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2025 Supreme(Online)(ITAT) 3178
INCOME TAX APPELLATE TRIBUNAL (BANGALORE BENCH)
Waseem Ahmed, ACJ, Soundarajaran K., J
NAGINI COOPERATIVE CREDIT SOCIETY LIMITED BANGALORE – Appellant
Versus
INCOME TAX OFFICER WARD-6(2)(1) BANGALORE – Respondent
ITA Nos. 25 to 27/Bang/2025
For the Appellants/Petitioners: Shri Gireesha T L, CA
For the Respondents: Shri Subramanian .S, JCIT-DR
Interest income from statutory deposits in Co-operative Banks is business income, qualifying for deductions under Section 80P(2)(a)(i) of the Income Tax Act.
Headnote:(A) Income Tax Act, 1961 - Section 80P(2)(a)(i) - Karnataka Co-operative Societies Act, 1959 - Interest income earned on deposits with Co-operative Banks - Appellant society, mandated to deposit funds with Co-operative Banks, claimed deductions under Section 80P(2)(a)(i) for interest income - Authorities denied deductions, treating income as from other sources - Tribunal held interest income from statutory deposits is business income eligible for deduction under Section 80P(2)(a)(i). (Paras 10-20)
(B) Deduction - Eligibility - Interest income from deposits made under statutory provisions is attributable to carrying on banking business and qualifies for deductions under Section 80P(2)(a)(i) of the Income Tax Act, 1961. (Paras 17-19)
Facts of the case:
The assessee, a co-operative society, claimed deductions on interest income from deposits made with Co-operative Banks, which was denied by the assessing officer and upheld by the Ld.CIT(A). The Tribunal considered statutory obligations under the Karnataka Co-operative Societies Act and previous judgments before allowing the appeal for statistical purposes.
Findings of Court:
The interest income derived from statutory deposits must be treated as business income and is eligible for deductions under Section 80P(2)(a)(i) of the Act. The case was remitted to the AO for fresh consideration based on the statutory requirements.
Issues: Whether interest income from deposits made with Co-operative Banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
Ratio Decidendi: The Tribunal established that the interest income from deposits made under statutory obligations is business income, qualifying for deductions under Section 80P(2)(a)(i). The previous judgments and statutory requirements were crucial in determining eligibility for deductions.
Result: Appeals allowed for statistical purposes.
| Table of Content |
|---|
| 1. appeals filed by the assessee challenging orders of nfac. (Para 1 , 2 , 3) |
| 2. assessee is a co-operative society registered under karnataka act. (Para 4 , 6) |
| 3. interest income from statutory deposits is business income. (Para 5 , 7 , 8 , 9 , 11 , 12 , 13 , 14) |
| 4. eligibility for deductions under section 80p(2)(a)(i). (Para 10 , 17 , 18) |
| 5. appeals allowed for statistical purposes. (Para 21) |
ORDER
PER SOUNDARARAJAN K., JUDICIAL MEMBER
These are the appeals filed by the assessee challenging the orders of the NFAC, Delhi all dated 08/11/2024 in respect of the A.Ys. 2016-17, 2018-19 and 2020-21.
2. All these appeals are related to the same assessee and the issue involved in all the appeals are similar. We decided to take up all the appeals together and pass a common order for the sake of convenience. Since the grounds raised by the assessee in all the appeals are identical, grounds of appeal raised for the A.Y. 2016-17 in ITA No. 25/Bang/2025 is reproduced hereinbelow for reference.
ITA No. 25/Bang/2025
“The Appellant objects to the Assessment Order on the following grounds in so far as it is prejudicial to the Appellant as it is opposed to law and circumstances of the case: -
Ground No 1:-
1. The CIT(A) erred in confirming the addition to the extent of Rs 75,69,826 (interest income) relating to interest, earned on deposits with Co - Operative Bank, the Appellant co -operative society is registered under KARNATAKA CO-OPERATIVE SOCIETIES ACT 1959, The Appellant society is into the business of accepting deposits and providing credit facilities to the members, investing funds in Banks is integral part of its Business, the bye law, CHAPTER III, Objectives of the Appellant society includes investing of funds which are not required for use immediately, in Co-Operative Banks as per section 58 of the KARNATAKA CO-OPERATIVE SOCIETIES ACT 1959, the extract of the section 58 of the said act is reproduced below.
58. Investment of funds.- A co-operative society may invest or deposit its funds,— (a) in a Government Savings Bank; or (b) in any of the securities specified in section 20 of the Indian Trusts Act, 1882 (Central Act II of 1882); or (c) in the shares or securities of any other co-operative society; or 11(d) with any Co-operative Bank; or 2[(e) with any scheduled bank 2[XXX]2 regulated by the Reserve Bank of its choice and approved by the 3[general body of that society till the date of the next annual general body meeting]
Further there is an obligation upon the appellant SOCIETY to invest its funds with the Co-Operative banks hence the interest income earned on deposit with Co-Operative bank and Commercial bank is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act 1961. The extract of the Bye law copy is attached herewith.
Further, The As per section 57 of the KARNATAKA CO-OPERATIVE SOCIETIES ACT 1959, Every year, A co-operative society shall, out of its net profit in any year transfer an amount not being less than twenty-five per cent of the profits to the reserve fund. And such reserve fund cannot be used as working capital of the society and shall be deposited into the co -operative Bank hence there is a Business nexus to the earning of interest income hence eligible for deduction under section 80P(2)(a)(i)
The reliance is placed on following case laws a. Lankapalli PACS Ltd V/s ITO, held in Honorable ITAT Vishakapatnam SMC Bench, ITA 364/2024.
b. Ismaila Urban Credit C-Op Society Ltd Vs ITO, held in Honorouble ITAT Nagpur Bench ITA 122/2023.
Ground No 2:-
2. The CIT was not correct in confirming the addition to the extent of Rs. 75,69,826- relating to interest earned on deposits with Co Operative Bank, as the Appellant co- operative is eligible for the cost incurred to earn the interest income, as per section 57 of the Income Tax Act 1961.
The source of money for the deposit is the funds received from the members, on which the interest is paid to the members, the details of the interest paid to the members is
