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Facts
The assessee, a primary agricultural credit co-operative society, filed its return declaring NIL income after claiming deduction under Chapter VIA. The AO disallowed deductions under Section 80P for business income and interest income from investments, which was upheld by the CIT(A).
Held
The Tribunal held that the income earned from lending activities to both 'A' and 'B' class members is eligible for deduction under Section 80P(2)(a)(i) as business income. Furthermore, interest earned from investments in cooperative banks is also eligible for deduction under Section 80P(2)(d).
Key Issues
Whether interest income earned by a cooperative society from investments in a cooperative bank is eligible for deduction under Section 80P(2)(d)? Whether business income from lending activities to all classes of members is eligible for deduction under Section 80P(2)(a)(i)?
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI S.S. VISWANETHRA RAVI & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal by the assessee is filed against the order of the Commissioner of Income Tax, Appeal, ADDL / JCIT (A) Bhubaneswar, for the assessment year 2017-18, vide order dated 20.09.2024.
The assessee has raised the following grounds of appeal:-
1. Order made by disallowing deduction under sec.80P The Assessing officer and CIT(A) is contrary to law, facts and circumstances of the case to the extent prejudicial to the interest of the appellant and at any rate is opposed to the principles of equity, natural justice and fair play.
:-2-: ITA. No.:2941/Chny/2024
2. Disallowing the 80P deduction of Rs.13,02,557/- and taxed under Business income: The Assessing officer and CIT(A) failed to appreciate that when none of the activities of the Appellant are in violation of the Tamilnadu Co- operatives Societies Act, 1983 (TNCS Act) or its Bye-Laws, and the admission of two classes of members permitted by the TNCS Act, 1983 the benefit u/s 80P cannot be denied to the Appellant the same was confirmed. The Hon'ble Apex court in The Mavilayi Service Cooperative Bank Ltd. & Ors and Hon'ble Madras High Court in the case of PCIT Vs Ammapet Primary Agricultural Cooperative Credit Society TCA Nos.882 and 891 of 2018 dt.06.12.2018.
Disallowing the 80P deduction of Rs.71,733/- and taxed under Income from other sources: The CIT (A) erred when he follow the principle laid down by the Order of Hon'ble Supreme Court in the case of M/s the Totgar's Cooperative Sale Society Limited Vs ITO, Civil Appeal No. 1622 of 2010 dated: 08.02.2010. Interest income from Central Bank is part and parcel of the business income of the Appellant the same was confirmed by Honourable ITAT Chennai bench in the case of DCIT. M/s. DAE Employees Coop Thrift & Credit Society Ltd ITA.592/CHNY/ 2023 and The Commercial Employees Co Operative Society Limited Vs ITO Appeal No. ITA No. 619/CHNY/2023. 4.1. Your Appellant pray on considering the above submission, delete the Additions made by Assessing officer and allow the deduction under Sec. 80P(2)(a)(i) for Rs.13,74,290/-. 4.2 The appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of appeal at any time before or at the time of hearing.
3. The brief facts of the case are that the assessee is a primary agricultural credit co-operative society engaged in providing credit facilities to its members and filed its return of income for the AY 2017-18 on 30/03/2018 declaring a total income of Rs.NIL after claiming deduction under chapter VIA of the Act amounting to Rs.13,74,290/-. The case was selected for limited scrutiny to verify deduction under chapter VIA. After issuing statutory notices the :-3-: ITA. No.:2941/Chny/2024 assessee filed details called for from time to time. The assessee submitted that the society is having two types of members i.e., A class and B class members and both the class of members are eligible to avail the loan from the society. On perusal of the bye laws, the AO concluded the assessment relying on the decision of the Hon’ble Supreme Court in the case of Citizen Co-operative Ltd., v/s. ACIT in Civil Appeal No.10245/2017 dated 08.08.2017 disallowed the deduction claimed u/s.80P(2)(a)(i) to the tune of Rs.13,02,557/- and relying on the decision of the Hon’ble Supreme Court in the case of The Totgars’ Co-operative Sale Society Ltd., v/s. ITO, Karnataka[2010] 188 Taxmens 282 (SC) in Civil Appeal No.1622/2010 dated 08.02.2010 disallowed the deduction claimed u/s.80P(2)(d) to the tune of Rs.71,733/- by passing an order u/s.143(3) of the Act, dated 08/12/2019. Aggrieved by the addition, the assessee preferred an appeal before the ld. CIT (A), who has affirmed the ld. AO's order, hence the present appeal.
The ld.AR of the assessee assailing the action of the Ld.CIT(A), stated that the impugned order has been passed by not following the judgments of Hon’ble supreme Court, High courts and the ITAT. The action of AO and that of Ld.CIT(A) is erroneous, since the interest income earned on deposits made at of Chennai Central Cooperative bank and Tamil Nadu State apex co operative bank Ltd
:-4-: ITA. No.:2941/Chny/2024 is allowable deduction to assessee both under section u/s.80P(2)(a)(i) as well as u/s.80P(2)(d). The ld.AR submitted that the AO and that of ld.CIT(A) have failed to appreciate that the Tamil Nadu Cooperative Societies Act 1983 permitted to admit 2 classess of members for the purpose of carrying on its activities and hence eligible for deduction u/s.80P of the Act for the entire income attributable to the business. The Ld.AR further submitted that the said proposition has been confirmed by the Hon’ble Apex Court in the case of Mavilayi Service Cooperative Bank Ltd.& Ors and the Hon’ble Madras High Court in the case of PCIT vs. Ammapet Agricultural Credit Cooperative Society in TCA Nos.882 & 891 of 2018 dated 06.12.2018.
