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Facts
The assessee, a cooperative cane development union, claimed deduction under section 80P of the Income Tax Act for interest income earned on fixed deposits and investments with banks across multiple assessment years. The Assessing Officer and CIT(A) disallowed this deduction, treating the interest as 'income from other sources' under section 56, primarily relying on the Supreme Court's decision in the Totgars case. For A.Y. 2020-21, the CIT(A) also raised concerns about a belated return filing, potentially invoking section 80AC.
Held
The tribunal, referencing its previous decisions, restored the matter to the AO for recomputation of the admissible deduction under section 80P. It held that interest derived from statutory reserve funds, share capital, and provident fund balances of seasonal employees (mandated by U.P. Cooperative Societies Act and Rules) should be considered attributable to the business and eligible for 80P deduction. Additionally, the tribunal clarified that the return for A.Y. 2020-21 was not belated due to the CBDT's extended due date, thus rendering section 80AC inapplicable. Certain grounds of appeal were allowed, others dismissed as infructuous.
Key Issues
Whether cooperative societies are eligible for deduction under section 80P on interest income earned from bank deposits made out of statutory reserves, share capital, or provident fund balances of employees, and the applicability of section 80AC when an income tax return is filed within a CBDT-extended due date.
Sections Cited
80P, 80P(2)(a)(iii), 80P(2)(i), 80P(2)(d), 80P(4), 56, 143(3), 139(1), 80AC, U.P. Cooperative Societies Act, 1965 sections 58, U.P. Cooperative Societies Act, 1965 sections 59, U.P. Cooperative Society Rules, 1968 Rule 173
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
Before: SH. SUDHANSHU SRIVASTAVA & SH. NIKHIL CHOUDHARY
O R D E R PER BENCH These three appeals have been filed against the orders of the ld. CIT(A), NFAC on 25.06.2025 (for the assessment year 2013-14) and 26.06.2025 (for the assessment year 2018-19) and 4.07.2025 (for the assessment year 2020-21), wherein the ld. CIT(A) has partly allowed the appeals of the assessee against the various orders passed by the ld. AO under section 143(3) for the assessment years 2013-14, 2018-19 and 2020-21. The grounds of appeal in the aforesaid three appeals are as under:- A.Y. 2013-14 “(1) That the Authorities below erred on facts and in law in not allowing deduction u/s 80P(2)(a)(iii) and 80P(2)(i) of I. T. Act on Interest received on Investments held with Banks in form of F.D.R.'s & Interest on Saving Bank Account Rs. 72,38,730/-. (2) That the Authorities below erred on facts in not considering Investments in deposits with Banks has been made as per Statutory requirements and the Interest so realized on such investments shall be attributable to the activity of providing credit facilities and marketing agriculture produce.
1. 1. 1. 1. (3) That the Ld. C. I. T. (A) erred on facts and in law in not considering that the Law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on F.D.R.'s and S. B. Account is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops. (4) The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the society being co-operative society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. (5) That the Ld. C. I. T. (A) erred in relying on the decision of Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. Vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable on facts from the case of the Appellant Assessee (6) That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees ofsociety which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE (7) That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses and 'Interest paid debited in the Profit and Loss Account from the gross interest. (8) That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. (9) That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A). A.Y. 2018-19 “(1) That the Authorities below erred on facts and in law in not allowing deduction u/s 80P(2)(a)(iii) and 80P(2)(i) of I. T. Act on Interest received on Investments held with Banks in form of F.D.R.'s & Interest on Saving Bank Account Rs. 1,47,75,067/-. (2) That the Authorities below erred on facts in not considering Investments in deposits with Banks has been made as per Statutory requirements and the Interest so realized on such investments shall be attributable to the activity of providing credit facilities and marketing agriculture produce. (3) That the Ld. C. I. T. (A) erred on facts and in law in not considering that the Law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual 600 & 601/LKW/2025 Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 conduct of the Business of the Society and thus Interest Income on F.D.R.'s and S. B. Account is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops. (4) The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the society being co-operative society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. (5) That the Ld. C. I. T. (A) erred in relying on the decision of Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. Vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable on facts from the case of the Appellant Assessee (6) That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of society which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE (7) That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses and 'Interest paid debited in the Profit and Loss Account from the gross interest. (8) That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. (9) That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A). A.Y. 2020-21 “(1) That the Authorities below erred on facts and in law in not allowing deduction u/s 80P(2)(a)(iii) and 80P(2)(i) of I. T. Act on Interest received on Investments held with Banks in form of F.D.R.'s & Interest on Saving Bank Account Rs. 1,50,26,043/-. (2) That the Authorities below erred on facts in not considering Investments in deposits with Banks has been made as per Statutory requirements and the Interest so realized on such investments shall be attributable to the activity of providing credit facilities and marketing agriculture produce. (3) That the Ld. C. I. T. (A) erred on facts and in law in not considering that the Law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on F.D.R.'s and S. B. Account is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops.
