CHHATRAPATI NAGRI SAHKARI PATSANSTHA M,BEED vs. ITO, WARD-1, JALNA, JALNA

Interest Income is added Rs.19,73,718/-. The income of interest is not acceptable by A.O.

The appellant craves leave to add, alter, amend or delete any of the above ground of appeal.”

We have heard both the parties and perused the records. In this case, Assessing Officer has disallowed assessee’s claim for deduction u/s.80P(2)(a)(i) of the Act, of Rs.19,73,718/- on account that interest was received from ICICI Bank and HDFC Bank. In this case, admittedly assessee had claimed deduction u/s.80P(2)(a)(i) of Rs.57,20,897/-. The Assessing Officer held that Assessee should have claimed deduction u/s.80P(2)(d) of the Act. The relevant paragraph of the assessment order is reproduced here as under : “1. As seen from the Schedule 80P of the Assessee society's return of income filed for the A.Y.2022-23, the Assessee society has claimed deduction u/s.80P(d) of the Act i.e., 'Interest/Dividend from Investment in other cooperative society at Rs. NIL, while claiming deduction of Rs.57,20,897/- u/s.80P(2)(a)(i) of the Act le.. Banking/Credit Facilities to its members. However, the Assessee society should have claimed the ITA No.1919/PUN/2025 [A]

It is reasonable that the deposits from the members of the Assessee Society have sometimes remain idle owing to lack of demand for loan from other members of the society. However, the Assessee society has earned interest income by investing in private banks. The said interest income is not entitled for claim of deduction u/s. 80P(2)(d) of the Act for the reason that the provisions of Section 80P(2)(d) are applicable only when the interest earned is out of investment in co-operative Societies. The benefit is not available u/s. 80P(2)(d) of the Act as the Assessee society has earned interest income out of surplus funds in private banks ICICI Bank Ltd and HDFC Bank.

Further, it is pertinent to mention here that the aforementioned private banks ICICI Bank Ltd and HDFC Bank are NOT members of the Assessee Society Hence, the deposits made by the Assessee society in non-members is against the principle of mutuality

Aggrieved by the addition, Assessee filed appeal before the ld.CIT(A) who has confirmed the addition.

Aggrieved by the same, Assessee filed appeal before this Tribunal.

It is an admitted position that Assessee is a Credit Cooperative Society. It is also admitted position that Assessee had claimed deduction u/s.80P(2)(a)(i) of the Act. Assessee has earned interest income of Rs.19,73,718/- from ICICI Bank Limited and HDFC Bank Limited on the funds which were kept with these banks as the funds were not immediately required.

Now, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act or not!

1 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not.

While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ……………………

But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised 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 nationalised 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.”Unquote.

2 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business of ITA No.1919/PUN/2025 [A]

In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, the Hon’ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024 has held as under : Quote “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co- operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those

1 Thus, even Hon’ble Kerala High Court has held that the character of income does not change. The Hon’ble Kerala High Court held that interest earned from deposits in permitted banks will be eligible for deduction u/s.80P of the Act. The Hon’ble Kerala High Court’s decision is dated 04.09.2024 means, after the decision of Hon’ble Supreme Court in the case of Totagar’s Co.operative Sales Society Ltd.

2 Accordingly, we hold that assessee is eligible for deduction u/s.80P of the Act, on the interest income earned by the assessee from Co-operative Banks and ICICI Bank, HDFC Bank.

Ld.Departmental Representative(ld.DR) for the Revenue has not brought on record any contrary decision of the Hon’ble Juri ictional High Court.

Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act

In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 18 December, 2025. VINAY BHAMORE