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Facts
The assessee, a Co-operative Credit Society, earned interest income of Rs. 4,84,724/- from FDRs with nationalized banks. The Assessing Officer disallowed the claim of deduction under Section 80P(2)(a)(i) on the grounds that this income was from other sources, not business. The CIT(A) upheld the disallowance.
Held
The Tribunal held that the interest income earned by the assessee from FDRs with nationalized banks was attributable to its business of providing credit facilities to its members. Following various judicial precedents, the Tribunal allowed the deduction under Section 80P(2)(a)(i).
Key Issues
Whether interest income earned by a co-operative credit society on FDRs with nationalized banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
Sections Cited
80P(2)(a)(i), 143(3), 250, 56
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
Assessment Year: 2017-18 Pandit Dindayal Upahyey V The Income Tax Officer, Nagari Sahakari Patpedhi Ltd., s Ward -1, Dhule. Near Bohari Market Dondaicha Road, Shahade – 425409. Maharashtra. PAN: AAALD0407C Appellant/ Assessee Respondent / Revenue Assessee by None Revenue by Shri Pawan Bharti –DR(Virtual Hearing) Date of hearing 12/11/2025 Date of pronouncement 14/11/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC] passed under section 250 of the Income Tax Act, 1961 for the A.Y.2017-18 dated 24.02.2025 emanating from the Assessment Order passed under section 143(3) of the Act, dated 25.11.2019. The Assessee has raised the following grounds of appeal :
The learned CIT(A) erred in confirming the addition of Rs 4,84,724 made by the A.O. by disallowing deduction u/s 80P(2)(a)(i) in respect of interest earned from FDRs with Nationalized Banks on the ground that the said interest income was assessable u/s 56 as income from other sources without appreciating that the said addition was not justified on facts and in law
2] The learned CIT(A) failed to appreciate that the appellant society was engaged in the activity of providing credit facilities to its members and therefore, the interest earned from FDRs placed with nationalized banks was intrinsically connected with the main activity of the appellant society and hence, the deduction u/s 80P(2)(a)(i) was allowable in respect of the interest income of Rs.4,84,724 earned from nationalized banks.
3] The learned CIT(A) ought to have appreciated that the law laid down by Hon'ble Supreme Court in case of Totgar Co-op. Sale Society Ltd. was not applicable in respect of interest earned by co-operative societies engaged in the activity of providing credit facilities to its members, as held by Hon'ble Andhra Pradesh High Court in case of Vavveru Co-op. Rural Bank Ltd. [396 ITR 371] and noting this distinction, the impugned legal issue is consistently adjudicated in favour of the assessee by Hon'ble Jurisdictional ITAT, Pune and therefore, the addition of Rs.4,84,724 made by the A.O. was not sustainable in law and on facts of the case.
4] The assessee submits that the impugned legal issue is squarely covered in favour of the appellant by the view consistently taken by Hon'ble Jurisdictional Pune ITAT in various cases, including Muktadevi Gramin Biegrsheti Sahakari Patsanstha Maryadit Ltd. V. ITO [ITA No. 1841/PUNE/2024] dated 30.04.2025, Hariyaali Urban Co-op Credit Society Lid. v. ITO [ITA No. 862/PUNE/2024] dated 27.06.2024, Nashik Road Nagari Sahakari Patsanstha Ltd. v. ITO [ITA No. 1700/PUNE/2017][63 CCH 345] dated 27.12.2021 and hence, the addition of Rs.4,84,724 made by the A.O. may please be deleted.
5] The appellant craves leave to add/alter amend any of the grounds of appeal.”
Findings & Analysis : 3. We have heard ld.Departmental Representative(ld.DR) for the Revenue and perused the records.
Delay : 4. There is a delay of 29 days in filing appeal before the ITAT. We have perused the Affidavit of Mr.Sanjay Motilal Bafna, Manager of the Assessee Society and are convinced that there is sufficient and reasonable cause for delay. Hence, the Delay is condoned.
In this case, as per Assessment Order, Assessee is a Co- operative Credit Society registered under the Maharashtra State Co- operative Societies Act, 1960. Assessee had filed Return of Income for A.Y.2017-18 on 17.10.2017 claiming deduction u/s.80P(2) of the Act. During the Assessment Proceedings, Assessing Officer noted that Assessee has received interest income of Rs.4,84,724/- from Dena Bank, IDBI Bank and ICICI Bank. Assessing Officer disallowed Assessee’s claim of deduction u/s.80P(2)(a) of the Act, 3 Rs.4,84,724/- following the decision of Hon’ble Supreme Court in the case of Totagars’ Co-operative Sale Society Ltd., Vs. ITO [2010] 188 Taxman 282 (SC). Aggrieved by the Assessment Order, Assessee filed appeal before the ld.CIT(A) who confirmed the disallowance.
In this case, admittedly Assessee is a Co-operative Credit Society engaged in the business of providing loans to the Members and accepting deposits from Members. In this case, it is not the case of the Assessing Officer that interest income of Rs.4,84,724/- was not attributable to the business of the Assessee.
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 Totagar’s 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. 4 9. 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. ……………………
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.
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 5 [A] 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.
7.1 Thus, Hon’ble High Court of AP &TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/s.80P(2)(a) of the Act.
The Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. Vs. CIT [2021] 431 ITR 1(SC) observed as under : Quote.“Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co- 6 operative -societies engaged in banking business i.e. engaged in lending
The Hon’ble Supreme Court in the case of CIT Vs. Karnataka State Co-operative Apex Bank 251 ITR 194 (SC) vide order dated 22.08.2001 has held as under : Quote“6..…………………There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business.” Unquote.
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 7 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 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 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 8
In the case of the Assessee, the interest income of Rs.4,84,724/- was attributable to business of the assessee.
11.1 Respectfully, following the decisions of Hon’ble Supreme Court and Hon’ble High Courts, we hold that Rs.4,84,724/- is eligible for deduction u/s.80P(2)(a)(i) of the Act. Accordingly, grounds of appeal raised by the Assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 14 November, 2025.