, 600 & 601/LKW/2025 Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 (4) The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the society being co-operative society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. (5) That the Ld. C. I. T. (A) erred in relying on the decision of Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. Vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable on facts from the case of the Appellant Assessee. (6) That the Authorities below erred in not considering that deduction u/s 80P(2)(d) of I. T. Act, being Investment Income from Co-operative Societies was neither claimed nor contended by the "Assessee" and thus the Ld. A. O. as well as CIT (A) have erred in deciding the appeal by considering Provisions of Section 80P(2)(d) of I. T. Act. (7) That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of society which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE (8) That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses and 'Interest paid debited in the Profit and Loss Account from the gross interest. (9) That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. WITHOUT PREJUDICE TO ABOVE (10) The Ld. CIT (A) erred on facts and in law in further contending that the deduction claimed in the ITR filed u/s 139(1) of I. T. Act was not eligible for deduction in view of Provisions of Section 80AC of I. T. Act as according to Ld. CIT (A) the Return was filed beyond the due date. (11) That the Ld. C.I.T.(A) erred in not considering that the ITR filed on 13.02.2021 was well within the due date extended by CBDT vide Press Release dated 31.12.2020, wherein the due date owing to COVID Pandemic was extended up till 15.02.2021 and thus the deduction u/s 80P was rightly claimed and not interfered by Ld. A. O. on ground of Section 80AC of I. T. Act. (12) That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A).”
The facts of the case are that in A.Y. 2013-14, the ld. AO observed that the assessee earned interest of Rs. 72,38,726/- on fixed deposits and investments. He observed that the investment made by the society in fixed deposits in banks and Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 other investments were not statutory deposits as the society was not doing any banking business. He held that the surplus funds available with the society had nothing to do with the object of providing credit facilities to members or marketing of agricultural produce of the members of the society and therefore, the interest income that was earned was not attributable to the business of the assessee and did not qualify for exemption under section 80P(2)(a)(iii) of the Income Tax Act, 1961. Hence, he disallowed an amount of Rs. 72,38,726/- and added the same back to the income of the assessee.
In the A.Y. 2018-19, the ld. AO observed that the assessee had earned interest income of Rs. 1,47,75,067/- of which interest on fixed deposits were Rs. 1,39,27,595/-. The ld. AO observed that the investment of Rs. 20.73 Crores had come out of surplus accumulated exempt income of each year that amounted to Rs. 19.77 Crores and share capital of Rs. 1.19 Crores. Thus, it was abundantly clear that the investments were out of already exempted surplus funds of the society. The ld. AO held that any interest income arising from deposit / investment of funds in banks in the nature of income from other sources were taxable under section 56 of the Income Tax Act and could not be categorized as income from the, ‘profits and gains of business’ of the assessee. Since, the deduction under section 80P(2)(a)(iii) was available only for profit and gains of business of the assessee (which was marketing of agricultural produce grown by the members). He held that the said deduction was not available to interest income which was in the nature of income from other sources. He relied upon the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. ITO, (2010) 322 ITR 283 (SC) and added the same to tax as income from other sources.
