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Facts
The assessee, a cooperative society, filed an appeal against the CIT(A)'s order upholding the denial of deduction under Section 80P(2)(a)(i) and 80P(2)(d) for interest income earned on deposits with cooperative and scheduled banks. The AO had disallowed the deduction, leading to reassessment.
Held
The Tribunal held that interest income earned by a cooperative society from its deposits with other cooperative banks is eligible for deduction under Section 80P(2)(d) of the Act. For interest income from scheduled banks, the issue was restored to the AO for adjudication based on specific directions.
Key Issues
Whether interest income earned by a cooperative society from deposits with cooperative banks and scheduled/nationalized banks is eligible for deduction under Section 80P of the Income Tax Act.
Sections Cited
80P(2)(a)(i), 80P(2)(d), 147, 143(3), 143(2), 142(1), 144B, 263, 57(i), 56(1)(id), 80P(4), 2(19)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH PANAJI
ORDER
PER PAVAN KUMAR GADALE, JM:
The appeal is filed by the assesse against the order of NFAC/CIT(A) u/sec 250 of the Act. The assessee has raised the grounds of appeal
challenging the order of the CIT(A) sustaining the denial of claim of deduction u/sec80P(2)(a)(i) of the Ac and without prejudice alternate relief u/sec80P(2)(d) of the Act on interest income from cooperative banks and scheduled banks.
2. The brief facts of the case are that, the assessee is a cooperative society and is engaged in activities of providing credit facilities to its member s. The Assessing Officer (AO) based on the information from ITBA NMS portal found that The Camp Multipurpose Primary Agriculture Cooperative Society Limited the assessee has made substantial cash deposits in the bank account maintained with Indian Overseas Bank in the F.Y.2015-16 and the assessee has not filed the return of income for the impugned assessment year 2016-17.The Assessing officer (A.O) has reason to believe that the income has escaped the assessment and issued notice u/sec148 of the Act and the assessee has filed the return of income for A.Y.2016-17 on 29.12.2023 disclosing a total income of Rs.Nil after claiming deduction u/sec80P of the Act of Rs.6,89,449/-.Further notice u/sec143 (2) and u/sec 142(1) of the Act are issued calling for the details supporting the return of income filed and details of cash deposits. The assesse has filed the information along with interest income on deposits with the cooperative banks and nationalized banks. The Assessing Officer (A.O) has dealt on the submissions/details of interest income and find that the assessee is not eligible for claim of deduction under section 80P(2)(a)(i) of the Act and has made disallowance of interest income on deposits with the cooperative banks and nationalized banks aggregating to Rs.3,16,641/-and assessed the total income of Rs.3,16,640/- and passed the order u/sec 147 r.w.s 144B of the Act dated 21.03.2024.
3. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) has considered the grounds of appeal, statement of facts and findings of the AO and has issued notices of hearing and the assessee The Camp Multipurpose Primary Agriculture Cooperative Society Limited has filed the details and submissions on the allow ability of claim. But the CIT(A) has confirmed the action of the Assessing Officer and dismissed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee has filed an appeal before the Hon'ble Tribunal.
4. At the time of hearing, the Ld.AR submitted that the CIT(A) has erred in confirming the action of the A.O overlooking the facts and submissions. Further the Ld.AR submitted that the CIT(A) has erred in confirming the action of the A.O in treating the interest income from cooperative society/ cooperative bank is ineligible for deduction u/s 80P(2)(d) of the Act and also interest income from scheduled/ nationalized bank is ineligible for the deduction u/sec80P2(a)(i) of the Act. The Ld.AR submitted that the assessee has a good case on merits and substantiated the submissions with paper book and judicial decisions and prayed for allowing the appeal. Per Contra, the Ld.DR supported the order of the CIT(A).
5. Heard the rival submissions and perused the material on record. The Ld.AR submitted that the CIT(A) has erred in sustaining the disallowance overlooking the submissions and the judicial decisions and the Assessing Officer has ignored the factual aspects and wrongly denied the claim. The Ld.AR mentioned that the CIT(A) has erred in not allowing the interest income from cooperative banks as ineligible for deduction u/s 80P(2)(d)
The Camp Multipurpose Primary Agriculture Cooperative Society Limited of the Act and also interest income from scheduled/ nationalized bank is ineligible for the deduction u/sec80P2(a)(i) of the Act. Whereas The Honble Income Tax Tribunal Panaji Bench in ITA.No.158,159& other 27 numbers/PAN/20223/24&25 dated 28-11-2025 –Akshaya Co-Op Credit society & others Vs ITO dealt at Para 7 of the order on the subject matter of interest income from cooperative banks is eligible for deduction u/s 80P(2)(d) of the Act read as under:
“7.------“The Third disputed issue, where the AO and CIT(A) has not allowed the claim of deduction under section 80P(2)(d)of the Act, in the case of the cooperative society earns / receives interest on deposits maintained with the cooperative banks.
