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Facts
The assessee, a cooperative society, claimed deduction under Section 80P(2)(d) for interest income earned on deposits held in cooperative banks. The Assessing Officer disallowed the deduction, holding that such interest income was from 'other sources' and not eligible for deduction under Section 80P(2)(d) as the banks were not cooperative societies in the specific context required by the Act.
Held
The Tribunal held that the assessee is eligible for deduction under Section 80P(2)(d) of the Act. Relying on various High Court and Supreme Court decisions, the Tribunal found that interest income earned from investments in cooperative banks, which are registered under the cooperative societies act, is eligible for deduction.
Key Issues
Whether interest income earned by a cooperative society from deposits held in a cooperative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P, 80P(2)(d), 80P(2)(a)(i), 250, 80P(4)
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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND SHRI S.R. RAGHUNATHA
O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
These six appeals filed at the instance of the assessee are directed against six separate orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 11.12.2024 for the assessment years 2012-13, 2013-14, 2017-18, 2018-19 & 2020-21 and dated 10.12.2024 for the assessment year 2016-17, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’).
Common issues are raised in these appeals, hence, they were heard together and are being disposed off by this consolidated order. The solitary to 299/Chny/2025 issue argued on merits is with regard to allowability of deduction of interest receipt from Cooperative Bank under section 80P(2)(d) of the Act and with the consent of both the parties, the appeal in ITA No. 271/Chny/2025 for assessment year 2016-17 is taken as lead case for adjudication.
Brief facts of the case are as follows:
The assessee, a cooperative society registered under the Multi State Cooperative Act, 2002, filed its return of income for the assessment year 2016-17 admitting taxable income of Rs. 6,24,860/-. The assessee is engaged in the business of extending credit facility to its members and had earned a gross total income of Rs.5,03,66,025/- and claimed deduction under section 80P of the Act to an extent of Rs.4,97,41,161/- and the balance of Rs.6,24,860/- was offered to tax. The Assessing Officer noted that the said income offered to tax relates to income earned by way of interest on deposits held in Nationalized Banks which are ineligible for deduction under section 80P(2)(d) of the Act. The business income of the assessee of Rs.4,97,41,161/- was claimed as deductible under section 80P(a)(i) of the Act. Thus, the case was selected for ‘limited scrutiny’ to examine the correctness of claim of deduction under section 80P of the Act. Against statutory notices, the assessee furnished the details before the Assessing Officer. After examining the details furnished by the assessee, the Assessing Officer observed that the income earned from deposits held to 299/Chny/2025 in Chennai Central Co-operative Bank (CCCB) of Rs.21,22,237/- and with that of Thrift Co-operative Federation Ltd. (TCF) of Rs..46,42,643/- may not be eligible for deduction under section 80P(2)(d) of the Act, if the same were found to be Co-operative Society by virtue of section 80P(4) of the Act. Accordingly, the Assessing Officer required the assessee to prove that the interest earned falls under the purview of section 80P(2)(d) of the Act. In its elaborate reply of the assessee in response to the said notices, which is reflected at pages 3 & 4 of the assessment order, the assessee has conclusively submitted that the interest income claimed as exempt under section 80P(2)(d) of the Act may be allowed for the reason that the interest earned from deposits held in CCCB is primarily a Co-operative Society registered on 10.07.1930 and additionally remains to be a Co-operative Bank covered by the Banking Regulation Act of 1949. After considering the submissions of the assessee, the Assessing Officer observed that the income earned on deposits with CCCB is not the business or operational income of the assessee, but, it is an income of the assessee from the head “income from other sources” by relying upon the decision in the case of Totgars Co-operative Sales Society Ltd. v. ITO [2010] 322 ITR 283 (SC). Thus, the Assessing Officer held that the assessee is ineligible to claim the interest earned on deposits held in CCCB and accordingly, disallowed the deduction claimed under section 80P(2)(d) of the Act and added to the total income of the assessee. ITA Nos.296 to 299/Chny/2025
Aggrieved by the assessment order, the assessee carried the matter in appeal before the ld. CIT(A) and filed detailed written submissions. In its reply, the assessee relied upon the decision of the Coordinate Benches of this Tribunal in the case of ACIT v. DAEE Cooperative T & C Society in wherein, by following the decision of the Hon’ble High Court of Madras in the case of CIT v. Veerakeralam Primary Agricultural Cooperative Credit Society (2016) 388 ITR 492 (Mad), in which, the decision in the case of Totgars Co-operative Sales Society Ltd. (supra) has been referred and contended that the assessee is eligible to claim deduction of interest earned out of deposits from CCCB under section 80P(2)(d) of the Act. Thus, the assessee has conclusively submitted before the ld. CIT(A) that the decision in the case of Citizen Cooperative Society Ltd. reported in 88 Taxmann.com 114 SC is not applicable and the assessee society has not violated the law laid down in the case of The Mavilayi Services Cooperative Bank Ltd. & Ors v. CIT in Civil Appeal Nos. 7343-7350 of 2019 and prayed to follow the decision of the Coordinate Benches of the Tribunal in the case of ACIT v. DAEE Cooperative T & C Society to delete the addition made by the Assessing Officer.
