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Facts
The assessee, Bishnupur Rowtara Primary Agriculture Co-operative Credit Society Limited, filed an appeal against the order dated 14.03.2024. The appeal pertained to the assessment year 2020-2021. The primary issue was the disallowance of deduction claimed under Section 80P of the Income Tax Act.
Held
The Tribunal held that interest income earned on investments in banks, made from surplus funds generated by the society's eligible activities, is eligible for deduction under Section 80P(2)(a)(i) of the Act. The Tribunal distinguished the case from the 'Totgar's Cooperative Sale Society Ltd.' case, stating that the facts were distinguishable.
Key Issues
Whether interest income earned from bank deposits is eligible for deduction under Section 80P of the Income Tax Act, considering the source of funds and the nature of the cooperative society's activities.
Sections Cited
80P, 143(1), 143(3)
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Income Tax Appellate Tribunal, “SMC” BENCH KOLKATA
Before: SHRI GEORGE MATHAN
O R D E R This is an appeal filed by the assessee against the order dated 14.03.2024, passed by the ld.CIT(A), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2020-2021.
It was submitted by the Ld.AR that the issues in the appeal was in regard to the deduction u/s.80P of the Act. It was submission that the return filed by the assessee came to be processed and an intimation came to be issued u/s.143(1) of the Act wherein the AO had disallowed the claim of deduction u/s.80P of the Act on an income of Rs.14,61,200/-. It was further submission that subsequently an assessment order u/s.143(3) of the Act came to be passed wherein the AO has made further disallowance of Rs.2,56,272/- representing the society related income within the member of the society. It is also submission that an amount of Rs.44,971/- representing the SB deposited interest had also been denied being the claim of deduction u/s. 80P of the Act. It was submission that in regard to the disallowance of Rs.2,56,272/- the same was out of the income generated from the members of the assessee’s society. In regard to SB interest, it was submission that the issue was now squarely covered by the decision of the coordinate bench of this tribunal in the assessee’s own case for the assessment year 2016-17, passed in dated 28/07/2025, wherein the coordinate bench of this tribunal has held in para 7 & 8 as follows:- 7. I have heard both the parties and perused the material available on record. Now the question before me whether the assessee is eligible for deduction under section 80P with respect to the interest earned on investment in term-deposits in the Bank accounts maintained with Union Bank of India and Bandhan Bank during the financial year 2015-16. The contention of the Ld. AO is that interest accrued on Reserve Fund Deposits is not eligible for deduction U/s 80P of the Act. The Ld. Revenue Authorities relied on various case laws to state that income from interest on securities ear marked to reserve fund has been held not eligible for deduction u/s 80P. The Ld. Revenue Authorities have also placed relied on the decision of Hon’ble Supreme Court of India in Civil Appeal No. 1622 of 2010 in the case of M/s Totgars Cooperative Sale Society Ltd., wherein it was held that “investment of surplus on hand not immediately required in Short Term deposits and securities by a cooperative society providing credit facilities to members or marketing agriculture produce to member”. However, in the instant case, the facts are distinguishable and hence, in my view, the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd.(supra) shall not be applied to the instant case. On similar set of facts, coordinate Bench of this Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society held in favour of the assessee vide CO No.07/Viz/2022 dated 30.08.2023. For the sake of reference, relevant paragraphs of the order are extracted as under: “8. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. It is an admitted fact that the assessee has claimed deduction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society. The Ld. AO also placed heavy reliance in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) while disallowing the claim made by the assessee U/s. 80P(2)(a)(i) of the Act. We have perused the ratio laid down by the Hon’ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members U/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon’ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(l) of the Act entitles the Cooperative Societies to deduct the sums specified in subsection (2) from its gross total income while computing the total income. Sub-section (2) of section 80P, in the sub-clause (a) allows deduction to cooperative society which is engaged in the following activities: “(a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or] the collective disposal of the labour of its members, or (vi) (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing offish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities:”
Further, we also extract below the provisions of section 80P2(d) and (e) of the Act for reference “(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income; in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;”
From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) & (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted in sub-clause (a) whereas the benefit of clauses (d) & (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub-clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, we extract the relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below: “34. The case before the Supreme Court in Totgar's Cooperative Sale Society Ltd. 's case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd. 's case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as pro fits and gains of business. This is why Totgar's struck a different note.”
Further, the Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another (supra) held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment held as under: 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalized banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.
The original source of the investments made by the petitioners in nationalized banks is admittedly the income that the petitioners derived from the activities listed in subclauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".
Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside. ”
Further, the Coordinate Bench of Hyderabad in Tirumala Tirupati Devasthanams Employees Coop. Credit Society vs. ITO also affirmed the same view by following the decision of the Hon’ble AP High Court in the case of Vavveru Cooperative Rural Bank Ltd (supra). In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfully following the jurisdictional High Court are of the view that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)-NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A)-NFAC.
In the result, appeal of the Revenue is dismissed.”
Respectfully following the decision of the Hon’ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Ltd.(supra) and the ratio laid down by the Coordinate Bench of the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Cooperative Society Limited (supra), I am inclined to quash the order passed by the Ld. CIT(Appeals)-NFAC and allow the appeal of the assessee. It was submission that in regard to the adjustment made in the 3. intimation u/s.143(1) of the Act as the order u/s.143(3) of the Act has been passed, the intimation u/s.143(1) of the Act need to have been overridden.
In reply, the Ld. DR submitted that the bank interest is not liable to be allowed for deduction u/s.80P of the Act. Insofar as the same is not generated from the members of assessee society. He vehemently supported orders of the AO and CIT(A).
I have considered the rival submissions. Coming to the issue of the intimation u/s.143(1) of the Act being disallowance of Rs.14,61,200/-, it is noticed that this is an adjustment which has been done in the intimation u/s.143(1) of the Act. The assessee is not able to show as to whether the intimation has been challenged in an appeal or not. So long as the intimation is live the assessment order u/s.143(1) of the Act would also start from such intimation until and unless the such intimation stands quashed. As the intimation has not been quashed, this issue does not arise out of the order of the assessing officer passed u/s.143(1) of the Act and consequently, this issue is held against the assessee.
In regard to addition of Rs.2,56,272/- which has been added by the AO in the assessment order u/s.143(1) of the Act, it is noticed that the AO has categorically mentioned that the details have not been provided. This