The assessee’s is co-operative society registered under the Karnataka Souharda Sahakari Act 1997 and similarly under the Karnataka Co-operative Societies Act 1959 and is engaged in providing the credit facilities to its members. Whereas the Assessing officer found that the assessee earns/receives interest on deposits maintained with the cooperative banks and was not satisfied with the explanations of the assessee and dealt on the provisions and judicial decisions and denied the claim of deduction u/sec 80P2(d) of the Act and the CIT(A) has sustained the disallowance. On further appeal to Tribunal, the Ld.AR submitted that the CIT(A) has erred in confirming the action of the A.O in treating the interest income from cooperative banks is ineligible for deduction u/s 80P(2)(d) of the Act. Whereas, the CIT(A) has considered the facts on claim of deduction u/s 80P(2)(d) but took a different view. The Ld.AR emphasized that the claim has to be allowed as the cooperative bank is treated as a cooperative society for eligibility of deduction u/s 80P(2)(d) of the Act and substantiated the submissions with the judicial decisions. Per Contra, the Ld.DR relied on the order of the CIT(A) and submissions.
We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue envisaged by the Assessee Representatives is in respect of granting of deduction u/s 80P(2)(d) of the Act to the Cooperative Society. The Ld. AR submitted that the interest income derived by a co- operative society from its deposits with the co-operative bank would be entitled for deduction u/s The Camp Multipurpose Primary Agriculture Cooperative Society Limited 80P(2)(d) of the Act. Whereas on the similar disputed issue, the Hon’ble Tribunal Panaji bench in the case ITA.No74/PAN/2024 of The Bardez Urban Co-Operative Credit Society Limited, Vs ITO Panaji dated 11-2-2025 has dealt at Para 6 to 8 of the order as under:
“6. We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue envisaged by the Ld.AR is in respect of granting of deduction u/s 80P(2)(d) of the Act to the Cooperative Society. The Ld. AR submitted that the interest income derived by a co-operative society from its deposits with the co-operative bank would be entitled for deduction U/sec 80P(2)(d) of the Act. The Ld.AR highlighted that the asssessee has received interest on fixed deposits with the Goa State Co-op Bank Limited and further the co-operative bank is treated as a cooperative society for eligibility of deduction u/s 80P(2)(d) of the Act. We find the Hon’ble Tribunal in Amore Commercial Premises Co-op Society Ltd vs. CPC Karnataka in & 2874/Mum/2022 dated 17-01-2023 has dealt on the taxability of interest earned on the deposits with the Cooperative Banks at page 2 Para 3 of the order, which is read as under:
3. Briefly stated facts necessary for consideration an adjudication of the issues at hand are :- Assessee being a CoOperative Society has claimed disallowance/deduction u/s. 80P (2)(d) in respect of the interest of Rs. 6,96,725/- for parking its funds with Saraswat Co-Operative Bank, Sham Vithal Rao CoOperative Bank and district central CoOperative Bank. However, centralized processing centre (CPC)/ Assessing Officer has disallowed the deduction Claimed by the Assessee u/s 143(1).
4. Assessee carried the matter before the Ld.CIT(A) by way of filing Appeals who has confirmed the addition by dismissing Appeals. Filling aggrieved Assessee has come up before the Tribunal by way of filing present Appeal.
We have heard the Ld. Authorized Representative of the parties to the Appeals, perused the order passed by the Lower Revenue Authorities and documents available on record in the light of the law applicable thereto.
6. Undisputedly Assessee Society has invested is surplus funds with Co-Operative banks and earned the interest income to the tune of Rs. 6,96,725/- and claimed it is deduction u/s. 80P (2)(d) of the Act, which has been disallowed by Assessing Officer & confirmed by the Ld.CIT(A) by relying upon decision rendered by Hon’ble Karnataka High Court in case of principle Ld.CIT Vs. Totgar’s Co- Operative Sales Society Ltd.
