SHRI. SHANTHISAGAR CO OP CREDIT SOCIETY LIMITED,HUBLI vs. INCOME TAX OFFICER, WARD-2(1), HUBLI

Court decision in case of CIT vs. Punjab State Co-op Agricultural Development Bank Ltd reported in 389 ITR 607 and ruling of Hon’ble Supreme Court in the case of Totagars Cooperative Sales Society reported in 322 ITR 283.

6.1 The AO also considered reliance placed by the assessee on the decision of Hon’ble Karnataka high court in the case of Tumkur Merchant Souharda Credit Cooperative Ltd reported in 230 taxman 309. The AO found the ratio of Hon’ble High Court in the case of Tumkur Merchant Souharda was in the context where assessee derived income from business or having capital which are not immediately required to be lent to the members and invested with the bank for short period to earn interest. Then such interest will qualify as income attributable to the banking business or providing credit facility to the members. Therefore, it was asked to the assessee to furnished details regarding whether the deposited with the SUCO Bank was for short period out of surplus fund not required immediately to lend in the absence of taker. However, the assessee failed to make reply. On the contrary the AO found that deposit with the said bank was in the nature of long-term investment. Hence the AO held that ratio of Tumkur Merchant Souharda Credit Cooperative Ltd (supra) is not applicable. Accordingly, the AO held that the assessee is not eligible for deduction under section 80P(2)(a)(i) or 80P(2)(d) of the Act on the interest amount of Rs. 47,692/- earned from deposit with the SUCO Bank. Further, the AO noted that the said interest amount of Rs. 47,689/- is 1.4% of gross receipt of the assessee for the year under consideration. Therefore, only proportionate amount shall be disallowed from the assessee claim of deduction under section 80P(2)(a)(i) of the Act of the Act. Hence the AO held that only 1.4% of deduction claimed . shall be disallowed i.e. Rs. 8,34,749/- * 1.4 = 11,686 was disallowed. But no separate addition was made for the reason that entire claim of Rs. 8,34,749/- under section 80P of the Act was disallowed and added to the total income of the assessee.

7. The aggrieved assessee preferred an appeal before the learned CIT(A).

Page 5 of 32 eligible for deduction under section 80P(2)(a)(i) of the Act. Reliance was placed on the decision of the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO.

11. Per contra, the learned DR supported the orders of the lower authorities and submitted that interest earned on deposits with banks represents income from investment of surplus funds and not income derived from providing credit facilities to members. It was contended that such income is assessable under the head “Income from other sources” and not eligible for deduction under section 80P(2)(a)(i), relying on the judgment of the Hon’ble Supreme Court in Totgars Co- operative Sales Society Ltd. v. ITO.

12. We have heard the rival contentions of both the parties and perused the materials available on record. The question before us whether the interest income earned from deposits or investment made with bank or cooperative bank by the cooperative society carrying on the business of banking or providing credit facilities to member shall be eligible for deduction under section 80P(2)(a)(i) of the Act.

12.1 Before dwelling into facts and arguments advanced by the both the parties, we find necessary to refer the relevant provisions of the section 80P of the Act which is extracted as under: “80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :— (a) in the case of a co-operative society engaged in— .

(i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities :”

12.2 On the combined reading of the provision of sub-section 1, clause (a) of sub-section 2 of the section 80P of the Act, it is transpired that an assessee being engaged in business of banking or providing credit facilities to the members shall be eligible for deduction of whole amounts of profit and gains of the business attributable to such business. Thus, question arises can the interest income earned from deposit and investment with the banks said to be attributable to carrying banking business or providing credit facility to the members.

12.3 The views of the Revenue are that such interest income from banks or cooperative banks cannot be said to be attributed to the carrying on banking business or providing credit facility as it is not arising from the members. Therefore, such income shall not be eligible for deduction under section 80P(2)(a)(i) of the Act. The views of the Revenue are largely based on the ruling of Hon’ble Supreme Court in the case of Totgars, Co-Operative Sales Society Ltd Vs. ITO in Civil Appeal Nos. 1622 to 1629 of 2010, dated 8th February 2010, reported in 322 ITR 283/ 188 Taxman 282.

