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Facts
The appeals were filed against the orders of the CIT(A) confirming the assessment orders. The dispute pertains to Assessment Years 2017-18, 2020-21 & 2022-23. The assessee society is engaged in providing credit facilities to its members and claimed deduction under Section 80P of the Income Tax Act, 1961 on interest earned from investments.
Held
The Tribunal held that the interest income earned on investments in banks and financial institutions by a cooperative society is attributable to its core business activity of providing credit facilities to its members and is eligible for deduction under Section 80P(2)(a)(i) of the Act. The court distinguished the ruling in the Totgars case, stating that the investment in this case was to service interest payable to members.
Key Issues
Whether interest earned from investments in banks/financial institutions is eligible for deduction under Section 80P(2)(a)(i) when the cooperative society's primary business is providing credit facilities to its members.
Sections Cited
143(3), 147, 144B, 80P, 270A, 56, 28, 80P(2)(a)(i), 80P(4), 80P(2)(d)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA Nos. 1007 to 1009/JP/2025
per provisions of section 80P(2)(a)(i), the assessee being co-operative society is eligible to claim deduction for carrying on the business of banking or providing credit facilities to its members and in such case deduction is available to the assessee for whole of the amount of profit and gains on such business.
1. Ld. AO considered this submission of the assessee, but found it not acceptable. While doing so, he relied upon the provision of section 80P(4) and provision of section 80P(2)(d) of the Act. Having noted those provisions he considered the decision of Hon’ble Karnataka High Court in 83 taxmann.com 140 ] to take a view that the interest earned by the assessee to the extent of Rs. 8,94,996/- was not in accordance with the provisions of section 80P of the Act, and thereby the claim to that extent was disallowed.
8. Aggrieved by the findings so recorded by the ld. AO the assessee filed an appeal before the ld. CIT(A). After considering the grounds and facts so presented before the ld. CIT(A) has partly allowed the appeal of the assessee in the lead case and the relevant findings of the ld. CIT(A) reads as under :
6. Decision 6.1 Various grounds of appeal taken by the appellant are on disallowance of deduction u/s 80P of Rs. 8,94,996/- by the AO. I have considered the order of the AO and the submission of the appellant. It is seen that the AO disallowed claim of deduction u/s 80P in respect of following income:
6.2 Out of total disallowance of Rs 8,94,996/-, disallowance of Rs 8,22,174/- is on account of interest received from SBI and other financial institutions. Hence, it is seen that the interest income of Rs 8,22,174/- was not earned from members of the appellant society or from any other co-opeartive society or co-operative bank. The interest was earned from banks and financial institutions (other than co- operative banks). The Hon'ble Supreme Court in the case of Totgars' Cooperative Sale Society Ltd. v. ITO [322 ITR 283 (SC)] has held as under on this issue:
"At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes. Assessee(s)markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities.
The question, before us, IS whether interest on such deposits/securities, which strictly speaking accrues to the members account, could be taxed as business income under Section 28 of the Act?
In our view, such interest income would come in the category of "Income from other sources", hence, such interest income would be taxable under Section 56 of the Act, as rightly held by the Assessing Officer." …………….
The heading of section 80P indicates that the said section deals with deduction in respect of income of co-operative societies. Section 80P(1), inter alia, states that where the gross total income of a co-op society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee society. Thus, an income, which is attributable to any of the specified activities mentioned in section 80P(2) would be eligible for deduction. ………..
In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest onsuch investments, therefore, cannot fall within the meaning of the expression "profits and gains of business. Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. ……….
To say that the source of income is not relevant for deciding the applicability of Section 80P of the Act would not be correct because we need to give weightage to the words "the whole of the amount of profits and gains of business" attributable to one of the activities specified in Section 80P(2)(a) of the Act. An important point needs to be mentioned. The words "the whole of the amount of profits and gains of business" emphasise that 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 this particular case, the evidence shows that the assessee-Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of "Other Income" which has been rightly taxed by the Department under Section 56 of the Act." …………..
