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Facts
The assessee, a cooperative society, earned commission and interest income. The AO disallowed the deduction claimed under Section 80P for interest income, treating it as income from other sources. The CIT(A) upheld the AO's order.
Held
The Tribunal held that interest income earned by a cooperative society from statutory reserve funds and other funds maintained as per the U.P. Cooperative Societies Act is attributable to its main activities and eligible for deduction under Section 80P. The matter was restored to the AO for re-computation.
Key Issues
Whether interest earned on funds invested as statutory reserves by a cooperative society is attributable to its main business activities and eligible for deduction under Section 80P of the Income Tax Act.
Sections Cited
80P, 57, 143(3), 270A, 272A(1)(d), 194H, 58, 59
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2017-18 Sahkari Ganna Vikas v. The Income Tax Officer Samiti Ltd. Basti Vikramjot, Basti (U.P) TAN/PAN:AABAS4611B (Appellant) (Respondent) Appellant by: None Respondent by: Shri R.R.N. Shukla, D.R. O R D E R This appeal has been preferred by the Assessee against the order dated 05.12.2024, passed by the Addl/JCIT(A)-3, Bengaluru for Assessment Year 2017-18.
2.0 The brief facts of the case are that the assessee is a co- operative society registered under the Co-operative Societies Act, 1912. The main activity of the assessee was marketing of sugar cane grown by the cane growers, who were members of the assessee-society. The assessee filed its return of income for the year under consideration on 21.03.2018, declaring a total income of Rs.1,73,170/-. During the year under consideration, the assessee-society had received commission from sugar mills on supply of sugar cane of Rs.70,16,032/-, which was claimed as exempt in terms of section 80P(2)(a)(ii) of the Income Tax Act, 1961 (hereinafter called “the Act’). The assessee had claimed deduction under chapter VI-A of Rs.23,26,033/- and also claimed deduction under section 57 of the Act of Rs.65,50,800/-. The assessee had received interest of Rs.20,33.851/- and the same was shown in the return of income for the year under consideration as ‘income from other sources’. The assessee had claimed deduction of Rs.20,33,851/- for the interest income under section 57 of the Act. The Assessing Officer (AO) held that the deduction claimed by the assessee to the tune of Rs.20,33,851/- under section 57 of the Act was not allowable, as the assessee was a co-operative society and was eligible for deduction under chapter VI-A read with section 80P(2)(a)(ii) of the Act only. The AO, therefore, treated the amount of Rs.20,33,851/- as the income of the assessee and added the same to the total income of the assessee. The AO completed the assessment under section 143(3) of the Act, assessing the total income of the assessee at Rs.20,33,851/- as against the returned income of Rs.1,73,170/-.
2.1 The AO also initiated penalty proceedings under sections 270A and 272A(1)(d) of the Act, separately.
2.2 Aggrieved, the Assessee preferred an appeal before the Ld. First Appellate Authority, who dismissed the appeal of the assessee and confirmed the order of the AO.
2.3 Now, the assessee has approached this Tribunal challenging the order of the Addl/JCIT(A)_3, Bengaluru, by raising the following grounds of appeal:
1. That the ADDL/JCIT(A)-3 Bengaluru has committed manifest error of law by rejecting the first appeal of the appellant without appreciating facts and circumstances of the case of the appellant.
2. That the appeal filed by the assessee against the order of ADDL/JCIT(A)-3 Bengaluru dated 05-12-2024 in which the disallowances made by the Ld. AO in respect of claim of deduction u/s 80P for interest earned by the assessee were upheld and the appeal of the assessee were dismissed.
That the appellant is a cooperative society registered under the U.P cooperative society registration act 1965 and engage in the business and marketing of sugarcane. The appellant derives from commission received from the sugar mill and interest income charged to provide credit facilities to its members for purchase of cane seeds, fertilizers and insecticides and its total income is deducted from the grass total income of the society under section 80P(2)(a) (iii) and 80P(2) (d) on interest income of the act.
That the authorities below erred on facts and in law in not allowing deduction u/s 80P of IT Act on interest received on investment held with banks in form of FDR'S Rs.2033850/-.
That the authorities below erred in relying on the decision Hon'ble Supreme Court in the case Totgars cooperative sale society ltd. Vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable in facts from the case of the appellant assessee.
6. That the Ld. CIT (A) erred on facts and in law in not considering that the law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the business of the society and thus interest income on FDR'S and saving bank account is attributable to the business of providing credit facilities and marketing the agricultural produce of the member.