12.4 Going through the above stated judgment of Hon’ble Supreme Court, we note the assessee i.e. Totgars, Co-Operative Sales Society Ltd at the relevant time (A.Y. 1991-92 to 1999-2000) was engaged in two activities viz marketing of agricultural produce of its members and providing credit facilities to them. The assessment for the A.Y. 1991-92 to 1994-95 and 1996-97 to 1999-2000 stood reopened under section 147 of the Act. During the relevant assessment years, the assessee i.e. Totgars, Co-Operative Sales Society Ltd has earned interest income from short term deposit with the bank and in the government securities. Before the AO, it was argued by the assessee that it had invested the funds on short-term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman. Therefore, such interest income was liable to be taxed under section 28 of the Act and not under section 56 of the Act, and, consequently, the assessee was entitled to deduction under section 80P(2)(a)(i) of the Act. This argument of the assessee was rejected by the AO by holding that the assessee-Society had invested the surplus funds as, and by way of, investment by an ordinary investor, hence, interest on such investment has got to be taxed under the head "Income from other sources". The finding of the AO was confirmed by the Tribunal as well by the Hon’ble Karnataka High Court. The dispute reached to the Hon’ble Supreme Court through the civil appeal filed by the assessee. The Bench of Hon’ble Supreme Court observed that the assessee markets the produce of its member and sale proceeds of the same which was liable to remitted to the member were sometimes retained by the assessee. The surplus fund created by such retention not immediately required for business purposes were invested in specified securities. The Hon’ble .

Page 8 of 32 Supreme Court in the given facts and circumstances decided the issue favouring the Revenue by observing as under: 10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i ) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of "Income from other sources", hence, such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain incomes". The headnote to section 80P indicates that the said section deals with deductions in respect of income of co-operative Societies. Section 80P(1), inter alia, states that where the gross total income of a co-operative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-Society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under section 2(24)( i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in section 80P(2) of the Act. In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this "retained amount" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities.

Page 9 of 32 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 in section 80P(2)(a)( iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act.

12.5 The above finding of the Hon’ble Supreme Court has been followed by the revenue for disallowing the deduction claimed under section 80P(2)(a)(i) of the Act on account of interest income earned from deposit or investment of surplus fund by the cooperative societies . carrying the business of banking or providing credit facilities to the members. The argument of the cooperative societies engaged in providing credit facility to the members are that the surplus fund for which members are not immediately seeking credits are deposited with bank as a prudent business decision shall be attributed to the business only and therefore, the same is eligible for the deduction. We note that the above argument of the assessee found support from the ruling of Hon’ble Jurisdictional High court of the Karnataka in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer Word-V dated 28th October 2014, reported in [2015] 55 taxmann.com 447 (Karnataka). The Hon’ble Bench of Karnataka High Court distinguished the ratio of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra). 12.6 The assessee i.e. Tumkur Merchants Souharda Credit Cooperative Ltd (hereafter-TMSCC) was engaged only in the business of providing credit facilities to members unlike the assessee i.e. Totgars Co-operative Sale Society Ltd which was also engaged in marketing of agricultural produce of the members as well as providing credit facilities. For the A.Y. 2009-10, the assessee TMSCC earned interest income on short term deposit with the M/s Allahabad Bank and M/s Axis Bank and the same was included in the profit claimed for the deduction under section 80P(2)(a)(i) of the Act. The learned CIT(A) disallowed the deduction to the extent of aforesaid interest income and coordinate bench of the Tribunal confirmed the disallowances by following the ratio of the Hon’ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. (supra). However, the Hon’ble High Court found that the assessee being cooperative society is only engaged in the business of providing credit facility to the members and other than that it does not engage in any .

Page 11 of 32 other business. It was observed that the word used in the provision of section 80P of the Act is the profit and gains attributable to the business of providing credit facilities. The Hon’ble High Court referring to the ruling of the Hon’ble Apex Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) held that the word “attributable” is wider term than the word “derived from”. It was held that: “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.”

