TaxTMI 
TaxTMI 
2026 (4) TMI 738
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....e appellant herein is a cooperative society engaged in the business of providing credit facilities to its members. The appellant filed returns for the assessment year 2004-05 showing an income of Rs. 33,35,549/-, which included interest income of Rs. 31,63,578/- and claimed deduction under Section 80P of the Income Tax Act, 1961 (for short 'IT Act'), contending that the interest income derived from deposits was attributable to the business of providing credit to the members of the assessee society. 4. Further, it was contended that as part of activities of the society, the appellant deposited funds with the bank whenever their funds were not required and these funds were kept in a bank account for safe custody so that the said deposits would yield some interest. The activity of keeping such funds in deposit and deriving interest income was a regular activity of the society and submitted that investment of funds in short-term deposits and earning interest there from is an activity attributable to the business of the society and sought deduction under Section 80P(2)of the IT Act. However, the claim of the appellant was disallowed by the Assessing Officer on the following grounds t....
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....P(2) of the IT Act and it is further contended that the learned tribunal ought to have appreciated that the expression "attributable to" occurring in Section 80P (2) of the IT Act is much wider than "derived from," suggests that the legislature intended to cover receipts from sources other than the actual conduct of the business of the assessee and it was further contended that the learned Tribunal ought to have seen that Section 80P(2) of the IT Act was enacted to promote the growth of Co-operative Societies and such provisions have to be constructed liberally. 8. Having perused the entire material on record and the following substantial question of law which would arise for the consideration before this Court is: "Whether on the facts and circumstances of the case, the interest income earned by the assessee on bank deposits is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act 1961?" 9. The learned counsel for the appellant contended that the Co-operative Society qualifies for and is entitled to claim deduction under Section 80P(2)(a)(i) of the IT Act. Whereas, the Assessing Officer treated the interest earned on deposits made with nationalised....
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....s to its members and is not a co-operative bank. The deduction claimed under Section 80P(2)(a)(i) is only in respect of interest earned on deposits placed with non-co-operative bank (Development Credit Bank). In fact, Section 80P(1) allows deduction only in respect of income referred to in Section 80P(2), subject to statutory condition and under Section 80P(2)(a)(i), the deduction is confined to profits and gains of business attributable to carrying on the business of banking or providing credit facilities to its members. 14. He further contended that the interest income earned is not from the members but from the deposits placed with a third-party bank, which is not a co-operative society or cooperative bank and such income does not qualify for deduction under Section 80P(2)(a)(i). Under Section 14 of the IT Act, income must be classified under specific heads; income not falling under "Profits and Gains of Business" is taxable under the head "Income from Other Sources" and Section 56(1) clearly provides that income not chargeable under any other specific head shall be taxed as "Income from Other Sources." 15. The Hon'ble Supreme Court in Totgars Co-operative Sale Society Lim....
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....low the assessee/petitioner herein to claim deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 for the assessment year 2004-2005 from the interest earned through State Bank of India and National Savings Certificates. The Division Bench of the then High Court of Andhra Pradesh held that under Section 80P(2)(d) thereof, it is only the income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society which is required to be deducted while computing the total income of the assessee. On perusal of the above said judgments, which has become finality and by applying the same principles, since the facts and circumstances are similar, the said judgments are binding on the Assessing Officer and need to be followed. The respondent by taking a different view and passing a contradictory order in ITA No. 1187/Hyd/2007 dated 25.04.2008; prima facie appears to be illegal. 20. The court also considered the judgment of the High Court of Gujarat in State Bank of India vs. Commissioner of Income Tax (2016) 72 taxmann.com. Further, the judgment of the Hon'ble Supreme Court was relied upon by the learned Senior Standing Cou....
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....question arises as to whether any particular category of an income of a cooperative society is exempt from tax what has to be seen is whether income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption." Undoubtedly, if one has to go by the aforesaid definition of 'co-operative bank', the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P. So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P of ....
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....upreme Court held that the society in that instance could not claim the benefit of Section 80P of the Act and with due respect, that judgment is not applicable to the present set of facts and does not come to the rescue of the respondent. 23. Learned counsel for the respondent submitted that Section 80P was interpreted in Vavveru Co-operative Rural Bank Limited v. Chief Commissioner of Income Tax (5th cited supra), which has dealt with in detail, the tabular form is extracted below for the sake of better appreciation. Category of co-op. societies covered by sub-clauses (a) to (f) Nature and extent of benefit available (a) 1) Co-operative society carrying on the business of banking or providing credit facilities to its members; 2) Co-op. society engaged in cottage industry; 3) Co-operative society engaged in marketing of agricultural produce grown by its members. 4) Co-operative society engaged in purchase of agricultural implements, seeds etc., for the purpose of supplying to its members; 5) Co-operative society engaged in processing of agricultural produce of its members without the aid of power. 6) Co-operative soc....
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.... activities, while the appellant is not carrying on banking activities, but admittedly providing credit to its members out of the income and interest yielded from bank deposits kept for safe custody. 25. It is settled law that if a society makes any profit or gain from business attributable to such activity, then such income qualifies for deduction under Section 80P(2)(a)(i) and the judgment of the Andhra Pradesh High Court in Anakapalli Co-operative Marketing Society Limitedv. CIT 2000 (245 ITR 616) has held that to claim the deduction under Section 80P(2)(a)(i), providing credit facilities must be one of the assessee's activities and the income must be towards profits or gains therefrom. It is also the case of the appellant that the amounts received by the appellant's society are kept in the bank for the purpose of earnings interest thereon. 26. The learned Senior Standing Counsel for the respondent pointed out that the society would fall under Section 80P(2)(c) and Section 80P(2)(d) based on the tabular form presented earlier. However, upon perusal of that section, it applies to any co-operative society other than consumer co-operative societies engaged in activities other....