Kengal Credit Co-operative Society Limited Vs ITO (ITAT Bangalore)
Bangalore ITAT: Credit Co-operative Society Entitled to Full Section 80P Deduction on Bank Deposit Interest; Section 80P(4) Inapplicable
The Bangalore Bench of the ITAT allowed the appeals of Sri Kengal Credit Co-operative Society Ltd. for AYs 2018-19 and 2020-21, holding that the assessee, being a credit co-operative society providing credit facilities exclusively to its members, was entitled to deduction under Section 80P(2)(a)(i) on the entire interest income earned from deposits with co-operative and commercial banks. The Tribunal also condoned a 24-day delay in filing the appeals after accepting that the delay was caused by the ill-health of the assessee’s counsel.
The Tribunal found that the CIT(A)/NFAC had wrongly treated the assessee as a co-operative bank and denied deduction by invoking Section 80P(4), despite the Assessing Officer himself recognizing the assessee as a credit co-operative society engaged in providing credit facilities to its members. Relying on the Karnataka High Court’s decision in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha and the Supreme Court’s judgment in PCIT v. Anna Saheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., the Tribunal held that Section 80P(4) does not apply to a credit co-operative society dealing only with its members.
On the issue of interest income, the Tribunal held that the funds deposited in banks represented business funds temporarily surplus to lending requirements and not amounts held as liabilities payable to members. Therefore, the interest earned was “attributable to” the business of providing credit facilities to members and qualified for deduction under Section 80P(2)(a)(i). The Tribunal emphasized that the expression “attributable to” has a wider scope than “derived from”, following the Supreme Court’s decision in Cambay Electric Supply Industrial Co. Ltd.
The Tribunal further relied upon the Karnataka High Court decisions in Tumkur Merchants Souharda Credit Co-operative Ltd., Guttigedarara Credit Co-operative Society Ltd., and Lalitamba Pattina Souharda Sahakari Niyamita, which consistently held that interest earned by credit co-operative societies from temporary investment of surplus business funds in banks remains attributable to their banking/credit business and is eligible for deduction under Section 80P(2)(a)(i). It also distinguished the Supreme Court’s ruling in Totgars Co-operative Sale Society Ltd., observing that Totgars dealt with investment of members’ liability funds, whereas in the present case the deposits represented the society’s own business surplus.
Accordingly, the Tribunal directed the Assessing Officer to allow the entire deduction under Section 80P(2)(a)(i) in respect of the interest income for both assessment years and allowed both appeals.
Cases Discussed
- PCIT Vs. Anna Saheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. (SC), (2023) 454 ITR 117
- Mavilayi Service Co-operative Bank Ltd. & Ors. vs. CIT & Anr. (SC), (2021) 318 CTR (SC) 609 : (2021) 197 DTR (SC) 361 : (2021) 7 SCC 90
- Lalitamba Pattina Souharda Sahakari Niyamita v. ITO (Karnataka HC), (2019) 307 CTR 770
- Citizen Co-operative Society Ltd., 397 ITR 1
- Guttigedarara Credit Co-operative Society Ltd. v. Income-tax Officer, Ward 2(2), Mysore (Karnataka HC), (2015) 377 ITR 464 : [2016] 234 Taxman 476
- Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income-tax Officer Ward-V, Tumkur (Karnataka HC), [2015] 230 Taxman 309
- CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot (Karnataka HC), (2014) 369 ITR 86
- Totgars Co-operative Sale Society Ltd., 322 ITR 283
- CIT v. Andhra Pradesh State Co-operative Bank Ltd. (Andhra Pradesh HC), [2011] 336 ITR 516/200 Taxman 220/12 com 66
- CIT v. Andhra Pradesh State Co-operative Bank Ltd. (Andhra Pradesh HC), [2011] 200 Taxman 220
- Cambay Electrical Supply Industrial Co. Ltd. Vs. CIT (SC), 113 ITR 84
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals at the instance of the assessee are directed against the separate orders of the ld. CIT(A)/NFAC, Delhi vide DIN& Order No. ITBA/NFAC/S/250/2025-26/1081826699(1) dated 16.10.2025 for the AY 2018-19 &vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1081819910(1) dated 16.10.2025 for the AY 2020-21 both passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”). Since the issue involved in both these appeals is common and of the same assessee, these are clubbed together, heard together and disposed of by this common order for the sake of convenience & brevity.