The Camp Multipurpose Primary Agriculture Cooperative Society Limited 7. Issue as to the allow-ability of the deduction claimed by the Assessee u/s. 80P (2)(d) of the Act, is no longer Res-Integra having being decided by the co-ordinate Bench of the Tribunal in case of Palm Court M Premises Co-operative Society Ltd. in order dated 09.09.2022 by settling the issue in favour of the assessee by distinguishing the judgment rendered by Hon'ble Supreme Court in case of Totgar's Cooperative Sale Society Ltd. Vs. Income Tax Officer, 188 Taxman 282(SC) and by discussing the decision rendered by Hon'ble Bombay High and Hon'ble Gujarat High Court wherein it is held that interest income earned by the Co-operative Society on its investment made with co-operative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act by returning following findings:
We have given a thoughtful consideration to the contentions advanced by the Id. Authorized representatives for both the parties in context of the aforesaid issue under consideration. As stated by the ld. A.R, and rightly so, the issue that interest received by a co-operative society on its deposits with cooperative banks would be eligible for deduction w/s 80P(2)(d) of the Act is covered in assessee's favour by orders of the various coordinate benches of the Tribunal in the following cases: (i). M/s Solitaire CHS Ltd. Vs. Pr.CIT-26, Mumbai, dated 29.11.2019 (ii). Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum.) (iii). M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017. (iv). Marvwanjee Cama Park Cooperative Housing Society Ltd. V's. ITO-Range 20(2)(2), Mumbai (ITA NO. 6139/Mum/2014, dated 27.09.2017. (v). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai. In the aforesaid orders, it has been held by the Tribunal that though the cooperative banks pursuant to the insertion of subsection (4) to Sec. 80P of the Act would no more be entitled for claim of deduction u/s 80P of the Act, but as a co-operative bank continues to be 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, therefore, the interest income derived by a cooperative society from its investments held with a co-operative bank would be entitled for claim of deduction w/s 80P(2)(d) of the Act. We find that the aforesaid issue had exhaustively been looked into by the ITAT, "G" bench, Mumbai in the case of M/s Solitaire CHS Ltd, Vs. Pr.CIT-26, Mumbai dated 29.11.2019, wherein the Tribunal had observed as under: "6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether the claim of the assessee for deduction under section. 80P(2)(d) in respect of interest income earned from the The Camp Multipurpose Primary Agriculture Cooperative Society Limited investments/deposits made with the cooperative banks is in order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr.CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of subsection (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2) (d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with cooperative banks, other than a Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank. Observing, that the co- operative banks from where the assessee was in receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act.
7. After necessary deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2) (d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2) (d) (1). Where in the case of an assessee being a cooperative 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 subsection (2), in computing the total income of the assessee. (2). The sums referred to in sub-section (1) shall be the following, namely:- (a)......................................................................................... ......... (b)………………………………………………………… ………………………………….. (c)………………………………………………………… …………………………………... (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income;" On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee cooperative society from its investments held with any other cooperative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co- operative society with any other co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid The Camp Multipurpose Primary Agriculture Cooperative Society Limited amendment would jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income investments/deposits parked with a co- operative bank. In our considered view, as long as it is proved that the interest income is being derived by a cooperative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term cooperative society" had been defined under Sec. 2(19) of the Act, as under:- "(19) "Co-operative society" means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of cooperative societies;" We are of the considered view, that though the cooperative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a cooperative bank continues to be 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, therefore, the interest income derived by a cooperative society from its investments held with a cooperative bank would be entitled for claim of deduction under Sec.80P(2) (d) of the Act.
8. We shall now advert to the judicial pronouncements that have been relied upon by the Id. A.R. We find that the issue that a co- operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH $2 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO-Range-20(2)(2). Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. (iv). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai. We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held, that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the The Camp Multipurpose Primary Agriculture Cooperative Society Limited being distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon"ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec. 80P(2) (d) on the interest income on the investments/deposits parked with a co-operative bank. Although, in all fairness, we may observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars cooperative Sale Society (2017) 395 ITR 611 (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2) (d). At the same time, we find, that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec. 80P(2) (d) of the Act. We find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), where there is a conflict between the decisions of nonjurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
9. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec. 80P(2) (d) on the interest income earned on its investments/deposits with cooperative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. In fact, as observed by us hereinabove, the aforesaid view taken by the A.O at the time of framing of the assessment was clearly supported by the order of the jurisdictional Tribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we "set aside" his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016." As the facts and the issue involved in the present case before us remains the same as were there before the Tribunal in the case of M/s The Camp Multipurpose Primary Agriculture Cooperative Society Limited Solitaire CHS Ltd. (supra), wherein the order passed by the Pr. CIT u/s 263 of the Act was quashed, we, thus, respectfully follow the same. Backed by our aforesaid deliberations, we are unable to uphold the view taken by the Pr. CIT that the failure on the part of the A.O to be disallow the assessee's claim for deduction u/s 80P(2)(d) had rendered the assessment order passed by him u/s 143(3) of the Act, dated 31.08.2017 as erroneous in so far it was prejudicial to the interest of the revenue.
