ACIT CIRLCE-1, LUCKNOW vs. U P COOPERATIVE SUGAR FACTORIES FEDERATION LIMITED, LUCKNOW

74. (Kar) and Hon'ble Gujarat High Court in the case of State Bank of India V/s CIT (2016) 389 ITR 578 (Guj) had held that interest income earned by Co-operative Society on its investment held with Co-operative Bank would be eligible for deduction u/s 80P(2)(d) of the Act. Reliance is also being placed on the decision of the Hon'ble Jurisdictional High Court of Gujarat. 6.2 Further, the appellant's grounds of appeal are allowed, based upon the decision of the Hon'ble ITAT, Ahmedabad in ITA-7/Ahd-2023 dated 28.04.2023 in case of Mahila Sahayak Gruh Udhyog Sahakari Mandali Ltd V/s ACIT, Anand wherein the said co-operative banks being registered under Society Act, interest income earned from such co-operative banks Page 3 of 10 were found eligible for deduction u/s 80P(2)(d) of the Act after placing reliance on the decision of Hon'ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd [72 Taxmann.com 169 (Guj)]. 6.3 The claims made by appellant and reliance placed on above quoted decisions is found to be justified. Therefore, the addition of Rs. 4,11,20,788/- made by the AO after disallowing deduction u/s.80P is directed to be deleted. Hence, this ground of appeal is allowed.” (B.1) The present appeal has been filed by Revenue against the aforesaid impugned order of the Ld. CIT(A). In the course of appellate proceedings in Income Tax Appellate Tribunal (ITAT), the copies of the following precedents were filed from the assessee’s side: - A paper book was also filed from the assessee’s side containing the following particulars: - (B.2) At the time of hearing, the Ld. Departmental Representative opposed the submissions and supported the order of the Assessing Officer. He contended that in view of the judgment of the Hon’ble Supreme Court in the case of Totgar's Co- operative Sale Society Ltd vs ITO (2010) 322 ITR 283 (SC).

(B.3) On the other hand, the Ld. Counsel for the assessee supported the order of the Ld. CIT(A). He placed reliance on precedents referred to in foregoing paragraph (B.1) of this order.

(C) Similar issue has been decided by Co-ordinate Bench of Income Tax Appellate Tribunal in the case of Co-operative Cane Development Union Limited Maholi (Lakhimpur) vs ACIT in ITA.

