THE BANK OF RAJASTHAN EMPLOYEES CREDIT & THIRFT COOPERATIVE SOCIETY LIMITED,JAIPUR vs. ACIT, CIRCLE-1, JAIPUR

ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM Aforesaid appeal by the assessee for Assessment year 2010-11 arise out of the order of the learned Addl./Joint Commissioner of Income Tax (Appeals)-03, Bengaluru, National Faceless Appeal Centre [ for short CIT(A) ] dated 18/12/2024 in the matter of an assessment framed by the of the Income Tax Act, 1961 [ for short Act ] on 11.12.2018.

2. That the appellant craves his right to add, annul, amend, alter, withdraw and/or substitute any/or all of the grounds of appeal before the finalization of the appeal.”

3. Succinctly, the fact as culled out from the records is that return of income for the assessment year 2010-11 was E-filed by the assessee on 14.10.2010 in the Office of Income Tax Officer, Ward 2(1), Jaipur vide Acknowledgement No. 171249720141010 in the status of trust declaring total income Nil. The case was picked up for the scrutiny. Notice u/s 143(2) was issued on 24.08.2011. Ld. AO noted that the details in response to query letter/order sheet notings have been filed which was placed on record by him. Books of account were produced during the course of proceedings which have been examined on test check basis with reference to the details filed as noted by the ld. AO. Ld. AO while examining the details noted that the assessee is a co-operative society and is availing deduction u/s 80P of the Act. During the year under consideration the its members. The assessee shown gross total income of Rs. 12,91,250/- out of which it claimed deduction u/s 80P amounting to Rs. 12,91,250/- and declared total income at nil. Ld. AO noted that the assessee has claimed deduction u/s 80P of the Act. In this case, clause (i) of section 80P(2)(a) is applicable and therefore, he noted that assessee is not a bank but it is providing credit facilities to its members. Deduction of whole profits and gains of business attributable to activity of providing credit facility to its members is available to assessee. In this case, it is observed that assessee's income is mainly from two sources one is interest received on loan given to members from which income is Rs. 59,61,182/-. Other source is interest received on term deposit amounting to Rs. 28,83,835/-. Interest received on term deposit is not entitled for deduction u/s 80P(2)(a)(i) because it is not profit and gains of business, but it is income from other sources received on idle funds of the assessee cooperative society.

Without prejudice to it, even of is treated as business income, it is not attributable to the activities of providing credit facility to the members and so it is not entitled to deduction u/e 80P(2)(a)(i). Ld. AO also noted that the assessee has claimed expenses of Rs. 11,16,046/- in P&L account as provision for AGM which is disallowable as this is merely a provision and sheet entry dated 19.02.2013 AR was asked to explain as to why interest received on term deposit of Rs. 28,83,835/- be not treated as income from other sources and deduction to that extent be not disallowed as available u/s 80P(2)(a)(i) of the Act. Thus, finally ld. AO made addition of Rs. 7,84,876/- by observing as under:

Since, interest on term deposit is not eligible for deduction u/s. 80P, gross total income will be bifurcated in the ratio of interest on loan to members and interest on term deposit. Accordingly, gross total income from interest on loan to members will come to Rs. 16,22,420/- which is eligible for deduction u/s. 80P. Similarly, gross total income from interest on term deposit will come to Rs. 7,84,876/- which is not eligible for deduction u/s. 80P.

4. Aggrieved from the above order of Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

“5.1 Ground No. 1: Disallowance of deduction claimed u/s 80P of the Act:

5.1.1 On perusal of the case it is observed that the Appellant, namely M/s The Bank of Rajasthan Employees Credit & Thrift Society Limited, is a co-operative Society and registered under with the Registrar of Co-operative Societies, Rajasthan, Jaipur incorporated on date 30/03/1968 vide registration No. 2427L. The Appellant is not a bank but is providing credit facilities to its members and in the instant case it is observed that the Appellant's income is mainly from two sources one is interest received on loan given to members and the other is interest received on term deposits. 5.1.2 The Appellant filed the return for the year showing total income at Rs. NIL, and claiming a deduction u/s 80P to the tune of Rs. 12,91,250/-. The Appellant has contested that the FDRs were not idle funds of the society and the same was being utilized in the business activities of providing credit facility to its members.

During the Appellate Proceedings the Appellant was asked to furnish the following details:

You have claimed that interest on FDR is eligible for deduction under section 80P(2)(a)(i) of the Act. However your attention is invited to the decision of the Hon'ble Karnataka High Court in the case of Totagars Co-Operative Sale Society 83 taxmann.com 140, wherein it was held that Section 80P(2) (d) deduction is not eligible to co-operative societies on interest income earned from investments with another co-operative bank/ nationalised bank. The relevant observations are as follows:-

23. Thus, the aforesaid judgments supports the view taken by this Court that character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the specified Clauses of Section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under Section 80P(2) of the Act. The case in Udaipur Sahakari Upbhokta Thok Bhandar Ltd. (supra) was that of Section 80P(2)(e) of the Act, whereas in the present case, it is under Section 80P(2)(d) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co-operative bank and thus, clause (d) of Section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P of the Act, as held by the Hon'ble Supreme Court.

