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Facts
The appeals are against the orders of the Commissioner of Income Tax (Appeal) NFAC, Delhi, concerning assessment years 2017-18 and 2018-19. The core issue is the assessee's entitlement to deduction under Section 80P(2)(a)(i) of the Income Tax Act, as the Assessing Officer and CIT(A) viewed the assessee as a cooperative bank primarily engaged in banking activities, thus falling under Section 80P(4).
Held
The Tribunal considered judgments from the Supreme Court (Mavilayi Service Co-Operative Bank Ltd.) and the Kerala High Court (PCIT v. Sahyadri Co-operative Credit Society Ltd.) regarding business income and interest income respectively. It was held that Section 80P(2)(a)(i) applies to income from business with members, while Section 80P(2)(d) applies to interest income from investments with cooperative societies/banks registered under the Kerala Cooperative Societies Act.
Key Issues
Whether the assessee society is entitled to deduction under Section 80P(2)(a)(i) on its business income and interest income, considering it is a cooperative bank and potentially covered by Section 80P(4).
Sections Cited
80P(2)(a)(i), 80P(4), 80P(2)(d), 56
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: S/SHRI INTURI RAMA RAO & SHRI PRAKASH CHAND YADAV
PER PRAKASH CHAND YADAV, JUDICIAL MEMBER:
Both the appeals of the assessee are arising from the orders of the ld Commissioner of Income Tax (Appeal) NFAC, Delhi, dated 22.10.2024 having DIN No. ITBA/APL/S/250/2024-25/1069851349 (1) and relates to assessment year 2017-18 and order dated 22.10.2024 having DIN No. ITBA/APL/S/250/2024-25/1069851058 (1) and relates to assessment year 2018-19.
Since the issue involved in both the appeals are common, we are deciding the appeals by way of this consolidated order. is concerned, the solitary issued involved in this appeal is whether the assessee is entitled to deduction u/s. 80P(2)(a)(i). The case of the Assessing Officer is that the assessee society is not entitled for deduction u/s. 80P(2)(i) inasmuch as the assessee society is acting as a Cooperative Bank rather than primary agricultural society. The Assessing Officer and the ld CIT(A) were of the view that the assessee is primarily engaged in banking activities and hence, covered by the provisions of section 80P(4) and hence, not entitled to deduction u/s. 80P(a)(i) of the Act with respect to the business income as well as 80P(2) (d) with respect to interest income earned.
None appeared from the side of the assessee. However, in the grounds of appeal, the assessee has relied upon the judgment of Hon’ble Supreme Court in the case of Mavilayi Service Co-Operative Bank Ltd. v.
CIT (2021) 431 ITR 1 (SC)so far as business income of the assessee and so far as the income earned by way of interest is concerned, the assessee relied upon the judgment of Kerala High Court in the case of PCIT v. Sahyadri Co-operative Credit Society Ltd. (2024)
301 Taxman 36 (Ker.)(HC).
Ld Sr DR relied upon the orders of authorities below.
We have heard the submissions of ld. Sr DR and perused the materials available on record. We observe that so far as the business income earned by the assessee is concerned, same is covered by the judgment of Hon’ble Supreme Court in the case of Mavilayi Service Co- Operative Bank Ltd (supra) and so far as the taxability of interest income is concerned, the same is covered by the decision of Hon’ble Kerala High Court in the case of Sahyadri Co-operative Credit Society Ltd.(supra).
Further, while deciding the similar issue the Co-ordinate Bench of ITAT Cochin in the case of Thrissur District Electricity Board Employees Co-op So. Ltd.ITA No.496/Coch/2024: Asst.Year 2020-2021 order dated 10.12.2024 held as under”
“6. We have heard the rival submissions and perused the material available on record. For deciding the issue whether the assessee is entitled for deduction u/s.80P(2)(a)(i), a reference can be made to the judgment of the Hon’ble Supreme Court in the case of Totagar’s Co- operative Sale Society Ltd. v. ITO reported in (2010) 322 ITR 283 (SC). The Hon’ble Apex Court in para 11 of the judgment, has observed as under:- “11. 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 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 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 .
