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Facts
The Assessee, a Co-operative Society, filed its return of income for AY 2018-19, claiming deductions under Section 80P. The Assessing Officer disallowed a portion of this deduction related to interest and dividend income earned from investments, treating it as income from other sources. This disallowance was confirmed by the CIT(A).
Held
The Tribunal held that interest and dividend earned by a co-operative society from its surplus funds invested in banks is eligible for deduction under Section 80P. Relying on various High Court and Supreme Court decisions, the Tribunal noted that such income is an enhancement of profits attributable to the main business of providing credit facilities.
Key Issues
Whether interest and dividend earned by a co-operative society on its surplus funds invested in banks is eligible for deduction under Section 80P of the Income Tax Act, 1961?
Sections Cited
80P, 143(3), 144B, 250, 80P(2)(a)(i), 80P(2)(d)
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Assessment Year: 2018-19 The Satara Zilla Krishi Bank V The Assistant Karmachari Sahakari s Commissioner of Income Patsanstha Ltd., Tax, Satara Circle, Ajinkya Complex, 512, Satara. Ch.Shivaji Road, Camp, Sadar BAzar, Satara – 415001. PAN: AAAAT1502B Appellant/ Assessee Respondent / Revenue Assessee by Ms. Renuka Ghatge – AR Revenue by Shri Pawan Bharti (Virtual Hearing) Date of hearing 11/11/2025 Date of pronouncement 13/11/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal is 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 A.Y.2018-19, dated 15.07.2025 emanating from Assessment Order u/s.143(3) r.w.s 144B of the I.T.Act, dated 23.04.2021. The assessee has raised following grounds of appeal :
On the facts and in the circumstances of the case and in law, the Ld. NFAC-CIT (A) Delhi, has erred in confirming the action of Ld Assessing officer (AO) in making addition of Rs. 34,32,270/- on account of disallowance of deduction under section 80P (2)(i) to the total income of the assessee on the ground that the income earned from Interest and dividend from The Satara DCC Coop Bank is not the income earned by the society from its regular course of business, hence, not the operational income of the society and is to be treated as Income from Other Sources
The Ld. A.O. has failed to appreciate that interest and dividend received on investment with other co-operative banks is a business income of the appellant society and is eligible for deduction under section 80P of the Income Tax Act, 1961. Therefore, the addition being bad in law, be deleted.
On the facts and in the circumstances of the case and in law, the Ld. NFAC-CIT (A). Delhi, ought to have appreciated the fact that a co- operative bank is a co-operative society within the meaning of Co- operative societies act and hence is eligible to claim deduction u/s 80P (2)(d) of the IT Act, 1961. Alternatively, deduction under section 80P(2)(d) of The Act should have been allowed to interest and dividend income on investments in co-operative society 3. That the appellant craves leave to add to, alter, amend, modify, substitute, delete and for rescind all or any of the grounds of appeal on or before the final necessity, so arises.”
Submission of ld.AR : 2. Ld.AR invited our attention to various decisions of the ITAT Pune wherein claim of 80P has been allowed. Submission of ld.DR : 3. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of ld.CIT(A).
Findings & Analysis : 4. We have heard both the parties and perused the records. In this case, Assessee is a Co-operative Society filed the return of income electronically for the A.Y.2018-19 on 08.10.2018 declaring gross total income at Rs.1,14,11,093/-. The Total income shown in the return of income was Rs.1,72,050/- after availing Chapter VIA deduction of Rs.1,12,39,047/-.
4.1 In this case the Assessment order has been passed u/s.143(3) r.w.s. 144B of the Income Tax Act, 1961 for A.Y.2018-19 on 23.04.2021. The Assessing Officer in the Assessment Order 4.1.1 Assessee had earned following interest on loans and advances in Co-operative Bank and Dividend as mentioned in Assessee’s Submission reproduced in ld.CIT(A)’s order : Sr.No. Particulars Amount Rs. 1 Interest earned on Loans and Advances 1,69,18,985 from Members 2 Interest earned on Fixed Deposit in Co- 25,82,270.00 operative Bank – The Satara DCC Bank Ltd 3 Dividend received on The Satara DCC Bank 8,50,000.00 4.2 The AO has noted in the Assessment Order that Assessee has earned Interest of Rs.25,82,270/- from Satara District Central Co- operative Bank Ltd., Satara and Dividend of Rs.8,50,000/-.The Assessing Officer held that the amount of Rs.34,32,270/- is not eligible for deduction u/s.80P, relying on decision of Hon’ble Supreme Court in Totagar’s Co-operative Sale Society, AO held that character of Interest is different from the income attributable to the business of the Assessee-Society providing credit facility to its members.
4.3 Aggrieved by the Assessment Order the Assessee filed appeal before the Ld.CIT(A). 4 5. The Ld.CIT(A) in his order has confirmed the disallowance relying on decision of Hon’ble Supreme Court in the case of Totagars Co-operataive Sale Society Ltd Vs. ITO. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.
It is an admitted fact that the Assessee is a Co-operative Credit Society providing credit facility to its members.
6.1 Assessee is registered under Maharashtra Cooperative Societies Act.
6.2 Hence, the issue before us is whether the Interest earned from above mentioned Co-operative Society is eligible for deduction u/s.80P of the Act or not ! 6.3 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 5
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. 6 35. 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.
6.4 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business of providing credit facilities, Loans by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.
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 7 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 8 [A] 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 intended to discourage prudent financial conduct on the part of an assessee.” Unquote 7.1 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 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.
The Hon’ble Supreme Court in the case of Pr.CIT Vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., 454 ITR 117 (SC) has held as under : Quote. “5. There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are 9 80(P)(2) of the Income-tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4)shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under section80(P)(2) of the Income-tax Act.
6. In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee.” Unquote 8.1 The Hon’ble Bombay High Court’s order in vide order dated 14.10.2019 in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., emanates from the ITAT order in dated 20.05.2016. The facts recorded in the ITAT order in are that Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., is a Co-operative Credit Society registered under the Maharashtra Co-operative Society Act, had claimed deduction under section 80P(2)(d) of the Income Tax Act, 1961 as well as Rs.5,85,57,676/- claimed under section 80P(2)(a)(i) of the Act. The Assessing Officer disallowed the claim of deduction u/s.80P(2) in the case of Annasaheb Patil 10 Mathadi Kamgar Sahakari Pathpedi Ltd. The Revenue in the appeal filed before ITAT in has raised following questions: “(i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO amounting to Rs.5,85,57,676/- u/s.80P(2)(a)(i) and Rs.1,39,23,333/- u/s.80P(2)(d) of the I.T. Act even though assessee was carrying on banking business.
(ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the fact that amendment to Sec.80P(4) inserted w.e.f. 1.4.2007 by Finance Act, 2006 clearly bans all the co-operative banks other than primary agricultural credit society or a primary co-operative agricultural and rural development banks from claiming exemption under this section”.
9.1 The appeal filed by Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., travelled up to Hon’ble Supreme Court and the Hon’ble Supreme Court has decided the appeal in favour of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., regarding deduction u/s.80P(2) of the Act. Therefore, this issue has attained finality.
The Hon’ble Supreme Court in the case of CIT Vs. Bangalore Distt. Co-op. Central Bank Ltd. 233 ITR 282 (SC) vide order dated
Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act on the interest earned and dividend earned. 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 13 November, 2025.