12.7 The Hon’ble High Court in the above stated case of Tumkur Merchants Souharda Credit Cooperative Ltd(supra) also found that ratio laid down by the Hon’ble Supreme in Totgars Co-operative Sale Society (supra) was in different context. It was found that said assessee retained the sale proceed payable to the members and deposited such retained money. The fund deposited was the liability of the said cooperative society and interest earned on such deposit was held to be not attributable to the business of the cooperative society. Hence, the Hon’ble High Court held that ratio laid down by the Hon’ble Supreme Court in Totgars Co-operative Sale Society(supra) shall not be apply where cooperative society is carrying on the banking business or providing credit facility to members and earns interest on deposit of surplus/idle fund out of profit & gains or capital.

Page 12 of 32 12.8 It is also noted that the identical view was taken by the Hon’ble Jurisdictional High Court of the Karnataka in the subsequent decision in case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO, Ward 2(2), Mysore dated 9th June 2015 reported in [2015] 60 taxmann.com 215.

12.9 Furthermore, the Hon’ble Karnataka High Court followed the principle laid down Tumkur Merchants Souharda Credit Cooperative Ltd(supra) in the subsequent judgment dated 19th February 2018 in the case of Lalitamba Pattina Souharda Sahakari Niyamita vs. ITO in of 2018. 12.10 We also find that the identical view was taken by the Hon’ble High Court of Andhra Pradesh in the case of Commissioner of Income-tax-III, Hyderabad vs. Andhra Pradesh State Cooperative Bank Ltd. dated 7th June 2011 reported in 12 taxmann.com 66. This decision of Hon’ble Andhra High Court was passed after considering the ratio of the Hon’ble Supreme Court in Totgars Co-operative Sale Society(supra) and before the ratio laid down by the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd(supra). The relevant extract stands as under: 11. Does section 80P(2)( a) of the Act make a distinction between income received by a cooperative bank from statutory deposits and the income from non-statutory deposit of surplus funds? The answer must be in the negative. The income earned by the cooperative bank either by deposit of the prescribed percentage of its reserves or by deposit of their surplus funds is exempted. The income from either category of the deposits is certainly attributable to the business of banking. Indeed as a prudent business practice, no banking company or no entity engaged in the business of banking would keep its amount idle. By parking the funds, immediately not required for the business in other banks, interest can be earned to the benefit of the cooperative society. Every cooperative society is expected to make profits for the benefit of its members. As long as the deposit of the surplus funds in the other banks for the purpose of earning interest is not unauthorized or not barred by any of the applicable statutes, the income is certainly attributable to the business of .

Page 13 of 32 banking. There is no concept of voluntary or non-statutory reserves as urged by the Revenue.

12.11 We further note that the ratio laid down by the Hon’ble Jurisdictional High Court of the Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd(supra) was subsequently followed by the Hon’ble Kerala High Court in the case of the PCIT vs. Sahyadri Co- operative Credit Society Ltd. reported in [2024] 166 taxmann.com 445 (Kerala) and further by the Hon’ble Calcutta High Court in West Bengal State Co-Operative Agriculture & Rural Development Bank Ltd. vs. DCIT reported [2025] 177 taxmann.com 469 (Calcutta)[06-08-2025]. 12.12 The relevant finding of the Hon’ble Kerala High Court in above stated case is extracted as under: 7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen .

Page 14 of 32 as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.

12.13 Likewise, the relevant finding of the Hon’ble Calcutta High Court in the above stated case is extracted as under: 11. In terms of the above decision, the expression 'attributable to' being a wider in 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. The facts in the said case were more or less identical to the facts before us. As the interest income so derived or the capital, if not immediately required to be lent to the members, the society/assessee cannot keep the said amount idle and 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. Bearing in mind the meaning of the words 'attributable to' the court proceeded to consider as to the applicability of the judgment of the Hon'ble Supreme Court in Totgars, Co- operative Sale Society Ltd. (supra). It was pointed out that the Hon'ble Supreme Court was dealing with the case where the assessee therein, apart from providing credit facility to the members, was also in the business of marketing of agricultural produce grown by its members and the sale consideration received from marketing agricultural produce of its members was retained in many cases and retained amount which was payable to its members from whom produce was bought, was invested in a short term deposit/security.

12.14 At this point, we also find it pertinent to refer the decision of Hon’ble Gujarat High Court in the case of State Bank of India (SBI) vs. CIT reported [2016] 72 taxmann.com 64 wherein ratio of Hon’ble .