7. That the appellant is cooperative society and 100% deduction available under section 80P(2)(a)(iii) of income tax act, 1961. Its total income comes to nil and hence the return for the year total income at nil claiming TDS made under section 194H as commission on receiving has been filed.
8. That the authority below erred on facts and in law in not allowing deduction u/s 80P on interest received on investment in form of FDR'S.
9. The addition disallowances are illegal, unjust highly excessive and against the material on record. That the Ld. CIT(A) erred on fact in law in not considering that the appellant's assessee is a welfare society for cane growers and not a sale society as in the case of Totgar cooperative sale society and it was not marketing/selling the product of its member.
10. That the Ld. CIT(A) erred in facts and in law in not considering that the society being cooperative society is statutorily required to maintain a reserve fund of a minimum 25% of its profit and thus the investment in form of deposit with bank to the extent of the reserve fund cannot be said to be made out of surplus fund 11. That the appellant society earns its income in the form of interest on fixed deposit received on Kisan Vikas Patra, FDR, saving bank account. These such interest income are also part of amount of profit and gain of business activities of the society.
12. That the order of the ADDL/JCIT (A)-3 Bangaluru dated- 05-12-2024 passed in appeal no-CIT(A), Faizabad/10182/2019-20 is liable to be quashed and further demand of Rs.687999 under section 143(3) issued by assessing officer Basti-New may also be quashed.
That the appellant craves leaves to aid or amend the grounds of appeal during the course of hearing before Hon'ble ITAT.
3.0 During the course of hearing, it was brought to my notice that there is a delay of 144 days in filing the appeal before the Tribunal. The assessee has filed an application dated 22.07.2025 for condonation of delay, stating therein that the impugned order of the Ld. First Appellate Authority was served on the email id of the assessee’s Counsel, who did not inform the same to the assessee and it was only when the Department adjusted the demand against the refund of the assessee that the assessee came to know about the passing of the order by the Ld. First Appellate Authority and, thereafter, immediately the assessee collected all the relevant details and filed the appeal before the Tribunal. The prayer of the assessee was that the delay caused in filing the appeal was not deliberate and that it was beyond the control of the assessee, which may please be condoned and the appeal be heard on merits.
4.0 The Ld. Sr. D.R. had no objection to the delay being condoned.
5.0 In view of the prayer made by the Assessee and no objection by the Ld. Sr. D.R., I condone the delay in filing of the appeal and admit the appeal for hearing.
6.0 None was present for the assessee when the appeal was called out for hearing nor was any adjournment application moved in this regard. However, looking into the facts of the case, I proceed to adjudicate the appeal ex-parte qua the assessee.
7.0 At the outset, the Ld. Sr. DR submitted that issue involved in the instant case had already been decided in favour of the Revenue by the Hon’ble Supreme Court in the case of The Totgars' Cooperative Sale Society Limited vs. Income Tax Officer (2010) 322 ITR 283 (SC). The Ld. Sr. D.R. further submitted that the Addl/JCIT(A)-3, Bengaluru had given a detailed finding and had rightly disallowed the assessee’s claim. He prayed that the appeal of the assessee be dismissed.
8.0 I have heard the Ld. Sr. D.R. and have also perused the material on record. The Lucknow Bench of the ITAT had an occasion to consider an identical issue in the case of Co-operative Cane Development Union Limited, Maholi in 166 & 168/LKW/2023, wherein the Lucknow Bench, vide order dated 30.09.2024, considered the implication of the judgment of the Hon'ble Apex Court in the case of The Totgars' Cooperative Sale Society Limited vs. Income Tax Officer (supra) and had, thereafter, reached the conclusion that interest income arising from investment in statutory reserve funds and ‘other funds’ as per the provisions of sections 58 and 59 of the U.P. Co-operative Societies Act is attributable to the main activities of the Society and would, thus, qualify for deduction under section 80P of the Act.
8.1 It would be relevant to reproduce the relevant paragraphs from the above said order of the Lucknow Bench of the ITAT:
“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 59of 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 Co-operative 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 the activity carried on by the assessee. The relevant findings of Hon'ble 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.