"An alternative submission was advanced by the assessee(s) stating that, if interest income in question is held to be covered by Section 56 of the Act, even then, the assessee-Society is entitled to the benefit of Section 80P(2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80P(2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to Section 80HHC, Section 80HHD(3) and to 1009/JP/2025 West Central Railway Employees Cooperative Credit Society Ltd. vs. ITO Section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject-matter. For example, Section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of Section 80HHC is, therefore, different from the scope of Section 80P of the Act, which deals with deduction in respect of income of cooperative Societies, Even Explanation (bas) to Section 80HHCwas added to restrict the deduction in respect of profits retained for export business. The words used in Explanation (baa) to Section 80HHC, therefore, cannot be compared with the words used in Section 80P of the Act which grants deduction in respect of "the whole of the amount of profits and gains of business"............
6.3 Hence, in the above decision of Hon'ble Apex Court, in which the Hon'ble Supreme Court has held that interest eamed on investment in banks and other financial institutions is income from other sources and not eligible for deduction u/s 80P. The appellant had earned interest of Rs 8,22,174/- on investments in SBI and other financial institutions. They are neither members of the appellant society nor co-operative society nor co-operative bank. Hence, the interest does not qualify for deduction u/s 80P(2)(a)(i) or even u/s 80P(2)(d) of the Act. Hence, the disallowance of Rs 8,22,174/- was correctly made by the AO. All the contentions raised by the appellant are devoid of merit in view of decision of Hon'ble Supreme Court. The case laws relied upon by the appellant are not applicable to the facts of the case of the appellant. Hence, it is held that interest income of Rs 8,22,174/- earned by the appellant is income from other sources and not eligible for deduction u/s 80P of the Act. Hence, the order of the AO in respect of above disallowance of Rs 8,22,174/- is upheld.
6.4 As regards commission income of Rs 70,162/- and miscellaneous income of Rs 2,210/-, the appellant submitted that commission of Rs 70,612/- was earned from members towards NEFT/RTGS charges and income of Rs 2,210/- was earned from members towards passbook reissue/duplicate statement. Hence, these income were earned during normal course of business of the appellant of providing credit and banking facilities to members and were earned from members only. Hence, these income totalling to Rs 72,372/- qualify for deduction u/s 80P(2)(a)(i) of the Act. Hence, addition of Rs 72,372/- made by the AO is deleted.
7. Hence, the appeal of the appellant is PARTLY ALLOWED.
assessee preferred present lead appeal. To support the solitary ground, so raised the ld. AR of the assessee has filed following written submission;
“The Ld. CIT(A), NFAC has erred on facts and in law in confirming the order of AO in assessing the interest receipt of Rs.8,22,174/- received from investment made with bank and other financial institutions under the head income from other sources by not accepting the contention of assessee that the said interest receipt is attributable to the activity of providing credit facility to its members eligible for deduction u/s 80P(2)(a)(i) of the Act.
Facts:-
1. Assessee is a credit cooperative society engaged in providing credit facility to its members. It filed its return of income u/s 139(1) on 06.10.2017 at Nil income after claiming deduction of Rs.58,23,166/- u/s 80P of IT Act, 1961.
2. The AO observed that assessee has earned interest income from bank & other financial institutions other than cooperative societies at Rs.8,22,174/- and has claimed deduction u/s 80P(2)(a)(i) of IT Act, 1961 on such interest which is not allowable to the assessee. The assessee furnished the reply vide letter dt. 18.11.2019 which is reproduced at Pg 7 of the order.
3. The AO, however, by referring to section 80P(4) held that assessee society is not entitled to claim deduction u/s 80P on the quantum of income which is not covered u/s 80P(2)(a)(i) of the Act. Accordingly AO disallowed the deduction of interest income of Rs.8,22,174/- claimed u/s 80P of IT Act, 1961.
4. The Ld. CIT(A), NFAC at Para 6.2 after referring to the decision of Hon’ble Supreme Court in case of Totgars Co- Operative Sale Society Ltd. Vs. ITO [2010] 322 ITR 283, at Para 6.3 held that interest earned on investment in banks and other financial institutions is income from other sources not eligible for deduction u/s 80P. The appellant had earned interest of Rs.8,22,174/- on investments in SBI and other financial institutions. They are neither members of the appellant society nor co-operative society nor cooperative bank. Hence, the interest income of Rs.8,22,174/- earned by the appellant is income from other sources and does not qualify for deduction u/s 80P(2)(a)(i) of the Act.