After considering the submissions of the assessee and relying upon the decision of the Hon’ble Supreme Court in the case of The Mavilayi Services Cooperative Bank Ltd. & Ors v. CIT (supra), the ld. CIT(A) held to 299/Chny/2025 that the assessee is entitled to the benefit of section 80P(2)(a)(i) of the Act. So far as, eligibility of claim of deduction under section 80P(2)(d) of the Act, the ld. CIT(A) has observed that the interest income earned from any Cooperative Society having a banking license or from any commercial banks or from any entities other than a co-operative society, such interest income shall not be eligible for deduction under section 80P(2)(d) of the Act and accordingly, ld. CIT(A) confirmed the addition and dismissed the ground raised by the assessee.
On being aggrieved, the assessee is in appeal before the Tribunal.
Before us, by filing detailed written submissions, the ld. Counsel for the assessee has submitted that the fixed deposits received from the Members (which is a liability to be repaid on attaining maturity) are the source for the fixed deposits (asset) kept in the Cooperative Banks. The funds deposited in the Bank must wait till some Members of the society avail loan. He has submitted that the fixed deposits kept in Cooperative Banks are similar to the stock-in-trade in the case of trading business. Therefore, the ld. Counsel for the assessee vehemently argued that the interest earned out of fixed deposit is an integral part of the business income of the assessee. Further, he submitted that the decision in the case of Totgars Co-operative Sales Society Ltd. (supra) cannot be applied for disallowing bank interest income for the reason that M/s. Totgars Co- to 299/Chny/2025 operative Sales Society Ltd. is a marketing society, whereas, the assessee’s society is a credit society and what is applicable for marketing society is not applicable for the credit society.
9. The ld. Counsel for the assessee strongly relied upon the decision of Hon’ble High Court of Kerala in the case of PCIT v. Peroorkada Service Co-operative Bank ltd. (2022) 134 taxmann.com 380 (Ker), wherein, the Hon’ble High Court has held that the interest income earned out of deposits held in co-operative bank is eligible for deduction under section 80P of the Act and prayed to allow the appeals of the assessee. Moreover, the ld. Counsel for the assessee also relied upon following decisions of the Tribunal in support of his arguments, wherein, various decisions of the Hon’ble High Court of Madras have been followed: i) Ashok Leyland Employees Cooperative Society Ltd. v. ITO in dated 01.10.2024 ii) The Central Excise Staff Co-op. Thrift and Credit Society Ltd. v. ITO in ITA No. 111 & 112/Chny/2023 dated 31.03.2023 iii) K 720 T Ganapathipalayam PACS Ltd. v. ITO in ITA No. 963/Chny/2024 dated 21.08.2024 iv) K. 1104 Elayamuthur Primary Agricultural Cooperative Credit Society v. ITO in ITA Nos. 1040 & 1041/Chny/2024 dated 18.09.2024 v) M/s. Kangayam primary Agricultural Cooperative Credit Society v. ITO in ITA No. 869/Chny/2023 dated 11.10.2023 10. Per contra, the ld. DR supported the order passed by the ld. CIT(A). ITA Nos.296 to 299/Chny/2025
We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The assessee has claimed deduction under section 80P(2)(d) of the Act. However, the ld. CIT(A) and the Assessing Officer denied the claim of deduction under section 80P(2)(d) of the Act for the reason that the interest earned out of fixed deposit is an income from other than a co-operative society having no banking license irrespective of its predominant activities of providing credit facilities or banking whatsoever. The main contention of the assessee is that the fixed deposits received from the Members (liability) are the source for the fixed deposits (asset) kept in the Cooperative Banks and it is nothing both stock-in-trade in the case of trading business and the interest earned out of fixed deposit is an integral part of the business income of the assessee eligible for claim of deduction under section 80P of the Act.
