PERURCHETTIPALAYAM PACCS,COIMBATORE vs. ITO, NCW-4(2), COIMBATORE
Facts
The assessee, a Primary Agricultural Co-operative Credit Society (PACCS), claimed deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961, for interest income earned from investments made with the Coimbatore District Central Co-operative Bank (CDCCB). The Assessing Officer and the CIT(A) disallowed the claim, treating the income as 'income from other sources' under Section 56, relying on the Supreme Court's decision in Totgars Co-op. Sale Society Ltd.
Held
The Tribunal, relying on decisions of the Hon'ble Madras High Court, held that interest income earned by a Co-operative Society from investments made with another Co-operative Society, including a District Central Co-operative Bank, is eligible for deduction under Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income Tax Act. The High Court had clarified that a Cooperative Bank does not cease to be a Cooperative Society for the purpose of these deductions, despite engaging in banking activities with the general public.
Key Issues
Whether interest income earned by a Primary Agricultural Co-operative Credit Society from investments in a District Central Co-operative Bank is eligible for deduction under Section 80P(2)(a)(i) or 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 56
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI INTURI RAMA RAO
आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of
the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter
referred to as “the Ld.CIT(A)”), Delhi, dated 24.09.2025 for the
Assessment Year (hereinafter referred to as "AY”) 2016-17, 2017-18,
2018-19 & 2020-21 respectively. Both the parties agreed that the sole
issue permeating in all the four appeals are that whether Interest on
Investments made with Coimbatore District Central Co-op. Bank (CDCCB)
is eligible to be claimed under Section 80P(2)(a)(i)/80P(2)(d) of the
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Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘)? The following
table gives summary of total interest earned from CDCCB during each
relevant year:
Perurchettipalayam PACCS ITA No. AY AO CIT(A) CDCCB Interest 3220/2025 2016-17 80P(2)(a)(i) 80P(2)(a)(i) 1,04,62,723/- & 80P(2)(d) 3221/2025 2017-18 80P(2)(a)(i) 80P(2)(a)(i) 1,07,33,046/- & 80P(2)(d) 3222/2025 2018-19 80P(2)(a)(i) 80P(2)(a)(i) 3,09,28,774/- & 80P(2)(d) 3223/2025 2020-21 80P(2)(a)(i) & 80P(2)(a)(i) 16,67,082/- 80P(2)(d) & 80P(2)(d)
For adjudicating the only issue permeating in all appeals, the appeal
for AY 2016-17 is taken as the lead case, decision of which will be
followed for all the other assessment years. Brief facts for AY 2016-17, is
that the assessee is a Primary Agricultural Co-op. Credit Society (PACCS)
and filed its return of income (RoI) for AY 2016-17 on 29.03.2018
admitting ‘Nil’ income and claiming deduction, inter alia, u/s.80P(2)(a)(i)
of the Act, interest income from investment in CDCCB of ₹1,04,62,723/-.
However, the AO didn’t agree. He was of the view that the said amount
[₹1,04,62,723/-] was earned by the assessee 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
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decision of the Hon’ble Supreme Court in the case of Totgars Co-op. Sale
Society Ltd. v. ITO, Karnataka reported in [2010] 322 ITR 283 (SC) and
the AO disallowed the claim of deduction u/s.80P of the Act and
separately assessed the same u/s.56 of the Act i.e. “income from other
sources”. Aggrieved, the assessee preferred an appeal before the
Ld.CIT(A) who confirmed the view of the AO that the deduction is neither
allowable u/s.80P(2)(a)(i) of the Act nor u/s.80P(2)(d) of the Act.
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available
on record. The assessee is noted to be a Primary Agricultural Co-op.
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
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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.
In the result, the Tax Case Appeal is dismissed. No costs." [Emphasis is mine]
Further, the Ld.AR also brought to our notice the decision of the
Hon'ble Madras High Court, in Thorapadi Urban Co-op. Credit Society Ltd.
v. ITO [2024] 296 Taxman 250 (Madras), wherein it was held that
interest earned out of Investments made with CDCCB is eligible for
deduction under Section 80P(2)(d) also, [refer, copy attached in Paper-
Book Page Nos.23 to 26]. In that case, the Hon'ble High Court was
concerned with 'whether interest earned from a Cooperative Bank by the
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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
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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).
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
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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:
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.
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
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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.
In support of his contentions, he referred to a judgment of the Hon'ble Supreme Court in "The Totagars Cooperative Sale Society -Vs- Income Tax Officer, Karnataka" reported in [2010] 188 Taxman 282 SC.
In reply, the learned counsel for the petitioner submitted that the law laid down by the Hon'ble Supreme Court in the above said judgment is pertaining to the interpretation and the deduction which would be applicable under Section 80P(2)(a)(i), where it was held, the Co-operative Bank is eligible for deduction if any interest income is received from its own members by providing credit facilities. Therefore, even the said judgment is taken into consideration in the present case, the income was received by the Co- operative Society only and not from the Co-operative Bank, hence the petitioner is eligible for the deduction.
I have given due consideration for the submission made by the learned counsel appearing for the petitioner as well as the respondent.
The main issue is to decide in the present case is as to whether the petitioner Co-operative Society is entitled for a deduction for the interest income received from the Co-operative Bank?
It would be appropriate to extract hereunder the relevant portion of Section 80P(2)(d):
"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
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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.
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.
The learned counsel for the respondent referred to the judgment of the Hon'ble Supreme Court rendered in Totgars Co-operative Sale Society Ltd., v. Income-tax Officer, Karnataka", wherein the issue came up for consideration as to whether the interest income received by a Co-operative Bank from its members by way of providing the credit facilities to its members is eligible for deduction or not. Ultimately the Hon'ble Supreme Court found that under Section 80P(2)(a)(i), the same is eligible for deduction. Therefore, the law laid down by the Hon'ble Supreme Court is not applicable for in the present case as the eligibility of deduction of interest has to be decided under Section 80P(2)(d) and not under Section 80P(2)(a)(i). The learned counsel has also relied upon other judgments which are not applicable for the present facts of the present case.
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
ITA Nos.3220 to 3222 & 3223/Chny/2025 (AYs 2016-17 to 2018-19 & 2020-21) Perurchettipalayam PACCS :: 10 :: 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. 7. In the result, appeals filed by the assessee are allowed.
Order pronounced on the 13th day of March, 2026, in Chennai.
Sd/- Sd/- (इंटूरी रामा राव) (एबी टी. वक�) (INTURI RAMA RAO) (ABY T. VARKEY) लेखा सद�/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 13th March, 2026. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड$फाईल/GF
TUMMALACH Digitally signed by ARLA TUMMALACHARLA LAKSHMI NARAYANA LAKSHMI Date: 2026.03.16 12:05:05 +05'30' NARAYANA