In the A.Y. 2020-21, the ld. AO noticed that the assessee had earned interests of Rs. 1.5 Crores on investment in Cooperative Banks and banks. He noted that the principles of mutuality i.e. that there must be complete identity between contributors and participators; that the actions of the contributors and participators must be in furtherance of the mandate of the association and; that 600 & 601/LKW/2025 Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 there must be no scope of profiteering by the contributors to a fund made by them which could only be exempted or returned to themselves, were not satisfied in the case of interest earned from Cooperative Banks by the assessee society. He therefore, asked the assessee to show cause as to why the deduction claimed under section 80P(2)(d) should not be disallowed. In response, the assessee submitted that the ITAT in its order dated 15.07.2015 had held that the Totgar’s case was not applicable in the case of Cooperative Cane Societies because the facts of the Cooperative Cane Societies and that of Totgars were entirely different. In the case of Totgars, the interest generated on the surplus fund had been taxed by the AOs under section 56 wherein in the instant case, the interest generated was out of cooperative funds in the follow up of cooperative laws and as per the directives of the State Government. It was further submitted that the Hon’ble Supreme Court in its judgment of Cooperative Cane Societies cases dated 6.12.2021 had distinguished the Totgar’s case as being non-applicable and restored the same to the ITAT for fresh finding. However, the ld. AO did not agreed with these submissions made by the assessee. He pointed out that the deduction under section 80P(2)(a)(iii) was only available for profits and gains of business and this did not constitute the business of the assessee. Secondly, the interest that had been received by the assessee was not received from Cooperative Societies but from scheduled / cooperative banks and therefore, the assessee was not eligible for the deduction under section 80P(2)(d). Thereafter, quoting from various cases, to this effect he held that the amount was not deductible under section 80P(2)(d). The AO also pointed out that with the insertion of section 80P(4) which was in the nature of a proviso, as held by the Hon’ble Supreme Court in its lates decision in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. vs. Commissioner of Income Tax in C.A. Nos. 7343-7350 of 2019 dated 12.01.2021, the Cooperative banks were excluded from the ambit of section 80P of the Act. In the circumstances, there was no justification in allowing the benefit of deduction under section 80P to the assessee society for any investment made by it out of it surplus funds in schedule 600 & 601/LKW/2025 Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 or cooperative banks and therefore, the ld. AO disallowed the interest claimed of Rs. 1,50,26,043/-. 4.1 Aggrieved with these orders, the assessee went before the CIT(A). The ld. CIT(A) concurred with the views of the assessing officer, that the income earned on FD and investment were income from other sources and therefore, could not be eligible for deduction under section 80P(2)(a)(iii) of the Act, but he was of the view that in view of several decisions of the NFAC, subsequent to the decision of the ITAT Lucknow Bench in the matter of Sahkari Ganna Samiti vs. ITO dated 15.07.2015 and subsequent decisions, the quantum of interest and dividend earned by the assessee from other cooperative societies and Cooperative Banks would qualify for deduction u/s 80P(2)(d). Accordingly, the AO was directed to work out the quantum of interest / dividend earned by the assessee from other cooperative societies and cooperative banks and allow the deduction to that extent only. The ld. CIT(A) further observed that in the A.Y. 2020-21, the assessee had not filed its returns before the due date of filing of return under section 139(1) and therefore the exemption was liable to be disallowed, in its case.
