Nimshaskiya Madhyanik Shaley Karamchari Sahakari Sanstha Ltd Vs ITO (ITAT Nagar)
Conclusion: Interest income from bank deposits is eligible for deduction under Section 80P(2)(a)(i) as the funds in the voluntary reserves which were utilized for investment by the co-operative banks were the funds generated from the banking business.
Held: Assessee-a cooperative society of teaching and non-teaching employees of Maharashtra Government Middle Schools, contested an order from CIT (Appeals), which disallowed a deduction of ₹3,27,687 claimed for interest earned on deposits in a nationalised bank. Initially, assessee filed its return of income for the assessment year 2017-18, declaring a total income of ₹24,080 after claiming a significant deduction under Section 80P amounting to ₹14,28,366. The return was scrutinized due to the substantial deduction claimed, leading to notices under Section 143(2) for further details. The society maintained that it was compelled to open accounts with nationalised banks to safeguard the interests of its members following a significant loss incurred when a cooperative bank collapsed. During the proceedings, AO acknowledged that while the cooperative society had a responsibility to protect its members’ funds, the income earned from these deposits was categorized as income from other sources, not qualifying for deductions under Chapter VIA (80P). Consequently, AO restricted the deduction to exclude interest earned on such deposits. Appellant further argued that the interest income was derived from their regular business activities and complied with legal requirements. It was held that following the decision of the Co–ordinate Bench in The Ismailia Urban Co–operative Society v/s ITO, ITA no.122/ Nag./2023, order dated 18/06/2024, wherein it was held that the funds in the voluntary reserves which were utilized for investment in KVP/IVP by the co-operative banks were the funds generated from the banking business, Tribunal was justified in holding that the interest income received by the co-operative banks from the investments in KVP/I VP made out of the funds in the voluntary reserves were eligible for deduction under section 80P(2)(a)(i) and hold that assessee was eligible to claim deduction under Chapter VIA (80P).