Following the aforementioned ratio laid down by the Division Bench which we consider binding on us, we too answer the question referred to us in the affirmative in favour of the assessee cooperative Society and against the Revenue." 7.3 Further we find that the assessee has relied on a judgment of Raipur Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit vs. Income Tax Officer [2022] 138 taxmann.com 476 (Raipur-Trib.) wherein the Tribunal has held that the interest earned by the assessee from deposit with co-operative bank and nationalized bank was eligible for deduction u/s 80P(2)(a) of the Act. 7.4 The above two judgments respectively by Hon'ble High Court and Tribunal hold that the interest earned by a Co-operative Society on deposits, which are statutorily required to be kept in the form of bank deposits or Government securities, are attributable to the business of an assessee.
7.4 Here in the present cases, we do not find the figures regarding the interest which the assessees may have earned on fixed deposits attributable to the making of statutory reserves. We further find that bye laws of the assessee has to be gone through which, though are available in the paper book, but require examination by the Assessing Officer as these were filed before Hon'ble Supreme Court as additional evidences. Therefore, we deem it appropriate to remit the issue of deduction u/s 80P for readjudication by the Assessing Officer, who, in the light of judgment of Hon'ble Supreme Court and keeping in view the judgments relied on by the assessee and keeping in view the additional documents, as filed before Hon'ble Supreme Court, will adjudicate the issue afresh. Needless to say that the assessees will be provided sufficient opportunity of being heard.”
Subsequent on the said remand, the matter was examined by the Revenue and after consideration of the decision of the Hon’ble Supreme Court and the other judgments relied upon by the Hon’ble ITAT while remanding the matter back to him, the ld. Assessing Officer held as under:- "3.3 Reason for inference drawn that no variation is required on this issue: The submissions made by the Assessee have been examined thoroughly particularly the bylaws of the Assessee Society and the U. P. Co-operative Societies Act. On going through the by-laws of the Assessee Society, it has been noticed that its Part 14 i.e. "Disposal of Net Profit and Societies" Assets and funds and appropriation thereof deals with the appropriation of Net Profits and Funds of the Assessee Society. Further, it has also been noticed that the aforementioned Part-14 of the bylaws of the Societies are in accordance with section 58 and 59 of the U. P. Co-operative Societies Act. Further, it has also been noticed that the secured reserve as well as other reserves are created in Annual General Meeting of the Society as per its bylaws and get accumulated over the year. These reserves are kept in co-operative and nationalized banks from where the Assessee earns the interest income under question. In view of the aforementioned facts, it is inferred that the reserve funds kept by the Assessee with Co-operative and nationalized banks are as per the by-laws of the Society and accordingly interest income arising from these funds can be held to be attributable to its main activities and therefore, the assessee is eligible for deduction in respect of this interest income under section 80P(2)(a) of the Act as per the case laws referred to and relied upon by the Hon'ble L.T.A.T. i.e. Judgments of Hon'ble Allahabad High Court in the case of CIT Vs. Krishak Sahkari Ganna Samiti Limited [2002] 258ITR594 (Allahabad) and ITAT, Raipur in the case of Gramin Sewa Sahakari Samiti Maryadit Vs. Income Tax Officer 92022), 138 Taxmann.com 476 (Raipur Tribunal).”
Thus, the principle that interest income arising from investments in statutory reserve funds and other funds as per the provisions of sections 58 and 59 of the U.P. Cooperative Societies Act is “attributable” to the main activities of that Society, has been accepted by the Revenue. The assessee is governed by the same U.P. Cooperative Societies Act and Rules as the Cooperative Cane Development Council, Lakhimpur and therefore, in its case also, it must be held that interest earned from investment made by it as per sections 58 and 59 of the U.P. Cooperative Societies Act r.w.r.173 of the U.P. State Cooperative Rules, is attributable to the activity in which the assessee is engaged and therefore, is eligible to be deducted under section 80P(2)(a) of the Act. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
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.” 8.2 Therefore, on identical set of facts in the present appeal, respectfully following the order of the Lucknow Bench of the ITAT in Co-o-operative Cane Development Union Limited, Maholi vs. ACIT, Sitapur (supra), I deem it appropriate to restore the matter to the file of the AO for the limited purpose of re-computing the admissible deduction under section 80P of the Act with reference to the interest earned in investments made in accordance with sections 58 and 59 of the U.P. Co-operative Societies Act, 1965 and Rule 173 of the U.P. Co-operative Societies Rules, 1968.
8.3 The assessee shall also cause to be furnished such books of account and documents before the AO as might be required by him.
8.4 The AO is directed to give proper opportunity to the assessee prior to passing of the said assessment order.
9.0 In the final result, the appeal of the assessee stands allowed for statistical purposes.
Order pronounced in the open Court on 27/10/2025.