Page 5 of 10 No.165/LKW/2023 for A.Y. 2017-18 order dated 30.09.2024 which has also been followed by us in the case of District Co- operative Sugar Cane Supply Ltd vs ITO in & 578/LKW/2024 for A.Y. 2016-17 & A.Y. 2018-19 vide order dated 30.10.2025. For the ease of reference, the relevant portion of order in the case of Co-operative Cane Development Union Limited Maholi (Lakhimpur) vs ACIT (supra) is reproduced below: - “13. We have duly considered the facts and circumstances of the case. And also the arguments made by both parties. Since the case of the Revenue is based on the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. Income Tax Officer (supra), it would be pertinent to first consider the decision of Hon’ble Supreme Court in that matter. As pointed out by the ld. Sr. DR, as per the said judgment, the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. In that particular case, the Hon’ble Supreme Court observed that, in the facts and circumstances of that case, the assessee society had earned interest on funds which were not required for business purposes at the given point of time. Therefore, as it clarified, on the facts and circumstances of that case, they rendered their judgment that such interest income fell in the category of, “other income” which had rightly been taxed by the Department under section 56 of the Act and therefore, was ineligible for deduction under section 80P of the Act. The two judgments of Hon’ble Allahabad High Court that have been cited by the ld. Sr. DR have followed the principle laid down by the Hon’ble Supreme Court and held, that the objects of the society did not provide for investment of money in a post office or bank and earn interest and therefore, the interest earned out of the investments made in the bank would be an interest, which in turn would be income from other sources that would be chargeable to tax under section 56 of the Act. However, as the ld. Authorized Representative has pointed out, the arguments of the nature that the fixed deposits were made on account of the Statutory provisions (of sections 58 and 59 of the U.P. Cooperative Societies Act in this case) and was therefore, the condition precedent to doing of business and accordingly “attributable” to the activities of the assesse cooperative, was not brought before the Hon’ble Allahabad High Court in either of the judgments cited by the ld. Sr. DR. Furthermore, M/s Cane Cooperative Development Council had appealed the judgment of Hon’ble Allahabad High Court in to the Hon’ble Supreme Court in Civil Appeal No. 7405 to 7409 of 2021 and placed the statutory rules before the Hon’ble Supreme Court. After considering that such rules may have a bearing on the nature of income and entitlement to exemption under section 80P of the Act, the Hon’ble Supreme Court had remitted the matter back to the Income Tax Appellate Tribunal to decide the appeals afresh, without being bound or influenced by the earlier orders passed by them or by the Hon’ble High Court. In view of such orders of the Hon’ble Supreme Court, the case laws of the jurisdictional Hon’ble Allahabad High Court cited by the ld. Sr. DR did not constitute a binding precedent for the ITAT, Lucknow Bench in the case of Cooperative Cane Development Council in ITA Nos. No.285/Lkw/2015, 474/Lkw/2015, 525/Lkw/2015, 536/Lkw/2015 and 540/Lkw/2015. The Hon’ble ITAT, Lucknow Bench after considering the byelaws and the statutory rules, the decisions of Hon’ble Allahabad High Court in CIT vs. Krishak Sahkari Ganna Samiti Limited 258 ITR 594 (Alld) and CIT vs. Cooperative Cane Development Union Limited 118 ITR 770 (Alld) and the decisions of the Tribunal in Income Tax Officer vs. Sahkari Ganna Vikas Samiti, Rupapur Chouraha (Munder), Hardoi in held as under:- “7.1 Now the parties are again before us. We find that assessees had earned interest from fixed deposits from bank and co-operative society. Hon'ble Supreme Court, after acceptance of additional documents had set aside the issue before this Tribunal for readjudication. We find that the arguments of the assessees are that the assessees had placed the funds in the form of fixed deposits with nationalized banks and Co- operative banks in view of the specific requirements of U.P. Co- operative Societies Act. We find that section 58 of the U.P. Co- operative Societies Act requires the net profit to be distributed as under: " (a) An amount not less than twenty five percent shall be transferred to a fund called the reserved fund: (b) Not less than such amount as may be prescribed, shall be credited to a Co- operative Education fund to be established in the manner prescribed, and this shall be applicable to such cooperative society also which incur loss in the year, [Provided that the provisions of this clause shall not apply to a Primary Agriculture Credit Co-operative Society, a Central Cooperative Bank or the Apex Bank.',] (c) An amount that may be prescribed shall be credited to the research and development fund created in the Apex Societies of the concerned class of Cooperative society and which shall be maintained for the purpose of Research and development in the prescribed manner. (d) an amount not exceeding twenty percent as may be prescribed shall be transferred to a fund called the Equity Redemption Fund to be established and utilized in the manner prescribed by such co- operative Society which has the subscription of the State Government in its share capitals." 7.2 Hon'ble Allahabad High Court in the case of CIT vs. Krishak Sahkari Ganna Samiti Ltd. [2002] 258 ITR 594 (Alld) has held that the investment by co-operative Society in the form of Government securities, equivalent to 25% of its profit, was the requirement of keeping the same as statutory reserve therefore, has held that such earning of interest was attributable to Allahabad High Court are reproduced below: "Clause (c) of Section 80-P(2) exempts income of cooperative society to the extent mentioned in that section if the profits or gains are 'attributable' to the activity in which the Cooperative Society is engaged. The findings are that under statutory provisions the Cooperative Society is bound to invest 25% of its profits in Government securities. The assessee complied with this provision. In the process, it earned interest on these investments. The question is whether such profits or gains are attributable to the activity of supplying sugarcane carried on by the assessee. In Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 1TR 84 the Supreme Court held that the expression 'attributable to suggests that the Legislature intended to cover receipts from sources other than the actual conduct of the business of the assessee. The investment of the statutory percentage of its profits in Government securities was a condition of the carrying on the business. The profits or gains from such investments were connected with or incidental to the carrying on of the actual business. They were, in our opinion, rightly held by the Tribunal to be attributable to the activity carried on by the assessee within the "meaning of clause (c) aforesaid. We therefore, answer the question referred to us in the affirmative in favour of the assessee and against the Department.

