Loading judgment…
Facts
The assessment for AY 2017-18 was completed u/s 143(3) with additions for interest from fixed deposits treated as 'income from other sources' and denial of Section 80P(2)(a)(i) exemption. While the CIT(A) initially allowed the claims, the ITAT later remitted the 80P deduction issue back to the AO. Due to the assessee's non-compliance, the AO again denied the 80P deduction, which was subsequently confirmed by the CIT(A), leading to the current appeal before the ITAT.
Held
The Tribunal, following jurisdictional High Court judgments in *PCIT v. Peroorkada Service Co-op. Bank Ltd.* and *CIT vs. Sahyadri Co-operative Credit Society Ltd.*, held that interest income from co-operative banks and from scheduled banks/treasury should be considered business income. Therefore, the assessee is entitled to deduction under Sections 80P(2)(d) and 80P(2)(a)(i) respectively, as these earnings are an enhancement of profits from the core business activity of providing credit facilities.
Key Issues
Whether interest income earned by a co-operative society from fixed deposits with co-operative banks, scheduled banks, or treasury constitutes 'income from other sources' or 'business income', and consequently, whether it is eligible for deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act.
Sections Cited
143(3), 80P, 80P(2)(a)(i), 142(1), 254, 144B, 80P(2)(d)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Sonjoy Sarma
Nellimoodu Post, Thiruvananthapuram 695524. PAN : AACAN4201B. (Appellant) (Respondent) Appellant by : Shri Santhosh P Abraham, Adv. Respondent by : Smt. Leena Lal, Snr AR Date of Hearing : 04.06.2025 Date of Pronouncement : 10.06.2025 O R D E R Per Sonjoy Sarma: This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 20.12.2023 for Assessment Year (AY) 2017-18.
Brief facts of the case are that in this case assessment was completed u/s 143(3) on 29/12/2016 determining total income at Rs.1,47,88,580/- against returned income of Rs. Nil. The additions were made by treating income from fixed deposits as income from other sources amounting to Rs.6,22,728/- and by denying exemption u/s 80P(2)(a)(i) amounting to Rs.1,41,65,854/-. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before Ld CIT(A). The Ld CIT(A) in its order dated M/s Nellimood Service Co-operative Bank Ltd. 17/12/2018 ruled in favour of assessee by treating income from fixed deposit as business income and allowing the claim of the deduction u/s 80P on the entire amount of Rs. 1,47,88,580/-. Aggrieved by the order of the Ld CIT(A), revenue filed appeal before Hon'ble ITAT. The Hon'ble ITAT vide its combined order for A.Y. 2011-12, 2014-15 & 2016-17 vide to 153/Coch/2019 dated 18/06/2019 allowed the assessee's stand of treating income from fixed deposits as income from Business which was treated as income from other sources by the AO, thereby confirming the order of Ld CIT(A).Accordingly the interest from fixed deposit of Rs.6,22,728/- was treated as business income of the assessee in this order, However, on the issue of deduction u/s 80P(2)(a)(i) of the Act, the ITAT has remitted the issue back to the file of the Assessing Officer with certain directions. In response to the direction issued by the Tribunal, the Assessing Officer issued notice u/s 142(1) of the Act to the assessee in order to determine whether the benefit of section 80P can be extended to the assessee or not. In response to the said notice, the assessee filed its reply before the Assessing Officer, however, certain compliance has not made by the assessee. Therefore, the Assessing Officer denied the deduction u/s. 80P(2)(a)(i) to the extent of Rs.1,47,88,582/- by assessing income of the assessee u/s 143(3) r.w.s. 254 r.w.s. 144B of the Act.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, the assessee is in appeal before us in the present appeal.
M/s Nellimood Service Co-operative Bank Ltd. 5. We have heard the rival contentions of both the parties and perused the material available on record. We notice that the 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 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.”
M/s Nellimood Service Co-operative Bank Ltd. 6. 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 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 sections 80P(2)(d) and 80P(2)(a)(i) of the Act.
Order pronounced on 10.06.2025.