Loading judgment…
Facts
The assessee, a co-operative credit society, claimed deductions under Section 80P(2)(a)(i) and Section 80P(2)(d) for interest income earned from investments in co-operative banks for AY 2018-19, and for electricity bill collection commission and interest on income tax refund for AY 2020-21. The Assessing Officer and CIT(A) disallowed these deductions, contending that the interest income was not attributable to the assessee's business activity and lacked mutuality, thus taxable as 'other income' under Section 56.
Held
The Tribunal held that the issue of deductibility of interest income from co-operative banks under Section 80P was consistently covered in favor of the assessee by various judicial forums, including its own jurisdictional bench and in the assessee's own case in prior years. Applying this reasoning, the Tribunal also allowed the deductions for electricity bill collection commission and interest on income tax refund, setting aside the orders of the lower authorities.
Key Issues
1. Whether interest income earned by a co-operative credit society from investments in co-operative banks is eligible for deduction under Section 80P(2)(a)(i) or Section 80P(2)(d) of the Income Tax Act. 2. Whether electricity bill collection commission and interest on income tax refund are eligible for deduction under Section 80P.
Sections Cited
139(1), 80P, 80P(2)(a)(i), 80P(2)(d), 80P(4), 142(1), 56, 270A, 143(3), 143(3A), 143(3B), 234A, 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
Assessee by : Shri Sarang S. Gudhate Department by : Shri Ramnath P. Murkunde Date of hearing : 15-07-2025 Date of 22-09-2025 Pronouncement : आदेश / ORDER
PER ASTHA CHANDRA, JM :
The above two appeals filed by the assessee are directed against the two separate orders both dated 07.01.2025 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [“CIT(A)/NFAC”] pertaining to Assessment Years (“AYs”) 2018-19 and 2020-21. Since common issues are involved both the appeals were heard together and are being disposed of by this common order. AY 2018-19
2. Briefly stated the facts are that the assessee is Co-operative Credit Society registered under the Maharashtra Co-operative Societies Act, 1960. engaged in the activity of providing credit facility to its members. For AY 2018-19, the assessee filed its return of income u/s 139(1) of the Income Tax Act, 1961 (the “Act”) on 22.10.2018 declaring total income at Rs. Nil after claiming deduction u/s 80P(2)(a)(i) of Rs.1,62,82,771/-. The case of the assessee was selected for complete scrutiny assessment under the E- assessment Scheme, 2019 on the following issue : (i) Bonus or Commission to Employee; (ii) Investment/Advances/Loans and (iii) Deduction from total AYs 2018-19 & 2020-21 income under Chapter VI-A. During the assessment proceedings, the Ld. Assessing Officer (“AO”) noted that the assessee has earned interest of Rs. 1,56,70,940 from investments in Co-operative banks in the relevant AY 2018-19. The Ld. AO was of the view that since the said income of Rs.1,56,70,940/- is clearly not attributable to the activity of the assessee society of providing credit facilities to its members or its operational income, this income does not qualify for deduction u/s 80P of the Act. Accordingly, statutory notice(s) u/s 142(1) of the Act were issued and served upon the assessee specifically asking the assessee to justify its claim of deduction under section 80P of the Act, followed by issue of a show cause notice. In response thereto, the assessee filed detailed submissions and taking support from the catena of decisions pronounced by various judicial forums on the impugned issue favorable the assessee contended that the deduction claimed by the assessee in respect of the interest income earned during the relevant AY from deposits with Co- operative Banks is an allowable deduction u/s 80P(2)(a)(i) of the Act. Alternatively, the said income is also an allowable deduction u/s 80P(2)(d) of the Act. However, the submissions of the assessee were not found to be acceptable by the Ld. AO. He disallowed