The issue has been settled by the coordinate Berich of the Bangalore Tribunal on similar facts and circumstances of the case in the following decisions:-

(a) M/s. Vasavamba Co-operative Society Ltd. v. PCIT, dated 13.8.2021. (b) M/s. Manjunatheshwara Credit Co-op Society Ltd. v. ITO, dated 4.10.2021.

(c) Krishnarajapet Taluk Agri Pro Co-op Marketing Society Ltd. v Pr.CIT, dated 08.02.2022 (d) M/s Jyothi Pattin Souhard Sahkari Niyamit, APMC, Gadag vs Pr.CIT, dated 13.08.2021 In view of the same explain why the addition/ disallowance made by the AO should not be upheld. 5.1.3 The Appellant has not complied with aforementioned hearing notice. Therefore, the appeal is decided based on the materials available on record. On perusal of the case, it is observed that the appellant has earned interest income from term deposits in ICIC Bank Ltd. The relevant excerpt of Form 26AS of the Appellant showing interest received from the said banks is reproduced herein under:-

5.1.4 The AO in the assessment order has stated that the Appellant had claimed the interest received as deduction under section 57 of the Income tax Act, 1961 which it is not eligible to do since it falls under the provisions of 80P(2)(a) (i) of the Act. The Appellant on the other hand has contended that interest on FDR is eligible for deduction under section 80P(2)(a)(i) of the Act by virtue of the fact that the Appellant is a cooperative society.

5.1.5 The contentions of the Appellant have been duly considered. There is no disputing the fact that the Appellant is a cooperative society and is eligible to claim deduction under section 80P of the Act. However, the provisions of section 80P categorically disallows claim of deduction by the cooperative societies on interest earned from Nationalised bank as per the provisions of section 80P(2)(d) of the Act.

The provisions of Section 80P(2)(d) of the Act are reproduced as under.- "80P (2)(d): 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 computation the total income of the assessee..

2) The sums referred to in sub-section (1) shall be the following, namely....... (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 5.1.6 Thus, what is allowed as deduction is only interest received from cooperative societies and not from nationalised banks or cooperative banks. The provisions of Section 80P of the Act are reproduced as under- "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 co-operative society engaged in- (i) carrying on the business of banking of providing credit facilities to its members, or (ii) a cottage industry, or [(iii) the marketing of agricultural produce grown by Pits members, orj (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, for] (iv) 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 offish 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 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 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 exceeds, - (i) where such co-operative society is a consumers' co-operative society, (one hundred thousand rupees.

(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 of dividends derived by the cooperative 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 ald of power, where 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 consumer 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 cantoriment The Bank of Rajasthan Employees Credit & Thirft Cooperative Society Limited (3) In a case where the assessee is entitled also to the deduction under [*] [section 80HII] (or section 80HHAJ (or section 80RHB] [or section 80HHC] [or section 80HHD] [or section 80-1] [or section 80-1A], or section 80J[*] [*], the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred in those clauses included in the gross total income as reduced by the deductions under [***1 [section 80HH] [or section 80HHA] [or section 801111B] [or section 80HTIC] [or section 80HHD] [or section 80-1] [or section 80-IA] [section 80J] and section 80JJ]] (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.

Explanation. For the purposes of this sub-section, - (a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b)"primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities] Section 80P provides that in a case of a Co-operative Society there shall be a deduction as provided in sub-section (2) of Section 80P of the Act."

5.1.7 From the plain reading of section 80P(2)(a)(i) it is apparent that if the Co- Operative Society is engaged in carrying of business of banking or providing credit facilities to its members, the Co-Operative society is entitled for deduction on whole of the income relating to anyone or more of such business. As per provisions of Section 80P(2)(d) of the Act, any income by way of interest or dividends derived by the Co-operative Society from its investments with any other co-operative society shall be allowable as deduction.

