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Facts
The assessee, a registered cooperative society providing credit facilities to its members, earned interest income from surplus funds deposited in other cooperative banks/regular banks. The Assessing Officer and CIT(A) denied the deduction claimed under Section 80P(2)(a)(i) for this interest income, treating it as income from other sources.
Held
The tribunal held that primary agricultural credit societies are not cooperative banks under the Banking Regulation Act and are entitled to deduction under Section 80P(2)(a)(i) and Section 80P(2)(d) for interest income earned from deposits with other banks. This interest income is attributable to the business of providing credit facilities to members.
Key Issues
Whether interest income earned by a cooperative credit society from deposits in other banks is eligible for deduction under Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
Section 80P(2)(a)(i), Section 80P(2)(d), Section 80P(4), Section 56
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 19.12.2025 for the assessment year 2018-19 as per the following grounds of appeal:
“1. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the addition of Rs.24,70,630/- by denying deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
2. That the Ld. CIT(A) had erred in law as well as on facts, in sustain the disallowance of the deduction claimed u/s80P(2)(a)(i) of Rs.24,70,630/- being income from interest earned on bank deposits treated the income from banking activities as income from other source instead of its true nature of business income.
3. The appellant craves leave to add, amend, alter or withdraw any ground of appeal at the time of hearing.”
Brief facts in this case are that the assessee is a registered co- operative society engaged in providing credit facilities etc. to its members. The assessee society is registered under the Co-operative Society Act, 1960. That as per regular course of business of the credit co-operative society, it provides facilities to its members and in lieu of such credit facilities extended to its members, interest is charged and once there is accumulation and surplus with the said co-operative society, instead of keeping the funds idle, the said society keeps the excess surplus funds with other co-operative banks/regular banks as fixed deposits and earned
3 Vrihtakar Seva Sahakari Samiti Maryadit Surgi Vs. ITO-1, Rajnandgaon (C.G.) interest therefrom. It is the contention of the society that the extension of credit facilities to its members, earning interest therefrom, utilization of surplus funds by keeping it as deposit in other co-operative banks/regular banks and earning interest therefrom is therefore within the regular course of business of the society and the said interest income is exempted u/s.80P(2)(a)(i) of the Act.
Per contra, the Ld. Sr. DR vehemently supported the findings of the Revenue authorities.
I find that this issue is squarely covered by the decision of the ITAT, SMC Bench, Raipur in the case of Sewa Sahakari Samiti, Latabod Vs. ITO (Exemption), Ward-1, Raipur (C.G.), dated 05.02.2026, wherein it was held and observed as follows: “4. The first issue to be decided is whether in these facts and circumstances, interest income earned by this Agricultural Credit Cooperative Society from other cooperative credit societies/cooperative banks would be exempted u/s.80P(2)(a)(i) & u/s. 80P(2)(d) of the Income Tax Act, 1961 (for short ‘the Act’)? 5. In this scenario, I find that the Hon’ble Apex Court in the case of Pr. CIT Vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. (2023) 454 ITR 117 (SC) has held and observed that primary Agricultural Credit Societies cannot be termed as Co-operative Banks under the Banking Regulation Act and therefore, such credit societies shall be entitled to exemption u/s.80P(2) of the Act and thereby, dismissed the appeal of the Revenue. The relevant extract of the aforesaid judgment are extracted as follows: “3. Apart from the fact that against the relied upon decision in the case of M/s. Quepem Urban Co-operative Credit
4 Vrihtakar Seva Sahakari Samiti Maryadit Surgi Vs. ITO-1, Rajnandgaon (C.G.)
Society Ltd. (supra),the Special Leave Petition has been dismissed, having heard learned counsel appearing on behalf of the respective parties, the issue involved in the present appeal is squarely covered against the Revenue in view of the decision of this Court in Mavilayi Service Cooperative Bank Limited and Others Vs. Commissioner of Income Tax, Calicut and Another (2021) 7 SCC 90. This Court, in the aforesaid decision has specifically observed and held that primary Agricultural Credit Societies cannot be termed as Co- operative Banks under the Banking Regulation Act and, therefore, such credit societies shall be entitled to exemption under Section 80(P)(2) of the Income Tax Act, 1961.
4. Ms. Aakansha Kaul, learned counsel appearing on behalf of the appellant/Revenue has tried to submit that the respondent/Assessee will fall under the definition of Co- operative Bank as their activity is to give credit/loan. However, it is required to be noted that merely giving credit to its members only cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act. The banking activities under the Banking Regulation Act are altogether different activities. There is a vast difference between the credit societies giving credit to their own members only and the Banks providing banking services including the credit to the public at large also.
There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under Section 80(P)(2) of the Income Tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4) shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under Section 80(P)(2) of the Income Tax Act.