the deduction claimed by the assessee u/s 80P(2)(a)(i)/80P(2)(d) of the Act amounting to Rs. 1,56,70,940/- treating the same as ‘other income’ taxable under the provisions of section 56 of the Act and concluded as under : “12. Summarizing the above, it is concluded that a co-operative bank is a urban commercial bank and does not fall under the purview of a "Co- operative Society" referred in section 80P(2) (d) of the Income tax Act, 1961. In the present case, the assessee has earned interest income from such co- operative bank of Rs.1,56,70,940/-. The same has been claimed as deduction u/s. 80P of the Act. In view of the above discussion, the deduction u/s. 80P of Rs.1,56,70,940/- claimed by the assessee is not allowed as the provisions relating to concessions are ordinarily expected to be rigidly interpreted and therefore added to the total income of the assessee. It is again emphasized that The Hon. Gujarat High Court in the case of State Bank of India (SBI) Vs. Commissioner of Income-tax [2016] 72 taxmann.com 64 (Gujarat-HC) has not decided ratio in the favour of deduction allowable in respect of interest from co-operative banks whereas in the PCIT Hubbali v/s Totagars Co-operative sale society [2017]83 taxman.com 140 (Karnataka) held that interest earned by the assessee, co operative society, from surplus deposits kept with a co-operative bank was not eligible for deduction under section 80 P (2) (d). 12.1 As submitted by the assessee in their submission, the above referred interest income of Rs.1,56,70,940/- was derived from its investments in Co- operative Banks. It is pertinent to note here that vide Finance Act, 2006, deduction from income of Co-operative banks as per the provision of section 80P of the Act, has been withdrawn by way of insertion of section 80P(4) of the I.T. Act, 1961, w.e.f. 01.04.2007 differentiate a co-operative bank in comparison to co-operative society. The co-operative banks are functioning at AYs 2018-19 & 2020-21 par with the other commercial banks, which do not enjoy any tax benefit. Therefore, section 80P of the Income tax Act, was amended by inserting a new sub section (4) so as to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. 12.2. The surplus funds deployed by the assessee fixed deposit may be a contribution from the members however, the income earned from the deposits from the banks does not carry similar terminology. The interest income is altogether a different set of receipts in the hands of assessee and the same cannot be claimed under the principles of mutuality. The assessee is squarely hit by many judicial pronouncements where the Apex Court also held that the income is taxable as "Income from other sources and taxable accordingly. Reliance is placed on the Supreme Court decision in case of Totagar's Co-operative Sale Society Ltd. (Supra).
In the light of above legal position and on the facts and circumstances of the case, Interest income earned by the assessee society of Rs.1,56,70,940/- from Co-Op Bank/Nationalized Bank/Private Bank is not eligible for deduction u/s 80P of the Act and hence, hereby disallowed. Such interest income falls in the category of 'other income' and is required to be taxed u/s 56 of the Act.
In view of the elaborate discussion made above and considering the facts of the case, it is clear that the Interest income earned by the assessee credit society from its investments with various Co-Op Bank/Nationalized Bank/Private Bank Rs. Rs.1,56,70,940/-is not eligible for deduction u/sec. 80P of the I.T. Act, 1961 and is required to be treated as Income from Other Sources. Accordingly, the claim of deduction u/s 80P is withdrawn to the extent of Rs.1,56,70,940/- and added to the total income of the assessee under the head 'income from other sources'. Penalty proceeding u/s 270A is initiated for misreporting of income.”
2.1 Accordingly, the Ld. AO completed the assessment on 22.02.2021 u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act thereby making an addition of Rs.1,56,70,940/-, to the income of Rs. Nil returned by the assessee.
