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Facts
The assessee, a cooperative society, claimed deduction under section 80P(2)(a)(i) for income from locker rent and interest on deposits. The Assessing Officer and CIT(A) disallowed the claim.
Held
The Tribunal held that income from locker rent is eligible for deduction under section 80P(2)(a)(i). The issue of interest income from deposits was restored to the AO for verification as to whether deposits were statutory or operational.
Key Issues
Whether income from locker rent and interest on deposits earned by a cooperative society is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act.
Sections Cited
80P(2)(a)(i), 57
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 27/02/2025 in DIN No. ITBA/NFAC/S/250/ 2024-25/1073768391(1) for the assessment year 2014-15.
The issue raised by the assessee is that the ld. CIT(A) erred in denying the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act with respect to the income from locker rent and interest on deposits with cooperative/nationalized bank.
2.1 The assessee is a cooperative society engaged in providing credit facilities to its members. The dispute in this case is about whether the income earned by the assessee from locker rent and interest on deposits made in cooperative/nationalized banks is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act.
2.2 During the assessment proceedings, the Assessing Officer disallowed the claim of deduction made by the assessee under section 80P(2)(a)(i) of the Act on the ground that the said income was not eligible for such deduction. The learned CIT(A) upheld the disallowance made by the AO.
Before us, the learned Authorized Representative (AR) submitted that the interest earned on deposits placed with cooperative and nationalized banks was made in compliance with the Karnataka Cooperative Societies Act. Therefore, it was operational in nature and eligible for deduction. In support, reliance was placed on the Hon’ble Supreme Court's decision in the case of Karnataka State Cooperative Apex Bank reported in 251 ITR 194, where it was held that interest on such deposits made as part of statutory obligation or to maintain liquidity was deductible under section 80P(2)(a)(i) of the Act.
3.1 With regard to locker rent, the learned AR submitted that it formed part of the regular banking and financial activity of the society and hence qualifies as income from providing credit facilities to members. The ld. AR relied on the decision of the ITAT Cochin Bench in . the case of M/s Palakkad Services Cooperative Society in & 31/Coch/2022, wherein similar income was held to be eligible for deduction under section 80P(2)(a)(i) of the Act.
The learned Departmental Representative (DR), on the other hand, argued that not all deposits are compulsory in nature, and hence interest earned on such deposits does not qualify for deduction. Regarding locker rent, it was submitted that the Cochin Tribunal’s decision is based on the bye-laws applicable in Kerala and may not automatically apply in Karnataka without further verification. The ld. DR vehemently supported the order of the lower authorities.
We have heard both sides and considered the materials on record. The Hon’ble Supreme Court in the case of Karnataka Apex Co- operative Bank (251 ITR 194) has held that interest earned from deposits made as a statutory requirement or for maintaining liquidity by cooperative society is eligible for deduction under section 80P(2)(a)(i) of the Act. In light of this binding judgment, we are of the view that the issue of interest income from such deposits should be restored to the file of the AO for verification—specifically to check whether the deposits were made as a statutory requirement or were operational in nature. If the interest income is operational in nature being to comply statutory compliance, then the same will be allowed as deduction under section 80P(2)(a)(i) of the Act. It is also clarified that the interest income not eligible for deduction under section 80P(2)(a)(i) of the Act will be subject to the deduction under section 57 of the Act.
5.1 Regarding the locker rent, we find merit in the submission of the learned AR. The activity of offering locker services is part of regular banking operations. The Cochin Bench of the ITAT in the case of M/s Palakkad Services Cooperative Society (supra) has held such income to be eligible for deduction under section 80P(2)(a)(i) of the Act. Since the department has not brought any contrary binding judgment on record, we hold that locker rent is allowable as deduction under section 80P(2)(a)(i) of the Act. Therefore, the issue of interest income on deposits is restored to the file of the AO to verify whether such deposits were compulsory or operational in nature. The AO shall examine the nature of these deposits and decide the issue as per law after providing an opportunity to the assessee. The issue of locker rent is decided in favour of the assessee, and the deduction under section 80P(2)(a)(i) is allowed for the same.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in court on 25th day of June, 2025