The assessee is aggrieved at all these orders of the ld. CIT(A)and has come before us in appeal against them. As all the appeals are on the same issue, they are being taken up together for the sake convenience. Sh. K.R. Rastogi, C.A. (hereinafter referred to as the ld. AR) appearing on behalf of the assessee submitted that the same issue had already been considered by this Bench in the case of Cooperative Cane Development Union Ltd., Maholi, Lakhimpur Kheri vs. ACIT, Sitapur in 166 and 168/LKW/2023 vide our order dated 30.09.2024. He pointed out that the lower authorities had failed to consider the fact that funds of the society in the form share capital for members and society was statutorily required to be maintained in a reserve fund (amounting to minimum 25% of its profits) and such investments had be made in the form of deposits with banks. Thus, the deposit in the banks to the extent of share capital and reserve funds could not be said to have been made out of surplus funds and therefore, the case of Totgars was totally inapplicable to the assessee society. The ld. AR also pointed out that the Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 funds parked in the banks also constituted the PF balance of seasonal employees of society which was held in the form of deposit and these were not the investments of the society but those of the employees. Accordingly, the interest accruing on the said amount could not be said to be the income of the society. It was pointed out that in our aforesaid decision dated 30.09.2024, after quoting from the judgment of the ITAT Lucknow Bench in the case of Cooperative Cane Development Council in 474/LKW/2015, 525/LKW/2015, 536/LKW/2015, 540/LKW/2015, we have restored the matter back to the file of the ld. AO for the limited purposes of recomputing the admissible under section 80P with reference to the interest earned on investments made in accordance with section 58 and 59 of the U.P. Cooperative Society Act, 1965 and 173 of the U.P. Cooperative Society Rules, 1968. We had also held in the said order that interest on PF balance of seasonal employees of the society could not be added back to the income of the assessee as the same could not be held to be the investment of the society and therefore, the interest thereon could not be said to be the income of the society. Accordingly, it was prayed that following our said orders, the aforesaid cases which were on identical lines may also be sent back for this purpose and it may be clarified that any interest earned on investments made in accordance with section 58 and 59 of the U.P. Cooperative Society Act, 1965 and 173 of the U.P. Cooperative Society Rules, 1968 was income attributable to business activities and therefore, admissible for deduction under section 80P of the Act. With regard to the observation of the ld. CIT(A) that the assessee had filed a belated return in the assessment year 2020-21, the ld. AR drew our attention to the fact that vide its press note dated 30.12.2020, the due date for furnishing of income tax returns for the A.Y. 2020-21 for taxpayers who were required to get their accounts audited had been further extended to 15.02.2021 and the assessee had filed its return of income on 13.02.2021. Thus, the provisions of section 80AC did not stand in the way of the assessee’s claim of deduction under section 80P. The ld. AR further placed reliance on the decisions of the ITAT Delhi Bench in the cases of Cooperative Cane Development Society, Morna District Muzaffar Nagar vs.
, 600 & 601/LKW/2025 Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 Assessing Officer, NFAC, Delhi in and in the cases of Cooperative Development Union Limited, Hapur, U.P. vs. ITO, Ward-1(2), Ghaziabad in 4083, 4084, 4085, 4086, 4087, 4088 and 4089/DEL/2024 wherein the coordinate Benches of the Tribunal had held that the Cane Development Unions were entitled to claim deduction under section 80P for their investments with the various banks.
On the other hand, Sh. R.R.N. Shukla, Addl CIT DR (hereinafter referred to as the DR) placed reliance upon the judgments of the lower authorities, the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. ITO, (2010) 322 ITR 283 (SC) and the decisions of the Hon’ble Allahabad High Court in the case of CIT vs. Cooperative Cane Development Union, Bhira, District Lakhimpur Kheri in of 2008 and the subsequent decision of the Hon’ble Allahabad High Court in the case of PCIT, Bareilly vs. Cooperative Cane Development Council, Lakhimpur in of 2016 dated 6.12.2016. He submitted that the issue was covered by the judicial verdict of the Hon’ble Supreme Court and the Hon’ble jurisdictional High Court wherein substantial questions of law have been decided in favour of the Revenue. Accordingly, the assessee’s appeal on the above issue may kindly be dismissed.
