that the case of the assessee squarely covered by the decision of the honourable Karnataka High Court by two decisions which have already considered the decision of the honourable Supreme Court which is relied upon by the learned assessing officer. Therefore, the assessee should be allowed the deduction.
8. The learned departmental representative advocate Mr Ghale , vehemently supported the decision of the learned lower authorities and submitted that the issue is squarely covered by the decision of the honourable Karnataka
High Court in case of Totgars credit cooperative societies wherein the honourable High Court after considering the decision of the honourable

Page 4 of 10

Supreme Court has categorically held that interest income earned by the assessee from the cooperative banks is income from other sources and not business income and therefore the income earned by the assessee from interest from cooperative societies are not allowable as deduction under section 80 P of the act in any of the clauses. He further stated that the recent decision of the honourable Karnataka High Court has also followed the decision of the Totagar credit cooperative societies and therefore the issue is squarely covered in favour of the revenue.
9. We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that the assessee is a member's credit cooperative society who has earned interest from the bank to the tune of ₹ 28 lakhs 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. We have carefully considered the decision of the learned assessing officer we 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.
10. 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:-

Page 5 of 10

Page 6 of 10

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 Page 7 of 10

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:

Page 8 of 10

Page 9 of 10

Bangalore, Dated: 15/12/2025
Dragon

Page 10 of 10

Copy of the Order forwarded to:

The Appellant, The Respondent, The CIT, The DR ITAT & Guard File

BY ORDER,//

Sr. Private Secretary/ Asst.