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Facts
The assessee, a Co-operative Credit Society, claimed a deduction under Section 80P of the Income Tax Act, 1961, for interest income of Rs.2,07,09,672/- earned from investments/fixed deposits with Co-operative Banks. The Assessing Officer disallowed this claim during assessment, but the Ld. Commissioner of Income Tax (Appeals)/NFAC subsequently allowed the deduction. Dissatisfied with this decision, the Revenue appealed before the Income Tax Appellate Tribunal.
Held
The Tribunal upheld the decision of the Ld. CIT(A)/NFAC, finding no infirmity in the order. It dismissed the Revenue's appeal, reaffirming that the interest income earned by the co-operative society from deposits with co-operative banks is eligible for deduction under Section 80P. This conclusion was supported by various judicial precedents, including the Tribunal's own earlier decision in the assessee's case for AY 2020-21 and decisions of the Supreme Court and various High Courts.
Key Issues
Whether interest income earned by a Co-operative Credit Society from investments/fixed deposits with other Co-operative Banks is eligible for deduction under Section 80P of the Income Tax Act, 1961, considering the provisions of Section 80P(4).
Sections Cited
Section 80P, Section 80P(2), Section 80P(2)(a), Section 80P(2)(a)(i), Section 80P(2)(d), Section 80P(4), Section 143(2), Section 143(3), Section 144B, Section 56, Section 22 (Banking Regulation Act), Section 56 (Banking Regulation Act), Section 63 (Multi-State Cooperative Societies Act), Section 64 (Multi-State Cooperative Societies Act)
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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
Assessment Year : 2022-23 Income Tax Officer, Kanifnath Gramin Bigar Sheti Ward – 2, Ahmednagar Sahakari Patsanstha Maryadit, Vs. At Post Maldad, Taluka Sangamner, Ahmednagar-422608 PAN : AABAK1395E अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri Pramod S. Shingte Department by : Shri Madhan Thirmanpalli Date of hearing : 13-01-2026 Date of 13-02-2026 Pronouncement : आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the Revenue is directed against the order dated 01.07.2025 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)/NFAC”] pertaining to Assessment Year (“AY”) 2022-23.
Briefly stated, the facts of the case are that the assessee is a Co-operative Credit society registered under the Maharashtra Co-operative Society Act, 1960. It is engaged in the activities of providing credit facilities to its members and accepting deposits from its members. For AY 2022-23, the assessee filed its return of income on 26.10.2022 declaring total income at Rs.Nil after claiming deduction of Rs.48,74,240/- u/s 80P of the Income Tax Act, 1961 (the “Act”). The case of the assessee was selected for scrutiny under CASS and the assessment was completed by the Ld. Assessing Officer (“AO”) vide his order dated 27.02.2024 passed u/s 143(3) r.w.s. 144B of the Act by disallowing the assessee’s claim of deduction u/s 80P of the Act in respect of interest income earned by the assessee during the relevant AY under consideration from investments/fixed deposits with Co-operative Banks amounting to Rs.2,07,09,672/- u/s 80P(2) of the Act.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A)/NFAC. During the appellate proceedings, placing reliance on the various judicial precedents covering the impugned issue in favour of the assessee, the assessee contended before the Ld. CIT(A)/NFAC that the interest income earned by the assessee during the relevant AY from investments with Co-operative Banks is eligible for deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act. The Ld. CIT(A)/ NFAC after considering the submissions of the assessee which is reproduced in para 4 of his impugned appellate order, allowed the appeal of the assessee by observing as under :