We have duly considered the facts and circumstances of the case. We note that the issue is entirely covered by our previous order in the case of Cooperative Cane Development Union Ltd., Maholi, Lakhimpur Kheri vs. ACIT, Sitapur in 166 & 168/LKW/2023 wherein after considering the various issues involved, we have held as under:- “Since the case of the Revenue is based on the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. Income Tax Officer (supra), it would be pertinent to first consider the decision of Hon’ble Supreme Court in that matter. As pointed out by the ld. Sr. DR, as per the said judgment, the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. In that particular case, the Hon’ble Supreme Court observed that, in the facts and circumstances of that case, the assessee society had earned interest on funds which were not required for business purposes at the given point of time. Therefore, as it clarified, on the facts and circumstances of that case, they 600 & 601/LKW/2025 Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 rendered their judgment that such interest income fell in the category of, “other income” which had rightly been taxed by the Department under section 56 of the Act and therefore, was ineligible for deduction under section 80P of the Act. The two judgments of Hon’ble Allahabad High Court that have been cited by the ld. Sr. DR have followed the principle laid down by the Hon’ble Supreme Court and held, that the objects of the society did not provide for investment of money in a post office or bank and earn interest and therefore, the interest earned out of the investments made in the bank would be an interest, which in turn would be income from other sources that would be chargeable to tax under section 56 of the Act. However, as the ld. Authorized Representative has pointed out, the arguments of the nature that the fixed deposits were made on account of the Statutory provisions (of sections 58 and 59of the U.P. Cooperative Societies Act in this case) and was therefore, the condition precedent to doing of business and accordingly “attributable” to the activities of the assesse cooperative, was not brought before the Hon’ble Allahabad High Court in either of the judgments cited by the ld. Sr. DR. Furthermore, M/s Cane Cooperative Development Council had appealed the judgment of Hon’ble Allahabad High Court in to the Hon’ble Supreme Court in Civil Appeal No. 7405 to 7409 of 2021 and placed the statutory rules before the Hon’ble Supreme Court. After considering that such rules may have a bearing on the nature of income and entitlement to exemption under section 80P of the Act, the Hon’ble Supreme Court had remitted the matter back to the Income Tax Appellate Tribunal to decide the appeals afresh, without being bound or influenced by the earlier orders passed by them or by the Hon’ble High Court. In view of such orders of the Hon’ble Supreme Court, the case laws of the jurisdictional Hon’ble Allahabad High Court cited by the ld. Sr. DR did not constitute a binding precedent for the ITAT, Lucknow Bench in the case of Cooperative Cane Development Counciling ITA Nos. No.285/Lkw/2015, 474/Lkw/2015, 525/Lkw/2015, 536/Lkw/2015 and 540/Lkw/2015. The Hon’ble ITAT, Lucknow Bench after considering the byelaws and the statutory rules, the decisions of Hon’ble Allahabad High Court in CIT vs. Krishak Sahkari Ganna Samiti Limited 258 ITR 594 (Alld)and CIT vs. Cooperative Cane Development Union Limited 118 ITR 770 (Alld) and the decisions of the Tribunal in Income Tax Officer vs. Sahkari Ganna Vikas Samiti, Rupapur Chouraha (Munder), Hardoi in held as under:- “7.1 Now the parties are again before us. We find that assessees had earned interest from fixed deposits from bank and co-operative society. Hon'ble Supreme Court, after acceptance of additional documents had set aside the issue before this Tribunal for readjudication. We find that the arguments of the assessees are that the assessees had placed the funds in the form of fixed deposits with nationalized banks and Co- operative banks in view of the specific requirements of U.P. Co- operative Societies Act. We find that section 58 of the U.P. Co- operative Societies Act requires the net profit to be distributed as under: "(a) An amount not less than twenty five percent shall be transferred to a fund called the reserved fund: (b) Not less than such amount as may be prescribed, shall be credited to a Co- operative Education fund to be established in the manner prescribed, and this 600 & 601/LKW/2025 Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 shall be applicable to such cooperative society also which incur loss in the year, [Provided that the provisions of this clause shall not apply to a Primary Agriculture Credit Co-operative Society, a Central Cooperative Bank or the Apex Bank.',] (c) An amount that may be prescribed shall be credited to the research and development fund created in the Apex Societies of the concerned class of Co- operative society and which shall be maintained for the purpose of Research and development in the prescribed manner. (d) an amount not exceeding twenty percent as may be prescribed shall be transferred to a fund called the Equity Redemption Fund to be established and utilized in the manner prescribed by such co- operative Society which has the subscription of the State Government in its share capitals." 7.2 Hon'ble Allahabad High Court in the case of CIT vs. Krishak Sahkari Ganna Samiti Ltd. [2002] 258 ITR 594 (Alld) has held that the investment by co- operative Society in the form of Government securities, equivalent to 25% of its profit, was the requirement of keeping the same as statutory reserve therefore, has held that such earning of interest was attributable to the activity carried on by the assessee. The relevant findings of Hon'ble Allahabad High Court are reproduced below: "Clause (c) of Section 80-P(2) exempts income of cooperative society to the extent mentioned in that section if the profits or gains are 'attributable' to the activity in which the Cooperative Society is engaged. The findings are that under statutory provisions the Cooperative Society is bound to invest 25% of its profits in Government securities. The assessee complied with this provision. In the process, it earned interest on these investments. The question is whether such profits or gains are attributable to the activity of supplying sugarcane carried on by the assessee. In Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 1TR 84 the Supreme Court held that the expression 'attributable to suggests that the Legislature intended to cover receipts from sources other than the actual conduct of the business of the assessee. The investment of the statutory percentage of its profits in Government securities was a condition of the carrying on the business. The profits or gains from such investments were connected with or incidental to the carrying on of the actual business. They were, in our opinion, rightly held by the Tribunal to be attributable to the activity carried on by the assessee within the "meaning of clause (c) aforesaid. We therefore, answer the question referred to us in the affirmative in favour of the assessee and against the Department.
Following the aforementioned ratio laid down by the Division Bench which we consider binding on us, we too answer the question referred to us in the affirmative in favour of the assessee cooperative Society and against the Revenue." 7.3 Further we find that the assessee has relied on a judgment of Raipur Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit vs. Income Tax Officer [2022] 138 taxmann.com 476 (Raipur-Trib.) wherein the Tribunal has held that the interest earned by the assessee from deposit with co-operative bank and nationalized bank was eligible for deduction u/s 80P(2)(a) of the Act. Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 7.4 The above two judgments respectively by Hon'ble High Court and Tribunal hold that the interest earned by a Co-operative Society on deposits, which are statutorily required to be kept in the form of bank deposits or Government securities, are attributable to the business of an assessee. 7.4 Here in the present cases, we do not find the figures regarding the interest which the assessees may have earned on fixed deposits attributable to the making of statutory reserves. We further find that bye laws of the assessee has to be gone through which, though are available in the paper book, but require examination by the Assessing Officer as these were filed before Hon'ble Supreme Court as additional evidences. Therefore, we deem it appropriate to remit the issue of deduction u/s 80P for readjudication by the Assessing Officer, who, in the light of judgment of Hon'ble Supreme Court and keeping in view the judgments relied on by the assessee and keeping in view the additional documents, as filed before Hon'ble Supreme Court, will adjudicate the issue afresh. Needless to say that the assessees will be provided sufficient opportunity of being heard.”