The Ld.AR also stated that the AO and that of Ld.CIT(A) have erred in confirming disallowance of interest earnings from investments placed in cooperative banks without contemplating the definition of cooperative societies, under the wrong impression that the interest received from the cooperative bank is not eligible for a deduction under Section 80P(2)(d). The Income Tax Act, 1961 has defined 'Co-operative Society' under Section 2(19) as follows:
"2(19). "Co-operative society" means a co-operative 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 co- operative societies"
:-5-: ITA. No.:2941/Chny/2024
Further, as per the definition of the term Co-Operative Bank under the Banking Regulation Act, 1949 read with NABARD Act, 1981, Co-Operative Banks are Co Operative Societies. (Part-V-Section 56(c) (ccvii) of the Banking Regulation Act and Section 2(d) of the NABARD Act). Thus, a co-operative society as defined under the Act, may be a Co- operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank. In support of the claim of the assessee, the ld.AR submitted that the interest earned from investments in the Central Cooperative bank is also eligible for deduction u/s.80P(2)(a)(i) of the Act, as the investments of funds made by the society as per the statutory requirement of the Tamilnadu Cooperative Societies Act, 1983. Therefore, the interest earned from such investments tantamount to business income of the society, which is eligible for deduction u/s.80P(2)(a)(i) of the Act. Apart from that the Ld.AR submitted that the interest earned by the assessee from the investment in another cooperative bank eligible for deduction u/s.80P(2)(d) of the Act. Hence, the ld.AR prayed for setting aside the order of the ld.CIT(A) by deleting the additions made by the AO. that they are registered under Tamil Nadu State Co-operative Societies Act, 1983.
Per contra, the ld.DR relied on the orders of lower authorities and prayed for confirming the same.
:-6-: ITA. No.:2941/Chny/2024
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the assessee is a credit co-operative society engaged in providing credit facilities to its both A and B class members. The society has earned income from its lending activities and claimed deduction u/s.80P(2)(a)(i) of the Act to the tune of Rs.13,02,557/-. As argued by the ld.AR the admission of two classes of members to the society is permitted by the Tamilnadu Cooperative Societies Act, 1983. We find that the claim of the assessee is eligible for deduction u/s.80P(2)(a)(i) of the Act, as the entire income earned by lending credit facilities to both A and B classes of members by the assessee is considered as business income, which has been permitted as per the registering authority of the society.
This view has been upheld in 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) and the Hon’ble Madras High Court in the case of S-1308, Ammapet Primary Agricultural Co-operative bank ltd., in TCA Nos.882 & 891 of 2018. The relevant portion of the Hon’ble Madras High Court is extracted below: 17. In the preceding paragraphs, we have pointed out the definitions of the expressions 'members' and 'associate member'
:-7-: ITA. No.:2941/Chny/2024 under the TNCS Act and held that an 'associate member' is also a 'member' in terms of Section 2(16) of the TNCS Act. Furthermore, the Assessing Officer himself found that the associate members are also admitted as members of the society. In such circumstances, the Assessing Officer fell into an error in not granting any relief to the assessee society, which was rightly granted by the CIT (A) as confirmed by the Tribunal. In addition to that, the Assessing Officer has not pointed out that loans have been disbursed to all and sundry in terms of the provisions of the TNCS Act and in terms of Clause (b) to Sub-Section (4) of Section 80P of the Act, the society has an area of operation, operates within the taluk and will provide long term credit for agricultural and rural development activities as well. The CIT (A) rightly granted the relief to the assessee as confirmed by the Tribunal. We do not find any good ground to entertain these appeals.
Accordingly, the above tax case appeals are dismissed. The substantial questions of law framed are answered against the Revenue.
Apart from regular business income from providing credit facilities to its members by the society, the funds have been invested in the Central Cooperative bank, has earned interest income during the Assessment year. Since, the interest income earned by the society from central cooperative bank, which is also a cooperative society, in our considered view the assessee is eligible for deduction u/s. u/s.80P(2)(d) of the Act on such income.
In the facts and circumstances of the case and respectfully following the decisions of the Hon’ble courts (supra), we allow the claim of business income earned by the society as eligible for deduction u/s.80P(2)(a)(i) of the Act and interest earned on investments u/s.80P(2)(d) of the Act by setting aside the impugned
:-8-: ITA. No.:2941/Chny/2024 order passed by the Ld.CIT(A). Accordingly, the appeal of the assessee is allowed.
In the result the appeal filed for the A.Y. 2017-18 by the assessee is allowed.
Order pronounced in the court on 26th May, 2025 at Chennai.