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Facts
The assessee, a co-operative housing society, filed a Nil return for AY 2016-17. The AO disallowed a deduction of Rs. 31,41,854/- claimed on interest income earned from a co-operative bank, citing Section 80P(4). The CIT(A) partly allowed the appeal, confirming the net income.
Held
The Tribunal held that the assessee, being a co-operative society, is entitled to deduction under Section 80P(2)(d) on interest income earned from another co-operative society. The Supreme Court judgments support this view.
Key Issues
Whether interest income earned by a co-operative society from deposits in another co-operative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act.
Sections Cited
250, 143(1), 143(2), 142(1), 80P, 80P(4), 80P(2)(a)(i), 80P(2)(d), 234B
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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 29/07/2024 in respect of the A.Y. 2016-17 and raised the following grounds: “1. The order passed by the learned Commissioner of Income Tax (Appeals) – NFAC ("CIT(A)") under section 250 of the Act insofar as it is against the Appellant, is opposed to law, weight of evidence, natural justice and probabilities on the facts and circumstances of the Appellant's case.
2. The Appellant denies itself liable to be assessed at Rs. 31,41,854/-, pursuant to CIT(A) granting relief of Rs. 43,31,884/-, as against the returned income of NIL, on the facts and circumstances of the case.
3. The authorities below failed to appreciate that the funds maintained with the banks are corpus, for the purchase of lands to meet the objects of the appellant and the interest earned, would partake the character of corpus and not taxable as income, on the facts and circumstances of the case.
4. The authorities below failed to appreciate that the appellant could not utilise the corpus for any other purpose, other than for what it was collected and the interest earned is a direct consequence of the object of the appellant and consequently the interest earned was to be considered as business receipts and allowable as a deduction under section 8oP of the act, on the facts and circumstances of the case.
5. The learned CIT(A) was not justified in confirming the additions of the entire interest earned from Co-operative bank of Rs. 31,41,854/- as income from Other sources, on the facts and circumstances of the case.
6. The authorities below failed to appreciate that the interest income if reduced from the head of business, the result will be a loss and the same was required to be set off against other heads of income, on the facts and circumstances of the case.
7. The learned Assessing Officer was not justified in considering only the interest earned for computing the income under other sources and ought to have reduced the cost of funds from the expenditure to arrive at the true income from other sources, on the facts and circumstances of the case.
8. The learned CIT(A) was not justified in upholding the addition made under section 8013(2)(d) of the Act and when such interest income is treated as income from other sources and respective cost of fund expenses were to be deducted and not deducted, on the facts and circumstances of the case.
9. The Appellant denies the liability to pay interest under section 234B of the Act in view of the fact that there is no liability to additional tax as determined by the learned Assessing Officer on the facts and circumstances of the case. The Appellant craves to add, alter, modify, substitute, change and delete any or all of the grounds and to file a paper book at the time of hearing the appeal. In the view of the above and other grounds that may be urged at the time of the hearing of appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”
2. The brief facts of the case are that the assessee is a co-operative housing society registered under the provisions of the Karnataka Co- operative Societies Act. The assessee filed Nil return and the said return was processed u/s. 143(1) of the Act. Thereafter the case was selected for scrutiny under CASS to verify the large deduction from total income and low income in comparison to high loans / advances / investment in shares appearing in balance sheet. Notice u/s. 143(2) was issued and subsequently, notice u/s. 142(1) was issued. The assessee appeared and submitted the details and documents as sought for by the AO. The AO had alleged that the assessee had claimed deduction of Rs. 31,41,854/- being the interest income earned from the co-operative bank viz., Textile Co- operative Bank Ltd. The AO had disallowed the said claim of deduction on the ground that the section 80P(4) would be attracted in the present case and therefore claim u/s. 80P(2)(a)(i) or 80P(2)(d) would not be an allowable one. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and contended that the total income determined by the AO at Rs. 74,73,738/- as against the business income of Rs. 31,41,854/- is not correct since the AO had taken the gross interest income of Rs. 43,41,884/- and the net income of Rs. 31,41,854/- as the total income which is not correct. The assessee also contended that the interest income earned from the co-operative bank which is a co-operative society registered under the provisions of the Karnataka Co-operative Societies Act could also be entitled to deduction u/s. 80P(2)(a)(i) of the Act if the same is a business income or u/s. 80P(2)(d) of the Act if the same is an income from other sources. The Ld.CIT(A) had partly allowed the appeal by deleting the gross total income added by the AO and confirmed the net income of Rs. 31,41,854/- on the ground that the interest income was earned from co-operative banks and therefore would not be entitled for claim of deduction u/s. 80P of the Act.
As against the said order, the present appeal has been filed by the assessee before this Tribunal.
At the time of hearing, the assessee submitted that the assessee is a co-operative society and deposited its corpus funds collected from the members with the co-operative banks and earned interest out of the said deposits and therefore the co-operative banks being the co-operative societies, the said interest income is entitled for deduction u/s. 80P of the Act. The Ld.AR also submitted an alternate argument that since the corpus fund was deposited into the co-operative bank the interest accrued from the said deposits could be treated as capital in nature and therefore the same would not be subjected to tax as an income under the Act.
The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.
We have heard the arguments of both sides and perused the materials available on record.
Insofar as the first finding that the assessee is a co-operative housing society and therefore they are not entitled for deduction u/s. 80P of the Act is concerned, we do not find any merit in the said submission since the section 80P(1) says about the co-operative societies and the manner of computing the income of the said co-operative societies. Therefore the said finding of the AO is not correct.
The second argument made by the assessee is that the assessee society has invested the corpus funds in the co-operative bank viz., Textile Co-operative Bank Ltd. and therefore they are entitled for deduction u/s. 80P(2)(d) of the Act. We have considered the facts that the assessee is a co- operative society and the Textile Co-operative Bank Ltd. is also registered as a society under the Karnataka Co-operative Societies Act and therefore the claim made by the assessee that they are entitled for deduction u/s. 80P(2)(d) of the Act seems to be a valid one. The above said view is supported by the judgment of the Hon’ble Supreme Court reported in 431 ITR 1 in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT and in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB v. the Assessing Officer, Trivandrum and Ors. reported in (2023) 458 ITR 384 wherein the Hon’ble Supreme Court has held that the co-operative banks are necessarily a species of the co-operative society. Therefore the interest income earned from the said investments with the other co-operative societies are eligible for deduction u/s. 80P(2)(d) of the Act.
Even though this issue was considered by the Single Member Bench of this Tribunal in dated 25/07/2025 in the case of Shri Mahaveer Co-operative Credit Society Ltd. vs. ITO, we concurred with the said finding given by the Single Member Bench, since the said decision was taken by relying on the judgments of the Hon’ble Supreme Courts cited supra. Even though, the order of the Single Member Bench is available and the said order is not binding on the Division Bench, we are taking the principles laid down by the Single Member Bench since the said findings are given based on the judgments of the Hon’ble Supreme Court cited supra.
We, therefore of the view that the interest income earned by the assessee from the co-operative bank which is also a co-operative society registered under the Karnataka Co-operative Societies Act, are eligible for deduction u/s. 80P(2)(d) of the Act. We, therefore set aside the orders of the lower authorities and grant the benefit provided u/s. 80P(2)(d) of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 09th December, 2025.