Accordingly, on the basis of our aforesaid observations, we herein not finding favor with the view taken by the Pr. CIT that the order passed by the A.O u/s 143(3), dated 31.08.2017 was erroneous in so far it was prejudicial to the interest of the revenue within the meaning of Sec. 263 of the Act set-aside the same and restore the order passed by the A.O u/s 143(3) of the Act, dated 31.08.2017."
8. Hon'ble High Court of Karnataka in case of Pr. CIT & Anr.Vs. Totgar's Co-operative Sale Society Ltd. (2017) 292 ITR 74 (Kar.) and Hon'ble Gujarat High Court in case of State Bank of India vs. CIT (2016) 389 ITR 578 (Guj.) had held that interest income earned by a co-operative society on its investment held with cooperative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act.
9. So following the decision rendered by Hon'ble Karnataka High Court (supra) and Hon'ble Gujarat High Court (supra), we are of the considered view that assessee society who has earned an amount of Rs. Rs. 6,96,725/- from its investment of surplus fund with cooperative banks is entitled for deduction under section 80P(2)(d) of the Act. Resultantly, the Ld. CIT(A) has erred in upholding the denial of deduction by the AO to the assessee under section 80P(2)(d) of the Act.
We have considered the facts, circumstances and the ratio of the judicial decisions. The Honble Tribunal has dealt on the catena of judicial decisions were the co-operative society receives/earns interest on deposits with the co-operative bank is eligible for claim of deduction under section 80(2)(d) of the Act. Accordingly, we fallow the judicial precedence, and set aside the order of the CIT(A) on the disputed issue and direct the Assessing officer to allow the claim of deduction u/sec 80P(2)(d) of the Act to the extent of interest income included in the gross total income and such deduction under this chapter VIA should be restricted to the gross total income. And we allow the grounds of appeal in favour of the asssessee
8. In the result, the appeal filed by the appeal is allowed”
The Camp Multipurpose Primary Agriculture Cooperative Society Limited Hence We considering, the facts, circumstances and follow the judicial precedence and we set aside the order of the CIT (A) on this disputed issue and direct the Assessing officer to allow deduction u/sec80P(2)(d) of the Act as discussed above. And these grounds of appeal of the assesse are allowed in favour of the assessee.”
6. Similarly The Honble Income Tax Tribunal Panaji Bench in ITA.No.158,159 & other 27 numbers/PAN/20223/24&25 dated 28-11-2025 –Akshaya Co-Op Credit society & others Vs ITO dealt at Para 11 of the order on the subject matter of interest income from scheduled banks/nationalized banks as under:
“ 11.----The seventh disputed issue, where the AO and CIT(A) has not allowed the claim of deduction under section 80P(2)(a)(i) of the Act. As the cooperative society earns / receives interest on deposits maintained with the nationalized banks / scheduled banks/ non cooperative banks.
The Ld.AR’s submitted that the assessee has claimed deduction u/s 80P(2) (a) (i) of the Act relating to interest income from scheduled banks as the same constitutes income attributable to carrying of business of providing credit facilities to its members.. Further such investments are made as per specific clause 58 of The Karnataka Cooperative Societies Act 1959. The amount invested for short term is out of working capital available in the process of carrying out providing credit facilities which is the business of the assessee. As per specific clause of the governing law and bye laws the amounts are invested in Co-operative Credit societies, Co-operative Banks and Scheduled Banks. Investments in scheduled banks are made on account of commercial expediency of quick liquidity whenever the need arises. Whereas the provisions of section 80P(2) (a) (i) of the Act are dealt in cases were the whole of the amount of profits and gains of a business which are attributable to any of the activities referred to in clauses (i) to (vii) of that section shall qualify for deduction. The impugned interest income falls under profits and gains attributable to carrying on business of providing credit facilities to its members. Further the assessee-society is entitled to deduction under section 80P in respect of interest income from fixed deposits with nationalized bank when source of such investment was income derived from activities listed in sub-clauses (i) to(vii) of clause (a) of section 80P(2) of the Act. The Ld.AR’s relied on the judicial decisions 1. Bihar State Co-operative Bank Ltd v CIT 39 ITR 114 (SC) 2. Cambay Electric Supply Industrial Co. Ltd v CIT 113 ITR 84 (SC). 2.1 Tumkur Merchants Souharda The Camp Multipurpose Primary Agriculture Cooperative Society Limited Credit Cooperative Ltd v ITO Ward – V, Tumkur 55 taxmann.com 447 (Kar).