3. Aggrieved, the assessee filed an appeal before the Ld. CIT(A)/NFAC. Before the Ld. CIT(A), the assessee contended that the interest income received from Co-operative Banks has a direct nexus with the business activity of the assessee and hence it is a part of its business income. Therefore the assessee’s claim for deduction u/s 80P(2)(a)(i) of the Act ought to have been allowed. It was also submitted that in case of denial of deduction u/s 80P(2)(a)(i) of the Act, an alternate claim u/s 80P(2)(d) of the Act should be allowed to the assessee in view of the various decisions on the impugned issue rendered by Hon’ble Supreme Court, High Courts an ITATs which are favorable to the assessee. AYs 2018-19 & 2020-21 3.1 The Ld. CIT(A) after analyzing the decision of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of Income Tax, Calicut (2021) 123 taxmann.com 161 (SC) and placing reliance on the decision of the Hon’ble Karnataka High Court in the case of PCIT vs. Totagar’s Co-operative Sale Society Ltd. (2017) 322 ITR 283 (SC) and Hon’ble Gujrat High Court in the case of Katlary Kariyana (2022) 327 CTR 138 (Guj.) which have been rendered post amendment to section 80P vide Finance Act, 2015 rejected the assessee’s claim of deduction u/s 80P(2)(a)(i)/ 80P(2)(d) of the Act. Further relying on the decision of the Hon’ble Supreme Court in the case of Secunderabad Club Vs. CIT (2023) 457 ITR 263 (SC) wherein the issue of ‘privity of mutuality’ is discussed, the Ld. CIT(A)/NFAC upheld the decision of the Ld. AO that interest income earned from cooperative banks is not eligible for deduction under section 80P of the Act by observing as under:
5.1 in the light of the above discussions, it is held that once the surplus fund is removed from the arena of mutuality, and placed at the disposal of a Co-operative bank, where there is no restriction in its utilization by non- member general public, the privity of mutuality is lost. The Cooperative Bank has earned a higher interest and passed on a portion of such interest earned from general public to the appellant assessee. As such, the amount of interest income is not generated on account of transactions by and within the members of Cooperative Society-the present appellant. Since the income is not earned by applying privity of mutuality, it is outside the purview of deduction u/s 80P of the IT Act, from both 80P(2)(a)(1) as well as 80P(2)(d). This amount of Rs.1,56,70,940/-cannot be permitted as deduction. The Action of AO is upheld and the ground of appeal no. 1 to 03 of the appellant is dismissed.
Dissatisfied, the assessee is in appeal before the Tribunal raising the following grounds of appeal:-
“1. On the facts and in the circumstances of the case and in law, Ld Assessing Officer was not justified in making addition of Rs. 1,56,70,940/- by denying the deduction u/s 80P (2)(a)(i) of the Act. The Assessee Society being entitled to such deduction, it be granted.
2. On the facts and in the circumstances of the case and in law, Ld AO is erred in denying alternative deduction u/s 80P (2)(d) of Rs. 1,56,70,940/-.
3. On the facts and in the circumstances of the case and in law, Ld AO is erred in treating entire receipts of Rs. 1,56,70,940/- being interest derived from investments in Co-operative Bank as income without considering expenses incurred to earned that income.
4. On the facts and in the circumstances of the case and in law the levy of interest u/s 234A, 234B and 234C of the Act should be deleted as the said provision are not applicable to the facts of this case. AYs 2018-19 & 2020-21
5. The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal if deemed necessary at the time of hearing of the appeal.”
At the outset, the Ld. AR submitted that the impugned issue is squarely covered in favour of the assessee by catena of decisions pronounced by various juridical forums on the impugned issue. He submitted that the Jurisdictional Pune Tribunal as well as other Courts have consistently allowed the claim of deduction in respect of interest income earned by the assessee from the Co-operative Banks u/s 80P(2)(a)(i)/80P(2)(d) of the Act under the similar set of facts as that of the assessee and submitted a legal compilation of the decisions in support thereof (Pages 1 to 30 of the Paper Book - Legal Compilation refers).
5.1 The Ld. AR also submitted that since investment in Cooperative Banks have been made to maintain the operational funds and the statutory liquidity as mandated by the regulations of Maharashtra Cooperative Societies Act, 1960, this relates to activity of providing credit facilities to members and hence eligible for deduction under section 80P(2)(a)(i) of the Act.
