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Facts
The assessee, Sewa Sahakari Samiti Latabod, a Primary Agricultural Cooperative Society, claimed deductions under Section 80P for income from providing credit facilities to members, marketing agricultural produce, and interest/dividend income from investments with other cooperative societies. The lower authorities disallowed these deductions, treating the assessee as a cooperative bank and denying the exemptions.
Held
The Tribunal held that the assessee, being a Primary Agricultural Credit Society, is not a cooperative bank and is entitled to deductions under Section 80P(2)(a)(i), 80P(2)(a)(iii), and 80P(2)(d). It relied on Supreme Court and High Court judgments clarifying the distinction between credit societies and cooperative banks, and that interest income from deposits with other cooperative societies is attributable to its business.
Key Issues
The key legal issues were whether a Primary Agricultural Credit Society qualifies for deductions under Section 80P, specifically for income from banking/credit facilities, marketing agricultural produce, and interest/dividend from investments with other cooperative societies, and whether it should be treated as a cooperative bank.
Sections Cited
Section 80P(2)(a)(i), Section 80P(2)(a)(iii), Section 80P(2)(d), Section 80P(4), Section 56
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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, dated 31.10.2025 for the assessment year 2016-17 as per the following grounds of appeal:
1. Banking Business: That under the facts and circumstances of the case and in law the learned CIT(A) /A.O has erred in disallowance of deduction U/s. 80P(2)(a)(i) of the Income Tax Act in relation to carrying on the business of banking and providing credit facility to its members amounting to Rs.1,02,954 Prayed income from the business of banking and providing credit facility to its members Rs.1,02,954 be allowed as deduction.
2. Paddy Procurement Business: That under the facts and circumstances of the case and in law the learned CIT(A)/A.O further erred in disallowance of deduction U/s.80(P)(2)(a)(iii) in relation to marketing of agricultural produce grown by its members amounting to Rs.20,46,599 Prayed that the society is directly engaged in marketing of agricultural produce (paddy) grown by its member. Disallowance of Rs.20,52.359 be deleted.
3. Interest and Dividend income: That under the facts and circumstances of the case and in law the learned CIT(A)/A.O further erred in disallowance of deduction U/s.80(P)(2)(d) in relation to interest and dividend derived by the cooperative society from its investments with any other cooperative society amounting to Rs.7,80,480 Prayed that Rs.7,80,480 is income from interest and dividend, deduction be allowed.
4. Total Deduction: That under the facts and circumstances of the case and in law the learned CIT(A) has erred in confirming the total disallowance of deduction of Rs.29,35,793 claimed U/s. 80P of the Income Tax Act, 1961. (Pt. No. 1 to 4 mentioned above.) Prayed to allow total deduction U/s. 80P of the Income Tax Act, 1961 amounting to Rs.29,35,793 Profit attributable to each of the above activities is calculated and attached separately.”
Brief facts in this case are that the assessee Sewa Sahakari Samiti Latabod is a Primary Agricultural Cooperative Society registered vide Registration No.560, dated 16.09.1960. The primary activity of the Cooperative Society are viz. (i) carrying on the business of banking or providing credit facilities to its members; (ii) the marketing of agricultural produce (paddy) grown by its member farmers; and (iii) purchase of agricultural implements, seeds, manure, fertilizers and pesticides or other articles intended for agriculture for the purpose of supplying them to its members.
That explaining the business activities, the Ld. Counsel for the assessee submitted that the assessee society is extending credit facilities to its members and surplus amount is placed as term deposit with various other cooperative societies and cooperative banks wherein the said society is earning interest income. Elaborating on the same, the Ld. Counsel submitted that as an Agricultural Credit Cooperative Society it is carrying
4 Sewa Sahakari Samiti Latabod Vs. ITO, Exemption, Ward-1, Raipur (C.G.) on the business of providing credit facilities to its members, earns profits and gains of business from such activities and the interest income so derived or the capital, if not immediately required to be lent to the members, instead of keeping the said amount idle, they deposit the amount in bank so to earn interest and the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The Ld. Counsel further submitted that the A.O made the addition treating the assessee as Cooperative bank. However, from the functioning of the assessee society, it is discernable that it is an Agricultural Credit Cooperative Society and there is difference between credit cooperative society and cooperative bank wherein so far as the cooperative bank is concerned, they extends credit facilities to public at large whereas, the credit cooperative society i.e. the assessee which is earning profits and gains of business by providing credit facilities to its members only.
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’)?
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 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.
5. There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be 6 Sewa Sahakari Samiti Latabod Vs. ITO, Exemption, Ward-1, Raipur (C.G.)
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.
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.
The Appeal is accordingly dismissed. No costs.”
Similarly, the very ethos of the business conducted by the Primary 6. 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 7 Sewa Sahakari Samiti Latabod Vs. ITO, Exemption, Ward-1, Raipur (C.G.) 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 said to be attributable either to the activity mentioned in 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 [2011] 200 Taxman State co-operative Bank Ltd.,
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.”
Similarly, the ITAT, SMC Bench, Raipur in the case of Shri Durga 7. 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 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.
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.”
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.
9. Other issue pertains to deduction u/s.80P(2)(a)(iii) of the Act as per Ground of appeal
No.2 i.e. whether the deduction is allowable only in respect of marketing of agricultural produce grown by its members and what would be the scope of the word ‘marketing’ in the provision whether it is inclusive wording to include ‘enabling of marketing’ also. The Ld. Counsel submitted that the word ‘marketing’ also includes ‘facilitating or 10. Sewa Sahakari Samiti Latabod Vs. ITO, Exemption, Ward-1, Raipur (C.G.)
Primary Agricultural Credit Cooperative Society cannot directly market the agricultural produce and it has to be done by its members only and therefore, there is no other option to give practical effect of the provisions of the Act accordingly. I am in conformity with the submission put forth by the Ld. Counsel for the assessee. The Act clearly mentions for allowance of deduction u/s. 80P(2)(a)(iii) of the Act for marketing of agricultural produce grown by its members and that marketing could not be done by cooperative society itself and it needs to be done by its members only which the assessee is doing. Accordingly, the assessee is also entitled for deduction u/s. 80P(2)(a)(iii) of the Act. Thus, the A.O is directed to delete the addition from the hands of the assessee while giving appeal effect of this order. Thus, the Ground of appeal No.2 raised by the assessee is allowed.
10. As per the above terms grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in open court on 05th day of February, 2026.