TAMILNADU SPECIAL POLICE EMPLOYEES CO-OPERATIVE,CHENNAI vs. ITO, NCW-7(3), CHENNAI

Brief facts of the case are as follows: The assessee is a Thrift and Credit Society registered under the Tamil Nadu Co-operative Societies Act, 1983. For assessment year 2018-19, the assessee did not file its return of income. On examination of the Insight portal by the AO, it was noticed that assessee has made huge cash withdrawals and cash deposits. To examine the source of the same, the case was reopened by issuance of notice u/s.148 of the Act on 31.03.2022. In response to the notice u/s.148 of the Act, the assessee society filed 10.01.2023 declaring ‘nil’ taxable income after claiming deduction u/s.80P of the Act amounting to Rs.3,20,14,435/-. During the course of reassessment proceedings, the AO noticed that the assessee had earned interest income (Rs.24,62,766) and dividend income (Rs.1,30,48,614) from Kanchipuram Central Co-operative Bank Ltd., totaling to Rs.1,55,11,380/-. The AO completed the assessment u/s.147 r.w.s. 144B of the Act vide order dated 02.03.2023. In the said reassessment order, the AO treated the income received from Kanchipuram Central Co-operative Bank Ltd., as ‘income from other sources’ thereby disallowing the claim of deduction made by the assessee society u/s.80P(2)(a)(i) / 80P(2)(d) of the Act. The AO also referred to the assessment completed for assessment year 2020-21, wherein a similar addition was made as regards the receipt from Kanchipuram Central Co-operative Bank Ltd. The relevant finding of the AO reads as under:- “As per supreme court decision interest or dividend income derived by a co- operative society from investments with other co-operative societies is eligible to claim deduction u/s80P(2)(a)(i) & 80P(2)(d). In the case of assessee interest income and dividend income arising on the Reserve Fund deposited with Kanchipuram Central Co-operative Bank Ltd. As per the official website of the Kanchipuram Central Co-operative Bank Ltd., it is found that this entity is not a cooperative society, but it is a cooperative bank, which has been granted license under Section 22 of Banking Regulation Act of 1949 to do banking business in the year 1995. Kanchipuram Central Co-operative Bank Ltd. is Co- operative Bank (Private Bank). Kanchipuram Central Co-operative Bank Ltd. is not a co-operative society. In view of this fact and in light of the decision of the Supreme Court in the case of M/s. The Mavilayi Service Coop. Bank Ltd. & Ors. vs. CIT. Civil Appeal Nos. 7343-7350 of 2019 dated 12/01/2021, wherein the co-operative banks are excluded from the ambit of section 80P of the Act. Therefore as per Honourable Supreme Court in the case of the Mavilayi Service Cooperative Bank Itd. & Ors. assessee is not eligible to claim deduction u/s. 80P(2)(a)(i)& 80P(2)(d) on interest income and dividend income arising on the Reserve Fund deposited with Kanchipuram Central Co-operative Bank Ltd. amounting to Rs. 1,55,11,380/- . Hence, the deduction of Rs. 1,55,11,380/- claimed by assessee u/s 80P(2)(a)(i) & 80P(2)(d) of the Act during the year on the Interest income on Reserve Fund and savings and dividend earned during the year from the Kanchipuram Central Co-operative Bank Ltd. treated as income for the year under consideration. Apart from that in assessee own case for A.Y - 2020-21) addition has been made on the same issue.

Aggrieved by the reassessment order dated 02.03.2023, the assessee filed appeal before the First Appellate Authority (FAA). The FAA confirmed the addition made by the AO. The FAA after extracting the above findings of the AO concluded that during the course of AO. The relevant finding of the FAA reads as follows:- “7.2.6. The appellant during the course of appellate proceedings has not brought any substantial evidence contrary to the finding of the Ld. AO about the status of Kanchipuram Central Co-operative Bank, regarding it not being a Bank. The decisions quoted by Appellant from H’ble ITAT, outside the jurisdiction of the appellant's area are not discussed here as they are not applicable. The various decisions quoted by the appellant in his favour do not in any way negate the findings of the Ld. AO and hence, they are humbly not relied on despite being Jurisdiction Hon'ble Tribunal and High Court. The decision of Hon'ble Supreme Court is binding on the Courts in the country by virtue of Article 141 of the Constitution of India. In view of the specific finding of the Ld. AO and the reliance of the Ld. AO on the Hon'ble Supreme Court decision in the case of Mavilayi Service Co-operative Bank Ltd. and Others Vs. CIT in Civil Appeal No. 8315 of 2019 dated 12.01.2021, I hold that the decision taken by the Ld. AO is correct and hence, confirmed. Therefore, these grounds are dismissed.”

Aggrieved by the order of the FAA, the assessee has filed the present appeal before the Tribunal. None was present on behalf of the assessee however, we proceed to dispose off the appeal after hearing the Ld.DR. The Ld.DR strongly relied on the findings of the AO and the FAA.