5.2 In support of its claim, the Ld. AR submitted the compilation of the following cases: i. Chandraprabhu Gramin Bigarsheti Sahakari Pat Sanstha Vs. ITO, dated 29.10.2024. ii. Nashik District Primary Teachers Co-Op Credit Society Ltd. Vs. ITO, ITA Nos. 2070 & 2017/PUN/2024, dated 28.02.2025. iii. DCIT & Anr. Vs. Bhimashankar Sahakari Sakhar Karkhana Ltd., ITA Nos. 615 & 628/PUN/2022, datd 21.12.2022. iv. Totgars Co-Operative Sale Society Ltd. V. ITO, (2015) 58 taxmann.com 35 (Kar.). v. SRCC Society Ltd. v. Income-tax Officer, (2025) 173 taxmann.com 188 (Bangalore-Trib.)
5.3 Reliance is further placed on the following cases wherein the Coordinate Bench of the Pune Tribunal has allowed the claim of deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Act in respect of interest income earned from cooperative banks: AYs 2018-19 & 2020-21 Deduction allowed under section 80P(2)(a)(i): i. Sharad Nagari Sahakari Patsanstha Maryadit Vs. The Income Tax Officer, ii. Kai Devendra Sarda Nagari Sahakari Patsanstha Maryadit Vs. ITO, ITA Nos. 467 & 468/PUN/2024 iii. The Income Tax Officer Vs. Kolhapur Zilha Madhyamik Shikshan Sevkanchi Sahakari Pat Sanstha, ITA Nos.29 & 30/PUN/2024 iv. Ruby Hall Clinic Karmchari Sahakari Patsanstha Maryadit Vs. ITO, ITA No.49/PUN/2024 v. Kundalika Nagari Sahakari Patsanstha Maryadit Vs. ITO, ITA No.576/PUN/2024 Deduction allowed under section 80P(2)(d): i. Annapurna Nagari Sahkari, Pathsanstha Maryadit Yawal Vs. ITO, ii. Shree Vishweswar Nagari Sahakari Path Sanstha Vs. The Income Tax Officer, ITA No.342/PUN/2024 iii. PMT Kamgar Sevakanchi Sahakari Pat Sanstha Maryadit Vs. The Income Tax Officer, ITA No.334/PUN./2024 iv. The Income Tax Officer Vs. Ashokrao Anna Yashwant GramBigar Sheti Sah Patsanstha Limited, ITA No.1138/PUN./2023 v. CEAT Limited (Tyre division) Employees Coop. Credit Society Limited Vs. ITO, ITA No.633/PUN/2024 5.4 The Ld. AR further submitted that the assessee’s claim of deduction under section 80P has been allowed consistently in the past years as well and submitted the following details in respect thereof: “1. Assessment Year 2014-15-Assessment was completed u/s 143(3) wherein deduction u/s 80P has been denied. In the matter, assessee has filed as before Ld CIT(A) wherein Ld CIT(A) has allowed the deduction u/s 80P. Copy of Appeal Order is enclosed herewith.
Assessment Year 2015-16-Assessment was completed u/s 143(3) on 20th December 2017 wherein Ld Assessing Officer has made of addition Rs. 7,80,367/- by denying deduction u/s 80P. In the matter, deduction for 80P has been allowed by Hon'ble Pune ITAT in ITA No. 981/PUN/2019. Copy of ITAT order is at Page No. 64 to 72 of Paper Book and legible copy of the same was also submitted in hearing on 08th July 2025.
Assessment Year 2016-17-There was no assessment in this year. AYs 2018-19 & 2020-21
4. Assessment Year 2017-18-Assessment was completed u/s 143(3) on 18th November 2019 wherein Ld Assessing Officer has accepted the retuned income. However, addition of Rs. 35,289/- made relating to interest paid to nominal members by rejecting the deduction u/s 80P(2)(a)(i). Copy of Assessment Order is enclosed herewith. In the matter, assessee has not preferred further appeal against the said order. Since amount was not material.
5. Assessment Year 2019-20-There was no assessment in this year.”
The Ld. DR fairly conceded with the above submission of the Ld. AR that the impugned issue is covered in favour of the assessee by catena of decisions of various judicial forums as well as in assessee’s own case as cited by the Ld. AR.
