DHARMADANGA SAMABAY KRISHI UNNAYAN SAMITY LTD.,KALNA, PURBA BARDHAMAN vs. I.T.O., WARD - 1(3),, BURDWAN

This is an appeal filed by the assessee against the order of the NFAC dated 25.03.2025 passed u/s 250 of the Income Tax Act, 1961 (‘Act’).

Brief facts of the case are that the assessee is a cooperative society, filed its return of income declaring total income of ₹10,56,767, which was claimed as deduction under Section 80P of the Act. The return was selected for scrutiny through CASS, and statutory notices under Sections 143(2) and 142(1) of the Act were duly issued and complied with. During the course of assessment proceedings, the Assessing Officer noted that the assessee had earned interest income of ₹12,812 from deposits maintained in Dharmadanga Samaby Krishi Unnayan Samity Ltd. bank accounts. The Assessing Officer held that such interest income was not eligible for deduction under Section 80P(2)(a)(i) of the Act and, accordingly, added the said amount to the total income of the assessee. The assessment was completed on total income of ₹12,812.

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who upheld the order of the Assessing Officer by holding that interest income derived from bank deposits was not attributable to the business of providing credit facilities to its members and therefore, not eligible for deduction under Section 80P(2)(a)(i).

Dissatisfied with the above order assessee has raised the ground challenging the action of the lower authorities in denying deduction under Section 80P(2)(a)(i) of the Act in respect of interest income from deposits kept with banks.

When the matter was called for hearing, none appeared on behalf of the assessee despite notices having been issued from the Registry from time to time. Therefore, the appeal is being disposed of on merits after hearing the Ld. Departmental Representative and perusing the material available on record.

We have considered the findings of the lower authorities and the materials on record. The issue for consideration is whether interest income earned by a cooperative society from deposits made in banks is eligible for deduction under Section 80P(2)(a)(i) of the Act. We find support from the Hon’ble Kerala High Court in the case of PCIT v. Sahyadri Co-operative Credit Society Ltd. [2020] 301 Taxman 36 (Ker.) has held that income received from deposits of Dharmadanga Samaby Krishi Unnayan Samity Ltd. surplus funds would qualify for deduction under Section 80P(2)(a)(i) of the Act if such income is attributable to the business of providing credit facilities to its members. The relevant portion of the decision of the Hon’ble Kerala High Court is as under: “8. We also find force in the submission of the learned Senior counsel, distinguishing the decision of the Supreme Court in M/s. The Totgars' Cooperative Sale Society Limited (supra), on the ground that the Court in that case had found that the Society concerned had appropriated amounts forming part of surplus receipts which were due to its members, and invested the same to earn interest during the period when the surplus receipts were in its hands. It was therefore that the court found that the interest earned by the Society through deposit of such receipts with banks in fact ought to have accrued to the benefit of the individual members and not to the Society itself; that in relation to the Society, it was to be treated as income from other sources since the interest income had lost its nexus with the principal income earned by the Society. The facts in the instant cases are entirely different and the investment concerned was of amounts that had already attained the character of surplus profits in the hands of the assessee. On this issue, therefore, we find ourselves in agreement with the view taken by the Andhra Pradesh and Karnataka High Courts respectively in The Vavveru Co- operative Rural Bank Ltd. (supra) and Tumkur Merchants Souharda Credit Co-operative Ltd. (supra).”

In the result, the appeal of the assessee is allowed.