6. In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee.
7. The Appeal is accordingly dismissed. No costs.”
Similarly, the very ethos of the business conducted by the Primary Agricultural Credit Co-operative Society has been specifically illustrated in the judgment of the Hon’ble High Court of Karnataka in the case of Tumkur merchants Souharda Credit Co-operative Ltd. Vs. Income Tax Officer, Ward-V, Tumkur, (2015) 230 Taxman 309 (Kar.) wherein the Hon’ble High Court has held and observed as follows: “8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be 6 Vrihtakar Seva Sahakari Samiti Maryadit Surgi Vs. ITO-1, Rajnandgaon (C.G.)
Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.
10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State co-operative Bank Ltd., [2011] 200 Taxman 220/12taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order.”
7. Similarly, the ITAT, SMC Bench, Raipur in the case of Shri Durga Gram Service Co-Operative Society Limited Vs. ITO, Ward-Bilaspur, dated 09.10.2025, on the similar issue has held and observed as follows: “8. The other addition made by the A.O is with regard to interest income earned from State Co-operative Bank which has been disallowed u/s.80P(2)(d) of the Act. The A.O held that as per Section 80P(2)(d) of the Act, a Co-operative Credit society is qualified for deduction with regard to any income earned by way of interest derived from investments with any other Co-operative societies. However, interest income earned from any other Co-operative bank shall not qualify for deduction u/s.80P(2)(d) of the Act.
Coming to the issue of deduction u/s. 80P(2)(d) of the Act, it is crystal clear from the aforesaid provision that 7 Vrihtakar Seva Sahakari Samiti Maryadit Surgi Vs. ITO-1, Rajnandgaon (C.G.) though co-operative banks, other than primary agricultural credit society or a primary co-operative agricultural and rural development bank, are not eligible for deduction pursuant to insertion of section 80P(4) w.e.f. 1.4.2007, but this provision does not deny the otherwise eligibility u/s.80P(2)(d) of the Act of a co-operative society on interest income on investments/deposits parked with a co-operative bank, which is a registered co-operative society as per section 2(19) of the Act, defining co-operative society to mean a co- operative society registered under the Co-operative Societies Act, 1912 or under any law for the time being in force. The assessee is also a Cooperative society registered, hence, qualify for grant of deduction u/s. 80P(2)(d) of the Act. The aforesaid view has been held by the Co-ordinate Bench of the Tribunal, Pune in the case of Marathawada Krishi Vidyapeeth Karmachari Sahakari Patsanstha Ltd. & Anr. Vs. Pr. Commissioner of Inocme Tax & Anr., (2022) 66 CCH 0402. Similar view has been taken by the ITAT, “SMC” Bench, Panaji in the case of the Sesa Goa Employees Coop. Credit Society Ltd. Vs. ACIT, Circle-2(1), Panaji, dated 16.11.2022.
Further, in the case of the Bhandari Co-op. Credit Society Ltd. Vs. ITO, Ward-1(5), Panaji, & 102/PAN/2023, dated 20.09.2023, the issue was with regard to deduction claimed u/s. 80P(2)(a)(i) as well as under the provisions of section 80P(2)(d) of the Act for interest income earned from investment with Co-operative banks. The Tribunal had referred to the case of Lokmangal Nagri Sahakari Path Sanstha Maryadit Vs. PCIT in for A.Y. 2017-18, order dated 29.11.2022 a/w. other judicial pronouncements which supports the assessee’s claim. The Tribunal in the aforesaid case held that the interest income earned by the Co-operative society from the Co-operative banks qualifies for deduction u/s.80(P)(2)(d) of the Act. Respectfully following the aforesaid decisions, on the same parity of reasoning, this ground of appeal
stands allowed.”
8. Respectfully following the aforesaid judicial pronouncements on this issue, I am of the view that since the Primary Agricultural Credit Cooperative Societies are not bank, hence, they are entitled to claim deduction regarding interest income earned u/s. 80P(2)(a)(i) & U/s. 80P(2)(d) of the Act. Accordingly, Grounds of appeal No.1, 3 & 4 raised by the assessee are allowed.”
I further find that the Hon’ble High Court of Karnataka in the case 5. of Tumkur merchants Souharda Credit Co-operative Ltd. Vs. Income Tax Officer, Ward-V, Tumkur, (2015) 230 Taxman 309 (Kar.) had categorically explained why such interest income earned by the co- operative credit society from other banks shall be exempted u/s. 80P(2)(a)(i) and 80P(2)(d) of the Act and held that the amount which is invested in banks to earn interest is not an amount due to any members. It is not the liability. It is not shown as liability in their account. In fact this amount which is in the nature of profits and gains, is not immediately required by the assessee for lending money to the members. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore, it is qualified for exemption u/s.80P of the Act. Similar view has been taken by the Hon’ble High Court of Andhra Pradesh in the case of CIT Vs. Andhra Pradesh State co-operative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66.
6. Respectfully following the ratio laid down in the aforesaid judicial pronouncements, it is held that interest income earned by the assesse credit co-operative society from banks stands exempted u/s. 80P(2)(a)(i)/80P(2)(d) of the Act. The A.O is directed to provide appeal effect of this order.
In the result, appeal of the assessee is allowed. Order pronounced in open court on 26th day of February, 2026.