INCOME TAX OFFICER, WANAPARTHY BLOCK vs. TAMILNADU SPECIAL POLICE EMPLOYEES COOPERATIVE, TSP CAMP

:-3-: ITA. No:363/Chny/2025 ii. Shree Mahadeshwar Sahakari Patpedhi Maryadit Vs. ITO (ITA/No.374/Mum/2018). iii. Kaliandas Udyog Bhavan Premises Co-operative society Ltd Vs.ITO-21(2) (1) (ITA No. 6547/Mum/2017). iv. Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). v. ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill & 419/JP/2017 (Jaipur). vi. M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 vii. Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO-Range- 20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017.

9. In view of the above discussion, it is held that this income does not fall within the meaning of expression "Profits and Gains of Business" as the same cannot be said to be attributable to the activities of the society of providing credit facilities to its members. Therefore the income earned by the assessee is nothing but "Income from Other Sources liable to be taxed. On the facts and circumstances of this case, interest income and dividend income falls in the category of "Other Income" under Section 56 of the Act. Thus, it may be made clear that what is sought to be taxed under Section 56 of the Act is the interest income and dividend income arising on the Reserve Fund deposited with Kanchipuram Central Co-operative Bank Ltd. Accordingly an amount of :-5-: ITA. No:363/Chny/2025 Rs. 1,80,65,851/- is held as Income from Other Sources and added to the total income of the assessee.

to allow the deduction u/s.80P(2)(a)(i) of the Act. The assessee filed additional grounds on 01.03.2023. The interest and dividend earned from the investments made in the Kancheepuram Central Bank Limited are deductible u/s.80P(2)(a)(i) and also u/s.80P(2)(d) of the Act. The assessee filed a detailed submission before the ld.CIT(A). The ld.CIT(A) relying on the decision of the coordinate bench of ITAT allowed the appeal of the assessee by holding as under: “6.2.4. During the course of appellate proceedings, the appellant submitted the decision of Hon'ble ITAT 'C (SMC) Bench, Chennai in for A.Y. 2018-19 in the case of SIDCO Employees Co-operative Thrift and Credit Society Ltd. Vs. ITO, Ward 19(4), Chennai dated 27.02.2023. This decision has similar facts to that of the appellant and the same is quoted below.

2. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO disallowing the claim of deduction u/s.80P of the Act in regard to interest and dividend income earned from Chennai Central Co-operative Bank, which is a co-operative society. For this, assessee has raised the following Ground Nos. 3 & 4:-

3. Ld. AO and Ld. CIT(A) erred in disallowing the deduction claimed u/s. 80P. Both the Assessing Officer and the CIT(A) failed to appreciate that the relevant interest and dividend are deductible not only u/s 8OP(2)(a)(i) but also uls 80P(2)(d).

4. The Ld. Assessing Officer and the CIT(A) failed to appreciate that the Chennai Central Cooperative Bank is a Co-Operative Society as well as a Bank. They should have appreciated that the interest and dividend from such Cooperative Bank is eligible for deduction under section 80P(2)(d) of the Act.

3. Brief facts are that the assessee in a Cooperative Society registered under Tamil Nadu Co-operative Societies Act and it has filed its return of Income for the assessment year 2018-19 admitting ‘nil’ taxable Income after claiming deduction uls. 80P of the Act. The case was selected for scrutiny and assessment was completed by National e-Assessment Centre, Delhi as per the recent faceless Central Cooperative Bank is a Co-Operative Society as well as a Bank. They should have appreciated that the interest and dividend from such Cooperative Bank is eligible for deduction under section 80P(2)(d) of the Act. assessment procedure. The assessee explained that the Statutory Reserve Fund and Statutory Bad Debit Reserve Fund :-6-: ITA. No:363/Chny/2025 were invested as FD with Chennai Central Cooperative Bank (CCC Bank). It also Invested in CCC Bank share capital for obtaining loan for business purpose, The assesse claimed the interest and dividend on such investment are deductible not only u/s. 80P(2)(a)(i) but u/s.8OP(2)(d) of the Act. The AO while framing assessment noted that the deposit from members and available funds which are not utilized for banking / co-operative facilities to members have been parked in various investments. The AO noted that these investments are for fixed period and these Investments cannot be utilized before maturity for the business of the society. Therefore, the AO computed the income on these investments at Rs.6,28,016/- and disallowed the claim of deduction made u/s 80P(2)(a)(i) of the Act. Aggrieved, assessee preferred appeal before CITIA).

