AI Insights
The case involves M/s. Bangalore Credit Co-operative Society Ltd., which appealed against the orders of the CIT(A)/NFAC, which had disallowed certain deductions under Section 80P of the Income Tax Act, 1961, for the assessment years 2018-19 and 2020-21. The primary issue was whether the interest income earned from deposits with cooperative banks and other entities was eligible for deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Act. The Tribunal considered various precedents and statutory provisions, ultimately deciding to remit the matter back to the Assessing Officer for a detailed examination.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 705347 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
30-06-2025
Appeal Filed By
Assessee
Order Result
Partly Allowed
Assessment Year
2020-2021
Judgement Text
"ITA Nos.2347 & 2348/Bang/2024& CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA Nos. 2347 & 2348/Bang/2024 Assessment Years : 2018-19 & 2020-21 ITO Ward-7(2)(1) Bangalore Vs. M/s. Bangalore Credit Co-operative Society Ltd #723/1, New No.37/1, 10th Main, 36th Cross, Jayanagar 4th Block Bangalore 560 011 PAN NO :AAAAB1598B APPELLANT RESPONDENT CO Nos.4 & 5/Bang/2025 Assessment Years: 2018-19 & 2020-21 M/s. Bangalore Credit Co-operative Society Ltd #723/1, New No.37/1, 10th Main, 36th Cross, Jayanagar 4th Block Bangalore 560 011 PAN NO :AAAAB1598B Vs. ITO Ward-7(2)(1) Bangalore APPELLANT RESPONDENT Appellant by : Sri Sandeep Chalapathy, A.R. Respondent by : Smt. Neha Sahay, D.R. Date of Hearing : 08.04.2025 Date of Pronouncement : 30.06.2025 O R D E R PER BENCH: These appeals at the instances of revenue are directed against the orders of ld. CIT(A)/NFAC dated 24.09.2024 vide DIN & Order ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 2 of 44 No. ITBA/NFAC/S/250/2024-25/1069056936(1) for the assessment year 2018-19 & dated 26.9.2024 vide DIN & Order No.ITBA/NFAC/S/250/2024-25/1069106925(1) for the assessment year 2020-21 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). The assessee has also filed cross objections against the said appeals of the revenue. Since the issues in all these appeals & COs are common, these are clubbed together, heard together and disposed of by this common order for the sake of convenience and brevity. 2. First, we take the revenue appeal in ITA No.2347/Bang/2024 for the AY 2018-19 as base appeal for adjudication. The grounds raised by the revenue in this appeal are as follows: ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 3 of 44 3. Now we reproduce herewith the grounds raised by the assessee in CO No.4/Bang/2025 for the AY 2018-19 as follows: ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 4 of 44 4. At the outset, there is a short delay of 4 days in filing the appeals by the revenue and delay of 11 days in filing COs by the assessee before this Tribunal. Both the ld. DR as well as ld. AR of the assessee have drawn our attention to their respective petitions for condonation of delay filed before us. We are reproducing herewith both the applications for condonation of delay for the AY 2018-19 below for ease of reference &convenience:- ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 5 of 44 ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 6 of 44 ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 7 of 44 ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 8 of 44 ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 9 of 44 5. Both the ld. DR as well as the ld. AR of the assessee did not oppose each other on the condonation of delay. 6. We have heard the rival submissions and perused the materials available on record. The main reason cited by the Revenue is that due to time barring submission of scrutiny reports, scrutiny assessment work, grievance redresser, demand verification works, the appeal could not be filed in time. On the other hand, the assessee submitted that after receiving the appeal papers filed by the Department, they consulted a CA to represent the matter who advised for filing the cross objections. However, it took some time to collate the information related to the cross objections. On going through the reasons cited by Revenue as well as Assessee, it cannot be said that they are very callous in their approach in filing the Appeal/Cross objection before us. At this juncture, it is appropriate to mention the judgement of Apex Court in the case of Collector Land Acquisition v. Mst. Katiji and Ors. (167 ITR 471) laid down six principles. For convenience, the principles laid down by the Apex Court are reproduced hereunder: ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 10 of 44 (1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late (2) Refusing to condone delay can result in a meritorious matter being thrown at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. (3) 'Every day's delay must be explained' does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, commonsense and pragmatic manner. (4) When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. (5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. (6) It must be grasped that the judiciary is respected not on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so. 6.1 Being so, when substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserve to be preferred for the other side and claimed to have vested right for injustice doing so because of non-deliberate delay. Therefore, in our opinion, this is a fit case to condone the short delay of 4 days in filing the appeal by the revenue & 11 days in filing the Cross Objections by the assessee for the AY 2018-19 & 2020-21 before this Tribunal. Accordingly, the delay is condoned; and the Appeals & the Cos for both the Asst. years are admitted for adjudication. 7. Further, the assessee has filed additional ground in the grounds of cross objection as ground no.8. During the course of the ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 11 of 44 proceedings before us, the ld. AR of the assessee did not press Ground No. 7 & additional ground No.8 & pray to allow withdrawing both these grounds & hence both the ground no. 7 & additional Ground No.8 are dismissed as withdrawn. 8. Now coming to the brief facts of the case are that the assessee is a co-operative society engaged in the business of providing credit facilities to its members. The assessee filed its return of income for assessment year 2018-19 on 22.09.2018 declaring total income as Nil after claiming deduction of Rs.3,32,62,487/- u/s 80P(2) of the Act. The assessee received a communication u/s 143(l)(a) proposing to add Rs. 66,900/- as there was mismatch in the amount mentioned in the Income Tax Return and Annexure to Form 3CD.The assessee while filing the return of income by oversight had mentioned the amount u/s 40(a)(i) instead u/s 40(a)(ia) of the Act. Since the same did not match with the Annexure to Form 3CD the mismatch occurred. Subsequently, the assessee received intimation u/s 143(1) of the Act dated 08.02.2020 from the ld. Assistant Director of Income Tax -CPC, Bangalore wherein the income was computed at Rs. 3,33,29,387/- by disallowing a sum of Rs.3,06,04,900/- to the returned income. On perusal it was seen that the deduction u/s 80P(2)(d) was disallowed and reason for disallowance was also not communicated in the intimation. Subsequently an appeal was filed against the intimation u/s 143(1) of the Act on 16.03.2020. 