Page 15 of 32 Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd(supra) was distinguished by holding the ratio of the Hon’ble Supreme Court in Totgars Co-operative Sale Society(supra) was not properly interpreted. The relevant finding of the Hon’ble Gujarat High Court in this respect reads as under: 13. In the opinion of this court, in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall in any of the categories mentioned under section 80P(2)(a) of the Act. In the case of Totgars Co-operative Sale Society (supra), as rightly submitted by the learned counsel for the respondent, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. This is further clear when one peruses the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. For the above reasons, this court respectfully does not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law.

12.15 From the preceding discussion of the ratio laid down by the Hon’ble Supreme Court, High Court of Karnataka, Andhra Pradesh, Kerala, Culutta and Gujarat, we note the dispute of whether the interest income earned from deposit or investment of surplus/idle fund out of profit & gains or capital by the cooperative societies engaged in providing credit facilities to the members is squarely covered in favour of the assessee by the ruling of Jurisdictional High Court in the cases of Tumkur Merchants Souharda Credit Cooperative Ltd(supra), Guttigedarara Credit Co-operative Society Ltd. and Lalitamba Pattina Souharda Sahakari Niyamita vs. ITO as well as by the decision of Hon’ble Kerala High Court and Calcutta High Court as mentioned in preceding paras.

12.16 It well settled position of the law that the Income-tax Appellate Tribunal, though the final fact-finding authority under the Income-tax Act, functions within the judicial hierarchy established under the Constitution. Under Articles 226 and 227 of the Constitution of India, the Hon’ble High Court exercises supervisory jurisdiction over all courts and tribunals within its territorial jurisdiction. Consequently, the Tribunal is bound to follow the law laid down by the jurisdictional High Court while deciding matters arising within that State. The principle that subordinate authorities must follow the judgments of superior courts has been firmly established by the Hon’ble Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs [1962] 3 SCR 338 / AIR 1962 SC 1893, wherein it was held that the law declared by the High Court is binding on all authorities and tribunals within its territorial jurisdiction. The relevant finding is extracted below: Section 167 (8) of the Sea Customs Act can be invoked only if an order issued under s. 3 of the Act was infringed during the course of the import or export.

The division Bench of the High Court held that a contravention of a condition imposed by a licence issued under the Act is not an offence under s. 5 of the Act. This raises the question whether an administrative tribunal can ignore the law declared by the highest court in the State and initiate proceedings in direct violation of the law so declared. Under Art,. 215, every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for contempt of itself. Under Art. 226, it has a plenary power to issue orders or writs for the en- forcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under Art. 227 it has jurisdiction over all courts and tribunals throughout the territories in relation to which it exercise jurisdiction. It would be anomalous to suggest that a tribunal over which the High Court has superint- endence can ignore the law declared by that court and start proceedings in direct violation of it. If a tribunal can do so, all the sub-ordinate courts can equally do so, for there is no specific, provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer. We, therefor, hold that the law declared by the highest court in the State is binding on authorities or tribunals under its supreintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. If that be so, the notice issued by the authority signifying the launching of proceedings contrary to the law laid down by the High Court would be in. valid and the proceedings themselves would be without jurisdiction.

12.17 Further, the binding nature of Hon’ble Jurisdictional High Court decisions on the Tribunal has been reiterated in CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 by the Hon’ble Bombay High Court, wherein it was held that the Tribunal is bound by the decision of the Hon’ble High Court within whose jurisdiction it functions. The Hon’ble Court also clarified that decisions of other High Courts have only persuasive value. The relevant finding is extracted below: For deciding whose decision is binding on whom, it is necessary to know the hierarchy of the courts. In India, the Supreme Court is the highest court of the country. That being so, so far as the decisions of the Supreme Court are concerned, it has been stated in article 141 of the Constitution itself that :

