TaxTMI 
TaxTMI 
2026 (9) TMI 1797
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....the bank interest earned by the appellant. The learned CIT(A) further erred in treating the said interest income taxable under "Income from Other Sources" instead of "Income from Business/ Profession". 3. The learned CIT(A) erred in laws and on facts in sustaining the disallowance of deduction of Rs. 30,74,677/- u/s 80P(2)(d) of the ITA, 1961. Learned CIT(A) ought to have appreciated that the interest income derived from various co-operative banks is eligible for deduction u/s 80P(2)(d). 4. The learned I-T Authorities erred in law and on facts in not appreciating that various courts have held that deduction u/s 80P(2)(d) of the ITA, 1961 is allowable to credit co-operative society (i.e. Pathsanstha) on interest income earned from fixed deposits with co-operative bank. 5. The learned I-T Authorities erred in law and on facts in not appreciating the Supreme Court in the case of The Mavilayi Service Co-Operative Bank Ltd. & ORS. Vs. Commissioner of Income Tax - (2021) 431 ITR 1 (SC) has held that interest earned by a Co-operative Society from a Co-operative bank is entitled for deduction u/s. 80P(2)(d) of ITA, 1961. 6. Appellant craves leave to add/....
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....see filed an appeal before the Ld. CIT(A), who confirmed it. Aggrieved by the order of the Ld. CIT(A), the assessee filed an appeal before this Tribunal. 4. We will discuss various decisions to decide the issue before us. 5. Hon'ble Supreme Court in the case of CIT vs. Karnataka State Co-operative Apex bank [2001] 251 ITR 194 (SC) observed as under : Quote, "The question in appeal reads : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the interest income arising from the investment made out of reserve fund is exempt under section 80P(2)(a)(i ) of the Income-tax Act, 1961 ?" While deciding the above question of Law raised by Revenue, the Hon'ble Supreme Court observed as under : Quote, "......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. T....
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....re, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived....
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....we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending act....