It is submitted that assessee is a credit cooperative society engaged in providing credit facility to its members. During the year it has earned interest income of Rs.8,22,174/- on fixed deposit with SBI and investment in securities made with United Multi State Cooperative Society, Muthoot Fincorp Ltd. and Hriday Fincorp Pvt. Ltd. and has claimed the same as deduction u/s 80P(2)(a)(i) of IT Act, 1961. This section provides that where assessee is a cooperative society engaged in providing credit facilities to its members, whole of the amount of profit & gains of business attributable to such activity shall be deducted in computing the total income.
It may be noted that assessee has no activity other than providing credit facilities to its members. The modus operandi of the activity of assessee is that some of its members provide funds to it which is used in providing advance to other members or invested in fixed deposit and securities. On the amount so received it pays interest to its members and on the amount given to members/ invested in fixed deposits and securities it earns interest. Thus the entire activity of earning interest from members/ FDRs and payment of interest to members is a business activity in as much as the funds received from the members only is utilized in providing advance to its members/ investment in FDR & securities. Therefore, interest earned on FDR & securities is income attributable to carrying on its activity of providing credit facility to its members. It may be noted that the section uses the word ‘attributable to’ carrying on the business of providing credit facility to its members and not the word ‘derived from’ the business of providing credit facility to its members. Hon’ble Allahabad High Court in case of CIT Vs. Cooperative Cane Development Union Ltd. (1979) 118 ITR 770 has held that the expression ‘attributable to’ is much wider than the expression ‘derived from’ and it suggest that the legislature intended to cover receipt from sources other than the actual conduct of business of assessee. The scope of the word ‘attributable to’ has been considered by Hon’ble Supreme Court in case of Cambay Electric Supply Industrial Company Ltd. Vs. CIT (1978) 113 ITR 84 where at Para 11 it is held as under:-
“11. As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been to 1009/JP/2025 West Central Railway Employees Cooperative Credit Society Ltd. vs. ITO contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression "derived from", as, for instance, in s. 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.”
Therefore, interest earned on investment in FDR with SBI & investment in securities is an operational income attributable to carrying on business of providing credit facility to its members eligible for deduction u/s 80P(2)(a)(i).
The Ld. CIT(A) has observed that interest received from investment in banks and other financial institutions is taxable u/s 56 as they are neither members of the appellant society nor co-operative society nor cooperative bank and for this proposition it had relied upon the decision of Hon’ble Supreme Court in case of Totgars Cooperative Sales Society Ltd. [2010] 322 ITR 283. It may be noted that in the decision of Hon’ble Supreme Court it is stated that the word ‘whole of the amount of profit & gains from business’ used in section 80P(2)(a) emphasize that 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 this connection it may be noted that it is not a case that the surplus funds has been invested in FDR & other securities. In fact in course of carrying out its activity of providing credit facility to its members, it receives the funds from its members who have the capacity to lend and out of that fund the amount is advanced to other members who need the fund. Where the funds received is more than the amount advanced, the balance funds is invested in FDR & other securities so that the interest received from the advance given/ FDRs made/ investment in securities can be utilized to service the interest cost of the funds provided by the members. Thus the interest received on FDR & other securities constitutes operational income and therefore such income is business income and not income from other sources eligible for deduction u/s 80P(2)(a)(i).
It may also be noted that in case of Totgars Cooperative Sales Society Ltd. (supra) it was engaged in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing of agricultural produce of its members was retained in many cases and invested in short term deposit. The amount so retained was a liability on it and therefore, to that extent the interest income was held not to be income attributable to the activity carried out by the society. The Hon’ble Supreme Court further clarified
that they are confining the said judgment to the facts of that case. Thus, this decision is distinguishable on the facts of the case of assessee in as much as in the present case investment made in FDR is essentially to service the interest payable on amount received from the members. Hence, such interest is operational income eligible for deduction u/s 80P(2)(a)(i). This fact has not been considered by Ld. CIT(A) in its order.