2. At the outset, the ld. A.R. of the assessee submitted that there is a delay of 24 days in filing these appeals before this Tribunal. The ld. A.R. of the assessee also drew our attention to an affidavit dated 4.2.2026 in original sworn before the notary public stating the reasons for delay, which is reproduced below for ease of reference and convenience:
3. The main reason cited for delay in filing these appeals was solely attributable to the ill health of the assessee’s counsel Shri V. Srinivasan in the end of December,2025, who was unable to prepare and file the appealswithin the prescribed period.
3.1 Perused the record and having heard learned counsel for the assessee as well as ld. DR, it is perceived that the explanation offered in the condonation application is plausible and sufficient cause has been shown by the assessee, which prevented them from filing these appeals within the specified period before this Tribunal and accordingly, we are inclined to condone the short delay of 24 days in filing these appeals before this Tribunal and admit both these appeals for adjudication on merits of the case.
4. Now we proceed to adjudicate the assessee’s appeals in ITA Nos.238 & 331/Bang/2026 for the AYs 2018-19 & 2020-21, in which the assessee has raised the following grounds of appeal: – Grounds in ITA No.238/Bang/2026: –
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The appellant denies itself liable to be assessed on a total income of Rs. 3,09,14,118/- as determined in the impugned order against the returned income of Rs. 12,12,980/- under the facts and in the circumstances of the appellant’s case.
3. The learned CIT[A]/NFAC erred in upholding the disallowance of deduction u/s. 80P of the Act amounting to Rs. 2,97,01,138/- on the ground that the appellant is a cooperative bank and not a co-operative society and thus, the bar u/s. 80P[4] of the Act was attracted under the facts and in the circumstances of the appellant’s case.
4. The learned CIT[A] ought to have appreciated that the appellant was engaged in the business of providing credit facilities to the members of the appellant and therefore, the deduction claimed by the appellant u/s 80P[2][a][i] of the Act ought to have been allowed under the facts and in the circumstances of the appellant’s case.
5. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies itself liable to be charged to interest U/s. 234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
Grounds in ITA No.331/Bang/2026: –
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The appellant denies itself liable to be assessed on a total income of Rs. 2,93,12,532/- as determined in the impugned order against the returned income of Rs. 11,56,620/- under the facts and in the circumstances of the appellant’s case.
3. The learned CIT[A]/NFAC erred in upholding the disallowance of deduction u/s. 80P of the Act amounting to Rs. 2,81,55,912/- on the ground that the appellant is a cooperative bank and not a co-operative society and thus, the bar u/s. 80P[4] of the Act was attracted under the facts and in the circumstances of the appellant’s case.
4. The learned CIT[A] ought to have appreciated that the appellant was engaged in the business of providing credit facilities to the members of the appellant and therefore, the deduction claimed by the appellant u/s 80P[2][a][i] of the Act ought to have been allowed under the facts and in the circumstances of the appellant’s case.
5. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies itself liable to be charged to interest U/s. 234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
5. Brief facts of the case of these appeals are that the AO in the assessment order passed u/s.143[3] r.w.s 143[3A] and 143[3B] of the Act dated 26/02/2021 for the Assessment year 2018-19 had partially disallowed the deduction u/s.80P[2][a][i] of Act to the extent of Rs.2,97,51,138/- being interest earned on investments by treating the same as income from other sources.Similarly, in the assessment order passed u/s.143[3] r.w.s 144B of the Act dated 17/09/2022 for the Assessment year 2020-21, the deduction u/s.80P[2][a][i] of the Act the Act has been partially disallowed to the extent of Rs.2,81,55,912/- being the interest earned from co-operative banks and commercial banks by treating the same as income from other sources.
5.1 The ld. CIT(A)/NFAC on a different footing, dismissed the appeals of the assessee by following the binding judgments of the Hon’ble Supreme Court in Totgars Co-operative Sale Society Ltd. (322 ITR 283), Citizen Co-operative Society Ltd. (397 ITR 1) and Mavilayi Service Co-operative Bank Ltd. (431 ITR 1) as well as the legislative intent invoking section 80P(4) of the Act and CBDT Circular No.14/2006 and held that the assessee being primarily engaged in the business of banking is not entitled to deduction u/s 80P(2)(a)(i) of the Act.
