TaxTMI 
TaxTMI 
2025 (12) TMI 1713
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....a primary society engaged in providing credit facility to members. The Society accepts deposits as provided by the by-laws and as permitted by the state cooperative laws applicable to it. The society provides credit facility to members. This is the only business activity of Assessee. With respect to the deduction u/s 80P, it was submitted that only business activity of society is that of providing credit facility to members. Entire income is attributable to the business activity of the Society and calculation of deduction was provided in computation of income submitted as attachment as per provisions of Sec. 80P(2)(a)(i), entire income attributable to the business of our society is eligible for deduction. Thus, deduction is claimed as per provisions of the Act. It was stated that society is not a Co-operative Bank, and it does not have any banking license. The objective of society is to provide credit facility to members and to encourage members for saving habits by accepting deposits in various forms as permitted by the by laws. From such funds society provides credit facility to members for their financial needs. Thus, Society has only one business activity i.e., providing credit....
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....ned in section 80P(2)(a)(i) of the Income Tax Act. According to him, In the instant case, the interest held not eligible for deduction under section 80P(2)(a)(i) is not the interest received from the members for providing credit facilities to them, what is sought to be taxed under section 56 is the interest income arising on the surplus invested in other financial institute and banks. Such interest income would come in the category of 'Income from other sources' and, hence, such interest income would be rightly taxable under section 56 of the Income Tax Act, 1961. He further held that the head note to section 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Section 80P (1), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee society. An income, which is attributable to any of the specified activities in section 80P (2) would be eligible for deduction. The word 'income' has been defined under section 2(24)(i) to....
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....ubmitted that the assessee's case does not even fall under the provisions of section 80P(2)(d) of the Income Tax Act, 1961 in view of the latest decision of Hon'ble jurisdictional Karnataka High Court in the case of Principal Commissioner of Income tax, Hubbali Vs. Totagars Co-operative Sale Society, (2017) 83 taxmann.Comm.140 (Karnataka). Relevant extract of the decision in para 23 was relied to hold that The character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the specified clauses of section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under section 80P(2) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from scheduled bank or a cooperative bank and, thus clause (d) of section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. Interest ....
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....sment order that such interest income is income from other sources. He submits that the case of the assessee squarely covered by the decision of the honourable Karnataka High Court by two decisions which have already considered the decision of the honourable Supreme Court which is relied upon by the learned assessing officer. Therefore, the assessee should be allowed the deduction. Ld AR also filed a paper book containing 33 pages and citing many judicial precedents. 7. The learned departmental representative advocate Mr Ganesh R Gale, vehemently supported the decision of the learned lower authorities and submitted that the issue is squarely covered by the decision of the honourable Karnataka High Court in case of Totgars credit cooperative societies wherein the honourable High Court after considering the decision of the honourable Supreme Court has categorically held that interest income earned by the assessee from the cooperative banks is income from other sources and not business income and therefore the income earned by the assessee from interest from cooperative societies are not allowable as deduction under section 80 P of the act in any of the clauses. He further stated t....
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.... to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i): "Deduction in respect of income of co-operative societies: 80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to (vii) xx xx xx the whole of the amount of profits and gains of business attributable to any one or more of such activities." 7. The word 'attributable' used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the c....
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....iety 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 b....
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....idered to be a Co-operative Society, then any interest earned by the Co-operative Society from a Co-operative Bank would necessarily be deductable under Section 80P(1) of the Act. 8. The issue whether a Co-operative Bank is considered to be a Cooperative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Cooperative Society" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Cooperative Societies. Co-Operative Society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a variety of the Co-operative Societies. Thus the Co-operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society". 9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-Operative Society bank as the meaning of Co-Operative Society. Therefore, a Co-operative Society Bank would be included in the words 'Co-operative ....