9.1 Parallelly the case was selected for scrutiny and notices u/s 143(2) of the Act was issued on 22.09.2019. The case was selected under CASS for the following reasons: a. Low Income (including exempt income and agricultural income) in comparison to high loans/advances/investment in shares appearing in balance sheet. ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 12 of 44 b. Low income in comparison to very high investments appearing in balance sheet. c. Deduction from total income (Chapter VI-A) (Business ITR). 9.2 Accordingly, notices u/s 142(1) of the Act was issued to the assessee seeking certain information and documents. In response to the same, the assessee made its submissions by a letter dated 15.02.2021. The assessee society claims that the deduction u/s 80P(2)(d) on the interest earned from FDs with other co-operative societies/ Co-operative banks cannot be denied. Upon perusal of the submissions made by the assessee, the AO assessed on a total income of Rs.3,32,62,487/- by disallowing the deduction claimed amounting to Rs. 3,32,62,487/- u/s 80P of the Act. 9.3 We take a note that for the AY 2018-19 as submitted by the AR, the assessee society earned interest income of Rs.3,05,38,802/-. The details of the interest income are given below: ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 13 of 44 9.4 The AO relying on the decision of the Hon'ble Karnataka High Court in the case of Totgar's Co-operatiye Sale Society (83 Taxman.com 140) disallowed the deduction of Rs.3,05,38,002/- stating that the character of interest on investment or deposits does not change irrespective of the fact that it is earned or received from a scheduled bank or Co-operative bank. ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 14 of 44 10. Aggrieved by the aforesaid order of the AO, the assessee preferred an appeal before the ld. CIT(A)/NFAC. The ld. CIT(A)/NFAC allowed the appeal of the assessee by holding that there is plethora of case laws where the uniform stand has been adopted by the different Courts/Tribunal that the income derived by co-operative societies by way of income earned from FDs with other co-operative societies/co-operative banks qualifies for deduction u/s 80P(2)(d) of the Act. Therefore, the deduction denied to the assessee to the tune of R.3,32,62,487/- for the AY 2018-19 was directed to be restored and accordingly all the grounds are decided in affirmative to the assessee. 11. Aggrieved by the order of CIT(A)/NFAC dated 24/09/2024, the revenue has filed the present appeals before this Tribunal and the assessee has filed the cross objection supporting the order of ld. CIT(A)/NFAC. 12. Before us, ld. D.R. submitted that the ld. CIT(A)/NFAC erred in allowing the entire deduction u/s 80P(2)(d) of the Act as the interest income has been earned from investment in FDs with Co- operative banks. Further, the ld. DR submitted that the ld. CIT(A)/NFAC has disregarded the decision of the Hon’ble Supreme Court in the case of Totagar Sales Society Vs. ITO (2010) 322 ITR wherein it was held that interest earned out of surplus funds kept by Co-operative Societies with banks is taxable as income from other sources. Further, he relied on the decision of Hon’ble High Court of Karnataka Dharwad Division Bench in the case of Pr. CIT Hubballi Vs. Totgar’s Co-operative Sale Society Ltd, Sirsi in ITA nO.1000066 of 2016 dated 16.6.2017, wherein it was held that the income by way of interest earned from deposit and investments of surplus funds does not change its character irrespective of whether such interest is earned from the scheduled banks or the co- ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 15 of 44 operative banks and thus clause (d) of section 80P of the Act would not apply to the facts and circumstances of the case. In view of the above, he prayed that the disallowance of assessee Society’s claim of deduction of interest income earned from co-operative banks may be restored. 13. The ld. A.R. on the other hand in his written submissions, submitted as follows: Ground No. 3 and 4 of CO and Ground No. 2 of Department’s appeal : Disallowance of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961. 13.1 The ld. A.R. submitted that the interest income from investments in various co-operative societies and banks are entitled for deduction u/s. 80P(2)(a)(i) of the Act. The details of the interest from investments in Co-operative Banks are as follows: Particulars Interest on Fixed Deposit Interest on Reserve Fund Deposit Bangalore City co-op bank Ltd 33,48,652 13,82,607 National co-op Bank Ltd 23,62,637 6,99,032 Sri Guru Raghavendra Co-op Bank Ltd 84,85,402 15,94,854 Sree Charan Souharda Co-op Bank Ltd 29,76,150 2,68,500 Tumkur Grain Merchant co-op Bank Ltd 32,72,084 2,87,500 Bharat Co-op Bank (Mumbai)ltd 9,23,847 2,15,220 Subramanyeshwara co-op Bank Ltd 2,50,000 ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 16 of 44 Bharat Co-op Bank Ltd 7,12,500 Grain Merchant Co-op Bank Ltd 5,62,500 Karnataka State Co-operative Apex Bank Ltd 6,54,856 1,03,463 Vishveshwaraiah Co-op Bank Ltd 40,313 Total 2,35,48,628 45,91,489 13.2 It is submitted that the interest income earned by co- operative societies are governed by section 80P(2)(a)(i) of the Act. It is submitted that the interest income is attributable to the business of providing credit facilities to its members and therefore, it is eligible for deduction u/s. 80P(2)(a)(i) of the Act. It is also submitted that the deduction u/s. 80P is in respect of income attributable to the business of providing credit facilities to its members. As held by Hon’ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd v. CIT 113 ITR 842, the expression “attributable to” is much wider in scope. There is no dispute that the assessee is carrying on the business of providing credit facilities to its members and therefore, any income which is relatable to such activities is attributable to the business. The assessee rely on the decision of Hon’ble Karnataka High Court (FB) in CIT v. Hewlett Packard Global Soft Ltd 403 ITR 453 for the proposition that interest earned on deposits is part of profits and gains that are derived from the export. There cannot be any doubt that interest income earned by members credit co-operative society can said to be “attributable to” the business of providing credit facilities to