We have perused the decision of Hon’ble High Court of Kerala in the case of PCIT v. Peroorkada Service Co-operative Bank Ltd. (supra), wherein, the Hon’ble High Court has observed as under: “12.2 Section 80P deals with Co-operative Societies' computation of income. As already noted, it has four sections and several sub-sections and clauses. The Parliament has considered the various situations in which the exigible income and the deductable income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co-operative Society registered under Kerala Co-operative Societies Act. The interest income earned from District Co-operative Bank/State Co-operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from to 299/Chny/2025 Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co- operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.”
13. We find that in the case of Ashok Leyland Employees Co-operative Society Ltd. v. ITO in ITA 1439/Chny/2024 dated 01.10.2024as well as in the case of The Central Excise Staff Co-op. Thrift and Credit Society Ltd. v. ITO in & 112/Chny/2023 dated 31.03.2023 wherein, various decisions relied upon, while considering the appeal of the assessee, the Tribunal has followed the decision of the Hon’ble Jurisdictional High Court in the case S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd. in T.C.A. Nos. 882 and 891 of 2018 and therefore, the observations of the Hon’ble High Court is reproduced hereinbelow for better understanding: “5.1 Further, this issue is now covered by the Co-ordinate Bench decision in the case of Tamilnadu Co-operative State Agriculture and Rural Development Bank Limited, in ITA Nos.31 to 33/Chny/2021, order dated 29.04.2022, wherein we have already considered the decision of Hon’ble Supreme Court in the case of Mavilayi Service Co- operative Bank Limited vs. CIT, Calicut reported in [2021] 123 Taxmann.com 161 (SC) and held as under:- 30. In view of the above facts discussed and the case-laws of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, Calicut (supra), we are of the view that the Assessee is a Co-operative Society under the name and style as “Tamil Nadu Co-operative State Agricultural and Rural Development Bank Limited” and it is not engaged in the banking activities. It is also clear that in view of Section 3 read with Section 56 of the Banking Regulation Act, 1949, the Assessee cannot be considered as a Primary Co-operative Bank but it is a Primary Agricultural Credit Society because Co-operative Bank must be engaged in the business of Banking as defined in the Section 5(b) of the Banking Regulation Act, which means accepting, for the purpose of lending or investment of deposits of money from the public. Similarly, u/s.22(1)(b) of the Banking Regulation Act, as ITA Nos.296 to 299/Chny/2025 applicable to Co-operative Societies, no Co-operative Society shall carry on in banking business in India, unless it is a Co-operative Bank and holds license issued on this behalf by the Reserve Bank of India. In the present case also, there is no banking activity and it is not registered as a Bank and it does not hold any license issued by the Reserve Bank of India. The Assessee being a Primary Agriculture Credit Society is a Co-operative Society. The primary object of which is to provide financial accommodation to its members, i.e. members as well as Associate members for agriculture purposes or for purpose connected with the agricultural activities. Further, we are of the view that the provision of Section 80P(4) of the Act is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in the banking business, i.e. engaged in lending money to members of the public, which have a license in this behalf from the Reserve Bank of India. Clearly, therefore, the Assessee’s case is out of the provisions of Section 80P(4) of the Act. In relation to the Associate members, we are of the view that the provisions of Section 22 read with Rule 32 of the Tamil Nadu Co-operative Societies Act, 1983 and Tamil Nadu Co-operative Societies Rules clearly determine the procedure to admit Associate members and accordingly in the present case, the Assessee’s Co- operative Society has admitted the same. In view of the above finding, we hold that the Assessee is entitled for the claim of deduction u/s.80P(2)(a)(i) of the Act. Thus, we reverse the orders of the lower authorities and allow these three appeals of the Assessee. 5.2 As the issue is squarely covered and the facts are identical to the above referred case laws, respectfully following the Hon’ble Supreme Court decision in the case of Mavilayi Service Co-operative Bank Limited, supra, Hon’ble Madras High Court decision in the assessee’s own case & S-1308, Ammapet Primary Agricultural Co- operative Bank Ltd., and the Co-ordinate Bench decision in the case of Tamilnadu Co- operative State Agriculture and Rural Development Bank Limited, supra, we dismiss the appeal of Revenue. Consequently, all the three appeals of Revenue are dismissed.”
