TaxTMI 
TaxTMI 
2025 (4) TMI 938
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....dit facilities to its members. The assessee for the year under consideration declared gross receipt of Rs. 3,29,97,709/- and after claiming expenditure declared income of Rs. 86,44,404/- against which 100% deduction was claimed under section 80P(2)(a)(i) of the Act. 5. The AO during the assessment proceedings found that the assessee is accepting deposit and advancing loan to two class of members being (A) regular member and (B) associate/nominal member. Apart from this, the assessee has also provided loans to members of general public by making them associate members who are not falling either under class (A) or class (B) of the member. The AO further found that as per law governing the society, the assessee cannot admit the member other than regular member. The AO further found that the assessee without obtaining approval from the registrar of society is accepting deposit and advancing loan to associate members. Furthermore, the assessee is earning an income from investment in the form of a fixed deposit. Accordingly, the AO was of the view that assessee is carrying on the activity in violation of provisions of cooperative society and thereby the concept of mutuality is missing....
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....gly held that the appellant is eligible for the deduction with respect to profit or gain derived from providing credit facility to members being regular or associate member. 10. However, the CIT(A) disallowed the deduction of interest income earned from surplus funds invested in banks and government securities, following the Hon'ble Supreme Court's decision in the case of Totgars Cooperative Sale Society Ltd. vs. ITO reported in 322 ITR 283, which held that such income does not constitute operational income under section 80P(2)(a) of the Act. 11. Being aggrieved by the finding of the learned CIT(A), the assessee is in appeal before us. 12. The learned AR for the assessee before us among other arguments submitted that the deposits made with the District Co-operative Bank Ltd, Vijayapura, are out of statutory obligation as per the Karnataka State Co-operative Societies Act, 1959, and not voluntary investments intended to earn income. As per Section 57(2) of the Karnataka State Co-operative Societies Act, 1959, co-operative societies are required to set aside 25% of their net profit every year as a reserve, which must be mandatorily invested as per section 58 of the same Act.....
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....h statutory deposits should be considered as operational income derived in the course of the assessee's business and consequently qualifies for deduction under section 80P(2)(a)(i) of the Act. In holding so, we also draw support and guidance from the Judgement of Hon'ble Supreme Court in case CIT versus Karnataka State cooperative apex bank reported in 251 ITR 194 where in it was held as under: There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of M.P. Co-operative Bank Ltd. (supra) that only income derived from circulating or working capital would fall within section 80....
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....PCIT in ITA No. 453/Bang/2020 (order dated 13.08.2021) had stated that if the investments made with the Central Co-operative Bank is out of compulsions under Karnataka State Co- operative Societies Act, 1959 and Rules, the income received from such investments would be entitled to the benefit of deduction under section 80P(2)(a)(i) of the Act. The relevant finding of the Tribunal in the case of Bharat Co-operative Credit Society v. ITO (supra) reads as follows: "7.1 In the instant case, it was contended that majority of the interest income is earned out of investments made with Cooperative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T. Act is concerned, we make it clear that interest income received out of investments with cooperative societies is to be allowed as deduction." 9. In view of the above order of the Tribunal, I restore the is....