5.1.8 From the reading of section 80P(4) it is apparent that this section denies deduction to a Co-Operative bank other than a primary agricultural credit society or primary Co-Operative agricultural and rural development bank. The provisions of Section 80P(4) was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007. The explanation to the section defines the Co-operative bank and primary agricultural credit society to have the same meaning as assigned to them in part-5 of the Banking Regulation Act, 1949. The Appellant is not a primary agricultural credit society or a primary Co-Operative agricultural & Rural Development bank. If one reads both the Sections 80P(2)(a)(i) and Section 80P(4) together it is observed that provisions of Section 80P(4) mandates that the The Bank of Rajasthan Employees Credit & Thirft Cooperative Society Limited provisions of Section 80P will not apply to any Co-Operative Bank other than a primary agricultural credit society or primary Co-Operative Agricultural and Rural Development bank but as per the provisions of Section 80P(2)(a)(i), a co- operative society engaged in carrying on the business of banking or providing credit facilities to its members is entitled for deduction. After the insertion of Section 80P(4), the provisions of Section 80P(2)(a)(i) were not amended, rather the cooperative society engaged in providing banking facilities to its members continues to be entitled for deduction u/s.80P(2)(a)(i) of the Act.

5.1.9 Where a co-operative society is engaged in providing banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business 'of banking facilities to its members or providing credit facilities to its members will only eligible for deduction under section 80P(2)(a)(i) of the Act. From the definition of Co- operative bank, it is apparent that Co-operative bank means State Co-Operative Bank, a Central Co-Operative Bank and a primary Co-operative bank. The Appellant is a co-operative society and the provisions of Section 80P of the Act are applicable to it. From the above discussion, it is clear that the provisions of Section 80P(4) are not applicable to the Appellant. In such a situation, as per the provisions of Section 80P(2)(d) of the Act, the Appellant is eligible for deduction of any income by way of interest or dividends derived by it from its investments with any other Co-operative societies only. In the instant case, the Appellant has earned interest income from nationalized banks not from other co-operative societies.

5.1.10 Further, deposits with the banks are not the core activity of the society, therefore, interest received on it is liable to be taxed. Therefore, the interest income earned by the Appellant is a taxable income and no deduction can be allowed under section 80P(2)(d) of the Act.

5.1.11 The issue of claim of deduction u/s 80P(2)(a)(i)/(ii) of the Act on interest income earned from Nationalised banks is squarely covered against the Appellant by the following decisions of the Hon'ble Apex Court and the Gujarat High Court: i) Totgars Cooperative Sales Society Ltd. Vs. ITO, (2010) 188 Taxman 282 (SC); ii) State Bank of India (SBI) Vs. CIT (2016) 72 com64 (Guj)

5.1.12 In Gujarat State Co-op Agriculture and Rural Development Bank Ltd Vs ITO (ITAT Ahmedabad) Appeal Number: ITAT Ahmedabad The Bank of Rajasthan Employees Credit & Thirft Cooperative Society Limited held that deduction under Section 80P of Income Tax Act, 1961 is not allowable on interest income earned from the nationalized banks.

5.1.13 In Nagapura Credit Co-operative Society 226/Bang/2024, ITAT Bangalore has held as under:

As far as the interest income earned by the assessee on the investment made with the nationalized bank is concerned, there is no dispute that the same is not eligible for deduction u/s 80P(2)(d) of the Act as held by the Hon'ble Karnataka High Court in the case of Totagars Co-operative Sale Society cited above.

5.1.14 In the case of Surendranagar District Co-op. Milk Producers Union Ltd. v Deputy Ld. CIT(A), the ITAT held that assessee-co-operative society could not claim benefit of Section 80P(2)(d) in respect of interest earned by it from deposits made with nationalised/private banks.

5.1.15 In view of the above the denial of claim of deduction of interest income earned from nationalized banks under section 80P amounting to Rs. 7,84,876/- is hereby confirmed relying upon the provisions of section 80P(2)(d) of the Act and various judicial decisions as mentioned above. The appeal filed on ground no.1 is hereby dismissed.

5. Feeling aggrieved with that order of the ld. CIT(A), the assessee is in present appeal before this tribunal challenging that solitary addition sustained by the ld. CIT(A). To support the claim the ld. AR of the assessee representing the case of the assessee has filed the following written submission:

FACTS OF THE CASE 1. The Assessee is an Employees Co-Operative Society. It is incorporated for the Employees of Bank of Rajasthan, vide registration No 2427L dated 30/03/1968. The Society is registered with the Registrar of Co-operative Societies Act, Jaipur, and Rajasthan. The AssesseSociety is governed by the Co- operative Societies Act and Rajasthan Co-operative Rules amended from time to time.

2. The Assessee Co-operative Society is meant for the benefit of members of society and accepts deposits and provides credit facilities solely to its members. The assessee society primarily works for the mutual benefit of the said members by accepting deposits from members and giving credit to needy members on interest.

3. The Assessee Co-operative Society, except for the activities as stated in para 2 above, the Co-operative Society does not carry out any other activities from the inception of registration.

