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Facts
The assessee, a co-operative society, filed a return of income declaring Nil income after claiming deduction u/s. 80P. The AO completed assessment at a total income of Rs. 1,92,23,337/-, taxing interest income from commercial banks under 'income from other sources'. The CIT(A) allowed deduction u/s. 80P(2)(d) for a part of the interest income but disallowed the rest.
Held
The Tribunal condoned the delay in filing the appeal. Following the jurisdictional High Court's decision in CIT vs. Sahyadri Co-operative Credit Society Ltd., the Tribunal held that interest income earned by the assessee on the deposit of surplus funds with commercial banks is attributable to its business of providing credit facilities to its members and is eligible for deduction under Section 80P(2)(i)(a) of the Act.
Key Issues
Whether interest income earned on surplus funds deposited with banks by a co-operative society is eligible for deduction under Section 80P of the Income Tax Act, 1961.
Sections Cited
80P, 80P(2)(d), 80P(2)(i)(a), 143(3), 144B
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SONJOY SARMA, JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 20.06.2024 for Assessment Year (AY) 2021-22.
Brief facts of the case are that the appellant is co-operative society registered under the Kerala State Co-operative Societies Act, 1969. It is classified as a primary agricultural credit co-operative society. It is engaged in the business of providing loans to its members. The return of income for AY 2021-22 was filed on SB College Staff Co-op. Society Ltd. 13.01.2022 declaring Nil income after claiming deduction u/s. 80P of the Income Tax Act, 1961 (the Act). Against the said return of income, the assessment was completed by the National e- Assessment Centre (hereinafter called "the AO") vide order dated 05.12.2022 passed u/s. 143(3) r.w.s. 144B of the Act at a total income of Rs. 1,92,23,337/-. While doing so, the AO brought to tax the interest income earned by the appellant society on investment of surplus funds with commercial banks by holding that such interest income is assessable under the head ‘income from other sources’.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order held that out of the total interest income of Rs. 1,92,23,337/- an amount of Rs. 1,77,52,025/- qualifies for deduction u/s. 80P(2)(d) of the Act and the balance amount of Rs. 14,71,312/- is not eligible for deduction u/s. 80P(2)(a)(i) of the Act.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
At the outset, we find that the appeal is filed with a delay of 267 days. The appellant had filed a petition seeking condonation of delay on the ground that the delay had occurred on account of change of management and accounts team of the society. It is further submitted that the order passed by the CIT(A) was not brought to the notice of the new management. In the circumstances, it is prayed for condonation of delay. Having regard to the averments made in SB College Staff Co-op. Society Ltd. the affidavit seeking condonation of delay, in the absence of any evidence to the contrary, we are of the considered opinion that the appellant society is prevented by sufficient reasonable cause in filing the appeal within the prescribed limit. Accordingly, we condone the delay and admit the appeal for adjudication.
We have heard the rival contentions and perused the material available on record. On merits, the issue of interest income received from Treasury, Scheduled Banks, etc. is no longer res integra, as it is covered by the judgement of the Hon'ble Jurisdictional High court in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in of 2019, wherein it was held as under: - “The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount (the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee SB College Staff Co-op. Society Ltd. from its lending activity) does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.”
Respectfully following the above decisions of the Hon'ble Jurisdictional High Court, we hold that the assessee is entitled for deduction under sections 80P(2)(i)(a) of the Act in respect of interest received from Treasury, Scheduled Banks, etc.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 31st July, 2025.