"The law declared by the Supreme Court shall be binding on all courts within the territory of India." In that view of the matter, all courts in India are bound to follow the decisions of the Supreme Court. Though there is no provision like article 141 which specifically lays down the binding nature of the decision of the High Courts, it is a well-accepted legal position that a single judge of a High Court is ordinarily bound to accept as correct judgments of courts of co-ordinate jurisdiction and of the Division Benches and of the Full Benches of his court and of the Supreme Court. Equally well-settled is the position that when a Division Bench of the High Court gives a decision on a question of law, it should generally be followed by a co-ordinate Bench of the same High Court. If the co-ordinate Bench in the subsequent case wants the earlier decision to be reconsidered, it should refer the question at issue to a larger Bench. It is equally well-settled that the decision of one High Court is not a binding precedent on another High Court. The Supreme Court in Vattiama Champaka Pillai v. Sivathanu Pillai, AIR 1979 SC 1937, dealing with the controversy whether a decision of the erstwhile Travancore High Court can be made a binding precedent on the Madras High Court on the basis of the principle of stare decisis, clearly held that such a decision can at best have persuasive effect and not the force of binding precedent on the Madras High Court. Referring to the States Reorganisation Act, it was observed that there was nothing in the said Act or any other law which exalts the ratio of those decisions to the status of a binding law nor could the ratio decidendi of those decisions be perpetuated by invoking the doctrine of stare decisis. The doctrine of stare decisis cannot be stretched that far as to make the decision of one High Court a binding precedent for the other. This doctrine is applicable only to different Benches of the same High Court. It is also well-settled that though there is no specific provision making the law declared by the High Court binding on subordinate courts, it is implicit in the power of supervision conferred on a superior Tribunal that the Tribunals subject to its supervision would confirm to the law laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co, Ltd. v. Collector of Customs, AIR 1962 SC 1893 (at page 1905) declared : "We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it. ...

12.18 In the absence of a decision of the jurisdictional High Court, the Tribunal may rely upon judgments of other High Courts as persuasive precedents. The Hon’ble Bombay High Court in CIT v. Thana Electricity Supply Ltd. (supra) explained that when conflicting decisions of Hon’ble Non-Jurisdictional High Courts exist, the Tribunal may adopt the view it considers more reasonable.

12.19 Thus, under the constitutional scheme and the doctrine of judicial discipline, a decision of the Hon’ble jurisdictional High Court is binding on the Tribunal, while decisions of other Hon’ble High Courts carry persuasive value and may be followed in the absence of a contrary jurisdictional precedent.

12.20 Hence in our considered view, while deciding the issue of deductibility of interest income from deposit of surplus/idle fund by the cooperative societies engaged in providing credit facilities, we are bound to follow the principles laid down in the case of Tumkur Merchants Souharda Credit Cooperative Ltd(supra), unless material brought on record that the said principle/finding has been overruled by the Hon’ble Supreme Court or the larger bench of the Hon’ble Karnataka High Court or disturbed by the Hon’ble Karnataka High Court in subsequent case.

Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd and other favourable case laws discussed in the earlier paragraphs of this order.

13.1 Be that as may be, it is equally important to note that in several earlier decisions, this Tribunal had taken a view that interest income earned by a co-operative society from deposits placed with banks would not qualify for deduction under section 80P(2)(a)(i) of the Act and the same was liable to be taxed under the head “Income from other sources”. Accordingly, the claim of deduction under section 80P(2)(a)(i) in respect of such interest income was rejected in those cases.

13.2 However, the legal position now stands clarified by the judgment of the Hon’ble jurisdictional High Court of Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), and other case laws as discussed in preceding paragraphs wherein it has been held that where a co-operative society is engaged in the business of providing credit facilities to its members temporarily parks its surplus funds with banks, the interest earned therefrom is attributable to the business of the society and is therefore eligible for deduction under section 80P(2)(a)(i) of the Act.

13.3 Since the decision of the Hon’ble jurisdictional High Court is binding on this Tribunal, judicial discipline requires that the same be followed. Therefore, to the extent our earlier decisions have taken a contrary view, we respectfully depart from the earlier stand and follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra).

Accordingly, the issue is now decided in favour of the assessee by granting deduction under section 80P(2)(a)(i) in respect of the interest income in question.

13.4 Without prejudice to the above, the learned AR of the assessee submitted that SUCO Bank is an urban cooperative bank not governed by the RBI per-se and are governed by the cooperative society Act. Therefore, the interest income arising from FD with SUCO Bank shall be covered under the provision of section 80P(2)(d) of the Act. In this regard we note that a cooperative bank though governed and registered under cooperative society Act shall not be covered under the provision of section 80P of the Act for the purpose of claiming deduction. The cooperative bank has been excluded from the benefit of section 80P of the Act by insertion of sub-section 4 to section 80P of the Act. However, to hold a cooperative society as a cooperative bank it necessary that impugned bank hold banking license from RBI carrying out the banking business as per the provision of banking regulation Act. Hence, we hold that if SUCO Bank does not hold banking license and provisions of banking regulation Act are not applicable on it, then the assessee shall also be eligible for deduction on such interest income as per the provision of section 80P(2)(d) of the Act without prejudice to eligibility of deduction u/s 80P(2)(a)(i) of the Act.

