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Facts
The assessee, a Co-operative Credit Society, earned interest income from deposits in PDCC Bank and other commercial banks. The Assessing Officer disallowed the deduction claimed under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961, considering it as income from other sources.
Held
The Tribunal held that the interest income earned by the assessee from deposits with cooperative banks is eligible for deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961, following the precedents set by various High Courts and the Tribunal itself.
Key Issues
Whether interest income earned by a co-operative society from its deposits with banks is eligible for deduction under Section 80P of the Income Tax Act, 1961.
Sections Cited
80P(2)(a)(i), 80P(2)(d), 80P
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
Assessment Year: 2020-21 Dapodi Workshop Employees V The Income Tax Officer, Co-operative Credit Society s Ward-8(1), Pune. Limited, Jasampada Building, Dapodi, Pune – 411012. Maharashtra. PAN: AAAAD5605M Appellant/ Assessee Respondent / Revenue Assessee by Shri Arpit Dnyandeo Dambhare – CA Revenue by Shri Madhan Thirmanpalli – Addl.CIT(DR) Date of hearing 14/05/2025 Date of pronouncement 16/05/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the assessee is against the order of ld.Commissioner of Income Tax(Appeals)[NFAC], passed under section 250 of the Income Tax Act, 1961; dated 06.12.2024 for Assessment Year 2020-21. The assessee has raised the following grounds of appeal :
“The Hon'ble CIT(A) has wrongly confirmed the disallowance of deduction of interest and dividend income of Rs. 17,80,627/- claimed by the appellant under section 80P(2)(a)(i) of the Income Tax Act, 1961 being the part of business. income which was treated as 'Income from other sources by the Ld. Assessing officer. Alternatively, the interest and dividend income earned by the appellant from the investments in a co-operative bank is also eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961.
The Appellant crave leave to add, delete, amend, alter, vary and/or withdraw all or any one of the above grounds of appeal
.” Condonation of Delay :
2. Assessee has filed an Affidavit for condonation of Delay. We have perused the Affidavit and we found that there is a valid reason for delay, therefore, Delay is condoned. Findings & Analysis :
3. We have heard both the parties and perused the records. Assessee is a Co-operative Credit Society engaged in the business of providing credit facility to its members. Assessee filed Return of Income for A.Y.2020-21 showing Gross Total Income of Rs.39,43,019/- and total income of Rs.Nil after claiming deduction of Rs.39,43,019/- under section 80P of the Income Tax Act, 1961. Assessee is duly registered with Assistant Registrar, Co-operative Societies. In the assessment order, Assessing Officer noted that Assessee has earned interest income from PDCC Bank and Other Commercial Banks. The Assessing Officer in para 4.5.10 held that since the interest income has been earned from Deposits it is directly linked to the business of the assessee of providing credit facilities to members, therefore, AO held that Assessee is not eligible for deduction u/s.80P(2)(a)(i) of the Act. The AO further held that Assessee is not eligible for 80P(2)(d) of the Act, relying on the decision of Hon’ble Karnataka High Court in the case of PCIT Vs. Totagars Co-operative Sales Society. Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A).
3.1 Ld.CIT(A) upheld the assessment order.
Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.
4.1 As per Maharashtra State Co-operative Societies Act, Assessee has to mandatorily maintain fixed deposits.
4.2 Thus, 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 This issue has been dealt in various decisions of ITAT Pune in favour of 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 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 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 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. 5.1 Thus, the 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/sec.80P(2)(a) of the Act.
5.2 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) are binding precedents for us.
The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal
filed by the assessee stands allowed.”Unquote
7. The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee.
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 amount of Rs.39,43,019/-. Accordingly, Grounds of appeal
raised by the assessee are allowed. Order pronounced in the open Court on 16. May, 2025.