In the following cases it is held that even if the assessee has earned interest income on investment in FDR with banks and financial institutions which is neither co-operative society nor cooperative bank, then also deduction u/s 80P(2)(a)(i) will be allowed:-
Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) (HC) The facts of the case are that assessee is a Cooperative Society registered under the provisions of sec. 7 of the Karnataka Co-operative Societies Act, 1959. It is engaged in the activity of carrying on the business of providing credit facilities to its members. The assessee earned interest from short-term deposits with M/s Allahabad Bank of Rs.1,55,300 and savings bank account with M/s Axis Bank of Rs.22,005, totalling to Rs.1,77,305 on which deduction u/s 80P(2)(a)(i) was claimed. The Ld. CIT(A) after relying on the decision of Apex Court in case of Totgars Cooperative Sale Society Ltd. Vs. ITO (2010) 322 ITR 283/188 Taxman 282 denied the deduction. The Hon’ble ITAT after reproducing section 80P(2)(a)(i) at Para 6 of the order, analysing the expression ‘attributable to’ at Para 7 & 8 of the order and distinguishing the judgment of Supreme Court at Para 9 of the order, at Para 10 of the order held as under:-
10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of s. 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT vs. Andhra Pradesh State co- operative Bank Ltd., (2011) 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order:
ITO Vs. Yendagandhi Large Sized Co-operative Society Ltd. (2024) 204 ITD 203 (Visakhapatnam) (Trib.) Para 8 of the decision reads as under:-
8. We have heard both the parties and perused the material placed on record. Now the question before us is to decide whether the revenue is correct in disallowing deduction claimed by the assessee under s. 80P on interest earned on deposits pertaining to reserve fund with DCC Bank which is a co-operative bank and other nationalised banks, or not. It is an admitted fact that the assessee has claimed deduction under s. 80P of the Act. The contention of the AO is that interest accrued on Reserve Fund Deposits is not eligible for deduction under s. 80P. He relied on the decision of Hon’ble Supreme Court of India in Civil Appeal No. 1622 of 2010 in the case of M/s Totgars Co-operative Sale Society Ltd., which held that "investment of surplus on hand not immediately required in short-term deposits and securities by a co-operative society providing credit facilities to members or marketing agriculture produce to member". However, in the instant case, the facts are distinguishable. The Co-ordinate Bench of the Tribunal, on similar set of facts dismissed the appeal of the revenue in the case of ITO vs. Kakateeya Mutually Aided Thrift & Credit Co-op Society Ltd. in (ITA No. 107/Viz/2022, dt. 30th Aug., 2023) [reported at (2023) 226 TTJ (Visakha) 333 : (2023) 231 DTR (Visakha)(Trib) 1—Ed.] and the same ratio was followed by the Co-ordinate Bench of the Tribunal in the case of Rangaraya Large Sized Co-operative Society in (ITA No. 160/Viz/2023, dt. 14th Sept., 2023. For the sake of clarity and convenience, we extract relevant part of the order of the Tribunal in the case of Kakateeya Mutually Aided Thrift & Credit Co-op Society Ltd. (supra) as follows:-
……….
Respectfully following the decision of the Hon’ble High Court of Andhra Pradesh in the case of Vavveru Co-operative Rural Bank Ltd. (supra) and the ratio laid down by the Co- ordinate Bench of the Tribunal in the case of Kakateeya Mutually Aided Thrift & Credit Co-op. Society Ltd. (supra), we are inclined to uphold the order passed by the learned CIT(A) and dismiss the appeal of the revenue. Hence, all the grounds raised by the Revenue are dismissed.
Nashik Road Nagari Sahkari Patsanstha Ltd. Vs. ITO order dt. 27.12.2021 (Pune) (Trib.) The Hon’ble ITAT at Para 9 of the order held as under:-
We heard the rival submissions and perused the material on record. Admittedly, the appellant is a Cooperative society formed under the provisions of Maharashtra Cooperative Societies Act, 1960 with the objective of accepting deposits and lending money to its members. The money which is not immediately required for the purpose of lending to the members is deposited with Bank of Baroda in the form of Fixed Deposit.
