THE RATNAKAR BANK EMPLOYEES CO OP CREDIT SOCIETY LTD KOLHAPUR,KOLHAPUR vs. INCOME TAX OFFICER, KOLHAPUR

Ld.Authorised Representative(ld.AR) for the Assessee submitted a paper book along with copies the following case laws :  PUNE ITAT ORDER-SHARAD NAGARI SAHAKARI PATSANSTHA  ITAT ORDER- AJINKYA MADHYAMIK SHIKSHAK SEVAK PATSANSTHA AY 2018-19

Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of the ld.CIT(A).

We have heard both the parties and perused the records. In this case, Assessee is a Co-operative Credit Society. The Assessing Officer has rejected Assessee’s claim for deduction u/s.80P(2)(a) of the Act, of Rs.23,21,391/- as under: Quote.“With regard to deduction u/s 80P(P)(2)(a), the assessee could not produce the relevant documents as asked vide this office notice u/s 142(1). The assessee neither provided details of its members and interest earned from each member. The Cooperative society has also not provided the By laws and other relevant documents, therefore, the purpose/objectives of formation of the cooperative society is also not ascertainable. Therefore, in absence of proper reply from assessee, the claim /deduction 80(P)(2)(a) of Rs.23,21,391/- is hereby rejected/disallowed.” Unquote.

Aggrieved by the Assessment Order, Assessee filed appeal before ld.CIT(A) along with additional evidence. Ld.CIT(A) called for a report from the Assessing Officer as per Rule 46A of the Income Tax Rules. The paragraph 7.5 of ld.CIT(A)’s order is reproduced here as under :

1 Thus, the Assessing Officer in the report submitted under Rule 46A of the Income Tax Rules, has accepted that interest and dividend earned by assessee from investment in Co-operative Bank is attributable to activity of providing credit facility and hence, Assessee is eligible for deduction u/s.80P(2)(a)(i) of the Act. However, ld.CIT(A) has not accepted the report of the Assessing Officer and disallowed the assessee’s claim following decision of ITA No.1725/PUN/2025 [A]

1 Aggrieved by the order of ld.CIT(A), Assessee has filed appeal before this Tribunal.

2 Be it as it may be, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act, on the interest earned from Co-operative Banks or not!

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 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 ITA No.1725/PUN/2025 [A]

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 invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents

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.

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 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 :

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.

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 entitled to exemption under section 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

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

1 The above order of Hon’ble Supreme Court was rendered in the context of the appeal filed by the Revenue against the order dated 14-10-2019 passed by the Hon’ble High Court of Judicature at Bombay in ITA No.933/2017, by which the High Court has dismissed the said appeal preferred by the Revenue.

The Hon’ble Bombay High Court’s order in ITA No.933/2017 vide order dated 14.10.2019 in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., emanates from the ITAT order in ITA No.2515/MUM/2014 dated 20.05.2016. The facts recorded in the ITAT order in ITA No.2515/MUM/2014 are that Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., is a Co-operative CreditSociety registered under the Maharashtra Co-operative Society Act, had claimed deduction under section 80P(2)(d) of the ITA No.1725/PUN/2025 [A]

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.

In the result, appeal of the assessee is allowed.