Loading judgment…
Facts
The assessee, a Co-operative Credit Society, filed an appeal against the order disallowing deduction under Section 80P(2)(a) on interest earned from deposits in cooperative banks. The Assessing Officer disallowed the claim due to non-production of documents and details of members' interest.
Held
The Tribunal, following judicial precedents from various High Courts and the Supreme Court, held that interest earned from deposits in permitted banks by a co-operative society is eligible for deduction under Section 80P(2)(a) as it is attributable to its main business of providing credit facilities.
Key Issues
Whether interest earned by a co-operative credit society from deposits in banks is eligible for deduction under Section 80P(2)(a) of the Income Tax Act.
Sections Cited
80P(2)(a), 250, 143(3), 144B, 142(1), 80P(2)(a)(i), 80P(2)(d), 80P(4)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Assessment Year: 2022-23 The Ratnakar Bank Employees V The Income Tax Officer, Coo Op Credit Society Limited, s Ward-2(1), Kolhapur. C.S.No.332-C, E-Ward, Swanand Complex, 1st Floor, F- 6, New Shahupuri Kolhapur, Kolhapur- 416001. PAN: AABTT1418L Appellant/ Assessee Respondent / Revenue Assessee by Shri Pramod S Shingte – AR Revenue by Shri Ambarnath Khule – JCIT(DR) Date of hearing 03/09/2025 Date of pronouncement 19/09/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This 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 A.Y.2022-23 dated 04.07.2025 emanating from the Assessment Order under section 143(3) read with section 144Bof the Income Tax Act, 1961. The Grounds of appeal raised by the Assessee are as under :
[A] “1. On the facts and in the circumstances of the case and in law the CIT(A), NFAC erred in confirming the action of the AO of denying deduction under section 80P in respect interest earned by the appellant society on deposits with other co-operative banks, not accepting the submission of the appellant in this respect.
The appellant prays that the AO be directed to delete the addition.
The appellant craves leave to add, amend, alter, modify, delete or add a new ground of appeal before or at the time of hearing.”
Submission of ld.AR : 2. 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 MARYADIT VS ITO_ SEC.80P(2)(D)
ITAT ORDER- AJINKYA MADHYAMIK SHIKSHAK SEVAK PATSANSTHA AY 2018-19 ITAT ORDER- PRAGATI GRAMIN-PUNE_PATSANSTHA- S. 80P{2) (A) (I)-S.80P(2)(D) ITAT ORDER- MANDHESHWARI-URBAN-CO-OP BANK IS ELIGIBLE FOR EXEMPTION U-S- 194A
ITAT ORDER NIPHAD NAGARI SAHAKARI VS DEPARTMENT OF INCOME TAX ITA_1336_OFJ2011
RENA SAHAKARI SAKHAR KARKHANA
ITAT OF RATNKARA BANK EMPLOYEES CO-OP CREDIT SOCIETY AY-2022-23-SYNOPSIS-SUBMISSION 2 Findings & Analysis : 4. 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 : “7.5 During the appellate proceedings, the submissions along with the 3 AO for comments in the form of a remand report. In response to the same, the AO submitted the remand report on 27.03.2025. On the issue of deduction claimed u/s 80P(2)(a)(i) of the I.T.Act, it has been stated by the AO that on the facts and in the circumstances of the case and in law, the interest/dividend income received from co-operative banks was part of its banking business and therefore eligible for deduction under Section 80P(2)(a)(i) of the I.T.Act as per the ratio the decision of the Hon. Karnataka High Court in Tumkur Merchants Souharda Credit Co Operative Ltd vs ITO [2015] 55 taxmann.com 447 (Karnataka). It is also stated that in this case, the interest and dividend earned by the assessee from investment in co-operative banks is attributable to the activity of banking and extending credit facility to its members, and therefore, it is part of the business income of the appellant and is covered by deduction under section 80P(2)(a)(i) of the I.T. Act. In his rejoinder, the appellant has referred to the comments of the AO in the remand report and has stated that, since the AO has accepted the claim for the deduction u/s 80P(2)(a)(i), the same may be allowed.”
4.1 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 4.1 Aggrieved by the order of ld.CIT(A), Assessee has filed appeal before this Tribunal.
4.2 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! 4.3 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.
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 5
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 6
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.
4.4 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 : 7 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 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 8 [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 5.1 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.
6. 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 9 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.
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 6.1 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 by which the High Court has dismissed the said appeal preferred by the Revenue.
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 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 10 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 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”.
7.1 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. 11 8. 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. 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 19 September, 2025.