13.5 In view of the above detailed discussion, we hereby set aside the findings of the learned CIT(A) and direct the AO to delete the disallowance of deduction under section 80P(2)(a)(i) of the Act on the interest income from SUCO bank. Hence the ground of appeal of the assessee is hereby allowed.

14.1 The relevant facts are that the assessee society during the demonetisation (9th November 2016 to 31st December 2016) made cash deposit into 4 different bank account for a sum of Rs. 41,58,000/-. Out of which a sum of Rs. 32,30,500/- was in specified banking note-SBN (old, demonetised currency note of Rs. 500 and Rs. 1000) into SUCO Bank (25,30,500/-) and into Shri Gajanan Urban Cooperative Credit Society (Rs. 7 lakh).

14.2 The assessee submitted that in the deposit into SUCO Bank, a sum of Rs. 86,000/- was out of cash withdrawal whereas remaining amount of Rs. 24,44,500/- represent amount received and collected from member during the demonetisation towards deposit into saving bank, loan repayment and pigmy deposit. Likewise, deposit of Rs. 7 Lakh into Shri Gajanan Urban Cooperative Credit Society also out of amount received and collected from members during the demonetisation towards deposit into saving bank, loan repayment and pigmy deposit. In support of its claim, the assessee furnished copy of Cash Transaction-2016 report containing the details such as list of members along with account number from whom SBN received and date of deposit for the same.

14.3 However, the AO did not accept the explanation of the assessee. The AO held that as per the Government Notifications and RBI circulars issued on 08.11.2016, the legal tender character of ₹500 and ₹1,000 notes stood withdrawn from midnight of that date. It was clearly provided that such demonetised notes could be deposited or exchanged only through authorised banks and not through societies or other financial institutions like the assessee. The AO noted that the assessee was neither a public sector bank nor a State Co-operative Bank and therefore was not authorised to accept SBNs from its members during the demonetisation period. 14.4 The AO further observed that merely furnishing a list of members along with their account numbers did not establish the genuineness of the source of the SBNs. The members themselves ought to have deposited the demonetised notes into their own bank accounts with authorised banks and thereafter made payments to the assessee in valid legal tender. By directly accepting SBNs from members till 30.12.2016, the assessee had acted in violation of the demonetisation scheme and RBI instructions, and such transactions were held to be illegal and void. The AO also relied on the RBI FAQs and Notifications, which clarified that demonetised notes could not be used for normal business transactions and could not be treated as money for accounting purposes after 08.11.2016. According to the AO, SBNs accepted after the cut-off date had zero value in law, and therefore any cash deposits represented by such notes could not be explained as legitimate business receipts.

14.5 On these facts, the AO concluded that the assessee failed to satisfactorily explain the nature and source of the cash deposits of ₹31,03,000. Accordingly, the said amount was treated as unexplained .

Page 24 of 32 cash credit under section 68 of the Income-tax Act, 1961, and brought to tax. Further, since the addition was made under section 68 of the Act, the AO applied the provisions of section 115BBE of the Act and charged tax at the prescribed higher rate.

18.1 Reliance was placed on a decision of the Tribunal in the case of Shree Jagadguru Mouneshwar Pattin Sahakari Sangha Niyamita vs. Income-tax Officer, Ward-1, Bagalkot (ITA No. 1119/Bang/2023), wherein under similar circumstances additions made on account of cash deposits during demonetisation were deleted. The learned AR submitted that the facts of the present case were identical and therefore the ratio of that decision is squarely applied.

18.2 The learned AR also referred to the Standard Operating Procedure and guidelines issued by the CBDT for verification of cash transactions during the demonetisation period, particularly Instruction No.3/2017 dated 21.02.2017. It was argued that as per these guidelines, the AO was required to examine factors such as earlier cash balances, past income, filing of returns, and withdrawals made from bank accounts before quantifying any undisclosed amount. According to the ld. AR, the assessee had satisfied these parameters and had explained the source of deposits through members’ repayments and savings.

