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Facts
The appellant, Nashik District Police Co-operative Credit Society Ltd., claimed a deduction of Rs. 1,48,78,730/- under Section 80P of the Income Tax Act for interest income earned from fixed deposits and saving bank accounts with cooperative and nationalized banks for A.Y. 2018-19. The Assessing Officer and CIT(A) disallowed this deduction, holding that the interest income should be assessed as income from other sources.
Held
The Tribunal, relying on decisions from the Hon'ble High Courts of Andhra Pradesh & Telangana and Kerala, held that interest income earned by a credit cooperative society from deposits in cooperative and other banks is eligible for deduction under Section 80P(2)(a)(i) of the Act. The Tribunal concluded that the nature of such income, derived from the business of providing credit facilities to its members, does not change merely by being invested prudently in banks.
Key Issues
Whether interest income earned by a credit cooperative society from fixed deposits and saving bank accounts in cooperative and other banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
Sections Cited
Section 250, Section 143(3), Section 143(3A), Section 143(3B), Section 80P, Section 80P(2)(a)(i), Section 80P(2)(d)
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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the Assessee is against the order of ld.Commissioner of Income Tax(Appeal)[NFAC] passed under section 250 of the Income Tax Act, 1961 for A.Y.2018-19 dated 23.02.2024 emanating from Assessment Order u/s.143(3) read with section 143(3A) & 143(3B) of the I.T.Act, dated 31.03.2021. The Assessee has raised the following grounds of appeal :
[A] “1. On the facts and in the prevailing circumstances of the case and in law, the learned CIT Appeal, erred in disallowing the deduction of Rs.1,14,84,355/- on account of interest income earned out of fixed deposit with Cooperative Bank viz., NDCC Bank and which is eligible for deduction u/s 80P(2)(d) or 80P(2)(a) (i) of the IT Act.
On the facts and in the prevailing circumstances of the case and in law, the learned CIT Appeal, erred in disallowing the deduction of Rs.33,81,350/- on account of interest income earned from fixed deposit with State Bank of India which is eligible for deduction u/s 80P(2)(a)(i) or 80P(2)(d) of the IT Act.
On the facts and in the prevailing circumstances of the case and in law, the learned CIT Appeal, erred in disallowing the deduction of Rs.13,045/- on account of interest income earned from saving bank account which is eligible for deduction u/s 80P(2)(a) (i) or 80P(2)(d) of the IT Act.
On the facts and in the prevailing circumstances of the case and in law, the learned CIT Appeal, erred in not following the jurisdictional ITAT Pune, decision on the similar issue which is binding on the lower Authorities as per the law laid down by Hon'ble Bombay High Court in the case of Bank of Barada vs H C Srivastava (256 ITR 385) and thus the total deduction of Rs. 1,48,78,730/- disallowed u/s 80P(2)(a)(i) or 80P(2)(d) of the IT Act was not justified.
The Appellate craves the right to add, amend, modify, alter, revise, substitute, delete any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal.” Submission of ld.AR : 2. Ld.Authorised Representative(ld.AR) for the Assessee submitted a paper book.
2.1 The summary of interest earned by assessee is as under: S No Account Head Bank Amount Amount 1 Bank Saving Reserve Fund NDCC Bank 33,81,350.00 Interest 2 Bank Saving Interest NDCC Bank 13,045.00 3 Interest on Fixed Deposits SBI 10,86,902.00 NDCC Bank 1,03,97,433.00 Total 1,14,84,335.00 2 [A] 2.2 The relevant portion submission made by the ld.AR is reproduced as under : “Nashik District Police Co-operative Credit Society Ltd. Nashik is registered under The Maharashtra Co-operative Societies Act, 1960. It is society formed by the employees of Nashik District Police Department employee for the between of serving Police men for the benefits of Police men. In the matter of proposed disallowance in respect of deduction u/s section 80(P) of Rs. 14878730/- please note that the interest earned is credited to Profit and Loss and is in line with the business of the society The amount as mentioned in respect of Rs. 14878730/-as per your Show Cause Notice comprises of - i. Bank Saving Reserve Fund Rs. 3381350/- ii. Saving Interest Rs. 13045/- iii. Interest of Fixed Deposits Rs. 11484335/ iv. Total Rs. 14878730/- The Maharashtra Co-operative Societies Act (section 66) requires every society to transfer 25% of its profits to Reserve Fund and maintain said Reserve Fund as separate investment. Also the business of the co- operative society in this particular case is acceptance of deposits from its members and lend it to the members. In the process any excess fund with society needs to be parked with Bank for safety of the funds and also generation of revenue. The interest earned is part of the income of the members and used for the benefits of the members. In view of the this, assesse humbly submits that the above interest is for the purpose of the business of the society and for the benefits of its members and hence should be eligible for deduction under section 80(1P). The interest income on the fund is therefore taken as profit and gain of business attributable to business and providing credit facilities to its members. 3 [A] Hence the above interest income in our humble submission constitutes the operational income and hence deductible.”