Page 8 of 10 16. We have further observed that the Hon’ble Madras High Court in the case of K. 2058, Saravanampatti Primary Agricultural Co-Operative Credit Societies Ltd. v. Income Tax Officer 426 ITR 251 (Mad), after considering that the Societies was required to maintain a statutory reserve of 25% under the Tamilnadu Cooperative Societies Act held that the same could not be regarded as the surplus funds of the Society as decided in M/s Totgars Cooperative Sale Society Limited (supra) and therefore, it set aside the assessment of the ld. Assessing Officer in the light of the decision of the Hon’ble Supreme Court in CIT vs. Nawanshahar Central Cooperative Bank Ltd. 289 ITR 6 (SC) ‘.Therefore, in view of the arguments made by the learned Authorized Representative, that the investment in fixed deposits and other securities or on account of the provisions of sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and section 173 of the U.P. Cooperative Societies Rules, 1968, it is quite clear that since it has been held that interest on such investment is attributable to the main activity of the assessee cooperative society, the interest earned from such investments ought not to be regarded as a surplus within the meaning of Totgar’s Case, but an interest attributable to the main activity of the assessee cooperative and therefore, deductible under section 80P. The assessee has submitted copies of its byelaws and the detailed breakup of investments and interest arising on the same. However, we observe that the ld. Assessing Officer has not examined the breakup of such investments and the interest earned on the same, with reference to the byelaws or sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Societies Rules, 1968 as he was of the view that no such interest was deductible in view of the decision of Hon’ble Supreme Court in the case of Totgars (supra). Now that the position with regard to such investments has been clarified by the Hon’ble ITAT in the case of Cooperative Cane Development Council, Lakhimpur and accepted by the Revenue in the consequent assessment, we deem it appropriate to restore the matter in all three cases back to the file of the ld. Assessing Officer for the limited purpose of re-computing the admissible deduction under section 80P with reference to the interest earned on investments made in accordance with sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Societies Rules, 1968 . Ground numbers 1 to 5 are accordingly allowed. With regard to Ground no 6 on the issue of adding back the interest on PF balance of the seasonal employees of the society, we observe that the same cannot be considered to be the investments of the society and accordingly the interest accruing on the said amount cannot be said to be income of the society. Therefore, any adding back of such interest income to the income of the society is not maintainable and accordingly, additions made on this account in A.Ys. 2017-18 and 2020-21 are deleted. In view of the fact that we have allowed Ground numbers 1 to 5, Ground numbers 7 to 9 are rendered infructuous and are dismissed as such.” (C.2) In the light of the decision of Co-ordinate Bench of this ITAT, Lucknow in the cases, referred to in foregoing paragraph (C) of this order, we hereby set aside the impugned order and restore the issue to the file of the Assessing Officer with the direction to verify the correctness of the claim of the assessee that the interest disallowed by AO was earned from the fixed Page 9 of 10 deposits made in pursuance of the RBI guidelines and the statutory provision governing the maintenance of reserve funds; and to thereafter pass fresh order on this issue in accordance with law after providing reasonable opportunity to the assessee. The ground raised in this appeal is partly allowed for statistical purposes.

In the result, the appeal of the Revenue is partly allowed for statistical purposes.

Order pronounced in the open Court on 31/10/2025.