TaxTMI 
TaxTMI 
2026 (9) TMI 228
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....be quashed. 2. The ld. AO erred in law as well as on the facts of the present case in assessing interest income as income from other sources while disallowing the claim made u/s 80P of the Income Tax Act, 1961 and the ld. CIT(A) has erred in confirming the same and hence the income so assessed may please be deleted 3. Rs. 4451762/- The ld.AO erred in law as well as on the facts of the present case in disallowing the deduction u/s 80P(2)(d) claimed by the assessee against the settled judicial precedents and ld. CIT(A) erred in sustaining the same and hence the disallowance of deduction may please be deleted 4. The assessee prays your goodself indulgence to add, amend, modify or delete all or any ground of appeal on or before the date of hearing" 3. Briefly stated, the facts of the case are that the assessee is a co-operative society which, for the year under consideration, filed its return of income on 05.10.2018 admitting gross total income of Rs. 28,09,230 and, after claiming the whole of it as deduction under Chapter VI-A of the Act, returned its total income at Nil. The case was selected for limited scrutiny on the issue of the deduction claimed und....
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....ned CIT(A) on the principal ground is contained in paragraph 6.1 of the impugned order and reads as under: "The Assessing Officer has rightly disallowed the claim of deduction u/s 80P(2)(d) of the IT Act 1961 on the interest income earned from deposits kept with Cooperative Bank in the Assessment order dated.04.01.2021. The interest & dividend income earned by the society to the tune of Rs. 44,51,762/- is not the income which is earned by the society from its regular course of business i.e, providing credit facilities to its members, it is the income earned by the society from its surplus funds deposited with cooperative Banks and other nationalised commercial banks. Hence, it is not the operational income of the society, it is to be treated as income from other sources. Hence, the Ground-1 of appeal is dismissed." 8. While dealing with the assessee's contention that Kota Central Cooperative Bank Ltd. is itself registered under the co-operative societies law and that the assessee is a member of that bank, the learned CIT(A) has observed at paragraph 6.2 of the impugned order as under: "In light of the above fact, it is submitted that the appellant has made subm....
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....: "(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;" 15. On a plain reading of the clause, the deduction is attracted when two conditions are satisfied, namely, that the assessee claiming the deduction is a co-operative society, and that the income by way of interest or dividend is derived by it from its investments with any other co-operative society. The clause does not require that such interest should constitute the operational income of the assessee, nor does it require that the investment should have been made out of funds required for the business. Clause (d) therefore stands on a footing different from clause (a)(i), which alone speaks of profits and gains of business attributable to the activities specified therein. 16. It is in the light of this distinction that the judgment of the Hon'ble Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 (SC) has to be understood. Their Lordships were considering the claim of a co-operative society engaged in the marketing of the agricultural produce of its mem....
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....le Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 431 ITR 1 (SC), in paragraph no. 45, wherein it has been held that section 80P of the Act is a benevolent provision enacted to encourage and promote the growth of the co-operative sector and must be read liberally and reasonably, and that section 80P(4) of the Act is in the nature of a proviso whose limited object is to exclude co-operative banks which function at par with other commercial banks, that is to say, which lend money to members of the public. 20. Also, it is noted that as per clause 22.02 of Circular No. 14/2006 dated 28.12.2006 pertaining to the Explanatory Notes on provisions relating to Direct Taxes amended by the Finance Act, 2006, it has been explained that the co-operative banks are functioning at par with other commercial banks, which do not enjoy the tax benefit and therefore, section 80P has been amended inserting a new sub-clause (4) to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative society for agricultural land and rural development bank. This very well cla....
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....eld that the benefit of clause (d) of section 80P(2) of the Act is available to all co-operative societies, without reference to the nature of the activity carried on by them. Further, the reliance placed by the learned AR on the judgement of the Hon'ble jurisdictional High Court in CIT VsBhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. (ITA No. 2/2019) dated 13.08.2019in which the Hon'ble Court held that - "The revenue cites a CBDT Circular (No.6/2010 dated 20-9-2010) and contends that the Board categorically stated that interest income derived from deposits, made with non-cooperative institutions and more specifically Regional Rural Banks do not qualify for the benefit under section 80P(2) of the Act of 1961 Section 22 of the Regional Rural Banks Act, 1976 states as follows: "22. Regional Rural Bank to be deemed to be a co operative society for purpose of the Income-tax Act, 1961- For the purpose of the Income-tax Act, 1961 (43 of 1961), or any other enactment for the time being in force relating to any tax on income, profits, or gains, a Regional Rural Bank shall be deemed to be a cooperative society." The CBDT reasoning appears to be that section 80P w....