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Facts
The Assessee, a co-operative credit society, claimed a deduction under section 80P(2)(a)(i) of the Income Tax Act for interest income earned from fixed deposits with co-operative banks. The Assessing Officer disallowed this claim, viewing the interest as income from other sources, not business income, and disallowed expenses. The CIT(A) upheld this decision.
Held
The Tribunal held that the Assessee, being a co-operative credit society earning interest from co-operative banks, should be allowed the deduction under section 80P(2)(a)(i). The Tribunal found that the lower authorities did not establish that the interest income was not attributable to the specified business of the Assessee or that it was from funds not required for business purposes.
Key Issues
Whether the interest income earned by the co-operative credit society from fixed deposits with co-operative banks is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act.
Sections Cited
80P(2)(a)(i), 143(3), 80P(2)(d)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE –
ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT 1.
The Karnataka State Road Transport Corporation Employees Credit Co-operative Society Limited (the Assessee/Appellant) for Assessment Year 2017-18 against the Appellate Order passed by the Commissioner of Income Tax (Appeals) – 8, Mumbai dated 22.03.2025 wherein the Appeal filed by the Assessee against the Assessment Order passed u/s. 143(3) of the Income Tax Act, 1961 (the Act) by the Income Tax Officer, Ward-1, Bagalkot (the AO) dated 22.08.2019 was dismissed.
2. Aggrieved with the Appellate Order, the Assessee is in Appeal. The only issue is the claim of deduction u/s. 80P(2)(a)(i) of the Act disallowed to the Assessee.
The brief fact of the case shows that Assessee has filed return of income on 18.10.2017 at a gross total income of Rs. 17,29,611/-. The Assessee claimed deduction under chapter VIA u/s 80P (2) (a) (i) of Rs. 17,29,611/- and therefore the returned income was nil. The return was picked up for scrutiny by issuing a notice u/s. 143(2) of the Act on 09.08.2018.
The Assessee is a Co-operative Credit Society registered under the Karnataka State Co-operative Societies Act, 1959 and is engaged in the activity of accepting deposits and providing credit facilities to its members and making investments. The Assessee has made investments in fixed deposits and derives interest income also. The Ld. Assessing Officer during assessment proceedings noted that Assessee has interest income from Bagalkot District Co-operative Bank and other Co-operative Banks which are taxable as income from other sources in view of the Hon’ble Karnataka High Court decision in case of Totgars Co-operative Sale Society dated 16.06.2017. Therefore, the Ld. Assessing Officer stated that Assessee is not eligible for claiming deduction u/s. 80P(2)(a)(i) of the Act, but the Assessee is also not eligible for deduction u/s. 80P(2)(d) of the Act. However, he noted that Assessee is entitled to expenses out of the income chargeable to tax under the head income from other sources. The Ld. Assessing Officer noted that Assessee has earned interest income from fixed deposits of Rs. 37,14,879/- which is 31.24% of the gross receipts of the society and therefore profit of the society is Rs. 17,28,236/- and 31.24% attributable to the interest income and same is disallowable for deduction u/s. 80P(2)(a)(i) of the Act. Accordingly, the Assessment Order was passed u/s. 143(3) of the Act on 22.08.2019 determining the total income of the Assessee at Rs. 5,39,900/-.
Page 3 of 7 5. The Assessee preferred an Appeal before the Ld. CIT(A) wherein the Assessee contended that issue is squarely covered in favor of the Assessee by the decision of Hon’ble Karnataka High Court in case of Tumkur Merchants Souhadra Credit Co-operative Society Limited. The Assessee stated that the claim of deduction is u/s. 80P(2)(a)(i) and not u/s. 80P(2)(d) of the Act. The Ld. CIT(A) relied upon the decision of the coordinate bench of Bangalore in case of Krishnarajpet Taluk Agri Pro Co-operative Marketing Society Limited and dismissed the Appeal of the Assessee.
Aggrieved with the same, Assessee is in appeal.
The Appeal of the Assessee is delayed by 132 days as per the noting of the Registry. The Assessee has submitted a condonation of delay petition along with the Affidavit of the Chief Executive Officers. Contention of the Assessee is as shown:-
It is to humbly submit that an order u/s 250 of the Income Tax Act 1961 was passed in the case of the appellant society on 22.3.2025. The appeal against the said order was required to be filed before the Hon'ble Income Tax Appellate Tribunal Bengaluru on or before 31.5.2025. However the appeal is being filed now after a delay of 130 days (excluding the number of days taken by postal dept, from the day of posting to the day of delivery to the Assistant registrar ITAT Bengaluru).