“5.2 The assessee is a credit co-operative society engaged in the business of providing credit facilities to its members. For the Assessment Year 2022-23, it has filed the return of income on 26.10.2022 offering a gross total income of Rs.48,74,240/- and total income of Rs.Nil after claiming deduction of Rs.48,74,240/- under section 80P of the Income Tax Act, 1961. The case was taken up for scrutiny by the issue of a notice u/s 143(2) dated 02.06.2023 which was duly served to the assessee within the prescribed time. Further, the assessee society has earned interest income amounting to Rs.2,07,09,672/- from investment or fixed deposits with cooperative Banks and has claimed the entire interest income as deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Income-tax Act, 1961. As per the AO, this interest is not the interest received from the members for providing credit facilities to them. The interest was arisen from the surplus fund invested in FD etc which was not required for normal business purpose of the assessee. The AO has contended that such interest income is deductible u/s. 80P only if it is earned from the „any other co-operative society‟. Therefore, the interest earned from the deposits made in any Co-operative and other Bank is not admissible for deduction u/s. 80P(2)(a)(i)/80P(2)(d) of the Act. The AO has placed reliance on several court‟s decision including the Hon‟ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd Vs ITO and the Karnataka High Court in the case of vs PCIT Hubbali Vs Totgars Cooperative Sale Society (2017) reiterating the court‟s view that the co-operative bank is not co-operative society for the purpose of s.80P(2)(d)as its business is banking business and also cited court view that income earned by such society on investment of idle or surplus fund with the co-operative bank/scheduled bank doesn‟t change the character of income based upon nature of activity for earning such income being in the purview of s.56 and thus beyond the scope of s.80P(2)(d). 5.3 On merit, in my considered view, the appellant is a co-operative society. The whole of the amount profits and gains of such business attributable to such activities is deductible under section 80P(2)(a) of the Act. The facts are clear that assessee is a co-operative society and cooperative banks are also co-operative societies. In my considered view, a co-operative bank is primarily a co-operative society. A Co-operative society is a voluntary association of individuals having common needs who join hands for the achievement of common economic interest. The main objective is to provide support to the members. People come forward as a group, pool their individual resources, utilize them in the best possible manner, and derive some common benefit out of it. A Cooperative Society can be formed as per the provisions of the Cooperative Societies Act, 1912. At least ten persons above 18 years, having the capacity to enter into a contract with common economic objectives, like farming, weaving, consuming, etc. can form a Cooperative Society. Cooperative Societies Act is a Central Act. However, 'Cooperative Societies' is a State Subject (Entry 32 of List II of Seventh Schedule to Constitution, i.e. State List). Though the Act is still in force, it has been specifically repealed in almost all the States and those States have their own Cooperative Societies Act. Thus, practically, the Central Act is mainly of academic interest and as per preamble to the Act, the Act is to facilitate formation of cooperative societies for the promotion of thrift and self-help among agriculturists, artisans and persons of limited means. 5.4 A society which has as its object of the promotion of economic interests of its members in accordance with cooperative principles can be registered as a Society. Similarly, a society established with the object of facilitating operation of AY 2022-23 such a society can also be registered under the Act. The society can be registered with limited or unlimited liability. However, unless State Government otherwise directs, (1) Liability of a society of which a member is a registered society shall be limited. (2) Liability of a society of which object is creation of funds to be lent to members, and of which majority of members are agriculturists and of which no member is a registered society shall be unlimited. Thus, a registered society can be member of another society, but liability of such other society must be limited, unless State Government otherwise directs. 5.5 When Co-operative Societies engage in banking business, in addition to the regulatory laws applicable to co-operative societies, the central laws governing banking are attracted. Thus, the Banking Regulation Act, 1949 has been made applicable to co-operative banks, but as provided in Section 56 thereof, in a modified manner, limiting thereby the extent of regulation by the Reserve Bank of India. However, all co-operative societies engaged in the business of banking are not regulated by the Banking Regulation Act, 1949 as the Act does not apply to Primary Agricultural Credit Societies and Land Development Banks and the regulatory provisions including that on licensing are not applicable to primary credit societies. 