PERURCHETTIPALAYAM PACCS,COIMBATORE vs. ITO, NCW-4(2), COIMBATORE

Aggrieved, the assessee is in appeal before this Tribunal.

Credit Society (PACCS), filed its return of income (RoI) for AY 2016-17 on 29.03.2018 admitting ‘Nil’ income, by claiming deduction, inter alia, u/s.80P(2)(a)(i) of the Act, on its interest income from investment in CDCCB of ₹1,04,62,723/-. The AO didn’t accept the claim of deduction, and was of the view that the said amount [₹1,04,62,723/-] earned by way of interest from Co-operative Bank is in the nature of “income from other sources” [not arising from the business operations], so chargeable u/s.56 of the Act and hence, ineligible for deduction u/s.80P of the Act by relying on the decision of the Hon’ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd, which action has been confirmed by Ld CIT(A). However, we don’t countenance the action of the lower authorities for the reasons given infra. The Ld.AR of the assessee to 3222 & 3223/Chny/2025 (AYs 2016-17 to 2018-19 & 2020-21) Perurchettipalayam PACCS submitted that interest earned out of Investments made with CDCCB is eligible for deduction under Section 80P(2)(a)(i) of the Act, as held by the Hon'ble Madras High Court, being Jurisdictional High Court in the case of Commissioner of Income Tax, Salem v. The Salem Agricultural Producers Cooperative Marketing Society Limited [TCA No.5 of 2015 dated 10/08/2016], copy attached in Paper-Book Page Nos.17 to 22. In that case, the Hon'ble High Court, while deciding Substantial Question of Law No.4, following other decisions, held, in Para Nos.9 & 10, as under:-

"9. Though Mr. J Narayanasamy, Learned Senior Standing Counsel for Income Tax Department submitted that the Tribunal was not right in holding that the interest earned from the Salem Agricultural Producers Cooperative Marketing Society Limited for reduction under Section 80P(2)(a)(i) of the Income Tax Act, we are not inclined to accept the said contention. For the reason that a District Central Co-operative Bank, is also a society, in which event, the income by way of interest and dividend earned by the assessee/respondent society from the investments made in Salem District Central Cooperative Bank, which is also a cooperative society is entitled for deduction under Section 80P(2)(a)(i) of the Income Tax Act. Decision relied on by the assessee and considered by the Tribunal squarely applies to the facts on hand. Question of law, figuring as 4 is negative against the appellant.

Assessee Cooperative Society was eligible for deduction under Section 80P(2)(d) of the Act. The Department is noted to have taken the plea (as taken by AO in the present case) before the High Court, which submission has been taken note by High Court at Para No.4 of the order that Cooperative Banks are granted license by the Reserve Bank of India to carry out business activity of banking not only from its members, but also from general public, so such Cooperative Society on becoming Cooperative Bank, loses its character as a Cooperative Society and hence, interest income from such Bank/Society are not eligible for deduction under Section 80P(2)(d) of the Act. On considering this specific argument of the Department, the Hon’ble High Court having discussed the definition of 'Cooperative Society' as per Section 2(19) of Tamil Nadu Coop Societies Act, 1983 held, in Para No.9.1 & 10 that the deduction is to be allowed under Section 80P(2)(d), as definition of 'Cooperative Society' refers only to a Cooperative Society registered under that Act, be it a Cooperative Society carrying on banking business or other business or a Cooperative Bank. Such being the judicial precedent, merely because a Cooperative Society becomes a Cooperative Bank, it doesn’t cease to be a Cooperative Society as defined under the Tamil Nadu Cooperative Societies Act, which definition is relevant to be looked into, while determining the character of CDCCB. Hence, he pleaded to allow the claim of deduction under Section 80P(2)(d) of the Act on the interest income to 3222 & 3223/Chny/2025 (AYs 2016-17 to 2018-19 & 2020-21) Perurchettipalayam PACCS earned from CDCCB. Per Contra, the Ld DR supported the action of Ld CIT(A) and doesn’t want us to interfere with the impugned action of Ld CIT(A).

5. In the light of the submissions and materials placed before us, we note that the assessee has claimed deduction u/s.80P of the Act to the tune of ₹1,04,62,723/-, which was disallowed by the AO on the ground that it was not business income, but was ‘interest income’ earned from the Central Co-operative Bank. Hence, he treated it as ‘other income’ u/s.56 of the Act and denied claim of deduction u/s 80P of the Act. On appeal, the Ld.CIT(A) is noted to have concurred with the view of the AO and held that deduction is neither available u/s.80P(2)(a)(i) of the Act nor u/s.80P(2)(d) of the Act. Before us, the assertion of the Ld.AR is that assessee is entitled for 80P deduction on the interest income received from Central Co-operative Bank u/s.80P(2)(a)(i) of the Act as well as u/s.80P(2)(d) of the Act. We find that the issue raised before us is no longer res-integra as held by the Hon’ble Jurisdictional High Court in the case of Thorapadi Urban Co-op. Credit Society Ltd. (supra) wherein the main issue was “Whether the petitioner Co-operative Society is entitled for a deduction for the interest income received from the Co-operative Bank?” The Hon’ble High Court is noted to have considered the specific plea of Revenue (as taken by AO/CIT(A) in the present case) before the High Court, (which submission has been taken note by High Court at Para to 3222 & 3223/Chny/2025 (AYs 2016-17 to 2018-19 & 2020-21) Perurchettipalayam PACCS :: 7 ::