That the term of the old management of the appellant society ended on 31.3.2025 and a new management came into existence w.e.f 1.4.2025. While this change in management, took place, the communication of receipt of order u/s 250 remained uncommunicated and therefore appeal could not be filed against the said order.
3. That on 17.9.2025, a penalty order u/s 270A was received. After taking approval of the management, the same was taken to the Consultant for further action. The Consultant while checking the ITBA portal came to know of passing of order u/s 250 on 22.3.2025 and enquired whether appeal has been filed against the said order. On checking our records it Page 4 of 7 was found that appeal was not filed against the said order. Thereafter the appeal papers were got prepared and the appeal is now being submitted through speed post.
4. It is to humbly submit that for the bonafide reasons stated in para 3 and 4 above there is delay in filing of filing the appeal.
An affidavit on the above lines is being submitted herewith.
6. Considering the above submissions, it is humbly prayed to kindly condone the delay in filing the appeal.
None appeared on behalf of the Assessee.
The Ld. Departmental Representative Shri Ganesh R Ghale, Standing Counsel for Revenue vehemently submitted that the delay cannot be condoned as no sufficient reason is shown.
I have carefully considered the contention of the Assessee mentioned in the application and the arguments of the Ld. Standing Counsel. The facts clearly show that there is a term which ended this society and new management committee came into existence. Meanwhile, the order of the Ld. CIT(A) dated 22.03.2025 could not receive the attention of the committee. Subsequently, the penalty order was received on 17.09.2025 wherein it was found that at ITBA portal, the appellate order of the Ld CIT(A) is also available. As Appeal was not filed, immediately through the consultant, appeal was filed. The affidavit of the Executive isalso stating this. In view of this, I find that the Appeal could not be filed within 60 days from the end the month in which the order of the Ld. CIT(A) was received but on 10.10.2025 which caused delay of 132 days. The order of the Ld. CIT(A) in fact came to the notice of the Committee only on 17.09.2025 where the penalty order was received. Thus, prior to that, the Assessee was not aware of the Appellate Order. As soon as it came to notice of the Committee on 10.10.2025, the Appeal got filed. In view of the above facts, I find that delay was due to the non-availability of the order
On the merits of the case, I have heard the Departmental Counsel who has stated that in view of the decision of the Hon’ble Karnataka High Court, the Assessee is not entitled to deduction u/s. 80P(2)(a)(i) as well as u/s. 80P(2)(d) of the Act. He referred to both the decisions and submitted that the decision of the Hon’ble Karnataka High Court binds the Tribunal.
I have carefully considered the rival contentions and perused the orders of the ld. lower authorities. In fact, the Assessee is a member’s credit co-operative society who has earned bank interest from co-operative banks. Such bank interest was claimed as income attributable to the business of the Assessee by giving credit to the members. It claimed deduction u/s. 80P(2)(a)(i) of the Act. The Ld. AO was of the view that interest income earned by the Assessee is not business income of the Assessee. It is chargeable to tax as income from other sources.
The Ld. Assessing Officer was relying upon the decision of the Hon’ble Karnataka High Court dated 16.06.2017 Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka)/[2017] 395 ITR 611 (Karnataka)/[2017] 297 CTR 158 (Karnataka)[16-06-2017].
The Assessee is claiming the deduction based on the decision of the Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer Ward-V, Tumkur [2015] 55 taxmann.com 447 (Karnataka)/[2015] 230 Taxman 309 (Karnataka)[28-10-2014] and Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/[2017] 392 ITR 74 (Karnataka)[05-01-2017].
I find that the case of the Assessee is covered in favor of the Assessee by the decision of the Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income- tax officer Word-V, Tumkur [2015] 55 taxmann.com 447 (Karnataka)/[2015] 230 Taxman 309 (Karnataka)[28-10-2014] and Principal Commissioner of Income-tax, Hubli vs. Totagars Co- operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/[2017] 392 ITR 74 (Karnataka)[05-01-2017] as the assessee has claimed deduction u/s 80 P (2) 9a) (i) of the act. Further there is no finding in the orders of the ld. lower authorities that how the interest income shown by the assessee is attributable to its specified business is not so but income from other sources. There is no evidence brought on record by the ld. Lower authorities that the evidence shows that the assessee-Society earns interest on funds which are not required for business purposes at the given point of time.
Accordingly, I reverse the orders of the Ld. lower authorities and direct the Ld. Assessing Officer to allow the claim of deduction u/s. 80P(2)(a)(i) of Rs. 5,39,9000/-. Appeal of the Assessee is allowed.
Order pronounced in the open court on 27th January, 2026.