6. We have heard the rival submissions and perused the materials available on record. On perusal of the order of the ld. CIT(A)/NFAC, we take note of the fact that deduction claimed u/s 80P(2)(a)(i) of the Act has been denied by holding that provisions of section 80P (4) of the Act are attracted to the assessee’s case. On perusal of the assessment order, we observed that the AO had categorically stated that the assessee is a credit co-operative society engaged in providing credit facilities to its members. Thus, there is no dispute on this aspect of the matter. We also observed that the AO himself stated in the assessment order that the assessee had relied upon certain judgment of Hon’ble jurisdictional High Court of Karnataka in its favour that the provisions of section 80P(4) of the Act could not be applicable to the credit co-operative society. However, since the matter is pending before the Hon’ble Apex Court, the deduction claimed u/s 80P of the Act was denied. On perusal of the order of ld. CIT(A)/NFAC, we also observed that ld. CIT(A)/NFAC considered the assessee as bank and not as a credit co-operative society based on the nature of functions performed by the society.
6.1 We are of the considered opinion that the aforesaid issue relating to the denial of deduction by invoking the provisions of section 80P(4) of the Act is squarely covered in favour of the assessee by the judgment of Hon’ble jurisdictional High Court in the case of CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot reported in (2014) 369 ITR 86 (Kar. HC). Furthermore, we are of the considered opinion that Hon’ble Supreme Court in the case of PCIT Vs. Anna Saheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. reported in (2023) 454 ITR 117 has also held that the provisions of section 80P(4) of the Act will not be applicable to a credit co-operative society that deals only with its members. The relevant paragraph are reproduced below for ease of reference & convenience:-
“2. The High Court considered the following question of law—
“Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified as claimed by the assessee on the ground that the assessee, a co-operative credit society and is not a bank for the purpose of s. 80P(4) of the Act ?”
3. Apart from the fact that against the relied upon decision in the case of Quepem Urban Co-operative Credit Society Ltd. (supra), the special leave petition has been dismissed, having heard learned counsel appearing on behalf of the respective parties, the issue involved in the present appeal is squarely covered against the Revenue in view of the decision of this Court in Mavilayi Service Co-operative Bank Ltd. &Ors. vs. CIT &Anr. (2021) 318 CTR (SC) 609 : (2021) 197 DTR (SC) 361 : (2021) 7 SCC 90. This Court, in the aforesaid decision has specifically observed and held that primary Agricultural Credit Societies cannot be termed as Co-operative Banks under the Banking Regulation Act and, therefore, such credit societies shall be entitled to exemption under s. 80P(2) of the IT Act, 1961.
4. Ms. Aakansha Kaul, learned counsel appearing on behalf of the appellant/Revenue has tried to submit that the respondent/assessee will fall under the definition of Co-operative Bank as their activity is to give credit/loan. However, it is required to be noted that merely giving credit to its members only cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act. The banking activities under the Banking Regulation Act are altogether different activities. There is a vast difference between the credit societies giving credit to their own members only and the banks providing banking services including the credit to the public at large also.
5. There are concurrent findings recorded by CIT(A), Tribunal and the High Court that the respondent/assessee cannot be termed as banks/co-operative banks and that being a credit society, they are entitled to exemption under s. 80P(2) of the IT Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Art. 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT circulars and even the definition of bank under the Banking Regulation Act, the respondent/assessee cannot be said to be Co-operative Bank/Bank and, therefore, s. 80(P)(4) shall not be applicable and that the respondent/assessee shall be entitled to exemption/benefit under s. 80P(2) of the IT Act.
6. In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the assessee.
7. The appeal is accordingly dismissed. No costs.”
In view of the above, respectfully following the decision of the Jurisdictional High Court of Karnataka as well as Hon’ble Apex Court, we have no hesitation to hold that the provisions of section 80P(4) of the Act could not be applicable to the credit co-operative society & therefore the deduction as claimed by the assessee society u/s 80P(2)(a)(i) of the Act cannot be denied by invoking the provisions of section 80P(4) of the Act.