its members. Kindly note that the deduction u/s. 80P is not with respect to an activity but with reference to business as a whole. It is an undisputed fact that the assessee has made the investments from the surplus funds available. Therefore, on this ground also the assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act. We rely on the decision of ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 17 of 44 Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd, ITA No. 307 of 2014 for the above proposition. Ground No. 5 – Deduction of interest on Reserve Fund Deposits 13.3 It is submitted that the interest of Rs. 45,91,489/- is earned from the Reserve funds which has to be mandatorily maintained by a co-operative society as per the provisions of Karnataka Co- operative Society Act, 1959. The Hon’ble Supreme Court in CIT Vs Karnataka State Co-operative Apex Bank (251 ITR 194) has held that interest arising from investment made, in compliance with statutory provisions to enable it to carry on banking business, out of reserve fund by a co-operative society engaged in banking business, is exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. The placement of such funds being imperative for the purpose of carrying on banking business the income therefrom would be income from the respondent’s business. The relevant portion of the judgment is reproduced below; “The assessee-co-operative bank was 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. That being so, any income derived from funds so placed arose from the business carried on by it and the assessee had not, by reason of section 80P(2)(a)(i ), to pay income-tax thereon. The placement of such funds being imperative for purpose of carrying on the banking business, the income derived therefrom would be income from the assessee's business. It could not be accepted that only income derived from circulating or working capital would fall within section 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. Thus, deduction was allowable in respect of income derived from the funds placed with the State Bank or the Reserve Bank.” 13.4 The assessee further relied on the decision of Hon’ble Jurisdictional Tribunal in S C C Co-operative Society Ltd v. ITO (ITA No. 1986 and 1987/Bang/2024 for the above proposition and the relevant portion of the judgment is reproduced below; ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 18 of 44 “15.4 Therefore, in view of the above detailed discussion and judicial pronouncements, we in the interest of justice and fair play, are inclined to set aside the issue to the file of the AO with direction to compute the required quantum of amount needs to be deposited as per statutory requirement and allow the claim of the deduction under section 80P(2)(a)(i) of the Act of corresponding interest income. 15.6 In light of the above reasoning, we hold that the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act on the interest income earned from deposits made in compliance with statutory requirements. The AO is directed to re-examine the taxability of such interest income in accordance with this finding, as per law and grant appropriate relief to the assessee. Hence, the grounds of appeal of the assessee are allowed for statistical purposes.” Ground No. 6 6 – Alternate submissions on deduction towards interest income from investments 13.5 Without prejudice to the above submissions and assuming but without admitting that the learned assessing officer is correct in stating that the assessee has utilized the interest bearing funds have been utilized for making the investments, the income has to be assessed under the head \"Income from other sources\" u/s. 56 of the Act. In such scenario, the assessee is entitled for deduction u/s. 57 of the Act. This view is supported by the decision of Hon'ble Karnataka High Court in Totgars Co-operative Sale Society Ltd v. ITO 58 Taxmann.com 35 wherein it was held that Where assessee a co-operative society, earned interests on deposits kept with scheduled banks only net interest income, i.e., interest income reduced by administrative expenses and other proportionate expenses to earn said income had to be brought to tax under section 56. In the instant case, the interest paid on the deposits kept by the members which have been utilized for making investments is eligible for deduction and proportionate administrative expenses. The interest rate offered for the deposits received by the members would vary depending upon the type of deposits, tenure of deposits, status of the depositors like individual, ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 19 of 44 firm, company, senior citizen etc. Hence, it is not possible to arrive at a fixed rate of interest expenses. Hence, the following reasonable approach is being followed; The detailed workings are enclosed. Particulars Amount Amount Total interest from banks 2,81,40,117 Less: Cost of funds Note 1 2,18,36,200 Less: Cost of administration Note 2 48,67,769 2,67,03,969 Taxable Income 14,36,148 13.6 The assessee further relied on the decision of Hon’ble Jurisdictional Tribunal in S C C Co-operative Society Ltd v. ITO (ITA No. 1986 and 1987/Bang/2024 for the above proposition and the relevant portion of the judgment is reproduced below; “15.5 Furthermore, without prejudice to the above finding, we are also inclined to consider the alternative plea raised by the assessee. In the event that the AO found that the any amount of investment over and above the required statutory limit and classify the interest income from such deposits as \"Income from Other Sources,\" then it is imperative that the corresponding cost incurred in earning such income must be deducted while computing taxable income. It is a well- established principle of taxation that only net income should be brought to tax, and any expenditure directly attributable to the earning of such income should be allowed as a deduction. Therefore, we direct the AO to grant a proportionate deduction of the corresponding cost, if any, while assessing the interest income under the head \"Income from Other Sources.\" Ground No. 3 of Department’s appeal - Disallowance of deduction u/s. 80P(2)(d) of the Act 13.7 It is submitted that the assessee is claiming interest income as deduction u/s. 80P(2)(a)(i) of the Act in these submissions. It is also submitted that the above claim of the assessee cannot be treated as fresh claim since the deduction was claimed in the return of income u/s. 80P(2)(a)(i) of the Act. Therefore, the deduction is ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 20 of 44 under different provision but not a fresh claim. Assuming but without admitting that the assessee that the above claim of the assessee is a fresh claim, it is settled law that a fresh claim can be made before the authorities during the proceedings pending before them for the relevant assessment year. The assessee relied on the decision of Hon’ble Supreme court in Goetze India 284 ITR 323 for the above proposition. 