5.6 In the case of co-operative banks, although they are required to obtain a license under Section 22 of the Banking Regulation Act, they are subject to a lesser extent of regulatory oversight under the modified provisions of BR Act as provided in Section. The appellant placed reliance on the decision of Hon‟ble Supreme Court of India which has reversed the decision of the Larger Bench of the Hon‟ble High Court of Kerala in the case of Mavilayi Service Cooperative Bank Ltd and ORS, vs Commissioner of Income Tax Calicut and ANR vide order no. 7373- 7350 of 2019, Delhi dated 12.01.2021 where in it was decided that a Primary Agricultural Credit Society is eligible for deduction u/s 80P. 5.7 Sub-section (4) introduced by the Finance Act, 2006, with effect from April 1, 2007, is as under: '(4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation. - For the purposes of this sub-section,- (a ) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949). (b) "Primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.' 5.8 In the present case, the reasoning given by the tax authorities in denying the claim for deduction u/s 80P(2)(d)/ 80P(2)(a)(i) of the Act is that interest income is deductible u/s. 80P only if it is earned from the „any other co-operative society‟. Therefore, the interest earned from the deposits made in any Co-operative and other Bank is not admissible for deduction u/s. 80P(2)(d) of the Act. As a matter of fact, this issue was came to consider by Hon'ble Karnataka High Court in 'CIT v. Totagars Cooperative Sale Society', finds reported in 392 ITR 74 wherein their lordships referring to the decision of Hon'ble Apex Court in the case of Totgars Co- operative Sales Society Ltd. held that the ratio of decision of the Hon'ble Supreme Court in the aforesaid case (supra) not to be applied in respect of interest income on investment as same falls u/s 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act. It is further noted that, the co-ordinate bench in 'Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. v. ITO' , reported in 120 Taxmann.com 10, after making reference to the decisions of the Hon'ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd. (supra) and having noticed the divergent views of the Hon'ble Karnataka High Court in the case of 'Tumkur Merchants Souharda Credit Co-op. Ltd. v. ITO', 55 taxmann.com 447 and decision of Hon'ble Delhi High Court in AY 2022-23 'Mantola Cooperative Thrift Credit Society Ltd. v. CIT', reported at 50 taxmann.com 278, the decision rendered in 'Mantola Cooperative Thrift Credit Society Ltd. (supra) had not been preferred to ratio laid in 'Tumkur Merchants Souharda Credit Co-op. Ltd. (supra). 5.9 The appellant in its paper book submission has relied upon plethora of decision of both the Hon‟ble High Courts of Karnataka ('Tumkur Merchants Souharda Credit Co-op. Ltd. v. ITO', 55 taxmann.com 447 ) and of the Hon‟ble Gujrat High Court (Surat Vankar Sahkari Sangh Ltd) as well as the decisions of Hon‟ble ITAT Mumbai ,Pune and Ahmedabad in its favour claiming deduction u/s u/s 80P(2)(d) .It would be also relevant to quote the findings of the Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016) which decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Sant Motiram Maharaj Sah. Pat Sanstha Ltd., Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit vs ITO in has allowed similar deduction. In the said case, the Hon‟ble Tribunal discussed the contrary views expressed by the Hon'ble Karnataka High Court in Tumkar Merchants Souharda Credit Cooperative Ltd. vs ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s 80P on interest income and that of the Hon'ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. vs CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s 80P on interest income earned from banks. Both the Hon'ble High Courts took into consideration the ratio laid down in the case of Totgar's Cooperative Sale Society Ltd. (2010) 322 ITR 283 (SC). There being no direct judgment from the Hon'ble jurisdictional High Court on the point, the Tribunal inShri Laxmi Narayan Nagar Sahakari Pat Sanstha Maryadit(supra) preferred to go with the view in favour of the assessee by the Hon'ble Karnataka High Court in the case of Tumkar Merchants Souharda Credit Cooperative Ltd. (supra) 5.10 Further, the Hon'ble Karnataka High Court in case of Pr. CIT v. Totagars Co- operative Sale Society (2017) 78 Taxmann.com 169/392 ITR 74 has held that for the purpose of Section 80P(2)(d), the Cooperative bank should be considered as a Cooperative society and in the said decision, the Hon'ble Karnataka High Court has considered and distinguished the aforesaid decision of the Hon'ble Supreme Court. 