No.4 of the judgement) that Cooperative Banks are granted license by the Reserve Bank of India to carry out business activity of banking not only from its members, but also from general public, so such Cooperative Society on becoming Cooperative Bank, loses its character as a Cooperative Society and hence, interest income from such Bank/Society are not eligible for deduction under Section 80P(2)(d) of the Act; and the Revenue also relied on the decision of the Hon’ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd. (supra) for denying the claim of deduction u/s.80P(2)(d) of the Act. The Hon’ble High Court is noted to have considered these specific pleas of Revenue, and has repelled the same by observing as under:

2. The present writ petitioners challenged the impugned notices issued under Section 148 A(b) for reopening the assessment made u/s.148 of the Income Tax Act, 1961 (in short, 'the Act'). The central issue that arise in the present case is as to whether the petitioners are entitled for deduction under Section 80P(2)(d) of the Act. The petitioners submitted that they have made investments with the Co-operative Bank from which, they received interest and therefore they are entitled to claim deduction under section 80P(2)(d). However, the respondent in the impugned notices, has stated that the petitioners / Society are not entitled for deduction holding that the deduction available in the above provision is only for the income and interest received from the Co-operative Society and not from the Co-operative Bank.

3. The learned counsel appearing for the petitioner submitted that any interest received from any Co-operative Society including the Co-operative Bank are en-titled for the deduction under Section 80P(2)(d). In this regard, he referred to the definition to the "Co-operative Societies" as defined under Section 2(19) of the Act and would submit that without taking into consideration of meaning of Co-operative Societies under the wrong impression that the interest received from the Co-operative Bank is not liable for deduction un-der Section 80P(2)(d), the respondent Department disallowed the deduction and therefore the present writ petitions have been filed challenging the impugned orders.

4.Per contra, Dr.B.Ramaswamy, learned Senior Central Government Standing Counsel, vehemently opposed and referring to the written submissions submitted by him in paragraphs 21 to 26, would state that the petitioner received the income from the Co-operative Bank and as per the provisions of the Income Tax Act any income received from the Co-operative Bank is not to 3222 & 3223/Chny/2025 (AYs 2016-17 to 2018-19 & 2020-21) Perurchettipalayam PACCS eligible for deduction under Section 80P(2)(d) of the Act. Further, he contended that the Reserve Bank of India also granted permission to carry on the business of banking activities with the entity wherein a Co-operative Society made an investment and to receive the interest from the in-vestment since the RBI had granted the Banking license to the Co-operative Banks. Thus, according to the respondent, the Co-operative Bank lost the status as an entity of Co-operative Society as it would provide the services not only for the members of a Co-operative society but to other general public as well. So taking into consideration of this aspect, the Assessing Officer passed the impugned notices, stating that any interest amount received from the investment made in a Co-operative Bank by a Co-operative Society, is not entitled for deduction under Section 80P(2)(d) of the Act.

7. I have given due consideration for the submission made by the learned counsel appearing for the petitioner as well as the respondent.

"80 P. Deduction in respect of income of co- operative societies: (1)** (2) The sums referred to in sub-section (1) shall be the following, namely:— (a) to (c)** ..... ......

(d) "in respect of any income by way of interest or dividends derived by the co-operative society from its investment with any other co- operative society, the whole of such income"

9.1 A reading of the above said provision makes it clear that in the event if any Co-operative Society derived income by way of interest from investment made to 3222 & 3223/Chny/2025 (AYs 2016-17 to 2018-19 & 2020-21) Perurchettipalayam PACCS in any other Co-operative Society the whole such interest is eligible for deduction. Now the issue is as to whether the Co-operative Bank would fall within the purview of the term 'Co-operative Society'. In the present case, the petitioner produced a document to show that the Co-operative Bank, where they have made investments was registered under the Tamil Nadu Co- operative Societies Act, 1983 on 20.5.2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co-operative Bank. Therefore, it is clear that the in-vestment made by the petitioner is a Co- operative Bank registered under the Co-operative Societies Act. The Income Tax Act, 1961 has also defined 'Co-operative Society' under Section 2(19) as follows:

"2(19). "Co-operative society" means a co-operative society registered under the Co- operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co- operative societies.

10. A reading of the above definition would make it clear that 'Co-operative Society' means a Co-operative Society registered under Co-operative Societies Act, 1912. Thus, a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.

6. Then, the Hon’ble High Court is noted to have allowed the claim of deduction on the interest income received from the Co-operative Bank inter alia made u/s.80P(2)(d) of the Act in the case of Thorapadi Urban Co-op. Credit Society Ltd (supra). Since the reasons cited by the AO/CIT(A), in the present cases to deny the claim of deduction on the interest income received from the Co-operative Bank [Coimbatore District Central Co-op. Bank] inter alia made u/s u/s.80P(2)(d) of the Act, have been addressed by the Hon’ble High Court in the case of Thorapadi Urban to 3222 & 3223/Chny/2025 (AYs 2016-17 to 2018-19 & 2020-21) Perurchettipalayam PACCS Co-op. Credit Society Ltd (supra), and other judicial precedence cited supra, we allow the appeal of the assessee and direct the AO to allow deduction of ₹1,04,62,723/- for AY 2016-17 and similarly for all other assessment years.

Order pronounced on the 13th day of March, 2026, in Chennai.