13.8 The AO disallowed the deduction u/s 80P(2)(d) of the Act. It is submitted that the investments were made out of surplus funds and relied on the decision of Hon’ble Karnataka High Court in the decision of PCIT v. Totagars Co-operative Sale Society 392 ITR 74 wherein it was held that the interest earned on deposits in the co- operative banks by co-operative society is eligible for deduction u/s.80P(2)(d) of the Act. The relevant portion of the judgment is reproduced below; “10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co-operative Society Bank would be deductible from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent. 11. The learned counsel has relied on the case of Totgars Co- operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.” 13.9 It is also submitted that the Bangalore Tribunal being Jurisdictional Tribunal in The Totgars’ Co-operative Sale Society Ltd., (ITA Nos. 376 to 379/Bang/2023) dated 18.07.2023 has held that the interest earned from Co-operative Banks are eligible for ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 21 of 44 deduction u/s. 80P(2)(d) of the Act and the same is held by the Hon’ble Tribunal after following the decision of Hon’ble Karnataka High Court being jurisdictional High Court in PCIT v. Totagars Co- operative Sale Society 392 ITR 74. The relevant portion of the judgement is reproduced below; “9.3 At this juncture, we refer to subsequent decision of Hon'ble Karnataka High Court in the case of PCIT Vs. Totagars cooperative Sale Society reported in (2017) 395 ITR 611, wherein Hon’ble Court held that, a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble Karnataka High Court in the case of PCIT &Anr. vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, held, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9.3 At this juncture, we respectfully following the view taken by the Hon'ble Karnataka High Court in the case of PCIT &Anr. Vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, hold that the interest income earned by a cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.” 13.10 The assessee submitted that the decision of Hon’ble Karnataka High Court reported in 395 ITR 611 is per incuriam since it has not followed the decision of Co-ordinate Bench of the same High Court reported in 392 ITR 74. It is submitted that A Division Bench must ordinarily respect another Divisional Bench of co-ordinate jurisdiction but if it differs, the case should be referred to a Full Bench. This procedure would avoid unnecessary conflict and confusion that otherwise would prevail. The assessee also rely on the judgment of Andhra Pradesh Full Bench Decision in CIT v. B R Construction 202 ITR 222 for the above proposition. ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 22 of 44 13.11 The Hon’ble Andhra Pradesh High Court in Full Bench Decision in CIT v. B R Construction 202 ITR 222 has also held as under - “The effect of binding precedents in India is that the decisions of the Supreme Court are binding on all the courts. Indeed, article 141 of the Constitution embodies the rule of precedent. All the subordinate courts are bound by the judgments of the High Courts. A single judge of a High Court is bound by the judgment of another single judge and a fortiori judgments of Benches consisting of more judges than one. So also, a Division Bench of a High Court is bound by judgments of another Division Bench and Full Bench. A single judge or Benches of High Courts cannot differ from the earlier judgments of co-ordinate jurisdiction merely because they hold a different view on the question of law for the reason that certainty and uniformity in the administration of justice are of paramount importance. But, if the earlier judgment is erroneous or adherence to the rule of precedents results in manifest injustice, differing from the earlier judgment Page No : 0242 will be permissible. When a Division Bench differs from the judgment of another Division Bench, it has to refer the case to a Full Bench. A single judge cannot differ from a decision of a Division Bench except when that decision or a judgment relied upon in that decision is overruled by a Full Bench or the Supreme Court, or when the law laid down by a Full Bench or the Supreme Court is inconsistent with the decision. It may be noticed that precedent ceases to be a binding precedent- (i) if it is reversed or overruled by a higher court, (ii) when it is affirmed or reversed on a different ground, (iii) when it is inconsistent with the earlier decisions of the same rank, (iv) when it is sub silentio, and (v) when it is rendered per incuriam. In paragraph 578 at page 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as follows : \" A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of co-ordinate jurisdiction which covered the case before it, in which case it must decide which case to follow ; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision ; or when the decision is given in ignorance of the terms of a statute or rule having statutory force. \" In Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer, Labour Court [1990] 3 SCC 682 ; [1990] 77 FJR 17 (SC), the Supreme Court explained the expression \" per incuriam \" thus ( at page 36 of 77 FJR ) : \" The Latin expression per incuriam means through inadvertence. A decision can be said generally to be given per incuriam when the Supreme Court has acted in ignorance of a previous decision of its own or when a High Court has acted in ignorance of a decision of the Supreme Court. \" As has been noticed above, a judgment can be said to be per incuriam if it is rendered in ignorance or forgetfulness of the provisions of a statute or a rule ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 23 of 44 having statutory force or a binding authority. But, if the provision of the Act was noticed and considered before the conclusion arrived at, on the ground that it has erroneously reached the conclusion the judgment cannot be ignored as being per incuriam. In Salmond on Jurisprudence, Twelfth Edition, at page 151, the rule is stated as follows : Page No : 0243 \" The mere fact that (as is contended) the earlier court misconstrued a statute, or ignored a rule of construction, is no ground for impugning the authority of the precedent. A precedent on the construction of a statute is as much binding as any other, and the fact that it was mistaken in its reasoning does not destroy its binding force. \" In Choudry Brothers' case [1986] 158 ITR 224, as noticed above, the Division Bench treated the judgment in Ch. Atchaiah's case [1979] 116 ITR 675, as per incuriam on the ground that the earlier Division Bench did not notice the significant changes the charging section 3 has undergone by the