4. The funds which were ususually deposited into current accounts of the society were deposited in FDRs and same were pledged against O/D limit. The O/D account is being used for the day-to-day transaction of the Society. Thus, The FDRs were not idle funds of the society. The same is being utilised in the business activities of providing credit facility to its members. 5. The Funds which were kept in FDRs are not idle funds and the same were used in business activities, thus income from Term deposits cannot be considered income from other sources. These funds were deposited in business and income from these funds from part of profit and gains of business and therefore eligible for deduction 80P(2)(a)(i) of the Income Tax Act ,1961. 6. The Assessee filed it return of income Vide E Filling Acknowledgement No 171249720141010 on dated 14/10/2023, declaring a total income of Rs Nil after claiming a deduction of Rs 1291250/-under the provision of section 80P(2)(i) of ITA 1961 7. The Ld AO considered interest received on FDRs as income income from other sources and he did not consider interest on FDR as income from business or professional activities with the view that it is not attributable to the activities of providing credit activities to the members. Hence, interest income from FDRs is ineligible for deduction u/s 80P(2)(i) of the ITA. Thus, he has bifurcated interest income in the ratio of interest on loans to members and interest on term deposits and disallowed Rs 784,876/- under section 80P(2)(i) of the ITA.

FINDING OF LD AO and CIT(A)

8. During the Assessment proceeding, The LD A O Noted that ( Pg No 6 of AO Order)… Second paragraph The Assessee- society claimed deduction u/s 80P of the Income – tax Act, 1961 in your case clause (i) of section 80P (a) is applicable. It is clear that the assessee- society is not a bank is providing credit facility to the members is available to the society. it is observed that the income is mainly from two sources one is interest received on loan given to members from which income is Rs 5961182/- other sources is interest receive The Bank of Rajasthan Employees Credit & Thirft Cooperative Society Limited don term deposit amounting to Rs 2883835/-. Interest received on term deposit is not entitled for deduction u/s 80P(2) (a) (i) because it is not profit and gains of business but it is income from other sources received on idle funds of the assessee cooperative society.Without prejudice to its, even if it is treated as business income, it is not attributable to the activities of providing credit facility to the members and so it is not entitled to deduction u/s 80P(2) (a) (i).

Further At para no 1 at page no 7, held that ..................when the funds become excess after providing loans to its members, it is only then that this funds were invested in FDR an interest was earned on them. Had the funds not been idle , they would have been used for giving credit facilities to the members of the assessee society . it is therefore clear that interest earned on term deposit is not business income from the activity of providing credit facility to its members because this interest is not received from the members . it is income from other sources and so it is not liable to deduction u/s 80P(2) (a) (i) .

It is further noted that At para no 1 at page no 7, held that ..................when the funds become excess after providing loans to its members, it is only then that this funds were invested in FDR an interest was earned on them. Had the funds not been idle , they would have been used for giving credit facilities to the members of the assessee society . it is therefore clear that interest earned on term deposit is not business income from the activity of providing credit facility to its members because this interest is not received from the members. it is income from other sources and so it is not liable to deduction u/s 80P(2) (a) (i) .

9. (Pg No 7 of AO Order)…. Fourth paragraph , interest on term deposit is not eligible for deduction u/s 80P , gross total income will be bifurcated in the ratio of interest on loan to members s and interest on term deposit . According, gross total income from interest on loan to members will come to Rs 1622420/- which is eligible for deduction /s 80P . Similarly, gross total income from interest on term deposit will come to Rs 784876/- which is not eligible for deduction u/s 80P.

10. The AO did not accept the claim of the assesse and disallowed the claim under section 80P(2)(a)(i) in respect of the disallowed earned FDR interest on average bases of the total interest earned for the year and thus disallowed of Rs 784876/- considering that it is not eligible for deduction u/s 80P

Submission before Hon’ble ITAT

2. The Assessee Co-operative Society, except for the activities as stated in para 2 above, the Co-operative Society does not carry out any other activities from the inception of registration.

3. The funds which were ususually deposited into current accounts of the society were deposited in FDRs and same were pledged against O/D limit. The O/D account is being used for the day-to-day transaction of the Society. Thus, The FDRs were not idle funds of the society. The same is being utilised in the business activities of providing credit facility to its members.

4. The assesse is not carried out any other business activities, wherein the assesse is having credit balances of the members of such other activities. None of balances were shown in the form of liability in the balance sheet.

10. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co- operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 7. We may also submit that 7.1 The Society is solely engaged in business activities to provide credit facilities to its members only.