The question is whether the interest so earned qualifies for exemption u/s. 80P(2)(a)(i) of the Act. The AO as well as the CIT(A) were of the opinion that the interest earned from third parties or non-members does not quality for exemption u/s.80P. It is an admitted position that the interest so earned should be taxed as ‘income from other sources’ There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. 11 taxmann.com 448, the Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT 389 ITR 578 (Guj.), the Hon’ble Delhi High Court in the case of Mantola Co-operative Thrift & Credit Society Ltd. Vs. CIT 50 taxmann.com 278, the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Cooperative Agricultural Development Bank Ltd. 389 ITR 68 and the Hon’ble Kolkata High Court in the case of CIT Vs. Southern Eastern Employees Cooperative Credit Society Ltd. 390 ITR 524 took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 taxmann 309 (Kar.) and the Hon’ble Telangana and Hon’ble Andhra Pradesh High Court in the case of Vaveru Co- operative Rural Bank Ltd. v CIT [(2017) 396 ITR took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption u/s.80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit Vs. ITO (ITA Nos.559/560/PUN/2018, dated 11-12-2018) has taken view in favour of the assessee following the judgment of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Respectfully following the decision of the Coordinate Bench, we hold that the interest income earned on the investment of surplus money with banks is also eligible for exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal No. 1 & 2 stands allowed.
CIT & Anr. Vs. Iqbalpur Cooperative Cane Development Union Ltd. (2009) 315 ITR 441 (Uttarakhand) (HC) The Hon’ble High Court at Para 6 of the order held as under:-
“6. From the provisions of law, quoted above, it is clear that the Legislature had intended to allow deductions on the whole of the amount of profits and gains of business attributable to any one or more of such activities, mentioned above, in respect of the co- operative society covered under clause (a). In our opinion, cl. (d) is an independent clause of clause (a). The co-operative society, which is not engaged in the work of the nature of encouraging the agricultural produce, can claim deduction on the interest or dividends only if the investments are made with any other co-operative society. Each category contained in clauses (a), (b), (c) and (d) cover different kinds of co-operative societies, for example, co-operative society covered under cl. (b) are the primary to 1009/JP/2025 West Central Railway Employees Cooperative Credit Society Ltd. vs. ITO societies engaged in supplying milk, oil seeds, fruits or vegetables to other co-operative societies or to the Government, or local authorities. Similarly, cl. (c) covers the co- operative societies, which are of the nature of consumers' co-operative society. Clause (e) covers the co-operative societies engaged in letting out the godowns and warehouses, and cl. (f) covers the urban consumers' societies. Since sums to be deducted under sub-s. (1) of s. 80P of the Act to the extent of whole of the amount of profits and gains of business attributable to anyone or more of such activities as is applicable to the co-operative societies covered under cl. (a) of sub-s. (2) of s. 80P of the IT Act, 1961, as such we do not find any error of law committed by the Tribunal in allowing the appeals of the assessee (present respondent), which is a co-operative society engaged in the business of credit facility and also covered under sub-clause (iii) and sub-clause (iv) of cl. (a) of sub-s. (2). Whether such society earned its income in the form of interest on fixed deposit receipts or Kisan Vikas Patra makes no difference. In our opinion, such interest is also part of amount of profits and gains of business of activities of such society.”
The AO while disallowing the deduction referred to section 80P(4) of the Act. Section 80P(4) reads as under:-
(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.”
As per section 80P(4), a cooperative society engaged in carrying on banking business, i.e. a cooperative bank is not eligible to claim deduction under this section. However, there is no restriction that if a cooperative society earned any interest income from the investment made in a co-operative bank or nationalised bank or financial institutions, deduction u/s 80P(2)(a)(i) will not be allowed to such cooperative society.
The fact that cooperative bank are not eligible for deduction u/s 80P(2)(a)(i) is also clarified by CBDT in Circular No.14/2006 dated 28.12.2006 as under:-
“22. Withdrawal of tax benefits available to certain co-operative banks
22.1 Section 80P, inter alia, provides for a deduction from the total income of the Co- operative societies engaged in the business of banking or providing credit facilities to its members, or business of a cottage industry, or of marketing of agricultural produce of its members, or processing, without the aid of power, of the agricultural produce of its members, etc. to 1009/JP/2025 West Central Railway Employees Cooperative Credit Society Ltd. vs. ITO 22.2 The co-operative banks are functioning at par with other commercial banks, which do not enjoy any tax benefit. Therefore, section 80P has been amended and a new sub- section (4) has been inserted to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The expressions "co- operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" have also been defined to lend clarity to them.”