omission of the words \" or the partners of the firm or the members of the association individually \". In our view, this cannot be a ground to treat an earlier judgment as per incuriam. The change in the provisions of the Act was present in the mind of the court which decided Ch. Atchaiah's case [1979] 116 ITR 675 . Merely because the conclusion arrived at on construing the provisions of the charging section under the old Act as well as under the new Act did not have the concurrence of the latter Bench, the earlier judgment cannot be called per incuriam. Though a judgment rendered per incuriam can be ignored even by a lower court, yet it appears that such a course of action was not approved by the House of Lords in Cassell and Co. Ltd. v. Broome [1972] 1 All ER 801, wherein the House of Lords disapproved the judgment of the Court of Appeal treating an earlier judgment of the House of Lords as per incuriam. Lord Hailsham observed ( at page 809 ) : \" It is not open to the Court of Appeal to give gratuitous advice to judges of first instance to ignore decisions of the House of Lords in this way. \" It is recognised that the rule of per incuriam is of limited application and will be applicable only in the rarest of rare cases. Therefore, when a learned single judge or a Division Bench doubts the correctness of an otherwise binding precedent, the appropriate course would be to refer the case to a Division Bench or Full Bench, as the case may be, for an authoritative pronouncement on the question involved as indicated above. The above-said two questions are answered as indicated above.” In view of the above submissions, the assessee submitted that the decision of Karnataka High Court in Totagars 395 ITR 611 cannot be applied since the judgment is per incuriam. Hence, the assessee is eligible for deduction u/s. 80P(2)(d) of the Act. 13.12 The assessee also relied on the decision of Hon’ble Special Bench decision in ACIT v. Vireet Investments Ltd 58 ITR (Trib) 313 wherein it was held that when two contrary decisions are ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 24 of 44 available relating to the facts of a case, a decision favouring assessee has to be considered. This view was rendered by the Hon’ble Tribunal by following the decision of Hon’ble Supreme Court in CIT v. Vegetable Products Limited 88 ITR 192. The relevant portion of the judgment is reproduced below; (Page 354 of 58 ITR (Trib) 313] “Thus, we are pitted against two decisions of the hon'ble jurisdictional High Court taking divergent views and, under such circumstances we have to decide which decision to follow. We find from the decisions relied upon by the learned senior counsel more particularly in the case of Bhika Ram (supra) that later pronouncement by a Bench of co-equal strength should be followed even if the earlier decision was not considered. We are not convinced with the submission of the learned senior counsel that the Tribunal can decide which decision state the law more elaborately and accurately. We are of the view that the decision in the case of Cassel and Co. Ltd. v. Broome (supra) should guide the course of action wherein it has been observed as under : \"Though a judgment rendered per incuriam can be ignored even by a lower court, yet it appears that such a course of action was not approved by the House of Lords in Cassell and Co. Ltd. v. Broome [1972] 1 All ER 801, wherein the House of Lords disapproved the judgment of the Court of Appeal treating an earlier judgment of the House of Lords as per incurium. Lord Hailsham observed (at page 809) : 'It is not open to the Court of Appeal to give gratuitous advice to judges of first instance to ignore decisions of the House of Lords in this way.' It is recognised that the rule of per incuriam is of limited application and will be applicable only in the rarest of rare cases. Therefore, when a learned single judge or a Division Bench doubts the correct ness of an otherwise binding precedent, the appropriate course would be to refer the case to a Division Bench or Full Bench, as the case may be, for an authoritative pronouncement on. the question involved as indicated above. The abovesaid two questions are answered as indicated above.\" In such a scenario, in our humble opinion, proper course would be to follow the decision of the hon'ble Supreme Court in the case of CIT v. Veg etable Products Ltd. [1973] 88 ITR 192 (SC). In this case the facts were like this. The relevant assessment year was 1960-61. In that regard the Income- tax Officer issued a notice under section 22(2) of the Indian Income-tax Act, 1922 on June l, 1960, served on the assessee on June 13, 1960, requiring the assessee to submit its return on or before July 18, 1960. The asses see sought extension of time for submitting its return which was extended Page No : 0355 by the Income-tax Officer for two months with rider for no further extension. The assessee failed to furnish the return of income within the extended time. Thereafter, a notice under section 28(3) of the 1922 Act was served on the assessee on January 16, 1961. On the very next day, viz., January 17, 1961, the assessee filed its return ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 25 of 44 for the assessment year in question. The assessment was completed by the Income- tax Officer on October 31, 1962. Meanwhile, on April 1, 1962, the Income-tax Act, 1961 (came into force). As under the provisions of section 297(2)(g) of the Act the proceedings for the imposition of the penalty had to be initiated and completed under the Act, a fresh notice was served on the assessee. The Income-tax Officer determined the tax due from the assessee for the assessment year at Rs. 1,25,512,10, and on that basis, the penalty payable by the assessee was fixed at Rs.12,734.10. It may be pointed out that on February 2, 1961, a provisional assessment was made by the Income-tax Officer under section 23B of the 1922 Act. Immediately thereafter, the assessee deposited Rs. 92,29,455. In determining the penalty due from the assessee, the Income-tax Officer took into consideration not the amount demanded under section 156 of the Act but the amount assessed under section 143 of the Act. In the back drop of these facts the controversy before the hon'ble Supreme Court was whether the penalty was to be levied on the tax assessed under section 143 or as demanded under section 156 being tax assessed minus the amount paid under the provisional assessment order. The hon'ble Supreme Court before resorting to the interpretation of term in addition to the amount of the tax, if any, payable by him as appearing in section 271(1)(a)(i) observed as under (page 195) : \"On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this court in several of its decisions.