7.2 The Society does not have any liability in the financial statements, which are Payable to the members.

7.3 Society does not designate any amounts an investment.

7.4 The FDRs have made to earn interest is not an amount due to any members as liabilities in the financial statements

Thus, based on the decisions and considering the definition of the word 8. “attributable to” as defined by the Apex court and the fact that the society does not carry out any other business activities except providing credit facilities to the members. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. . We relied on the following judgements as under

9. The assessee, on this issue of disallowance of claimed deduction, has favorable orders from the Hon”ble ITAT and CIT(A) , which are 9.1 The Hon’ble ITAT , Jaipur for the Assessment year 20213-2024 …..( PB page No 20-33)

Considered the case of Royal Credit Co-operative Society Ltd., in and the relevant finding in that case is also reiterated in the order at page no 8 to 12 and followed the judgement at page no 14 held that Hence, taking the consistent view on the matter, we find that the issue raised by the assessee is squarely covered as per the judicial precedent discussed hereinabove. Thus, the appeal of the assessee is allowed.

9.2 The LD CIT(A), Jaipur for the Assessment year 2008-2009 and 2009-2010 …..( PB page No 34-40 and 41-43)

In the said, the AO has disallowed Interest received form term deposits and considered as income from other Sources. The Ld CIT in the case of AY 2008- 2009 … para 4.3 ..page no 6 and 7 of order (PB .. Pg No 39-40) held that …. “ I have considered the AO’s order and submission made by the AR. I find that the AO has treated the interest income form FDRs as income from other sources on the presumption that the applicant has idle funds which were invested in FDRs . However from the submission of appellant it is apparent that the deposits/ fund received from the members are kept as FDRs and overdraft limit has been taken against the FDRs and loan has been given out of the overdraft account. In these facts and circumstances, I am of the considered opinion that the interest income arising from such FDRs is in the nature of income attributable to the profits and gains of business of providing credit facilities to its members…..

….. The expression “attributable to” used in section 80P (2) has a wider meaning and since the appellant has taken the FDRs to get overdraft limit out of which loan is being provided to the members, the income arising from such FDRs is found to be attributable to the appellant’s business and the same would be eligible for deduction u/s 80P(2) (a)(i) . The AO is accordingly directed to allow deduction u/s 80P(2) (a)(i) on the full amount of such interest income of Rs 24647251/- The addition of Rs 663285/- is found to be without any merit and is deleted “

10. Further reliance is Placed on the following cases:

6.1 Jaipur ITAT Shiksha Cooperative Thrift & Credit Society, Malakhera Gate Bahar, Near Post Office, Alwar.

& 958/JP/2017…. Assessment Years : 2013-14 & 14- 15.

Hon’ ble Court held as under … page No 5 of the order (PB .. Pg No 79-85)

“Thus it is clear that the Hon’ble High Court has analyzed the provisions of section 80P(2) and particularly the term ‘attributable’ used in the section and held that the word ‘attributable to’ is certainly wider in import than the expression ‘derived from’.Thus on the identical fact, the Hon’ble High Court has held that the decision of Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. vs. ITO (supra) is not applicable in the facts of the present case as in the said case before the Hon’ble Supreme Court the amount deposited with bank did not belong to the society but it was a liability of the society to be paid to the members against the sale of agricultural produce. Thus the sale consideration received by the society to be paid to the members was kept with the bank and earned interest and according the Hon’ble Supreme Court held that such an amount was retained by the society was a liability and it was shown in the Balance Sheet on the liability side.

Therefore, on the specific facts of the said case the interest income was held to be non- attributable either to the activities mentioned in section 80P(2)(a)(i) or under section 80P(2)(a)(iii) of the Act.

In the case in hand, the interest income received by the assessee is on its own funds and not on the funds which is a liability towards the members. Further, this interest income is earned from the savings bank which is maintained for day to day activity of the assessee society for providing credit facilities to its members. Therefore, following the order of the Hon’ble Karnataka High Court in the case of Guttigedarara Credit Co- operative Society Ltd. vs. ITO (supra), we hold that the said interest income earned by the assessee from savings bank account is eligible for deduction under section 80P(2)(a)(i) of the Act.”

6.2 Pune Bench ITAT ITO Ward-1(4), Nashik Vs. Niphad Nagari Sahakari Patsanstha Ltd., Ugaon Road, Niphad, Nashik , Asstt.Year : 2008-09 Hon’ ble Court held as under … Para No 11.3 page No 14 of the order, “ In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 (Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In view of the above discussion and following the decisions of the Ahmedabad Bench of the Tribunal and Cochin Bench of the Tribunal which in turn have considered the decision of the Hon’ble Supreme Court in the case of Totagar’s Cooperative Sale Society Ltd. (Supra) we find no infirmity in the order of the Ld.CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.

6.3 Karnataka High Court Guttigedarara Credit Co-operative Society Ltd. vs. ITO , 377 ITR 464 (Kar.) In this case Hon ble Court after considering the judgements of various High courts and Supreme Court Hon’ ble Court held as under … Para No 12 page No 3 of the order “12. 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 its 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 Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of Commissioner of Income Tax-III, Hyderabad Vs. Andhra Pradesh State Co- operative Bank Ltd., reported in (2011) 200 Taxman 220/12. 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 questions of law are answered in favour of the assessee and against the revenue. behalf of the assessee submitted that ; The facts of the assessee case are 1. The Assessee Co-operative Society is meant for the benefit of members of society and accepts deposits and provides credit facilities solely to its members.