2.3 The ld.AR for the Assessee relied on the following case laws : TRIPATI CAMPUS PHCD OP HOUSING SOCIETY MARYADIT V. THE INCOME TAX OFFICER. WARD-7(4), PUNE NO DATED 28 02 2019 Kaliandas Udyog Bhavan Premises Co-operative Society Ltd., in dated 25.04.2018) Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. Vs DCTT (ITAT Jaipur) Jawala Cooperative Urban Thrift & Credit Society Lid. Vs ACIT (ITAT Delhi) M. Chirayinkeczhu Service Co-operative Bank Limited Vs ITO (ITAT Cochin) Findings & Analysis : 3. As emanating from the assessment order, Assessee Society is a credit co-operative society engaged in the business of providing credit facilities to its members. The main object of the Assessee Society is to provide credit facility to its members.
3.1 In this case, Assessee had filed Return of Income on 25.10.2018 declaring total income at Rs.1,32,470/- after claiming deduction u/s.80P of Rs.2,71,45,090/-. Assessee received interest from various Co-operative & Nationalized Banks. The Assessing Officer observed that Assessee had claimed deduction 80P(2) 4 interest income earned from following :
[A] No. Invested/deposited Earned 1 SBI (FD) Rs.3,00,00,000 Rs.33,81,350/- 2 NDCC Bank(Co-Op Rs.10,63,41,834 Rs.1,14,84,335/- Bank) 3 Saving Bank Interest - Rs.13,045/- Total Rs.13,63,41,834 Rs.1,48,78,730/- 4. The Assessing Officer(AO) held that the interest income earned by Assessee needs to be assessed as income from other sources.
4.1 In this case, Assessing Officer has disallowed assessee’s claim for deduction u/s.80P(2)(d) of the Act, of Rs.1,48,78,730/-. The relevant paragraph 7.6 of Assessment Order is reproduced here as under : “7.6 The assessee cooperative society received Rs.1,14,84,355/- as interest income from cooperative bank. It is not allowable as deduction u/s 80P. So disallowed as deduction u/s 80P & added as income from other sources (IFOS).
(Disallowance as 80P & addition as IFOS :-Rs.1,14,84,355/-).”
5. Aggrieved by the addition, Assessee filed appeal before the ld.CIT(A) who has confirmed the addition.
Aggrieved by the same, Assessee filed appeal before this Tribunal.
[A] 6.1 It is an admitted position that Assessee is a Credit Cooperative Society. It is also admitted position that Assessee had claimed deduction u/s.80P of the Act. Assessee has earned interest income from fixed deposits and investment made with State Bank of India and NDCC Bank (Co. Op Bank).
Now, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act or not! 7.1 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not.
9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the 6 [A] Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ……………………
The case before the Supreme Court in Totgar's Co-operative 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 profits and gains of business. This is why Totgar's struck a different note.
But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised 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. 7
ITA No.727/PUN/2025 [A]
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (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.”Unquote.
7.2 Thus, the Hon’ble High Court of AP &TS held that Interest Income earned by investing Income derived from Business of providing credit facilities, Loans by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.
In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, 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 8 [A] 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 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 9 [A] 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 8.1 Thus, 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 banks will be eligible for deduction u/s.80P of the Act.
8.2 Thus, whether a Co-operative Credit Society is eligible for deduction u/s.80P(2)(a)(i) on the interest income earned from Co- operative Banks and other banks is decided in favour of assessee. Therefore, respectfully following Hon’ble AP & TS High Court and Hon’ble Kerala High Court, we hold that Assessee is eligible for 10 [A] deduction u/s.80P(2)(a)(i) of the Act, on the interest earned on Co- operative Banks and Other Banks. Therefore, for all the reasons discussed, we direct the Assessing Officer to allow the deduction u/s 80P(2)(a) on Interest Income of Rs.33,81,350/-. No contrary decision of Hon’ble Jurisdictional High Court was brought to our notice. Accordingly, Grounds of appeal raised by the Assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 21 January, 2026.