\" The hon'ble Supreme Court held as under (page 196) : \"We must first determine what is the meaning of the expression 'the amount of the tax, if any, payable by him' in section 271(1)(a)(i). Does it mean the amount of tax assessed under section 143 or the amount of tax payable under section 156. The word 'assessed' is a term often used in taxation law. It is used in several provisions in the Act. Quantification of the tax payable is always referred to in the Act as a tax 'assessed'. A tax payable is not the same thing as tax assessed. The tax payable is that amount for which is a demand notice is issued under section 156. In determining the tax payable, the tax already paid has to be deducted. Hence, there can be no doubt that the Page No : 0356 expression 'the amount of the tax, if any, payable by him' referred to in the first part of section 271(1)(a)(i) refers to the tax payable under a demand notice.\" We have therefore, to follow the later decision of the hon'ble Delhi High Court in the case of Bhushan Steel (supra). 6.22 In view of the above discussion, we answer the question referred to us in favour of the asssessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A read with rule 8D of the Income- tax Rules, 1962.” Hence, the assessee submitted that this Tribunal should follow the decision of Jurisdictional High Court in 392 ITR 74 and not the decision in 395 ITR 611. It is submitted that the assessees ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 26 of 44 are entitled for deduction u/s. 80P(2)(d) of the Act even in respect of the interest received from Co-operative Banks. 13.13 It is further relied on the following decisions for the proposition that a Co-ordinate Bench should follow the earlier decision of another Co-ordinate Bench of the same jurisdiction. a) Jindal Dye Intermediate Limited v. Collector of Customs 197 ELT 471 (SC) b) Central Board of Dawoodi Bohra Community v. State of Maharashtra 254 ELT 196 (SC) c) Gammon India Ltd v. Commissioner of Customs 269 ELT 489 (SC) d) DLF Universal Limited v. CIT 306 ITR 271 (Del) e) Sayaji Iron and Engg. Co. v. CIT 253 ITR 749 (Guj) 13.14 The assessee relied on the decision Hon’ble Supreme Court in State of Bihar v. Kalika Kuer @ Kalika Singh & Others 5 SCC 448 for the proposition that even if the earlier decision of the Co-ordinate Bench seems to be incorrect to a Bench of the same jurisdiction on the ground that a possible aspect of the matter was not considered or not raised before the Court or more aspects should have been gone into by the Court deciding the matter earlier, it cannot hold that such decision as per incuriam and liable to be ignored. 13.15 The assessee also relied on the Constitutional Bench decision of Hon’ble Supreme Court in Central Board of Dawoodi Bohra Community v. State of Maharashtra 254 ELT 196 (SC) for the proposition that the decision in Fibre Boards P. Ltd in 376 ITR 596 is not binding precedent. In Central Board of Dawoodi Bohra Community v. State of Maharashtra 254 ELT 196 (SC), it has held as under (Para 12). “12. Having carefully considered the submissions made by the learned senior counsel for the parties and having examined the law laid down by the Constitution Benches in the abovesaid decisions, we would like to sum up the legal position in the following terms : - ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 27 of 44 (1) The law laid down by this Court in a decision delivered by a Bench of larger strength is binding’ on any subsequent Bench of lesser or co-equal strength. (2) A Bench of lesser quorum cannot; doubt the correctness of the view of the law taken by a Bench of larger quorum. In case of doubt all that the Bench of lesser quorum can do is to invite the attention of the Chief Justice and request for the matter being placed for hearing, before a Bench of larger quorum than the Bench whose decision has come up for consideration. It will be open only for a Bench of co-equal strength to express an opinion doubting the correctness of the view taken by the earlier Bench of co-equal strength, whereupon the matter may be placed for hearing before a Bench consisting of a quorum larger than the one which pronounced the decision laying down the law the correctness of which is doubted. (3) The above rules are subject to two exceptions : (i) The abovesaid rules do not bind the discretion of the Chief Justice in whom vests the power of framing the roster and who can direct any particular matter to be placed for hearing before any particular Bench of any strength; and (ii) In spite of the rules laid down hereinabove, if the matter has already come up for hearing before a Bench of larger quorum and that Bench itself feels that the view of the law taken by a Bench of lesser quorum, which view is in doubt, needs correction or reconsideration then by way of exception (and not as a rule) and for reasons it may proceed to hear the case and examine the correctness of the previous decision in question dispensing with the need of a specific reference or the order of Chief Justice constituting the Bench and such listing. Such was the situation in Raghubir Singh & Ors. and Hansoli Devi & Ors. (supra). 13.16 In view of the above decisions of the Hon’ble Supreme Court, the assessee respectfully submitted that the decision of the Karnataka High Court in 395 ITR 611 is not a binding precedent. Hence, this it is prayed that this Hon’ble Tribunal be pleased to follow the decision of the Hon’ble Karnataka High Court in 392 ITR 74 and allow the deduction u/s 80P(2)(d). 13.17 It is submitted that the AO relied on the decision of Hon’ble Karnataka High Court in PCIT v. Totagars Co-operative Sale Society Ltd 395 ITR 611 for the proposition that the interest income earned from the investments made in Co-operative Banks is not entitled for deduction u/s. 80P(2)(d) of the Act since the investments are not made in Co-operative Society as specified in the above section. In para 14 of the above said decision, the Hon’ble High Court has held that the intention to insert sub-section (4) in section 80P of the Act is to restrict the deduction u/s. 80P(2)(a)(i) of the Act to Co-operative Banks. Therefore, the same ratio has to be ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 28 of 44 applied to section 80P(2)(d) of the Act and interest from the investments made in Co-operative Societies alone should be allowed as deduction u/s. 80P(2)(d) of the Act. The relevant portion of the judgment is reproduced below; “14. The purpose of bringing on the statute book sub-section (4) in section 80P of the Act was to exclude the applicability of section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in section 80P (4) are significant. They are: \"The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society . . .\". The words \"in relation to\" can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative society from a co-operative bank. This exclusion by section 80P(4) of the Act even though without any amendment in section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent- assessee for deduction under section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society.” 