2. The assessee society primarily works for the mutual benefit of the said members by accepting deposits from members and giving credit to needy members on interest. The Co-operative Society does not carry out any other activities from the inception of registration.

4. The assessee Co-operative Society has not invested any idle money as kept in bank account with the underlying FDRs and as and when the amount was required the deposited amount were liquidated and utilised for the purpose of object of assessee society.

5. The Funds that were kept in FDRs are not idle funds and the same were used in business activities, these funds were deposited in business and income from these funds from part of profit and gains of business and therefore eligible for deduction 80P(2)(a)(i) of the Income Tax Act ,1961.

The Facts of the State bank of India (SBI) Vs CIT (2016) 72 Com 64(Guj) Copy of order is enclosed -01

1. The SBI, was a cooperative society formed by the employees of the State Bank of India Gujarat Circle for the purpose of encouraging savings and providing credit facilities to the members of the Society.

3. SBI has invested their surplus funds to earn the interest income, and as and when funds are required, they have liquidated and utilized them for the purposes of the object.

The Bank of Rajasthan Employees Credit & Thirft Cooperative Society Limited 4. Thus, SBI’s primary objective was to invest funds in FDR to earn interest in funds that may not be idle in bank accounts.

With the above facts, objects, and modus operandi of transaction in both cases, the assessee case is distinguished with the following reason.

1. The Assessee has not invested any underlying money in FRDs to exclusively earn the interest on idle funds.

2. The Assessee’s neither invested any surplus funds in FDR to earn interest income nor was liquidated as was required for the purpose.

3. The Assessee’s sole object was not to invest surplus funds to earn the interest from FRDs.

7. To support the contention so raised in the written submission reliance was placed on the following evidence / records / decisions:

S. No Page No. 1 Copy of Certificate of incorporation and with Bye Laws 1-10 2. Copy of Audited Balance Sheet & Income and Expenditure Account FY 11-17 2010-2011 3 Copy of ITR along with the computation of total income for AY 2010-2011 18-19 The Assessee own cases Hon’ ble ITATs Jaipur 4 dated 13/12/2023 for the Assessment Year 2013-2014 20-33 Hon’ble CIT(A) 5 CIT(A), Alwar, dated 11/02/2013 for the Assessment 34-40 year 2008-2009 CIT(A), Jaipur, ITA No 382/11-12 dated 23/12/2013 for the Assessment 6 41-43 year 2009-2010 Copies of the case Law in case of : Hon’ ble ITATs 7 Royal Credit Co-operative Society Ltd. 9, Lav Kush Nagar-1, Tonk Phatak, 44-78 Jaipur Vs A.O., NFAC, Delhi/Income Tax Officer, Ward-7(1), Jaipur , & 222/JP/2023 dated 20/06/2023, Assessment Years : 2018-19 & 2020-21 8 Shiksha Co-Operative Thrift & Credit Society, Malakhera Gate Bahar, Near 79-85 Post office, Alwar. Vs The DCIT, Circle-1, Alwar. ITA No. 957 & 958/JP/2017 dated 21/05/2018

8. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee the assessee is eligible to claim deduction u/s. 80(2)(a)(i) of the Act. He has filed the distinguishing note on the decision relied upon by the ld. CIT(A). The ld. AR of the assessee submitted that the similar issue was considered by the ld. CIT(A) while dealing with the claim of the assessee for A. Y. 2008-09 [ page CIT(A) and therefore, rule of consistency demand to allow the claim of the assessee in the year under consideration as there is no change in the facts and that of the law. He also placed on record the decision of the co-ordinate bench of Jaipur in the case of the assessee wherein the claim of the assessee was allowed for A.Y. 2013-14 in ITA no. 416/JP/2023.

9. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A).

Before us the ld. AR of the assessee submitted that the deduction u/s. 80P(2)(a)(i) cannot be equated with the deduction u/s. 80P(2)(d) of the Act.