4. The CIT(A) following the decision of Hon'ble Karnataka High Court in the case of PCIT vs. Totagars Co-operative Sale Society, (2017) 395 ITR 611 (Karnataka) confirmed the disallowance. Aggrieved, assessee preferred appeal before the Tribunal 5. I have heard rival contentions and gone through the facts and circumstances of the case. Admittedly, the assessee is a Co-operative Society registered under Tamil Nadu Co-operative Societies Act. The Chennai Central Co-operative Bank previously known as The Madras District Cooperative Central Bank Ltd., was registered as a Cooperative Society and as a District Central Cooperative Bank, it caters to the needs of the Primary Cooperative Societies and Cooperative Wholesale Stores and other Cooperatives in Chennai city. Once the assessee is a Co-operative Society and it has deposited the funds with District Central Co-operative Bank which a registered under Co-operative Society Act of Tamil Nadu, the same is eligible for claim of deduction in view of the decision of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd., & Ors. Vs. CIT, 123 Taxmann.com 161 (SC). Similar view has been taken by the Tribunal in the case of Tamilnadu Co-operative State Agriculture and Rural Development Bank Limited in to 33/CHNY/2021 vide order dated 29.04.2022 following the decision of Hon'ble Supreme Court in the case of Mavilayil Service Co-operative Bank Ltd, supra and the Hon'ble Madras High Court in the case S-1308, Ammapet Primary Agricultural Co-operative Bank Lid, in T.C.A. Nos. 882 and 891 of 2018. Respectfully following the same, I allow the claim of deduction u/s.80P(2)(a)(i) of the Act. Accordingly, the appeal of the assessee is allowed.

6. In the result, the appeal flied try the assessee is allowed. Order pronounced in the open court on 27th February, 2023 at Chennai." 6.2.5. The above of Jurisdictional ITAT's decision is considered and it is seen that the facts of the above decision and that of the appellant are similar and the Hon'ble ITAT in its decision has come to the conclusion that appellant being a co-operative society and has deposited the funds with District Central Co-operative Bank, and received interest and dividend which are eligible for deduction u/s 80P(2)(a)(i).”

6. Aggrieved by the order of the ld.CIT(A), NFAC, the revenue preferred an appeal before us. The ld.DR submitted that the ld.CIT(A) has failed to appreciate that assessee has not earned interest and dividend from any other cooperative :-7-: ITA. No:363/Chny/2025 society but from the cooperative bank where the assessee has sparked some of its funds and hence, as deduction u/s.80P(2) is not eligible. The decision of the coordinate bench in the case of SIDCO Employees Co-operative Thrift and Credit Society Vs. ITO, Ward – 19(4), Chennai in dated 27.02.2023 is distinguishable from the facts of the present case of the assessee and hence, prayed for setting aside the order of the ld.CIT(A) by confirming the addition made by the Assessing Officer.

11. 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.

12. 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: "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is to be treated as primary agricultural society and is carrying on the business of banking or providing credit facilities to its members and is entitled for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 with respect to the interest received from Class B members who were involved in non-agricultural society?". While answering to the above, the Division Bench held that the respondent therein, which is a Co-operative society, is entitled to avail the benefit under 80P(2)(d) of the Act. The judgment was rendered on 10.08.2016, where the judgement rendered by the Hon'ble Supreme Court in 2010 was considered.

:-9-: ITA. No:363/Chny/2025

13. 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.” 8. Therefore, the ld.AR submitted that there is no reason to interfere in the orders of the ld.CIT(A) in allowing the deduction claimed u/s.80P of the Act and hence prayed for dismissing the appeal of the revenue.

10. On appeal filed by the assessee, the ld.CIT(A) relying on the decision of the coordinate bench of ITAT allowed the appeal of the assessee relying on the decision of Chennai Tribunal in for A.Y. 2018-19 in the case of SIDCO Employees Co-operative Thrift and Credit Society Ltd. Vs. ITO, Ward 19(4), Chennai dated 27.02.2023, wherein the Tribunal categorically :-10-: ITA. No:363/Chny/2025 confirmed that “Once the assessee is a Co-operative Society and it has deposited the funds with District Central Co-operative Bank which is registered under Co-operative Society Act of Tamil Nadu, is eligible for deduction u/s.80P(2)(a)(i) of the Act.

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 Co- operative Societies Act, 1983 on 20.5.2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co-operative Bank. Therefore, it is clear that the investment made by the petitioner is a Co- operative Bank registered under the Co-operative Societies Act. The Income Tax Act, 1961 has also defined 'Co-operative Society' under Section 2(19) as follows: "2(19). "Co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies.

:-11-: ITA. No:363/Chny/2025 10. A reading of the above definition would make it clear that 'Co- operative Society' means a Co-operative Society registered under Co- operative Societies Act, 1912. Thus, a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.

13. 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.”

12. Therefore, in the present facts and circumstances of the case and respectfully following the decision of the Hon’ble Madras High Court (supra), we are of the considered view that there is no reason to interfere in the order of the ld.CIT(A) in allowing the assessee’s claim of deduction of interest and dividend :-12-: ITA. No:363/Chny/2025 u/s.80P(2)(a)(i) of the Act and hence we are inclined dismiss the grounds raised in the appeal of the revenue.