In the case of K 720 T Ganapathipalayam PACCS Ltd. v. ITO in ITA No,. 963/Chny/2024 dated 21.08.2024, wherein, the Tribunal referred to the decision in the case of Erode City Municipal Corporation Emp. Co-op. T & C Limited K831 v. The Assessing Officer, Ward 1(1), Erode in & 510/Chny/2024 dated 22.07.2024 in which, on an identical facts, the decision of the Hon’ble High Court of Madras in the case of Thorapadi Urban Co-op. Credit Society Limited & Another v. ITO in WP Nos. 11172, 11174, 11177 and 11180 of 2023 dated 10.10.2023 has been followed to ITA Nos.296 to 299/Chny/2025 decide the issue of allowability of claim of deduction under section 80P(2)(d) of the Act. While considering the decision of the Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society v. ITO (supra) and by referring to decision of the Division Bench of Hon’ble High Court of Madras in the case of CIT v. Salem Agricultural Producers Co- operative Marketing Society Ltd. in TCA No. 5 of 2015, the Hon’ble High Court has held that the co-operative society is entitled to avail the benefit under section 80P(2)(d) of the Act and, we deem it proper to reproduce the observations of the Hon’ble High Court in the case of Thorapadi Urban Co- op. Credit Society Limited & Another v. ITO (supra) for ready reference: ‘’8. The main issue is to decide in the present case is as to whether the petitioner Co-operative Society is entitled for a deduction for the interest income received from the Co-operative Bank? 9. It would be appropriate to extract hereunder the relevant portion of Section 80P(2)(d). 80 P. Deduction in respect of income of co-operative societies: (1) ...... ..... ..... (2) The sums referred to in sub-section (1) shall be the following, namely :— (a) to (c) ..... ..... ...... (d) “in respect of any income by way of interest or dividends derived by the co- operative society from its investment with any other co-operative society, the whole of such income”
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 to 299/Chny/2025 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.
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.
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’’.
The ld. DR could not brought on record any higher Court’s decisions having modified/reverted the orders of various High Courts and the decisions of the Tribunal referred herein above. Accordingly, in view of the above facts and circumstances of the case and respectfully following the to 299/Chny/2025 decision of Hon’ble High Court of Kerala in the case of PCIT v. Peroorkada Service Co-operative Bank Ltd. (supra) rendered in 2022 and the decision of the Hon’ble High Court of Madras in the case of Thorapadi Urban Co-op. Credit Society Limited & Another v. ITO (supra), in which, the decision of Hon’ble High Court of Madras has been referred in the case of CIT v. Salem Agricultural Producers Co-operative Marketing Society Ltd., which was rendered on 10.08.2016, wherein, the judgement of Hon’ble Supreme Court rendered in 2010 was considered, we hold that the assessee is eligible for deduction under section 80P(2)(d) of the Act. Thus, the ground raised by the assessee is allowed.
In view of our decision for assessment year 2016-17, the appeals filed for the assessment years 2012-13, 2013-14, 2017-18, 2018-19 and 2020-21 are also allowed.