5.11 It is established that Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the cooperative sector in general must be read liberally and reasonably, and if there is ambiguity, in favor of the appellant. It must also be mentioned here that 'nominal members' are 'members as defined under the Kerala Act. Further, the expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is therefore, necessary to construe the expression "members" in Section 80P(2)(a)(1) of the Act in the light of the definition of that expression as contained in the Cooperative Societies Act. 5.12 The issue whether a co-operative bank is considered to be a cooperative society is no longer res integra. The decision of Hon‟ble Supreme Court in the case of The Pr. Commissioner Of Income Tax 17, Mumbai Versus M/S Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited in Civil Appeal No. 8719/2022 dated 20.04.2023 has clarified the position that Section 80(P)(4) shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under Section 80(P)(2). Reliance is also placed on the latest decision of the Jurisdictional ITAT Pune (26.06.2025) in Aditya Urban Co-operative Society vs ITO Wd-1 Khamgaon, wherein the Hon‟ble ITAT has ruled that interest income received from fixed deposits with Co-operative Bank is deductible u/s 80P(2)(d) Further reliance is placed on the decision of ITAT Mumbai in ITO Vs. Nariman Bhawan Premises Co-operative Society Ltd. Respectfully following the decisions of Hon‟ble Apex Court ( dated 20.04.2023)(Supra) and other as well as decision of the AY 2022-23 Jurisdictional ITAT as quoted above, it is held, the amount of interest received in respect of deposits/FDs maintained with district co-operative bank is eligible for deduction under section 80P2(d) of the Income Tax Act. Accordingly, grounds of appeal raised by the appellant are allowed.
6. In the end result, the appeal is allowed.”
Dissatisfied, the Revenue is in appeal before the Tribunal raising the following grounds of appeal : “i) On the facts and the circumstances of the case and in law, Ld. CIT(A)/NFAC erred in deleting the addition of Rs.2,07,09,672/- made on account of interest income, despite the fact that the deduction u/s 80P(2)(a)(i) is available only to the income which is attributable to the business operation of the assessee cooperative society which is providing credit facility to its members only and hence, the interest income earned by the assessee is not attributable to its business activities which is providing credit facility to its members only. ii) On the facts and the circumstances on the case and in law, the Ld. CIT(A)/NFAC erred in deciding whether the earning interest income from deposits with cooperative Banks or other Banks, than cooperative society falls within the ambit of business activity of the assessee society. iii) On the facts and the circumstances of the case and in law, the Ld. CIT(A)/NFAC erred in not considering the provisions of section 80P(4) shall not apply to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. iv) On the facts and circumstances of the case and in law, the Ld.CIT(A)/NFAC erred in allowing the deduction u/s 80P(2)(d) of the Act without considering the decision of the Hon‟ble High Court of Karnataka in the case of PCIT, Hubballi, Vs. Totagars Cooperative Sale Society (395 ITR 611) dated 16.06.2017. v) The appellant craves to add, amend, alter or delete the above ground of appeal during the course of appellate proceedings before the Hon‟ble Tribunal.”
The Ld. AR, at the outset, submitted that impugned issue is squarely covered in favour of the assessee by catena of decisions of various judicial forums including the decision of the Pune Bench of the Tribunal in assessee’s own case for AY 2020-21 in dated 28.11.2025. Further, placing reliance on the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd.
(2023) 150 taxmann.com 173(SC) and the Hon’ble Madras High Court in the case of Thorapadi Urban Co-operative Credit Society Ltd. Vs. ITO (2023) 156 taxmann.com 419 (Madras) and the Hon’ble Kerala High Court in the case of PCIT Vs. Peroorkada Service Co-operative Bank Ltd. (2022) 134 taxmann.com (Kerala), the Ld. AR submitted that the Ld. CIT(A)/NFAC has correctly allowed the assessee’s claim of deduction u/s 80P of the Act.