Page 4 of 8 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 co-operative societies. Even Explanation (baa) to section 80HHC was 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 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”. A number of judgments were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of section 80P of the Act. We find no merit because all the judgments cited were cases relating to co-operative banks and the assessee-society is not carrying on banking business. We are confining this judgment to the facts of the present case. 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.”
8. We further observed that recently Hon’ble jurisdictional High Court in the case of Sahyadri Co-operative Credit Society Ltd. 301 Taxman 36(Ker),after observing that the assessee has not used the surplus funds and after considering the judgment of Totagar SC(Supra),has gone to the extent of saying that the making of investment is the business activity of the society. The observations of the High Court in Shayadri in Para 8 are reproduced hereunder: - ‘’We also find force in the submission of the learned Senior counsel, distinguishing the decision of the Supreme Court in M/s. The Totgars' Cooperative Sale Society Limited (supra), on the ground that the Court in that case had found that the Society concerned had appropriated amounts forming part of surplus .
Page 5 of 8 receipts which were due to its members, and invested the same to earn interest during the period when the surplus receipts were in its hands. It was therefore that the court found that the interest earned by the Society through deposit of such receipts with banks in fact ought to have accrued to the benefit of the individual members and not to the Society itself; that in relation to the Society, it was to be treated as income from other sources since the interest income had lost its nexus with the principal income earned by the Society. The facts in the instant cases are entirely different and the investment concerned was of amounts that had already attained the character of surplus profits in the hands of the assessee. On this issue, therefore, we find ourselves in agreement with the view taken by the Andhra Pradesh and Karnataka High Courts respectively in The Vavveru Cooperative Rural Bank Ltd. (supra) and Tumkur Merchants Souharda Credit Cooperative Limited (supra).”
While interpreting the provisions of section 80-P Hon’ble Apex Court in the case of Mavilayi reported in 431 ITR 1(SC) has observed as under:- “Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication”.
10. So far as the claim of the assessee to the deduction of sec.80P(2)(d), we observe that the Hon’ble Kerala High Court in the case of Peroorkada Service Co-operative Bank Ltd. (supra), has allowed the claim of the assessee u/s.80P(2)(d) of the Act. The relevant observations of the Hon’ble jurisdictional High Court are in para 12.1 and 12.2 of the judgment. The same are reproduced for the sake of ready reference:- “12.1 The decisions relied on by the Supreme Court refer to co- operative banks but not co-operative societies. The issue on hand is about the interest income earned by way of investments made with institutions other than co-operative societies. We are of the view that by referring to the order in Nawanshahar Central Co-operative Bank Ltd. case it cannot be held that the income has to be brought under section 80P(2)(a)(i) of the Act. Section 80P deals with Co-operative Societies' computation of income. As already noted, it has four sections and several sub- sections and clauses. The Parliament has considered the various situations in which the exigible income and the deductable income of the assessee is considered while computing the .
Page 6 of 8 income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co-operative Society registered under Kerala Co- operative Societies Act. The interest income earned from District Co-operative Bank/State Co-operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co-operative Societies/Banks registered under Kerala Cooperative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.”
In view of the above judgments, we are of the considered view that the assessee is entitled for deduction u/s.80P(2)(d) in respect of interest income and dividend income earned from co- operative bank as held in the case of Peroorkada Service Cooperative Bank Ltd.(supra). The assessee would also be entitled for the deduction of section 80(P)(2a)(i) in respect of such income which is attributable to the business of cooperative society exclusively with the members of the society. Therefore, we restore this matter to the file of the A.O. with a direction to decide the issue afresh after considering the judgment of the Hon’ble Kerala High Court and Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. (supra).We also direct the assessee to produce proper bifurcation of the income earned which is eligible for deduction u/s.80P(2)(d) and 80P(2)(a)(i) of the Act. “ .
Respectfully following the decision of the Co-ordinate Bench in the case of Thrissur District Electricity Board Employees Co-op So. Ltd (supra) we allow the appeal of the assessee. Our findings given in 488/Coch/2025 would apply mutatis mutandis to ITA number 489/Coch/2025.
In the result, both the appeals of the assessee stand allowed.
Order pronounced in court on 20th day of August, 2025