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Facts
The assessee, a cooperative society engaged in primary agricultural credit, claimed deduction under Section 80P(2) for interest income of Rs. 7,66,340/- earned from investments in nationalized banks. The Assessing Officer disallowed this amount, treating it as income from other sources under Section 56, relying on the Supreme Court's decision in *Totgars Cooperative Sale Society Limited*. The CIT(A) upheld the disallowance.
Held
The Tribunal held that the *Totgars* decision was distinguishable from the present case. Citing *Vavveru Cooperative Rural Bank Ltd*, it ruled that interest income from investments in nationalized banks, when originating from the society's primary cooperative activities, is attributable to those activities and thus eligible for deduction under Section 80P(2)(a)(i). The disallowance made by the lower authorities was set aside.
Key Issues
Whether interest income earned by a cooperative society from investments in nationalized banks is eligible for deduction under Section 80P(2)(a)(i) if the funds originate from its cooperative activities, and the applicability of the Supreme Court's ruling in *Totgars Cooperative Sale Society Limited* to such interest income.
Sections Cited
80P(1), 80P(2), 80P(2)(a)(i), 80P(2)(a)(iii), 80P(2)(d), 80P(2)(e), 56, 234A, 234B, 234D
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Shri Duvvuru RL Reddy, Vice-(KZ)
Assessment Year: 2016-2017 Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited,……………Appellant Vivekananda Nagar, Babla Gobindapur, P.S. Santipur, Nadia-741404, West Bengal [PAN:AACAG1400F] -Vs.- Income Tax Officer,……………………………...Respondent Ward-41(2), Nadia, Ananta Hari Mitra Road, Nadierpara, Nadia, Krishnanagar-741101, West Bengal Appearances by: Shri Soumitra Choudhury, Advocate, appeared on behalf of the assessee Shri Subhro Das, Addl. CIT, appeared on behalf of the Revenue Date of concluding the hearing: December 31, 2025 Date of pronouncing the order: February 26, 2025 O R D E R
The present appeal is directed at the instance of assessee against the order of ld. Addl./JCIT(Appeals)-9, Mumbai dated 14th March, 2024 passed for Assessment Year 2016-17.
(A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited 2. Brief facts of the case are that the assessee is a Cooperative Society engaged in the business of primary agricultural credit society/primary cooperative agricultural and rural development bank in accordance with the objects and by laws of the cooperative society and the same was approved by the Registrar of Cooperative Societies, West Bengal. not a primary cooperative bank. The activities pursued by the assessee during the Financial Year 2015- 16 relevant to the assessment year 2016-17 are identical and same like earlier years in conformity with the objects and also claimed deduction under section 80P(2) of the Act for the assessment year 2016-17. The ld. Assessing Officer disallowed an amount of Rs.766,340/- out of the total claim of deduction of Rs.26,14,728/- on the alleged ground that the tax liability of interest income on investment with any other bank deposits other than cooperative bank is treated as income from other sources and the same is taxed under section 56 of the Act by relying on the decision of the Hon’ble Supreme Court in the case of M/s. Totgars Cooperative Sale Society Limited -vs.- ITO in Civil Appeal No. 1622 of 2010. Aggrieved by the order of ld. Assessing Officer, the assessee preferred an appeal before the ld. CIT(Appeals).
The ld. Addl./JCIT(Appeals)-9, Mumbai after considering the submissions of the assessee, dismissed the appeal filed by the assessee.
On being aggrieved, the assessee preferred an appeal before the ITAT and raised the following grounds:-
(1) For that on the facts and circumstances of the case and in law, the disallowance of claim being Rs.7,66,340/-
2. (A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited as deduction under section 80(P)(1) of the Act is illegal and liable to be set aside. (2) For that on the facts and circumstances of the case and in law, the ld. Appellate Authority grossly erred in computing interest income of Rs.7,66,340/- under the head ‘income from other source’ under section 56 of the Act. (3) For that the interest charged u/s 234A, 234B and 234D amounting to Rs.81,210/- is not chargeable in accordance with the Act.
