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Facts
The assessee, a primary agricultural credit society, claimed deduction under Section 80P(2)(a)(i) for its income, which included interest income from district co-operative banks and other sources. The Assessing Officer disallowed this deduction, assessing the income at Rs. 96,41,230/-, a decision upheld by the CIT(A). The assessee appealed, contending the disallowance was bad in law.
Held
The Tribunal, following jurisdictional High Court decisions, held that the assessee is entitled to deduction under Section 80P of the Act. It clarified that interest income from District Co-operative Banks falls under Section 80P(2)(d) and interest from deposits of surplus funds, even in other banks, retains its character as profits attributable to the core business, hence eligible for Section 80P deduction.
Key Issues
Whether a primary agricultural credit society is entitled to deduction under Section 80P of the Income Tax Act for interest income earned from District Co-operative Banks and from deposits of surplus funds in other financial institutions.
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 143(2), 142(1), 80P(2), 63, 64
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Sonjoy Sarma
& SA Nos.15&16/Coch/2025 The Kalakkodu Service Co-Operative Bank Ltd. O R D E R Per Sonjoy Sarma: These appeals have been preferred by the assessee against separate orders both dated 30.07.2024 passed by the National Faceless Appeal Centre [‘CIT(A)] for the assessment years 2016–17 and 2018-19 respectively. Since, the issues involved in the appeals are identical and pertain to the same assessee, therefore, these appeals have been heard together and are being disposed of by this consolidated order. First we take up ITA No.21/Coch/2025 for narration of facts. of the case are that the assessee is a primary agricultural credit society and is registered under Kerala Co-operative Societies Act 1969. The assessee operates in the rural area of Kallkkodu, Kollam, Kerala and its principal business is to provide credit facilities exclusively to its members who are primarily agriculturists. For the relevant assessment year, the assessee filed return declaring taxable income as Nil after claiming deduction u/s 80P(2)(a)(i) of the Act. The case of the assessee was selected for complete scrutiny under CASS followed by notices u/s 143(2) and 142(1) of the Act. The assessee submitted various compliance in response to the said notices before the Assessing Officer. During the assessment proceedings, the Assessing Officer viewed that the assessee declared gross total income of Rs.9641225/- and taxable income as Nil after claiming deduction under Chapter VIA of section 80P(2) and income of the assessee was assessed at Rs.9641230/- by disallowing the claim u/s 80P of the Act.
& SA Nos.15&16/Coch/2025 The Kalakkodu Service Co-Operative Bank Ltd. 3. Aggrieved by the above order, the assessee filed an appeal before the ld. CIT(A), however the ld. CIT(A) upheld the order of the Assessing Officer by dismissing the appeal of the assessee.
Dissatisfied with the order of the CIT(A), the assessee has come up in appeal before this Tribunal raising various ground. However, the primary contention of the assessee is that the disallowance of deduction u/s 80P and income assessed at Rs.9641230/- was bad in law and liable to be set aside.
On the other hand, the ld. DR supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the material available on record. We notice that the instant issue related to interest income received from the District Co-operative bank stands adjudicated by Hon'ble Jurisdictional High Court’s decision in the case of PCIT v. Peroorkada Service Co- op. Bank Ltd. [2022] 442 ITR 141 (Ker) wherein their Lordships have rejected the Revenue’s identical stand as under: -
“12.2 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 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 & SA Nos.15&16/Coch/2025 The Kalakkodu Service Co-Operative Bank Ltd. 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 Co-operative 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.”
Regarding the interest income received from Treasury, Scheduled Banks, etc., this issue is no longer res integra, as it is covered by the judgment 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 & SA Nos.15&16/Coch/2025 The Kalakkodu Service Co-Operative Bank Ltd. 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 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 section 80P of the Act. Accordingly, is allowed.
Since, the facts and issues are identical to therefore, our decision in ITA No.21/Coch/2025 will mutatis mutandis apply to the present appeal also. Hence, ITA No.22/Coch/2025 is also allowed.
SA Nos.15&16/Coch/2025 - Since we have already 10. allowed both the appeals in therefore, the instant stay applications have become infructuous and hence the same are dismissed.
In the result, both the appeals filed by the assessee are allowed and both the connected stay applications are dismissed.
Order pronounced on 12.06.2025.
Sd/- Sd/- (Inturi Rama Rao) (Sonjoy Sarma) Accountant Member Judicial Member Cochin, Dated: 12.06.2025. RS