13.18 The assessee submitted that it is clear from the above portion that the Hon’ble High Court has read sub-section (4) of the Act as proviso to section 80P(2)(d) of the Act to hold that the deduction u/s. 80P(2)(d) of the Act is not available to a Co-operative Society if the investments are made in a Co-operative Bank. However, the above proposition is impliedly overruled by the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Limited v. CIT 431 ITR 1. The Hon’ble Supreme Court in para 45 at page 47 has held that provisions of section 80P(4) of the Act is to be read as a proviso to section 80P(2)(a)(i) of the Act which specifically allows deduction to Co-operative Societies engaged in the business of providing credit facilities to its members and not Co-operative Banks. The relevant portion of the judgment is reproduced below; “Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business, i.e., engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Co- operative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 29 of 44 deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture.” 13.19 It is submitted that in view of the above judgment, the provisions of sub-section (4) of section 80P of the Act cannot be read as a proviso to section 80P(2)(d) of the Act. Therefore, the judgment of the Hon’ble Karnataka High Court is impliedly over- ruled and deduction of interest from investment in Co-operative Banks can be allowed as deduction u/s. 80P(2)(d) of the Act. 13.20 In view of the above submissions, the ld. A.R. for the assessed prayed that this Tribunal be pleased to allow the Cross Objections and dismiss the Departmental appeal. 14. We have heard the rival submissions and perused the materials available on record. The revenue has come before us on the sole ground of allowing the interest income derived by the co- operative society with other co-operative societies/co-operative banks as deduction u/s 80P(2)(d) of the Act by the ld. CIT(A)/NFAC. 14.1 However, the assessee in his cross objection firstly raised the ground that the assessee is entitled for the benefit of deduction amounting to Rs.3,05,38,002/- u/s 80P(2)(a)(i) of the Act as the entire interest is attributable to the business of the assessee. Without prejudice, the assessee claimed that they are entitled for the benefit of deduction to such portion of interest from Co- operative banks in respect of mandatory maintenance of Statutory deposits/fluid resources as bound under the Karnataka Co- operative Society Act and only the balance of net interest over and above, the mandatory SLR was liable to be charged u/s 56 of the Act after allowing the deduction u/s 57 of the Act. ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 30 of 44 14.2 First we will consider the grounds of cross objection raised by the assessee by contending that the assessee is entitled for the deduction under section 80P(2)(a)(i) of the act as the entire interest earned by the cooperative society from Co-operative Bank/Scheduled Bank/Co-operative society is attributable to the business of the assessee. The Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (123 taxman.com 161) has held that the co-operative societies providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i) of the Act. We are of the considered opinion that if the Idle fund/ surplus money which are neither required to be deposited for maintaining the fluid resources nor statutorily required to be deposited under the Karnataka State Co-operative societies Act are invested/deposited into bank with an intention to earn Interest income only as these funds are not immediately required for the purposes of the business then it can not be said that such interest income earned are attributable to the business of the assessee. Therefore, such interest income earned on the surplus fund can neither be treated as an operational income of the assessee nor can it be said to be attributable to the business of the assessee. Had the intention of the legislature was to treat all the interest earned by society are attributable to the business of the assessee only, then the provision of section 80P(2)(d) of the Act would be completely redundant. According to Section 14 of the Act, all income shall, for the purposes of charge of income tax and computation of total income, be classified under the five heads of income as specified. Therefore, we do not agree with the contention of the assessee that the entire interest income of Rs.3,05,38,002/- are allowable as deduction u/s 80P(2)(a)(i) of the Act. 14.3 The Revenue in the grounds of appeal raised before us, relied upon the decision of the Apex Court in the case of Totagar Sales ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 31 of 44 Society Vs. ITO (2010) 322 ITR 283 and contended that the interest earned out of surplus funds kept by co-operative societies with banks is taxable as Income from Other sources. When we look at the decision of Hon’ble Supreme Court in case of Totgars Co- operative Sale Society's case (Supra), relied by the Ld. DR, Hon’ble Supreme Court was dealing with a case where the assessee therein, 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 payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein 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. On these facts Hon’ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 as income from other sources of the Act. Hon’ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case alone. 14.4 Further the adjudication by the Hon’ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO(supra) was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec.80P(2)(d) on the interest income on the investments/deposits parked with a cooperative bank. Therefore, reliance was placed by the Ld.DR on the decision of Hon’ble Supreme Court in the case of Totgars Co- operative Sale Society Ltd. vs. ITO (supra) is distinguishable on facts. ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 32 of 44 14.5 Now we will consider the second ground of cross objection raised by the assessee by contending that the assessee is entitled for the deduction under section 80P(2)(a)(i) of the act to such portion of the interest from co-operative banks in respect of mandatorily maintenance of fluid resources as compared under the assessee’s governing statute and only the balance of interest over and above the mandatory SLR was liable to be charged under section 56 of the act. 14.6 We note that primary issue in dispute pertains to the eligibility of deduction u/s 80P(2)(a)(i) of the Act/80P(2)(d) of the Act in respect of interest income earned from deposit made with co- operative banks and district co-operative banks/Scheduled banks. 