The language of the circular makes it clear that section 80P(4) has been inserted to restrict co-operative banks from availing deduction u/s 80P. The heading also implies that benefits available to co-operative banks are being withdrawn. There is no intention of the legislature to deny the benefit of deduction u/s 80P(2)(a)(i) when a co-operative society makes investment in a co-operative bank or nationalised bank or financial institutions and interest earned on such investment.
Without prejudice to the above contention, it is further submitted that the lower authorities have considered the entire interest income of Rs.8,22,174/- earned on fixed deposit with SBI and investment in securities with financial institutions as income from other sources u/s 56 without allowing the expenditure incurred for earning such income. From the Income & Expenditure A/c (copy enclosed) it can be noted that the gross income of the assessee is Rs.1,73,51,011/- against which interest expenditure of Rs.91,02,374/- and administrative expenses of Rs.24,25,471/-, totalling to Rs.1,15,27,845/- has been incurred. Out of the gross interest income, Rs.8,22,174/- is interest income from FDR with SBI and interest income from financial institutions. Hence, on proportionate basis, the expenditure incurred on interest receipt of Rs.8,22,174/- is Rs.5,46,245/- (1,15,27,845/1,73,51,011*8,22,174). Thus after allowing the expenditure of Rs.5,46,245/- from the interest income of Rs.8,22,174/-, the balance interest income of Rs.2,75,929/- only can be taxed u/s 56 of the Act.
In view of above, Ld. CIT(A), NFAC be directed to allow deduction u/s 80P(2) to the assessee as claimed.
10. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee being credit co- operative society is eligible to claim the deduction, and thereby he relied on the written submission filed. He also submitted that the decision relied upon has allowed the deduction considering the provision of the Act.
11. The ld. DR is heard who relies on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). He also submitted that the assessee’s income is from the banks, which are private and nationalized Banks, and not co- operative society, and therefore the deduction claimed is not allowable. He also submitted that the assessee earns interest which is not received from members and therefore, it does not qualify for the deduction.
We have heard the rival contentions and perused the material placed on record. The bench notes that in this appeal the solitary ground that the assessee has raised is the decision of the ld. CIT(A) in confirming the order of AO in assessing the interest receipt of Rs.8,22,174/- received from investment made with bank and other financial institutions under the head ‘income from other sources’ by not accepting the contention of assessee that the said interest receipt is attributable to the activity of providing credit facility to its members and as such eligible for deduction u/s 80P(2)(a)(i) of the Act. return of income for A.Y. 2017-18 on 06-10-2017, declaring total income at Rs. Nil/- which was processed u/s 143(1) of the I.T. Act 1961 on 28-12- 2017 by CPC at returned income. Thereafter, the case of the assessee was selected for Scrutiny through CASS. Ld. AO noted that the society’s principal objects is to promote all its members to attend their social and economic betterment through self-help and mutual aid in accordance with the Co-operative principals and basic objective of the society is to strengthen the economy of its members by providing loans to them at cheaper rate of interest to avoid members from taking loan from private lenders charging exorbitant interest rate. In that proceeding after examination of the submission and record before him he noted that the assessee claimed a deduction of Rs. 58,23,166/- under section 80P of the Act. Ld. AO from the details so filed noted that the assessee society is not eligible to claim deduction under section 80P on the income from other sources which was earned in the form of interest from FDRs and deposits in Banks other than cooperative societies. Therefore, ld. AO issued a Show cause notice on 13.11.2019. The assessee filed a reply contending that as
per provisions of section 80P(2)(a)(i), the assessee being co-operative society is eligible to claim deduction for carrying on the business of banking available to the assessee for whole of the amount of profit and gains of such business. Ld. AO considered this submission of the assessee but not found acceptable, while doing so he relied upon the provision of section 80P(4) and provision of section 80P(2)(d) of the Act. Having noted that provision and after considering the decision of Hon’ble Karnataka High Court in the case of PCIT, Hubballi Vs. Totagars Co-operative Sale Society (2017)[ 83 taxmann.com 140 ] he took a view that the interest earned by the assessee to the extent of Rs. 8,94,996/- was not in accordance with the provision of section 80P of the Act and thereby the claim to that extent was disallowed.