Guttigedarara Credit Co-operative Society Ltd v ITO Ward 2(2), Mysore 377 ITR 464 (Kar) .
Vavveru Co-operative Rural Bank Ltd v Chief Commissioner of Income Tax 396 ITR 371 (A.P and Telangana).
5. Pr.CIT v Sahyadri Co-operative Credit Society Ltd 166 taxmann.com 445 (Ker).
Pr.CIT v Gunja Samabay Krishi Unnayan Samiti Ltd 147 taxmann.com 518(Cal) 7. Chennai Central Co-operative Bank Ltd 148 taxmann.com 17 (Mad).
8. Athani Credit Co-operative Society Ltd ITA No.121/PAN/2023.
9. Shree Adinath Minority Credit Souhard Sahakari Ltd Further Interest income earned by cooperative credit society from its funds parked with nationalized and commercial banks would be construed as profits and gains of business, thus eligible for deduction under section 80P(2)(a)(i) of the Act. The CBDT CIRCULAR No.18/2015 F.No.279/Misc./140/2015/ITJ dated 02.11.2015 on the issue of interest SLR securities of banks states that – 1.“It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, "expenses relatable to investment in non-SLR securities need to be disallowed u/s 57(i) of the Act as interest on non-SLR securities is income from other sources."
Clause (id) of sub-section (1) of Section 56 of the Act provides that income by way of interest on securities shall be chargeable to income tax under the head "Income from Other Sources", if, the income is not chargeable to income-tax under the head "Profits and Gains of Business and Profession".
3. The matter has been examined in light of the judicial decisions on this issue. In the case of ClT v.Nawanshahar Central Cooperative Bank Ltd. [2007] 160TAXMAN 48(SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession" The authorized representatives of the assessee’s substantiated the submissions with the judicial decisions and the Ld.DR relied on the order of the CIT(A) and submissions. The Ld. AR’s submitted that the assessee functions as a co-operative society & interest from scheduled banks is attributable to banking business which also utilized for the purpose of providing credit facilities. The interest income partakes the character of business income for the co-operative society. On the issue for the attributable to the banking business, the assessee being a credit co-operative society is engaged in providing credit facilities to its members and the claim was in respect of the money available for business that in the nature of credit facilities provided & there is no surplus funds and applying the theory of attributable to the objects and also there are no surplus funds except the operational money which is available for providing credit facilities. Further the surplus funds generating the interest income were part of the working/operational funds of the society’s core business of providing credit facilities to its members. The assessee has deposited the funds in the The Camp Multipurpose Primary Agriculture Cooperative Society Limited scheduled banks to obtain higher rate of interest therefore the concept of availability of surplus funds does not arise in the case of credit co-operative societies. Accordingly, the Ld. Assessing Officer to consider the facts of earning of interest income by the assessee from its core business of providing credit facilities to its members and allow the deduction.
On the second category of multipurpose Co-operative societies which deal in providing the credit facilities & also other business activities with its members and outsiders in such cases where the funds are invested with the scheduled banks by way of short term deposits cannot be said to be providing credit facilities to its members and the income is taxed as “other income” under the Income from other Sources u/sec 57 of the Act subject to allowing the deduction of direct and indirect cost incurred on such investments/deposits by the assessee from such interest income earned. Accordingly, this disputed issue is restored to the file of the assessing officer to verify and examine the earning of interest income and allow the deductions as discussed above and adjudicate on merits. Further the deduction u/sec80P(2)(a)(i) of the Act in respect of scheduled bank interest in both the categories of socities should be restricted to the income forming part of gross total income. And these grounds of appeal are partly allowed for statistical purpose.”
7. Therefore, considering the facts, circumstances, submissions and the ratio of the judicial decisions dealt in the above issues and also follow the judicial precedence. Accordingly, set aside the order of the CIT(A) and direct the assessing officer to allow deduction under section 80P(2)(d) of the Act in respect of interest income on deposits with cooperative banks and restore the disputed issues of interest on deposits with scheduled bank dealt in the paragraph 6 above to the file of the Assessing Officer to adjudicate on similar directions discussed and the total aggregate claim including deduction u/sec80P(2)(d) of the Act shall be restricted to original deduction u/sec80P(2)(a)(i) of the Act claimed in the return of income filed by the assessee. Further the assesse should
The Camp Multipurpose Primary Agriculture Cooperative Society Limited be provided adequate opportunity of hearing and shall cooperate in submitting the information. And the grounds of appeal of the assessee are partly allowed .