18.3 It was therefore submitted that the cash deposits in question were not unexplained and that the assessee had complied with the verification requirements laid down by the CBDT. The learned AR concluded by submitting that since the source of the cash received from members in the form of loan repayments and PIGMY deposits had been properly explained, the addition of ₹31,03,000/- under section 68 of the Act is unsustainable in law and deserved to be deleted.

20.1 The assessee is a Co-operative Credit Society, and the cash deposits in question were made between 09th December 2016 to 30th December 2016. The assessee has explained that these deposits represent amounts collected from its members as loan repayments and deposits. Detailed records, including names of members, outstanding balances, repayment details, and entries in the cash book, were provided. These transactions were properly recorded in audited books maintained under the Co-operative Societies Act and supported by documentation.

20.2 The AO rejected the explanation, holding that demonetised notes/SBN ceased to be valid legal tender and therefore could not be accepted by the assessee. However, we find that there was no law prohibiting the acceptance of demonetised notes by co-operative societies before 31.12.2016. The Specified Bank Notes (Cessation of Liabilities) Act, 2017, which prohibits holding and transacting in such notes, came into effect only from 31.12.2016. Till then, accepting such notes, especially from members in discharge of liabilities, cannot be .

Page 28 of 32 treated as illegal. Furthermore, it is pertinent to mentioned that the issue on hand is cover in favour of the of the assessee by the order of coordinate bench of this tribunal in the case of Anantpur Kalpana v. ITO reported in 138 taxmann.com 141. The relevant finding of the Tribunal order is reproduced as follows: 9." I have carefully considered the rival submissions. Both the AO and CIT(A) accepted the fact that the cash receipts are nothing but sale proceeds in the business of the assessee. The addition has been made only on the basis that after demonetization, the demonetized notes could not have been accepted as valid tender. Since the sale proceeds for which cash was received from the customers was already admitted as income and if the cash deposits are added under section 68 of the Act that will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation. It is also on record that the assessee was having only one source of income from trading in beedi, tea power and pan masala and therefore provisions of section 115BBE of the Act will have no application so as to treat the income of the assessee as income from other sources. Hon'ble Kolkata Tribunal in the case of CIT v. Associated Transport Pvt. Ltd. reported in 84 Taxman 146 on identical facts took the viewthat when cash sales are admitted and income from sales are declared as income, wherein the Hon'ble Tribunal found that the assessee had sufficient cash in hand in the books of account of the assessee, that there was no reason to treat the cash deposits as income from undisclosed sources. The Hon'ble Vishakapatnam Tribunal in the case of ACIT v. Hirapanna Jewelers in on identical facts held that when cash receipts represent the sales which the assessee has offered for taxation and when trading shows sufficient stock to effect the sales and when no defects are pointed out in the books of account, it was held that when Assessee already admitted sale proceeds as revenue receipts . Therefore there is no case of addition u/s 68"

20.3 We also find support from the decisions of coordinate benches of the Tribunal in Sri Tatiparti Satyanarayana((ITA No. 76/Viz/2021, dated March 16, 2022), Bhageeratha Pattina Sahakara Sangha Niyamitha (ITA No.646/Bang/2021), and Prathamika Krushi Pattina (ITA No.614/Bang/2021), where similar additions were deleted on similar facts.

20.4 Coming to the case on hand, the assessee has clearly shown that the identity of the depositors (i.e., its members), the genuineness of the . transactions, and the source of cash were all explained. The mere fact that the money was deposited in the bank account does not make it unexplained, especially when it is backed by verifiable records and cash books.

20.5 Further, reliance placed by the AO on section 68 of the Act is misplaced. In our considered view the provision of section 68 of the Act is invoked only when the source of credit is not explained. In this case, the assessee claimed that it has explained the source as amount collected from members towards deposit into saving bank, loan repayment and pigmy deposit and provided the list of the members who deposited the SBN along with other necessary detail. However, the AO without going into the explanation furnished along with the relevant details, proceeded to make addition under section 68 of the Act on the ground that the assessee cannot receive the SBN after 8th November 2016.

