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Facts
The assessee, a cooperative credit society, filed a return declaring NIL income and claimed a deduction under Section 80P for interest income earned on fixed deposits. The Assessing Officer disallowed the deduction, holding that the interest income was not attributable to the assessee's business activities. The CIT(A) confirmed the assessment order.
Held
The Tribunal held that the interest income earned by the assessee from fixed deposits with banks is attributable to its business activity of providing credit facilities to its members and is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, following various High Court decisions.
Key Issues
Whether interest income earned by a cooperative society on its fixed deposits with banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
Sections Cited
143(3), 147, 250, 80P, 80P(2)(a)(i), 80P(2)(d)
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order of ld.Additional Commissioner of Income Tax(Appeal)-1, Visakhapatnam passed under section 250 of the Income Tax Act, 1961 for A.Y.2017-18 on 10.03.2025 emanating from Assessment Order u/s.143(3) r.w.s 147 dated 24.12.2019. The Assessee has raised the following grounds of appeal :
[A] “1) On the facts of the case and in law, the CIT(A) has erred in confirming the disallowance of deduction u/s 80P (2)(a)(i) of Income tax Act Rs 18,28,737 in respect of interest received on Fixed Deposits. The addition may please be deleted as the issue is covered in favor of the assessee by various decisions of PUNE ITAT including latest judgement of dated 30/04/2025 in ITA 1841/PUN/2024 Muktadevi Gramin Bigarsheti Sahakari Patsantha. 2) The Id. AO and CIT(A) erred in not the following the binding decisions of Jurisdictional PUNE ITAT holding that cooperative societies are eligible for deduction u/s 80P(2)(a)(i) in respect of interest received from all banks including nationalized or scheduled banks/companies. Hence, it is prayed that addition of Rs 18,28,737 may please be deleted. 3) Without prejudice to above ground, the Id lower authorities have erred in not allowing deduction u/s 80P(2) (d) Rs 2,60,672 in respect of interest received from cooperative banks. The Appellant prays that same may please be allowed. 4) The Appellant seeks leave to add, alter, amend or drop any of the grounds taken above.” Submission of ld.AR : 2. Ld.AR for the Assessee filed a paper book containing 71 pages. Ld.AR for the Assessee relied on the following case laws : “Hon. PUNE ITAT decision dated 20/03/2025 in THE MES Employee Co-op Credit Society ITA 2531/PUN/2024 holding interest from SBI and Canara Bank (Nationalized Banks) and Saraswat Co Op bank eligible for deduction u/s 80P(2)(a) (i) of Income Tax Act Hon. PUNE ITAT decision dated 18/06/2025 Kai J M Patil Sahakari patsanstha ITA 1196/PUN/2025 holding Interest from Dena Bank, bank of Maharashtra, Central bank of India (Nationalized banks) as well as Coop banks is eligible for deduction u/s 80P(2)(a)(i) Hon. PUNE ITAT decision dated 30/04/2025 in Muktadevi Gramin Bigarsheti Sahakari ITA 1841/PUN/2025 holding that Interest from Cooperative Banks as well Interest Received From other than Co- operative Banks eligible for deduction u/s 80P(2)(a)(i) Hon. PUNE ITAT decision dated 26/10/2022 in Nirmiti Nagari Sahakari Patsanstha holding Interest from IDBI 2 [A] bank, Kotak Mahindra Bank, Yes Bank (Private Banks) eligible for deduction u/s 80P(2)(a)(i) Hon. PUNE ITAT decision dated 04/11/2022 in Sumitra Gramin Bigar Sheti ITA 114/PUN/2018 holding interest from Bank of India eligible for deduction u/s 80P(2)(a) (i) of Income tax Act Hon. MUMBAI ITAT decision Samarth Surksha Rakshak Co-op Credit Society Ltd ITA 5496/MUM/2024 dated 14/05/2025 holding Interest from Union Bank of India eligible for deduction u/s 80P(2)(a)(i) Hon'ble. PUNE ITAT decision dated 27/12/21 Nashik Road NAGARI Sahkari Patsanstha ITA 1700/PUN/2017 holding Interest from Bank of Baroda, govt/RBI securities eligible for deduction u/s 80P(2)(a)(i). Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of Assessing Office and ld.CIT(A).
Findings & Analysis : 4. We have heard both the parties and perused the records. In this case, as mentioned in the assessment order, Assessee is a Co- operative Credit Society duly registered under Co-operative Societies Act. In the paper book, at page no.68, Assessee has filed copy of Certificate of Registration issued under Bombay Co- operative Societies Act, dated 19.05.1956. It is mentioned in the assessment order, Assessee had filed Return of Income electronically for A.Y.2017-18 on 30.10.2017 declaring NIL income claiming deduction under section 80P of the Act, of Rs.19,50,791/-. The Assessing Officer noted that Assessee has earned interest 3 [A] income on investment made with Co-operative Society/Nationalized Bank. It is mentioned in the assessment order that interest income of Rs.2,60,672/- from Co-operative Bank of Rs.14,89,965/- from Other Bank, Rs.8,100/- from Company. The Assessing Officer held that the total interest income of Rs.18,28,737/- earned from Co- operative Banks and other banks is not eligible for deduction u/s.80P(2)(a)(i) of the Act, as AO held that said income was not attributable to the activities of the Assessee. Therefore, Assessing Officer made addition of Rs.18,28,737/-.
Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A) who confirmed the assessment order.
Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.
In this case, Assessing Officer has disallowed assessee’s claim for deduction u/.80P(2)(a)(i) of Rs.18,28,737/- on account that according to the Assessing Officer, the said interest income is not attributable to the activity of the assessee. However, ld.Assessing Officer has not brought on record any evidence to prove the same. On the contrary, it is a fact that during the activity of providing 4 credit facility to its members at times whenever there is an excess [A] fund Assessee had made fixed deposits with banks. Assessee claimed that these fixed deposits were for a short period. It is also a fact that as per the Co-operative Societies Act, the Co-operative Societies have to maintain certain fixed deposits with Co-operative Banks. In these facts, the interest income earned by Assessee of Rs.18,28,737/- is attributable to the business activity of assessee which is providing credit facility to its members.
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. …………………… 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 5 members. As seen from the facts disclosed in the decision of the [A] 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.
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. 8.1 Thus, the Hon’ble Andhra Pradesh & Telangana High Court in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 has held that co-operative credit Society is eligible for deduction u/s.80P(2)(a)(i) on the interest earned. The Hon’ble Andhra Pradesh 6 [A] High Court has distinguished the decision of Hon’ble Supreme Court in the case of Principal commissioner of Income Tax, Huballi vs. Totgars co-operative Sale society 395 ITR 611, dated 16.06.2017.
8.2 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 circumstances, if the assessee managed to earn some additional income 7 by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal [A] activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.” Unquote 8.3 Thus, 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 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.
9. Ld.AR has relied on various decision of ITAT Pune which we have already mentioned above.
9.1 Therefore, respectfully following Hon’ble High Court(supra), ITAT Pune Bench decision, we hold that Assessee is eligible for deduction u/s.80P(2)(a)(i) of the Act, on the interest income of Rs.18,28,737/-. Accordingly, Ground No.1 and 2 raised by the Assessee are allowed.
Ground No.3 becomes academic in nature, hence, dismissed unadjudicated.
[A] 11. Ground No.4 is general in nature, needs no adjudication, hence, dismissed
In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 28 November, 2025.