5. I have heard both the sides. It was the submission of the assessee that the appellant-society is engaged in the business of primary agricultural credit society/primary cooperative agricultural and rural development bank in accordance with the objects and by laws of the cooperative society and the same was approved by the Registrar of Cooperative Societies, West Bengal. The assessee Society carried out two kinds of activities i.e. (i) selling fertilizer, seeds etc. to the farmer members of the society; and (ii) providing credit facilities to the members for agricultural activities. It was the further submission of the assessee that the appellant-Society also claimed deduction under section 80P(2) of the Act for the earlier assessment years, but the same was allowed by the Department in accordance with law. Ld. Counsel for the assessee further submitted that the only grievance of the assessee is that the interest income of Rs.7,66,340/- has been received from the savings bank account of the assessee-society, which was not earned from the Cooperative Bank. He further submitted that the revenue authorities relied on the decision of the Hon’ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Limited -vs.- ITO, Karnataka (2010) 188 taxmann 282 in Civil Appeal No.
(A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited 1622 of 2010. He further submitted that the decision of the Hon’ble Apex Court in the case of Totgars Cooperative Sale Society Limited -vs.- ITO, Karnataka (supra) is not applicable to the facts of the present case on hand and so many Hon’ble High Courts and Tribunal are held that the decisions of the Hon’ble Apex Court is distinguishable to the facts of present case on hand. He pleaded to set aside the orders passed by both the revenue authorities.
On the other hand, ld. Departmental Representative submitted that both the revenue authorities have relied on the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited -vs.- ITO, Karnataka and rightly dismissed the appeal of the assessee. Therefore, he pleaded to uphold the orders passed by the revenue authorities.
I have heard both the sides and perused the material available on record. It is an admitted fact that the assessee is a Cooperative Agricultural Society and not a Cooperative Bank. The assessee has claimed deduction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society. The Ld. AO also placed heavy reliance in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) while disallowing the claim made by the assessee U/s. 80P(2)(a)(i) of the Act. I have perused the ratio laid down by the Hon’ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra)
(A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members U/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. On perusal of Section 80P(1) of the Act, entitles the Cooperative Societies to deduct the sums specified in sub-section (2) from its gross total income while computing the total income. Sub-section (2) of section 80P, in the sub-clause (a) allows deduction to cooperative society which is engaged in the following activities: “(a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or]
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited (v) the processing, without the aid of power, of the agricultural produce of its members, [or]
(vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its 8 members,] the whole amount of profits and gains of business attributable to any one or more of such activities:”
Further, I also extract below the provisions of section 80P2(d) and (e) of the Act for reference:
“(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;
(e) in respect of any income derived by the co- operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;”
From the plain reading of section 80P(2)(a)(i) of the Act, the whole amount of profits and gains of the business attributable to one or more of such activities shall be allowed as (A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) & (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted in sub-clause (a) whereas the benefit of clauses (d) & (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub-clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative (A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, I extract the relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below: “34. The case before the Supreme Court in Totgar's Co- operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.”
Further Hon’ble High Court of Andhra Pradesh and Telengana in the case of Vavveru Cooperative Rural Bank Limited -vs.- Chief Commissioner of Income Tax and Another [2017] 396 (A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited ITR 371 (AP), wherein it has been held that Cooperative Society is eligible for deduction under section 80P(2)(a)(i) of the Act on the interest income received from investment in Banks. The Hon’ble High Court of Andhra Pradesh has categorically held in its judgment in paras 35 to 37, which reads as under:- “35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalized banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.
The original source of the investments made by the petitioners in nationalized banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".
Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.’
Therefore, considering the ratio laid down by the judgment of the Hon’ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Limited and also the ratio laid down by the Coordinate Bench of Hyderabad in the case of Kakateeya Mutually Aided Thrift and Credit Cooperative Society in ITA No. 107/Viz./2022, CO No. 7/VIZ/2022 dated 30.08.2023, I have no hesitation to come to the conclusion that the facts in the case of Totgars Cooperative Sale Society Limited -vs.- ITO as the ratio laid down by the Hon’ble Supreme Court is not applicable to the present case in hand and, therefore, I am of the firm view that the (A.Y. 2016-2017) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited ld. Assessing Officer as well as ld. CIT(Appeals) are not correct to disallow the amount of Rs.7,66,340/- on the ground that the assessee had earned interest income from savings bank accounts other than cooperative bank. Therefore, the grounds raised by the assessee are allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 26/02/2025.