The issue raised in this appeal is squarely covered with the decision of the wherein the co-ordinate bench has held that ; 2.5 We have heard both the parties and perused the materials available on record including the case laws cited in the orders. Brief facts of the case are that the Assessee is an Employees Co-Operative Society. It is incorporated for the Employees of Bank of Rajasthan, vide registration No 2427L dated30/03/1968. The Society is registered with the Registrar of Co-operative Societies,Jaipur, Rajasthan.The Assessee is accepting the deposits from the members and also providing credits to the members as per their needs at a reasonable interest rate. Except those activities, The society is not carried out any other activities. The Assessee filed it return of income Vide E Filling Acknowledgement No 807308150300913 on dated 30/09/2013, declaring a total income of Rs Nil after claiming a deduction of Rs 11,47,419/-under the provision of section 80P(2)(i) of Income Tax Act, 1961. It is not imperative repeat the facts but it is notable that the AO did not accept the claim of the assessee and disallowed the claim u/s 80P(2)(a)(i) in respect of the interest received from co-operative Banks for an amount of Rs.14,33,125/-.Though the deduction u/s 80P(2)(a)(i) was allowed by the AO in respect of interest income from members of Rs,14/-. In first appeal, the ld. CIT(A) confirmed the action of the AO. While hearing of the appeal of the assessee, it is noted that the issue raised by the assessee is covered by the decision ITAT Pune Bench in the case of ITO,Ward 1(4), Nasik vs Niphad Nagari Sahakari Patsanstha Ltd (ITA No. 1336/PN/2011 , A.Y. 2008-09 dated 31- 07-2013 wherein it was held as under:- ‘’11.3 In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 (Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In view of the above discussion and following the decisions of the Ahmedabad Bench of the Tribunal and Cochin Bench of the Tribunal which in turn have considered the decision of the Hon’ble Supreme Court in the case of Totagar’s Cooperative Sale Society Ltd. (Supra) we find no infirmity in the order of the Ld.CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.’’ Even the Jaipur bench has considered this issue in favour of the assessee in the case of Royal Credit Co-operative Society Ltd., in and the relevant finding in that case is also reiterated here in below :

10. We have heard the rival contentions, perused the material placed on record and orders of the lower authorities. We have also perused the judicial pronouncements that have been pressed into service by both the parties to drive home to their respective contentions. The main issue in this case is the denial of deduction u/s.80 (P)(2)(a)(i) of I.T. Act, to the assessee to the extent of net profit of Rs.31,70,144/- earned by the assessee from carrying on business as Co-operative Society and the assessee claimed said amount as eligible for deduction u/s.80(P) of I.T. Act. It was also stated that the assessee's source of income is interest income arising while providing credit facilities to its members and as such it is entitled for deduction u/s 80P(2)(a)(i) of I.T. Act which was claimed in the return of income filed by the assessee. 10.1 We shall first advert to the assessee's grievance that the lower authorities had erred in declining its claim for deduction u/s. 80P(2)(a)(i) of the Act, i.e, as regards the interest income that was earned on the surplus funds which were deposited by it with Malviya Urban Co-operative Bank Ltd., i.e, a co-operative bank. After deliberating at length on the issue in hand, we find that the aforesaid claim of the assessee hinges around the aspect that as to whether or not the interest income earned by it on its surplus funds which were parked as deposits in the normal course of its business of providing credit facilities to its members, i.e., at the point of time when there were no takers for the said funds, was eligible for deduction u/s. 80P(2)(a)(i) of the Act. We have given a thoughtful consideration to the contentions advanced by the Ld. Authorized representatives for both the parties. 10.2 Before proceeding any further, we deem it fit to cull out the provisions of section 80P(2)(a)(i) of the Act, the scope and gamut of which is the primary bone of contention before us, which reads as under :

"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) to (iii)……………………………………………………………" (Emphasis by underlining supplied by us)

10.3 On a perusal of the aforesaid statutory provision, we find that the same, contemplates, that the income of a co-operative society from its business of banking or providing credit facilities to its members is eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our indulgence in the present appeal is confined to the limited aspect, i.e, as to whether or not the interest income earned by the assessee-society by depositing its surplus funds with a bank can be brought within the meaning of "income from carrying on the business of banking or providing credit facilities to its members", and thus, would fall within the realm of the deduction contemplated in section 80P(2)(a)(i) of the Act. At this stage, we may herein observe, that it is the claim of the assessee, that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course of its business of providing credit facilities to its members, is inextricably interlinked; or in fact interwoven with its said stream of its business activity, therefore, the interest income received on such short-term deposits was duly eligible for deduction under the aforesaid statutory provision, i.e., sec. 80P(2)(a)(i) of the Act. We may herein observe, that though the assessee-society is engaged in providing credit facilities to its members. It is neither the case of the revenue nor a fact discernible from the record that the funds deposited by the assessee-society with the bank, viz.Malavia Urban Co-operative Bank Limited (supra) were the amounts that were payable by the society to its members, and the same having being retained were for the time being invested as a short-term deposit/security with the bank. If that would have been so, then, the interest income earned on such short-term deposit/security with the bank would not have been eligible for deduction u/s.80P(2)(a)(i) of the Act. But then, as the amount deposited by the assessee-society with the bank, viz. Malavia Urban Co-operative Bank Limited (supra) was simpliciter surplus or idle funds of the assessee society, for which there were no takers for the time being in course of its business of providing credit facilities to its members. Therefore, depositing of the same by way of short-term deposits with the aforesaid bank, as stated by the ld. A.R, and rightly so, would clearly be inextricably interlinked, or in fact interwoven with its aforesaid primary business activity, i.e., providing of credit facilities to its members. At this stage, we may herein observe, that the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra), had held, that in a case where the assessee-cooperative society apart from providing credit facilities to its members was also in the business of marketing of agricultural produce grown by its members, and the sale consideration of the agricultural produce due towards its members was thereafter retained and invested as a short-term deposit/security with the bank, then, the interest income therein earned to the said extent could not be said to be attributable to its activity of providing credit facilities to its members. As is discernible from the aforesaid judicial pronouncement of the Hon'ble Supreme Court, we find the Hon'ble Apex Court had clarified beyond doubt that they have confined the judgment to the facts of the case before them, and the same was not to be considered as laying down of any law. Be that as it may, the aforesaid judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra) had thereafter been considered by the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra), wherein the Hon'ble High Court had after exhaustive deliberations held as under : '6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short term deposits and from savings bank account. The assessee is a cooperative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e. section 80P(2)(a)(i): "80P. Deduction in respect of income of cooperative societies.—(1) Where, in the case of an assessee being a cooperative 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) to (vii)** ** ** the whole of the amount of profits and gains of business attributable to any one or more of such activities."