We have heard Ld.DR and perused the material on record. The AO for assessment year 2020-21, had made an identical addition by treating the interest / dividend received from Kanchipuram Central Co-operative Bank Ltd., as ‘income from other sources’, thereby disallowed the claim of deduction u/s.80P(2)(a)(i) and 80P(2)(d) of the Act. We, further notice that for the assessment year 2020-21, the Tribunal in assessee’s own case had decided the issue in favour of the assessee in order dated 15.07.2025. The Tribunal took note of the AR’s submission and certificate of the Co- operative Department, Government of TamilNadu and held that Kanchipuram Central Co-operative Bank Ltd., was registered as a co- operative society under the Tamil Nadu Co-operative Societies Act, 1983. Further the Tribunal by relying on the judgment of the Hon’ble Madras High Court in the case of Thorapadi Urban Co-op Credit Society Ltd., vs. ITO, Vellore in W.P. Nos.11172, 11174, 11177 and 11180 of 2023 and W.M.P Nos.11024, 11038, 11044 and 11048 of 2023 dated 10.10.2023 held that interest/dividend income received from co-operative bank is deemed to have been received from co- operative society since it has been registered under the Tamil Nadu Co-operative Societies Act. The submissions of the Ld.AR before the Tribunal in assessee’s own case for assessment year 2020-21 reads as follows:- “7. Per contra, the ld.AR for the assessee submitted that the Kancheepuram Central Cooperative Bank Limited is primarily a cooperative society and hence, the earnings of interest and dividend from such cooperative bank is to be treated as earning from another cooperative society and hence, eligible for deduction u/s.80P(2)(d). To buttress the claim of the assessee, the ld.AR submitted a copy of the certificate issued by the cooperative department, Government of Tamil Nadu, wherein, Kancheepuram Central Cooperative Bank Limited was registered as a cooperative society. Further, the assessee relied on the decision of Hon’ble High Court of Madras in the case of Thorapadi urban Co-op Credit Society Limited vs. ITO, Vellore in W.P.Nos.11172, 11174, 11177 and 11180 of 2023 and W.M.P.Nos.11034, 11038, 11044 and 11048 of 2023 dated 10.10.2023, wherein, the Hon’ble Court has stated that any Co-operative Society derived income by way of interest from investment made in any other co-operative bank which was registered under the Tamil Nadu Co-operative Societies Act, 1983, the whole of such interest is eligible for deduction.”

After considering the above submissions of the Ld.AR, the Tribunal dismissed the appeal of the Department by observing as under:- “11. We find that the issue of allowability of deduction u/s.80P of the Act in respect of Interest and dividend earned from the deposit / investments made in the District credit cooperative bank has already been decided in favour of the assessee in catena of the decisions of the hon’ble High courts and Tribunals. The Hon’ble High Court of Madras in the case of Thorapadi urban Co-op Credit Society Limited vs. ITO, Vellore in W.P.Nos.11172, 11174, 11177 and 11180 of 2023 and W.M.P.Nos.11034, 11038, 11044 and 11048 of 2023 dated 10.10.2023, has confirmed that any Co-operative Society derived income by way of interest from investment made in any other co-operative bank which was registered under the Tamil Nadu Co-operative Societies Act, 1983, the whole of such interest is eligible for deduction. The relevant extract is given below: 9. A reading of the above said provision makes it clear that in the event if any Co-operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction. Now the issue is as to whether the Co-operative Bank would fall within the purview of the term 'Co- operative Society'. In the present case, the petitioner produced a document to show that the Co-operative Bank, where they have made investments was registered under the Tamil Nadu Cooperative Societies Act, 1983 on 20.5.2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co-operative Bank.

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

The learned counsel for the respondent referred to the judgment of the Hon'ble Supreme Court rendered in Totgars Co- operative Sale Society Ltd., v. Income-tax Officer, Karnataka", wherein the issue came up for consideration as to whether the interest income received by a Co-operative Bank from its members by way of providing the credit facilities to its members is eligible for deduction or not. Ultimately the Hon'ble Supreme Court found that under Section 80P(2)(a)(i), the same is eligible for deduction. Therefore, the law laid down by the Hon'ble Supreme Court is not applicable for in the present case as the eligibility of deduction of interest has to be decided under Section 80P(2)(d) and not under Section 80P(2)(a)(i). The learned counsel has also relied upon other judgments which are not applicable for the present facts of the present case.

At this juncture, it would be appropriate to refer a judgment passed by a Division Bench of this Court in "Commissioner of Income Tax Salem v. The Salem Agricultural Producers Co-operative Marketing Society Ltd" in Tax Case Appeal No.5 of 2015, wherein, apart from other substantial issues, the following issue has been framed for consideration, which reads as under:

In such view of the matter, since the impugned orders are passed without considering all these aspects, this Court is of the view that the same are liable to be set aside. Accordingly, the Writ Petitions are allowed and all the impugned notices are set aside. No costs. Consequently, all the connected miscellaneous petitions are closed.”

In light of the above order of the Tribunal in assessee’s own case for assessment year 2020-21, which had concluded that Kanchipuram Central Co-operative Bank Ltd., is a co-operative society registered under the Tamil Nadu Co-operative Societies Act, 1983, we are of the view that the said order will have a binding effect for this assessment year also namely AY 2018-19. Therefore, following the Co-ordinate Bench order, we direct the AO to grant deduction u/s.80P(2)(d) of the Act in respect of interest / dividend income

In the result, the appeal filed by the assessee is allowed.