We have heard the Ld. Representatives of the parties and perused the material on record and various judicial precedents cited by the Ld. AR as well as the paper book filed by the Ld. AR on behalf of the assessee. The facts of the case are not in dispute. During the relevant AY 2018-19, the assessee has received interest from Co-operative banks amounting to Rs.1,56,70,940/- and claimed deduction u/s 80P(2)(a)(i)/ 80P(2)(d) of the Act, which has been disallowed by the Ld. AO and upheld by the Ld. CIT(A)/ NFAC for the reasons reproduced above. We find that the issue is squarely covered in favour of the assessee by catena of decisions of various judicial forums including Jurisdictional Pune Tribunal wherein it has been consistently held that interest income earned from Co-operative Banks is eligible for deduction u/s 80P of the Act as the same is attributable to the business of the assessee society. We also find that the Coordinate Bench of the Tribunal in assessee’s own case for AY 2015-16 in vide order dated 30.09.2019 has held that the assessee is eligible for deduction under section 80P of the Act.
Based on the factual matrix of the case and the legal position set out above and in the absence of any contrary material brought on record by the Ld. DR to enable us to take a different view, we hereby set aside the impugned order of the Ld. CIT(A)/NFAC and direct the Ld. AO to allow the deduction claimed by the assessee u/s 80P(2)(a)/ 80P(2)(d) of the Act. The effective grounds of appeal raised by the assessee are accordingly allowed.
In the result, the appeal of the assessee is allowed. AYs 2018-19 & 2020-21
Both the sides are unanimous in stating that on the issue relating the interest income earned from co-operative banks, the facts and the grounds of appeal in AY 2020-21 are identical to the grounds raised in for AY 2018-19 except for the variance in amounts. Thus, the finding given by us on the impugned issue while adjudicating the appeal in ITA No. 626/PUN/2025 would mutatis mutandis apply to the appeal in ITA No. 625/PUN/2025 as well. The effective grounds raised by the assessee are hereby allowed in the same terms.
10.1 Further, in this appeal ( ), the assessee has raised the following additional grounds which read as under: “3. Under the facts and in the circumstances of the case and in law, Ld Assessing Officer was not justified in disallowing the deductions 80P(2)(a)(i) of Rs.1,248/-relating interest on Income Tax refund 4. Under the facts and in the circumstances of the case and in law, Ld Assessing Officer was not justified in disallowing the deduction is 80P(2)(a)(i) of Rs.2,47,334/-relating Electricity Bill Collection Commission.”
10.2 We have heard the Ld. Representatives of the parties on the above issue and perused the material available on records along with the judicial precedents cited by the Ld. AR in support of its above grounds of appeal. We find that the Ld. AO has denied the deduction under section 80P with respect to Electricity Bill collection commission of Rs. 2,47,334/- and interest on income tax refund of Rs. 1,248/. On appeal, the Ld. CIT(A)/NFAC has upheld the order of the Ld. AO. Before us, the Ld. Counsel for the assessee submitted that the impugned issue is covered in favour of the assessee by the decision(s) of the Coordinate Bench of the Pune Tribunal in the following cases: i. Banganga Nagri Sah. Patsanstha Ltd Vs. ITΟ, & 880/PUN/2014, dated 31.03.2016. ii. Maulikripa Nagari Sahakari Patsanstha Maryadit Vs. ITO, ITA No. 397/PUN/2024, dated 17.04.2024. AYs 2018-19 & 2020-21 10.3 We have perused the above cases cited by the Ld. AR and find that the Tribunal has allowed the claim of the assessee holding that the electricity bill collection commission and other receipts are eligible for deduction under section 80P of the Act (Pages 31 to 46 of the Paper Book – Legal Compilation refers). Following the decision(s) (supra) of the Coordinate Bench and in the absence of any contrary material/decision brought on record by the Ld. DR, we decide the impugned issue in favour of the assessee. Ground Nos. 3 & 4 is accordingly allowed.
In the result, both the appeals of the assessee for AY 2018-19 (ITA No. 626/PUN/2025) and AY 2020-21 ( ) are allowed.