When the matter taken up before the ld. CIT(A) he has given the relief of Rs. 72,373/- considering that income in the form of Commission and miscellaneous income earned from the members, and thereby he sustained the addition for Rs. 8,22,174/-.
As the ld. CIT(A) held that the interest earned does not qualify for deduction u/s. 80P(2)(a)(i) or even u/s 80P(2)(d) of the Act it would be necessary to go through the provision of said section, which reads as under;
Deduction in respect of income of co-operative societies. to 1009/JP/2025 West Central Railway Employees Cooperative Credit Society Ltd. vs. ITO 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :— (a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities : Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:— (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; (3) the State Government; (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to— (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,— (i) where such co-operative society is a consumers' co-operative society, one hundred thousand rupees; and (ii) in any other case, fifty thousand rupees. Explanation.—In this clause, "consumers' co-operative society" means a society for the benefit of the consumers; (d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation.—For the purposes of this section, an "urban consumers' co-operative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.
Record reveals that the claim of the society does not fall u/s. 80P(2)(d) but fall under the provision of section of 80P(2)(a)(i). It is a case of assessee that it is engaged in the banking activities for the public at large. The status of the assessee being co-operative society and engaged in the business of co-operative society engaged in carrying on the business of providing credit facilities to its member was not disputed before us, 8,22,174/- earned from the investment made of surplus fund should be allowed as per provision of 80P(2)(a)(i) of the Act. This issue, after the amendment in the Act in section 80P(4), has been clarified by the CBDT in circular no. 14/2006 dated 28.12.2006 wherein it has been clarified that section 80P(4) was inserted to restrict co-operative bank from availing deduction u/s 80P of the Act. We get support from the decision of Visakhapatnam Bench of ITAT in the case of ITO Vs. Yendagandhi Large Sized Co-operative Society Ltd., cited before us by the ld. AR of the assessee wherein the decision of the Totgar Co-operative Sale Society Ltd.
(Supra) is also distinguished by the bench. The relevant part reads as under :
We have heard both the parties and perused the material placed on record. Now the question before us is to decide whether the revenue is correct in disallowing deduction claimed by the assessee u/s 80P on interest earned on deposits pertaining to reserve fund with DCC Bank which is a cooperative bank and other nationalised banks, or not. It is an admitted fact that the assessee has claimed deduction u/s 80P of the Act. The contention of the AO is that interest accrued on Reserve Fund Deposits is not eligible for deduction u/s 80P. He relied on the decision of Hon'ble Supreme Court of India in Civil Appeal No. 1622 of 2010 in the case of Totgars Co-operative Sale Society Ltd. (supra), which held that "investment of surplus on hand not immediately required in Short Term deposits and securities by a co-operative society providing credit facilities to members or marketing agriculture produce to member". However, in the instant case, the facts are distinguishable. The coordinate bench of the Tribunal, on similar set of facts dismissed the appeal of the revenue in the case of ITO v. Kakateeya Mutually Aided Thrift and Credit Coop Society Ltd. in [I.T Appeal No.107 (Viz) of 2022, dated 30-8-2023] and the same ratio was followed by the coordinate bench of the Tribunal in the case of Rangaraya Large Sized to 1009/JP/2025 West Central Railway Employees Cooperative Credit Society Ltd. vs. ITO Cooperative Society in I.T.A.No.160/Viz/2023 dated 14-9-2023. For the sake of clarity and convenience, we extract relevant part of the order of the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Coop Society Ltd. (supra) as follows : "8. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. It is an admitted fact that the assessee has claimed deduction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society. The Ld. AO also placed heavy reliance in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) while disallowing the claim made by the assessee U/s. 80P(2)(a)(i) of the Act. We have perused the ratio laid down by the Hon'ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members U/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits/securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon'ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(1) of the Act entitles the Cooperative Societies to deduct the sums specified in sub-section (2) from its gross total income while computing the total income. Sub-section (2) of section 80P, in the sub-clause (a) allows deduction to cooperative society which is engaged in the following activities: "(a) in the case of a co-operative society engaged in—
(i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or [(iii) the marketing of agricultural produce grown by its members, or]
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or]
[(vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities:"
9. Further, we also extract below the provisions of section 80P2(d) and (e) of the Act for reference: "(d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;"
From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) & (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted in sub- clause (a) whereas the benefit of clauses (d) & (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub-clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in to 1009/JP/2025 West Central Railway Employees Cooperative Credit Society Ltd. vs. ITO Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression "attributable to" and not any one of the expressions viz., "derived from" or "directly attributable to". The Hon'ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd v. Chief Commissioner of Income- tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon'ble Supreme Court in the case of Totgar's Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, we extract the relevant para 34 of the judgment of the Hon'ble Andhra Pradesh and Telangana High Court herein below: "34. 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."