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 section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME TAX III HYDERABAD v. ANDHRA PRADESH STATE COOPERATIVE BANK LTD. Reported in (2011) 200 TAXMAN 220/12. 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: Appeal is allowed. The impugned order is hereby set aside. Parties to bear their own cost.'

10.4 Recently even the honourable apex court on 20.04.2023 in the Civil Appeal NO . 8719/2022 in the case of The PR. Commissioner of Income Tax 17, Mumbai VERSUS M/S ANNASAHEB PATIL MATHADI KAMGAR SAHAKARI PATHPEDI LIMITED held that Apart from the fact that against the relied upon decision in the case of M/s. Quepem Urban Co-operative Credit Society Ltd.(supra),the Special Leave Petition has been dismissed, having heard learned counsel appearing on behalf of the respective parties, the issue involved in the present appeal is squarely covered against the Revenue in view of the decision of this Court in Mavilayi Service Cooperative Bank Limited and Others Vs. Commissioner of Income Tax, Calicut and Another (2021) 7 SCC 90. This Court, in the aforesaid decision has specifically observed and held that primary Agricultural Credit Societies cannot be termed as Co-operative Banks under the Banking Regulation Act and, therefore, such credit societies shall be entitled to exemption under Section 80(P)(2) of the Income Tax Act, 1961. Ms. Aakansha Kaul, learned counsel appearing on behalf of the appellant/Revenue has tried to submit that the respondent/Assessee will fall under the definition of Co-operative Bank as their activity is to give credit/loan. However, it is required to be noted that merely giving credit to its members only cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act. The banking activities under the Banking Regulation Act are altogether different activities. There is a vast difference between the credit societies giving credit to their own members only and the Banks providing banking services including the credit to the public at large also.There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under Section 80(P)(2) of the Income Tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4) shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under Section 80(P)(2) of the Income Tax Act.

The Bank of Rajasthan Employees Credit & Thirft Cooperative Society Limited In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee.

10.5 In the backdrop of the aforesaid discussion and judicial decision discussed we are of a considered view, that as in the case of the assessee before us the surplus funds parked by way of short-term deposit with the co-operative bank, viz. Malavia Urban Co- operative Bank Limited are inextricably interlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rightly so, would duly be eligible for deduction u/s. 80P(2)(a)(i) of the Act. We, thus, in terms of our aforesaid observations, direct the Assessing Officer to allow deduction of Rs.31,70,144/- u/s. 80P(2)(a)(i) of the Act on the interest income earned by the assessee society on its deposits with the co-operative bank. In the results appeal of the assessee in is allowed.

Hence, taking the consistent view on the matter, we find that the issue raised by the assessee is squarely covered as per the judicial precedent discussed hereinabove. Thus the appeal of the assessee is allowed.”

On being consistent to the finding so recorded the deduction cannot be denied to the assessee and thereby we considered the solitary ground raised by the assessee.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 04/06/2025. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 04/06/2025 *Ganesh Kumar, Sr. PS The Bank of Rajasthan Employees Credit & Thirft Cooperative Society Limited आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Bank of Rajasthan Employees Credit & Thrift Cooperative Society Ltd, Jaipur izR;FkhZ@ The Respondent- ACIT, Circle-01, Jaipur 2. vk;dj vk;qDr@ The ld CIT 3. vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 213/JP/2025) vkns'kkuqlkj@ By order,

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