Subsequent on the said remand, the matter was examined by the Revenue and after consideration of the decision of the Hon’ble Supreme Court and the other judgments relied upon by the Hon’ble ITAT while remanding the matter back to him, the ld. Assessing Officer held as under:- "3.3 Reason for inference drawn that no variation is required on this issue: The submissions made by the Assessee have been examined thoroughly particularly the bylaws of the Assessee Society and the U. P. Co- operative Societies Act. On going through the by-laws of the Assessee Society, it has been noticed that its Part 14 i.e. "Disposal of Net Profit and Societies" Assets and funds and appropriation thereof deals with the appropriation of Net Profits and Funds of the Assessee Society. Further, it has also been noticed that the aforementioned Part-14 of the bylaws of the Societies are in accordance with section 58 and 59 of the U. P. Co-operative Societies Act. Further, it has also been noticed that the secured reserve as well as other reserves are created in Annual General Meeting of the Society as per its bylaws and get accumulated over the year. These reserves are kept in co- operative and nationalized banks from where the Assessee earns the interest income under question. In view of the aforementioned facts, it is inferred that the reserve funds kept by the Assessee with Co-operative and nationalized banks are as per the by-laws of the Society and accordingly interest income arising from these funds can be held to be attributable to its main activities and therefore, the assessee is eligible for deduction in respect of this interest income under section 80P(2)(a) of the Act as per the case laws referred to and relied upon by the Hon'ble L.T.A.T. i.e. Judgments of Hon'ble Allahabad High Court in the case of CIT Vs. Krishak Sahkari Ganna Samiti Limited [2002] 258ITR594 (Allahabad) and ITAT, Raipur in the case of Gramin Sewa Sahakari Samiti Maryadit Vs. Income Tax Officer 92022), 138 Taxmann.com 476 (Raipur Tribunal).”
Thus, the principle that interest income arising from investments in statutory reserve funds and other funds as per the provisions of sections 58 and 59 of the U.P. Cooperative Societies Act is “attributable” to the main activities of that Society, has been accepted by the Revenue. The assessee is governed by the same U.P. Cooperative Societies Act and Rules as the Cooperative Cane Development Union Ltd. A.Ys. 2013-14, 2018-19 & 2020-21 Cooperative Cane Development Council, Lakhimpur and therefore, in its case also, it must be held that interest earned from investment made by it as per sections 58 and 59 of the U.P. Cooperative Societies Act r.w.r.173 of the U.P. State Cooperative Rules, is attributable to the activity in which the assessee is engaged and therefore, is eligible to be deducted under section 80P(2)(a) of the Act.
We have further observed that the Hon’ble Madras High Court in the case of K. 2058, Saravanampatti Primary Agricultural Co-Operative Credit Societies Ltd. v. Income Tax Officer 426 ITR 251 (Mad), after considering that the Societies was required to maintain a statutory reserve of 25% under the Tamilnadu Cooperative Societies Act held that the same could not be regarded as the surplus funds of the Society as decided in M/s Totgars Cooperative Sale Society Limited (supra)and therefore, it set aside the assessment of the ld. Assessing Officer in the light of the decision of the Hon’ble Supreme Court in CIT vs. Nawanshahar Central Cooperative Bank Ltd. 289 ITR 6 (SC)‘.Therefore, in view of the arguments made by the learned Authorized Representative, that the investment in fixed deposits and other securities or on account of the provisions of sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and section 173 of the U.P. Cooperative Societies Rules, 1968, it is quite clear that since it has been held that interest on such investment is attributable to the main activity of the assessee cooperative society, the interest earned from such investments ought not to be regarded as a surplus within the meaning of Totgar’s Case, but an interest attributable to the main activity of the assessee cooperative and therefore, deductible under section 80P. The assessee has submitted copies of its byelaws and the detailed breakup of investments and interest arising on the same. However, we observe that the ld. Assessing Officer has not examined the breakup of such investments and the interest earned on the same, with reference to the byelaws or sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Societies Rules, 1968 as he was of the view that no such interest was deductible in view of the decision of Hon’ble Supreme Court in the case of Totgars (supra). Now that the position with regard to such investments has been clarified by the Hon’ble ITAT in the case of Cooperative Cane Development Council, Lakhimpur and accepted by the Revenue in the consequent assessment, we deem it appropriate to restore the matter in all three cases back to the file of the ld. Assessing Officer for the limited purpose of re-computing the admissible deduction under section 80P with reference to the interest earned on investments made in accordance with sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Societies Rules, 1968 . Ground numbers 1 to 5 are accordingly allowed. With regard to Ground no 6 on the issue of adding back the interest on PF balance of the seasonal employees of the society, we observe that the same cannot be considered to be the investments of the society and accordingly the interest accruing on the said amount cannot be said to be income of the society. Therefore, any adding back of such interest income to the income