The Ld. DR, on the other hand, relied on the order of the Ld. AO, however, he could not brought on record any contrary decision to rebut the above submissions of the Ld. AR.
We have heard the Ld. Representatives of the parties and perused the material on record. We have also considered the various judicial decisions cited before us. The facts of the case are not disputed. We find that the Ld. AO has disallowed the assessee’s claim of deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act holding that the interest income earned by the assessee from its investments made in Co-operative Banks amounting to Rs.2,07,09,672/- is not eligible for claim of deduction u/s 80P(2) of the Act, the details of which are provided in para 3.6 of the assessment order. After considering the detailed submissions along with various judicial precedents relied upon by the assessee which decisions are also cited and relied upon by the Ld. AR before us, the Ld. CIT(A)/NFAC allowed the appeal of the assessee for the reasons reproduced in the preceding paragraphs. We observe that the impugned issue is no more res integra and is covered in favour of the assessee by various judicial precedents on the subject. There are several decisions pronounced by the various Benches of the Tribunal including the Pune Bench of the Tribunal and the Hon’ble High Courts wherein the claim of deduction u/s 80(2)(a)(i)/80P(2)(d) of the Act under the similar set of fats as that of the assessee has been allowed in favour of the assessee.
The Ld. AR has placed reliance on the decision of the Pune Bench of the Tribunal wherein the Tribunal in assessee’s own case for AY 2020-21 has allowed the said claim of the assessee. We have perused the order of the Tribunal in assessee’s own case for AY 2020-21 and find that the Tribunal dismissed the appeal of the Revenue and allowed the claim of the assessee observing as under : “Ground No.2 & 3 : On the facts and the circumstances of the case and in law, the Ld. CIT Appeal erred in deduction us 80P(2)(d) of the Income Tax Act of Rs.2,19,34,691 without considering the decision of Honble High Court of Karnataka in the case of Principal commissioner of Income Tax, Huballi vs. Totgars co-operative Sale society 395 ITR 611, dated 16.06.2017. On the facts and the circumstances of the case and in law, the Ld. CIT Appeal erred in allowing the deduction us 80P2d of the LT.Act without proper verification of the facts as to how the investments made by the assessee with other co operative banks generated the operational income of the assessee, considering the facts that the business operations of the assessee is to provide credit facilities to its members and accepts deposits from them.
8.2 The Assessee had never claimed deduction u/s.80P(2)(d) of the Act. Assessee had claimed deduction mainly u/s.80P(2)(a)(i) of the Act. The Hon‟ble Andhra Pradesh High Court in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 has held that co-operative credit Society is eligible for deduction u/s.80P(2)(a)(i) on the interest earned. The Hon‟ble Andhra Pradesh High Court has distinguished the decision of Hon‟ble Supreme Court in the case of Principal commissioner of Income Tax, Huballi vs. Totgars co-operative Sale society 395 ITR 611, dated 16.06.2017. 8.3 The Hon‟ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024, has held as under : Quote “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. 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 Cooperative 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.” Unquote 8.4 Thus, even Hon‟ble Kerala High Court has held that the character of income does not change. The Hon‟ble Kerala High Court held that interest earned from deposits in permitted banks will be eligible for deduction u/s.80P of the Act. The Hon‟ble Kerala High Court‟s decision is dated 04.09.2024 means, after the decision of Hon‟ble Supreme Court in the case of Totagar‟s Co.operative Sales Society Ltd.
In these facts and circumstances of the case, the Grounds No.2 and 3 raised by the Revenue are dismissed.”
Based on the above discussion and respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case for AY 2020-21 (supra), we do not find any infirmity in the order of the Ld. CIT(A)/NFAC which is hereby upheld. The grounds raised by the Revenue are accordingly dismissed.
In the result, the appeal of the Revenue is dismissed.