6.2 Undisputedly, one of the issues for selection of scrutiny for these assessment years was to verify deduction claimed from total income under chapter VIA. It is also an undisputed fact that the assessee had claimed entire deduction of Rs.2,97,51,138/- & Rs.2,81,55,912/- for the AY 2018-19 & AY 2020-21 respectively u/s.80P[2][a][i] of Act. The ld. AR of the assessee by relying on the decision of the Hon’ble Jurisdictional High Court in the case of Tumkur Merchants Souharda reported in 55 taxmann.com 447 submitted that interest income earned from investments made as part of business of providing credit facilities to members is attributable to the business of the assessee & accordingly deduction u/s.80P[2][a][i] of Act is allowable. Further, it is submitted that very recently the coordinate bench of this Tribunal in the case of Sri Gayathri Credit Co-operative Society Limited in ITA No. 2139/Bang/2025 dated 30/04/2026 by following the judgment of the Hon’ble Jurisdictional High Court had allowed the entire deduction claimed u/s.80P[2][a][i] of Act in respect of interest income earned from deposits made in ordinary course of business of providing credit facilities to the members. The contention of the ld. DR on the other hand is that the assessee had claimed deduction u/s.80P[2][a][i] of Act which cannot be granted since the interest income was not earned out of the business activities of the assessee. Further, the ld. DR contended that the entire interest earned from co-operative bank/commercial bank was rightly held by the AO as income from other sources and accordingly prayed to dismiss the appeal.
6.3 We note that primary issue in dispute pertains to the eligibility of deduction u/s 80P(2)(a)(i) of the Act in respect of interest income earned from deposit made with co-operative banks and/or district co-operative banks/Scheduled banks. Thus, the crux of the matter is whether such interest income is to be considered as “business income” eligible for deduction u/s 80P(2)(a)(i) of the Act or not? We are of the considered opinion that the assessee is a co-operative society providing credit facilities to its members. It is not carrying out any other business. The Income earned by the assessee by providing credit facilities to its members was only deposited in banks for a short duration which earned interest. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. In our opinion, since the interest on deposits in bank was amount of profits and gains attributable to activity of carrying on business of providing credit facilities to its members by the assessee-society, we find that interest income is attributable to the profits and gains of business and therefore, the interest income derived from the deposits made with the banks are entitled for deductions u/s 80P(2)(a)(i) of the Act. In holding so, we also draw our support and guidance from the judgment of the Hon’ble Supreme Court reported in 113 ITR 84 in the case of Cambay Electrical Supply Industrial Co. Ltd. Vs. CIT which has considered the term “attributable” and held as follows:
“As regards the aspect emerging from the expression “attributable to” occurring in the phrase “profits and gains attributable to the business” of the specific industry (here generation and distribution of society) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression “attributable to” and not the expression “derived from”. It cannot be disputed that the expression “attributable to” is certainly wider in import than the expression “derived from” been used, it could have with some force been contented that a balance charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General, it has used the expression “derived from”, as for instance, in Section 80J. In our view, since the expression of wider import, namely “attributable to” has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity”
6.4 Further, the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income-tax officer Ward-V, Tumkur reported in [2015] 230 Taxman 309 had also held as under-
“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 case of Cambay Electric Supply Industrial Co. Ltd. v.CIT [1978] 113 ITR 84 (SC) as under:
‘As regards the aspect emerging from the expression “attributable to” occurring in the phrase “profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature, has deliberately used the expression “attributable to” and not the expression “derived from”. It cannot be disputed that the expression “attributable to” is certainly wider in import than the expression “derived from”. Had the expression “derived from” been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression “derived from”, as, for instance, in section-80J. In our view, since the expression of wider import, namely, “attributable to”, has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.’
8. Therefore, the word “attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society 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 be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.
10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State co-operative Bank Ltd., [2011] 200 Taxman 220 In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside….”
6.5 Further, the Hon’ble High Court of Karnataka in the case of Guttigedarara Credit Co-operative Society Ltd. v. Income-tax Officer, Ward 2(2), Mysore reported in (2015) 377 ITR 464 : [2016] 234 Taxman 476 had also held as under-
9. 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 case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978]113 ITR 84 (at page 93) as under:—
‘As regards the aspect emerging from the expression “attributable to” occurring in the phrase “profits and gains attributable to the business of” the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression “attributable to” and not the expression “derived from”. It cannot be disputed that the expression “attributable to” is certainly wider in import than the expression “derived from”. Had the expression “derived from” been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression “derived from”, as, for instance, in section 80J. In our view, since the expression of wider import, namely, “attributable to”, has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.’
10. Therefore, the word “attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society 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.
11. In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale Society’s case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Co-operative 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 be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.
12. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011]336 ITR 516/200 Taxman 220/12 com 66.”
6.6 Again the Hon’ble jurisdictional High Court of Karnataka in the case of Lalitamba Pattina Souharda sahakari Niyamita v. ITO reported in (Karn-HC) : (2019) 307 CTR 770 by following the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income-tax officer Ward-V, Tumkur (cited supra) has held as under:-
12. We have given our thoughtful consideration to the arguments advanced at the bar and perused the material on record.
13. The Co-ordinate Bench of this Court in Tumkur Merchants Souharda Credit Co-operative Ltd., supra has categorically observed that the interest earned by the society in investing in the Banks is attributable to the activity of carrying on business in the 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. The judgment of the Hon’ble Apex Court in the case of Totgars Co-operative Sale Society Ltd., supra is also considered and distinguished. The view taken by the Andhra Pradesh High Court in the CIT v. Andhra Pradesh State Cooperative Bank Ltd. (2011) 336 ITR 516 (AP) is also considered whereby Andhra Pradesh High Court has held that the interest earned by the Co-operative Society by investing the fixed deposits in the Banks is entitled for deduction under section 80P(2)(i)(a) of the Act. It is also pertinent to note that this judgment of the jurisdictional High Court in Tumkur Merchants Souharda Credit Co-operative Ltd., supra, has reached finality. As submitted by the learned counsel for the assessee, the applicability of this Tumkur Merchants Souharda Credit Co-operative Ltd., supra to the facts of the present case is not considered by the authorities in a right perspective. The Tribunal proceeded to hold that the Commissioner (Appeals) has considered the judgment of Tumkur Merchants Souharda Credit Co-operative Ltd., supra as well as M/s. Totgar’s Co-operative Sale Society Ltd., supra and given the benefit of deduction under section 80P on the interest or dividend received in respect of income by way of deposits with the Co-operative Banks from its investment. The Tribunal proceeded to consider the deduction given under section 80P(2)(d) of the Act as the deduction under section 80P(2)(a)(i) of the Act or in other words deduction given under section 80P(2)(d) of the Act would not further entitle the appellant/assessee to claim deduction under section 80P(2)(a)(i) of the Act. These two provisions being entirely different and distinct, the Tribunal ought to have examined the applicability of section 80P(2)(a)(i) of the Act in the facts and circumstances of the case. Deduction given under section 80P(2)(d) of the Act would not disentitle the assessee to claim deduction under section 80P(2)(a)(i) of the Act. Even assuming as submitted by the learned counsel for the assessee, M/s. Totgar’s Co operative Sale Society Ltd., supra is applicable to the facts and circumstances of the present case, it was obligatory on the part of the Tribunal being a last fact finding authority to examine the factual aspect in respect of the proportionate costs and administration expenses to be incurred by the appellant regarding the interest earned under section 56 of the Act and the availability of deduction under section 57 of the Act to the assessee. This exercise also not being done by the Tribunal merely upholding the order of the Commissioner of Income Tax as well as the assessing officer is wholly unsustainable.
14. The judgment relied upon by the learned counsel for the revenue in the case of Totgar’s Co-operative Sale Society Ltd., supra, deals with section 80P(2)(d). As aforesaid, section 80P(2)(d) and section 80P(2)(a)(i) of the Act being different, the said judgment is not squarely applicable to the facts of the present case. The applicability of section 80P(2)(a)(i) of the Act has to be considered in terms of the said section. The authorities mixing up the issue of section 80P(2)(a)(i) and section 80P(2)(d) cannot reject the claim of the assessee under section 80P(2)(a)(i) of the Act without giving a proper finding on the issue.”
6.7 Respectfully, following the above decisions of the Hon’ble jurisdictional High Court of Karnataka which has consistently held that the interest earned by the society in investing in the Banks is attributable to the activity of carrying on business in the banking or providing credit facilities to its members by a Co-operative Society and is liable to be deducted from the gross total income u/s 80P(2)(a)(i) of the Act. In view of the above, we have no hesitation to hold that as in the present case the assessee had claimed the entire interest income u/s 80P(2)(a)(i) of the Act & thus the entire interest income earned are attributable to the business of providing credit facilities to its members. Accordingly, we direct the AO to allow the same u/s 80P(2)(a)(i) of the Act as claimed by the assessee.
7. In the result, both these appeals in ITA Nos. 238 & 331/Bang/2026 for the AYs 2018-19 & 2020-21 are allowed.
Order pronounced in the open court on 4th Aug, 2026