20.6 We further note that the learned AR rightly placed reliance on the decision of coordinate bench of this Tribunal in the case of Shree Jagadguru Mouneshwar Pattin Sahakari Niyamit vs. ITO in wherein in identical facts and circumstances it was held that the addition under section 68 of the Act cannot be made merely on the ground that the SBN received by the assessee society from its member on account of deposits and loan repayment during the demonetisation period which subsequently deposited into. However, the tribunal remitted back the issue to the file of the AO for verification of detail provided by the assessee in support of explanation of source of .

Page 30 of 32 credit as required under section 68 of the Act which was not verified by the AO earlier. The relevant finding of the tribunal reads as under: 11. Considering the rival submissions, we noted that the assessee is a credit co-operative society dealing with members only. During the demonetisation period, the members of the assessee deposited cash in SBNs in their accounts maintained with the society. The assessee has produced the datewise cash receipts from members and KYC of the members. As per Notification of RBI and Govt. of India dated 08.11.2016 the assessee was not authorised to accept cash deposits in SBNs and the AO had made addition u/s.

68. We note that the assessee has filed details of cash deposits from members in their accounts with society along with KYC details and assessee has discharged the liability by providing details of members. Similar issue has been decided by the coordiante Bench of the Tribunal in the case of Sritherumalleshwara Co-op. Society in dated 27.03.2024 in which it has been held as under:- “ 6. Considering the rival submissions, we noted that the assessee is a co-operative society and accepted cash from members during the demonetization period which was deposited in Vijaya Bank, Hiriyur Branch out of which Rs.14,32,000 has been added by AO u/s. 69A and taxed u/s. 115BBE of the Act. We note that that during the course of assessment proceedings, the assessee did not file return of income after receiving notice as well as u/s. 139 or 142(1). The assessee had submitted details of cash depositors which is placed at page 1 of PB. It is clear from the details that the assessee has accepted cash from 43 members. A similar issue has been decided by the coordinate Bench in for AY 2017-18 dated 24.08.2023 in which it has been held as under:- “7. We have considered the rival submissions. The assessee is a credit co-operative society dealing with the members only. During the demonetisation period the members of the society have deposited cash in pygmie a/c, SB A/c, loan a/c. etc. The assessee has produced a list of depositors and the amount deposited by members with denominations of currency. The assessee has accepted the deposits from its members from 9.11.2016 to 14.11.2016. As per Gazette Notification of RBI & Govt. of India dated 08.11.2016, the assessee was not authorized to accept cash deposits in SBNs. The AO observed that the assessee was not authorized to receive or collect money in SBNs of Rs.1,000 and Rs.500 which were not in legal tender w.e.f. 09.11.2016 and such transactions on or after 09.11.2016 cannot be entered in cash book. The cash deposits made by the members of the society had no value as such. The Assessing Officer issued show-cause notice by observing that the impugned amount should be treated as income of the assessee u/s 69A of the Act., however the AO made addition u/s 68 of the I.T. Act. The assessee has satisfied the requirement of section 69A of the Act and the AO did not give further opportunity to the assessee for addition u/s 68 of the I. T. Act. During the assessment proceedings, assessee filed the details of list of depositors and loanees who made cash .

Page 31 of 32 deposits. The AO accepted that it was money deposited by the members and noted that the assessee had brought the entries in its books of account, therefore section 68 will apply and accordingly treated it as income u/s.

12. Following the above decision, we remit this issue in the above terms to the AO.

20.7 In view of the above facts, legal position, and judicial precedents, we are of the considered opinion that the cash deposits made by the assessee during the demonetisation cannot be treated as unexplained credit under section 68 of the Act merely on the grounds that assessee was not authorised to receive SBN during the demonetisation. We are also conscious to facts that the AO proceeded to make addition without verifying the details provided by the assessee, explaining the nature and source of the credit. Therefore, we, for the sake of justice and fair play are inclined to set aside the issue to the file of the AO to decide the issue afresh after verification of the details provided by the assessee in . order to establish the identity, credit worthiness and genuineness of the transaction. The AO will provide proper opportunity to the assessee, and the assessee is directed to provide all the necessary details and document to the AO. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes.

Order pronounced in court on 12th day of March, 2026