Further, the Hon'ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd v. Chief Commissioner of Income-tax and Another (supra) held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon'ble High Court in paras 35 to 37 of its judgment held as under: 35. 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. to 1009/JP/2025 West Central Railway Employees Cooperative Credit Society Ltd. vs. ITO 36. 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."
12. Further, the Coordinate Bench of Hyderabad in Tirumala Tirupati Devasthanams Employees Coop. Credit Society v. ITO also affirmed the same view by following the decision of the Hon'ble AP High Court in the case of Vavveru Cooperative Rural Bank Ltd (supra). In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfully following the jurisdictional High Court are of the view that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)- NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A)-NFAC.
13. In the result, appeal of the Revenue is dismissed."
9. Respectfully following the decision of the Hon'ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Ltd. (supra) and the ratio laid down by the coordinate bench of the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Coop Society Ltd. (supra), we are inclined to uphold the order passed by the Ld.CIT(A) and dismiss the appeal of the revenue. Hence, all the grounds raised
by the revenue are dismissed.
10. The assessee filed cross objections in support of the order of the Ld.CIT(A). Since the grounds raised by the revenue are dismissed, the cross objections filed by the assessee becomes infructuous, hence, dismissed.
11. In the result, appeal of the revenue as well as the cross objections filed by the assessee are dismissed.”
In view of above legal proposition, we hold that there is no intention of legislature to deny the benefit of deduction u/s. 80P(2)(a)(i) when co-operative society make investment in co-operative bank or nationalized bank or financial allowed the benefit of deduction u/s 80P(2)(a)(i) the other alterative argument to grant the deduction of expenses becomes educative at this stage.
In the results, the appeal of the assessee in stands allowed.
The facts of the case in & 1009/JP/2025 are similar to the facts of the case in and we have heard both the parties and persuaded the materials available on record. The bench has noticed that the issues raised by the assessee in this appeal No. 1007/JP/2025 is equally similar on set of facts and grounds raised in & 1009/JP/2025. Therefore, it is not imperative to repeat the facts and various grounds raised by both the parties. Hence, the bench feels that the decision taken by us in for the Assessment Year 2017-18 shall apply mutatis mutandis in the case of West Central Railway Employees Cooperative Credit Society Ltd. in ITA Nos.
1008 & 1009/JP/2025 for Assessment Years 2020-21 & 2022-23. No. 1008 & 1009/JP/2025 are also allowed. Order pronounced in the open court on 10/09/2025.
Sd/- Sd/- ¼ujsUnz dqekj½ ¼jkBkSM+ deys'k t;UrHkkbZ½ (NARINDER KUMAR) (RATHOD KAMLESH JAYANTBHAI) U;kf;d lnL;@Judicial Member ys[kk lnL; @Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 10/09/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- West Central Railway Employees Cooperative Credit Society Ltd., Kota izR;FkhZ@ The Respondent- Income Tax Officer, Ward-2(1), Kota 2. 3. vk;djvk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZQkbZy@ Guard File (ITA Nos. 1007 to 1009/JP/2025) 6. vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत