District Co-operative Sugar Cane Supply Ltd. Vs ITO (ITAT Lucknow)
‘Attributable’ vs ‘Derived’: ITAT Upholds 80P Deduction for Co-operative Cane Society
Totgars Not Applicable to Statutory Reserves: Interest on Mandatory Bank Deposits Eligible for 80P:
The Lucknow Bench (SMC) of the ITAT, vide order dated 31.12.2025, in District Co-operative Sugar Cane Supply Ltd. v. ITO, Range-1(1), Bareilly (ITA No. 617/LKW/2024, AY 2020-21), allowed the assessee’s appeal and deleted the addition of ₹30,08,496, holding that interest earned on bank FDRs is eligible for deduction u/s 80P(2)(a)(iii).
The assessee, a co-operative society engaged in supplying sugarcane to mills and providing credit facilities and agricultural inputs to its members, had claimed deduction u/s 80P on interest income earned from FDRs with banks. The AO disallowed the claim by relying on the Supreme Court decision in Totgars Co-operative Sale Society Ltd. v. ITO, treating the interest as income from surplus funds. The CIT(A)/NFAC upheld the disallowance.
Before the Tribunal, the assessee contended that it was statutorily required to maintain reserve funds (minimum 25%) under the U.P. Co-operative Societies Act, and that investments in bank deposits were made out of share capital, statutory reserves and other mandated funds, and not out of surplus. It was also argued that Section 80P uses the expression “attributable to”, which has a wider connotation than “derived from”.
The ITAT accepted the assessee’s submissions and followed its own earlier coordinate bench decision in Co-operative Cane Development Union Ltd. It held that interest earned on investments made in compliance with statutory requirements under Sections 58 & 59 of the U.P. Co-operative Societies Act and Rule 173 of the Rules is attributable to the business of the society, and therefore deductible u/s 80P. The Tribunal further distinguished Totgars, noting that it applies only where investments are made out of surplus funds, which was not the case here.
The ITAT also held that PF balances of seasonal employees parked in bank deposits do not constitute investments of the society, and hence interest thereon cannot be treated as its taxable income.
Accordingly, the Tribunal directed deletion of the entire addition of ₹30.08 lakh and allowed the appeal in full.
FULL TEXT OF THE ORDER OF ITAT LUCKNOW
This appeal, by the assessee, is directed against the order of the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi dated 29.06.2024 pertaining to the assessment year 2020-21. The assessee has raised the following grounds of appeal: –
“1. That the Authorities below erred on facts and in law in not allowing deduction u/s 80P(2)(a)(iii) of 1. T. Act on Interest received on Investments held with Banks in form of FDR’s Rs. 30,08,496/-.
2. That the Authorities below erred in relying on the decision of Hon’ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. Vs. ITO without appreciating that it was a sale society and the facts of the case of the assesse are distinguishable from the facts prevailing in the case of Totgars Co-operative Sale Society and hence reliance placed on the said judgement is misplaced.
3. That the Ld. C.1.T. (A) erred on facts and in law in not considering that the A. O. has nowhere demonstrated in the Assessment Order that the Interest Income on FDR’s and Saving Bank Accounts was on account of surplus funds of the Society and in absence of such finding the decision of Hon’ble Supreme Court In case of Totgars cannot be relied upon in Appellant’s Case.
4. That the Ld. C.1.T. (A) erred on facts and in law in not considering that the Law has used the word “attributable” and not the word “derived” in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on FDR’s & S. B. A/c is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops.
5. The Ld. C.1.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the society being co-operative Society is statutorily required to maintain a Reserve Fund of a minimum 25% of its Profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds.
6. That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of society which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society.
WITHOUT PREJUDICE TO ABOVE –
(7) That the Authorities below erred on facts and in law in not allowing proportionate deduction for ‘Management Expenses and ‘Interest paid debited in the Profit and. Loss Account from the gross interest of Rs. 30,08,496/-.
(8) That the Authorities erred on facts and in law in not considering that only the real income/profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income.
(9) That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A).”
2. The present appeal is barred by 46 days. The assessee has filed an application seeking condonation of delay in filing of this appeal. The Ld. Counsel for the assessee reiterated the submissions as made in the application seeking condonation of delay and also the contents of the supporting affidavit. The Ld. Counsel for the assessee contended that, owing to a medical exigency, the appeal could not be filed within the prescribed time.
