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Facts
The assessee, a credit cooperative society, claimed deduction under section 80P(2)(a)(i) for A.Y. 2020-21 on interest income from bank fixed deposits and savings accounts. The Assessing Officer and Ld. CIT(A) denied this deduction, treating it as 'income from other sources' based on the Supreme Court's decision in *Totagars Cooperative Sale Society Ltd.*, making an addition of Rs.5,06,310/- after allowing section 56 expenses.
Held
The Tribunal, relying on the Hon'ble High Court of Andhra Pradesh & Telangana's decision in *Vavveru Co-operative Rural Bank Ltd.* and previous ITAT Pune rulings, held that interest income earned by a cooperative society from deposits in cooperative/scheduled banks is eligible for deduction under sections 80P(2)(a)(i) and 80P(2)(d). The *Totagars* case was distinguished based on the nature and source of funds. The Assessing Officer was directed to allow the deduction for the interest amount of Rs.6,72,033/-.
Key Issues
Whether interest income earned by a credit cooperative society from deposits with other banks (including cooperative and scheduled banks) is eligible for deduction under Section 80P of the Income Tax Act, 1961.
Sections Cited
80P, 80P(2)(a), 80P(2)(a)(i), 80P(2)(d), 250, 56
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
Assessment Year: 2020-21 Baglan Prathmik Shikshak V The Income tax Officer, Sahkari Patsanstha Maryadit, s New Delhi. Nampur – 423204. Maharashtra PAN: AADAB1392C Appellant/ Assessee Respondent / Revenue Assessee by None Revenue by Shri Harish Bist – Addl.CIT(DR) Date of hearing 03/04/2025 Date of pronouncement 22/04/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC] under section 250 of the Income Tax Act, 1961 for A.Y.2020-21, dated 31.12.2024. The assessee has raised the following grounds of appeal :
1. On the facts and in the circumstances of the case and in law, the lower authorities have erred in rejecting deduction u/s 80P(2)(a)(i) for a sum of Rs.5,06,310/- being part of the book profit of appellant society without appreciating the fact that earning of interest is an integral part of society's business and appellant prays for allowing such deduction.
2. On the facts and in the circumstances of the case and in law, the lower authorities have erred in treating the interest received from investment a sum of Rs.5,06,310/-, as income from other sources by rejecting appellants contention that said interest income is integral part of business activity and your appellant prays for cancellation of Assessing officer's action.
3. Without prejudice to above ground on the facts and in the circumstances of the case and in law, the Lower authorities have 3 erred in not allowing the deduction under section 80P(2)(d) on interest income received from other co-operative society. Your appellants pray for allowing the same.
Without prejudice to above ground, on the facts and in the circumstances of the case and in the law Lower authorities have erred in treating entire interest income as interest income received from other co-operative society or bank without allowing deduction on account of interest/administrative expenses. Your appellant prays for such deduction." Submission of ld.AR 2. At the outset of hearing, no one appeared on behalf of the assessee.
Submission of ld.DR : 3. The ld.DR for the Revenue relied on the order of AO & ld.CIT(A).
Findings & Analysis : 4. We have heard ld.DR for the Revenue and perused the records. As per the assessment order, assessee is a credit cooperative society registered under Maharashtra Cooperative Society Act. Its object is providing credit facility to its members. Assessee filed Return of Income for A.Y.2020-21 on 18.01.2021, declaring total income of Rs.1,84,360/-. Assessee claimed deduction under section 80P(2)(a)(i) of the Act. The Assessing Officer observed that assessee has earned interest income of Rs.5,50,463/- from Term Deposit kept with Bank and Rs.1,21,570/- from savings bank interest. The Assessing Officer held that the interest income earned from Term Deposit and Saving Bank Account is not eligible for deduction u/s.80P of the Act following the decision of Hon’ble Supreme Court in the case of ld.Pr.CIT Vs. Totagars Cooperative Sale Society Ltd. However, Assessing Officer allowed 26.4% expenditure under section 56 from the said interest income and made an addition of Rs.5,06,310/-. Aggrieved by the said addition, assessee filed appeal before the ld.CIT(A). Assessee made an elaborate submission before ld.CIT(A). However, ld.CIT(A) confirmed the addition.
4.1 Aggrieved by the order of ld.CIT(A), assessee has filed appeal before this Tribunal.
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
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.6,72,033/-. 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 22nd April, 2025.