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Facts
An agricultural cooperative credit society appealed against the disallowance of deduction under Section 80P of the Income Tax Act for interest income of Rs. 2,05,199/- from a savings bank account with Axis Bank. The CIT(A) had disallowed the deduction, relying on the Supreme Court's decision in Totagars Cooperative Sale Society Limited.
Held
The Tribunal found the assessee's case distinguishable from Totagars, asserting that the interest income from the Axis Bank account, maintained for the smooth running of its banking business for members, was business income attributable to the cooperative society's activity and therefore eligible for deduction under Section 80P of the Act.
Key Issues
Whether interest income earned by an agricultural cooperative credit society from a savings bank account with a commercial bank, maintained for its business operations, is eligible for deduction under Section 80P of the Income Tax Act, 1961.
Sections Cited
250, 80P, 80P(2), 56
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Appearances by: Assessee represented by : Shyamadas Bandyopadhyay, FCA Department represented by : Monalisha Pal Mukherjee, JCIT, Sr. DR Date of concluding the hearing : 30.04.2025 Date of pronouncing the order : 07.05.2025
O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER
The present appeal arises from order u/s 250 of the Income Tax Act, 1961 (hereinafter “the Act”), passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter “the Ld. CIT(A)”] vide order dated 17.10.2024 for AY 2017-18.
1.1 In this case, the assessee is an agricultural cooperative credit society whose returned income was enhanced by the Ld. AO on several counts. Aggrieved with this action of Ld. AO, the assessee approached the Ld. Dhatrigram Niralganchi Samabay Krishi Unnayan Samity Limited CIT(A), where he could get substantial relief except on an amount of Rs. 2,05,199/- representing interest on savings bank account maintained with Axis Bank. It has been recorded on page 29 at para 6.43 of the impugned order that such interest was not eligible for deduction u/s 80P of the Act following the Hon’ble Supreme Court’s decision in the case of the Totagars Cooperative Sale Society Limited reported in 322 ITR 283 (SC).
Aggrieved with this action, the assessee is in appeal before the ITAT with as many as 5 grounds which are very lengthy and argumentative. However, for the sake of brevity the issues for adjudication may be summed up as under:
(i) The appellant is a primary agricultural credit society registered under the West Bengal Cooperative Societies Act, 2006. It exists to provide credit facilities to its members and the impugned amount of Rs. 2,05,199/-, received from Axis Bank, arose from banking activities by the appellant.
(ii) The case of the appellant was different from the issues dealt with in the Totagars case (supra). The appellant has relied on several cases and some of the same may be mentioned:
(a) Mavilayi Service Cooperative Bank [431 ITR 1 (SC)] (b) Anna Saheb Patil Mathadi Kamgar Sahakri Patpedi Ltd. [454 ITR 117 (SC)] and (c) The case of Guttigedarara Credit Cooperative Society Limited reported in 377 ITR 464 (Karnataka)
Before us, the Ld. AR relied on several case law to distinguish his case from that of the case of Totagars (supra). He pointed out that they are an agricultural credit society where an account with Axis Bank has been maintained for providing better services to its members, who deposit cheques etc. in the bank account. The Ld. AR read out portions from written submissions, which are relevant for adjudicating the issue and hence one particular portion is extracted as under:
Dhatrigram Niralganchi Samabay Krishi Unnayan Samity Limited “4. Member deposits other bank cheques for clearance in their savings account. Your appellant society is not doing banking with public after obtaining licence from Reserve Bank of India, hence your appellant is not the member in clearing house. Your appellant took help from Axis Bank in respect of clearing of the outstation cleques in course of Banking Business of your appellant. Your appellant maintains savings account with Axis bank for smooth running of banking business of your appellant, hence the interest received from Axis bank is income from Business or Profession. Learned Commissioner of Income Tax (Appeals), Income Tax Department considers interest received from Axis bank as income from other sources based on the judgment delivered by Hon'ble Apex Court in the case of the Totgar's Co-operative Sale Society Ltd. vs. ITO 322 ITR 283 (S.C.) which is not applicable in the instant case.” 3.1 The Ld. DR supported the order of Ld. CIT(A) and relied on the case of Totagaras (supra).
We have carefully considered the submissions of Ld. AR/DR and we have also perused the documents before us. It is seen that the case of the assessee is distinguishable from that of the Totagars case (supra) since as has been explained by the assessee that he maintained a savings account with Axis Bank for the smooth running of the bank business of assessee. There is considerable strength in the argument that the interest income from Axis Bank is business income which should be available for deduction u/s 80P of the Act. We are also considerable persuaded by the judgment of Hon’ble Karnatak High Court in the case of Guttigedarara Credit Cooperative Society Limited (supra), wherein an important distinction between the case of Totagaras (supra) has been made as under:
“10. Therefore, the word "attributable to is certainly wider in import than the expression "derived from Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co- operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income The income so derived is the amount of profits and gams of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act.
In this context when we look at the judgment of the Apex Court in Totagars Co- operative Sale Society's case (supra), co which reliance is placed, the Supreme Court was dealing with a case where the assessee Co-operative Society, apart from Dhatrigram Niralganchi Samabay Krishi Unnayan Samity Limited providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit security Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(3)(1) of the Act or under Section 80P(2)(a)(ii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made a clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.” It is clear that in the present case and based on peculiar facts of this cooperative society, it deserves to be held that the interest income would fall within the provision of section 80P(2) of the Act and the said interest income would be allowable for relief u/s 80P of the Act.
In result, appeal of the assessee is allowed.
Order pronounced on 07.05.2025