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 80P(2)(d) of the Act or to be classified as “income from other sources” and taxed accordingly. 14.7 We also take a note of the fact that the deposit in question was not voluntarily made by the assessee society for investment purposes but were instead statutorily mandated by the Karnataka State Co-operative Society Act, 1959. As per section 57(2) of the said Act, 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. Further as per Rule 28 of the Karnataka Co-operative Societies Rules, 1960, every Co-operative Society accepting deposits and granting cash credits shall maintain fluid resources in such form and according to such standards as may be fixed by the Registrar, from time to time, by general or special order. As per section 58 of the Karnataka State Co-operative Society Act, 1959, such reserve funds must be mandatorily invested in specified institutions including co-operative banks. We find that this ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 33 of 44 statutory requirement imposes a legal obligation on the assessee society to maintain such deposits thereby restricting its ability to freely use or withdraw these funds for its business operations without prior approval from the Registrar of Co-operative Societies. We also take note of the fact that if the Statutory funds are not invested in the prescribed fund, the business of the assessee may get hampered/affected due to the violation of these statutory provisions. 14.8 Given this statutory compulsion, we find that interest income is attributable to the profits and gains of business and therefore, the interest income derived from the statutory 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\" ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 34 of 44 14.9 Further, we also draw support and guidance from the judgment of Hon’ble Supreme Court in the case of CIT Vs. Karnataka State Co-operative Apex Bank reported in 251 ITR 194 wherein it was held as under: “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. The placement of such funds being imperative for the purpose of carrying on the banking business, the income derived there from would be income from the assessee’s business. We are unable to take the view that found favour with the Bench that decided the case of M.P. Co-operative Ltd. (supra) that only income derived from circulating or working capital would fall within section 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital.” 14.10 Further, the Apex Court in the case of Mehsana District Central Co-operative Bank Ltd. v. Income-tax Officer Reported in (SC) :(2001) 251 ITR 522 had again reiterated by relying on its own judgment delivered in the case of Karnataka State Co-operative Apex Bank’s case (supra) as under- “Insofar as the interest income upon statutory reserves is concerned, the question must be answered in favour of the assessee, in the light of the judgment delivered by us in Karnataka State Co-operative Apex Bank’s case (supra).” In view of the above principles laid down by Hon’ble Supreme Court if the income is attributable to the profits & gains of business of the society, then the assessee society is entitled for deduction u/s 80P(2)(a)(i) of the Act. ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 35 of 44 14.11 Further, In the case of ClT Vs Nawanshahar Central Cooperative Bank Ltd. [2007] 160TAXMAN 48(SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head \"Profits and Gains of Business and Profession\". Even though the abovementioned decision was in the context of co- operative societies /Banks claiming deduction under section 80P (2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 as per the CBDT Circular No. 18/2015 dated 02/11/2015. 14.12 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.' ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 36 of 44 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.” 14.13 However, we are also conscious to the fact that the details of quantum of amount necessary to be deposited to comply with the Karnataka Co-operative Society Act is not provided by the assessee to the AO. Therefore, we, in the interest of justice and fair play are inclined to set aside this issue to the file of AO with a direction to compute the required quantum of amounts needs to be deposited as per the statutory requirement and allow the claim of the deduction u/s 80P(2)(a)(i) of the Act of the corresponding interest income irrespective of the fact that the investment were made by the co-operative society in co-operative Banks or scheduled banks. 14.14 Furthermore, without prejudice to the above findings, we are also inclined to consider the alternative plea raised by the assessee. In the event that the AO found that any amount of investment over and above the mandatory statutory limits, the AO may consider the claim of deduction u/s 80P(2)(d) of the I.T. Act and accordingly, we direct the A.O. to verify whether interest / dividend is received by the assessee out of investments made with ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 37 of 44 Cooperative Societies. If the assessee earns interest / dividend income out of investments with co-operative society, the same is entitled to deduction u/s 80P(2)(d) of the I.T. Act. 14.15 The Revenue also in the grounds of appeal profoundly relied upon the decision of Hon'ble High Court of Karnataka in the case of Totgars Cooperative Sale Society [2017] 83 taxmann.com 140/395 ITR 611 (Karnataka) which held that the intention of legislature is clear that Co-operative banks are not specie of genus cooperative society, which would entitle to exemption or deduction under the Special Provisions of chapter VIA in the form of section 80P of the Act. 14.15.1 We are of the considered opinion that the Hon’ble Supreme Court in the case of Kerala State co-operative agricultural and rural development bank Ltd. KSCARDB v. the Assessing Officer, Trivandrum and Ors. Reported in (2023) 458 ITR 384 analyzed, whether the assessee therein could be treated as a “co-operative Bank” within the meaning of sec. 80P(4) of the Act. The Hon’ble Supreme Court considered the above issue in case of an assessee who is a state level Agricultural and Rural Development Bank, governed as a cooperative society, under the relevant state cooperative societies Act, and was engaged in providing credit facilities to its members who were cooperative societies only. On facts, the assessee therein claimed deduction under Section 80P (2)(a)(i) of the Act. The Ld.AO disallowed the deduction under Section 80P(2)(a)(i) holding that the appellant/assessee is neither a primary agricultural credit society nor a primary co-operative agricultural and rural development bank. The Ld.AO therein held that the appellant/assessee is a \"co-operative bank\" and thus, was hit by the provisions of Section 80(P)(4) and was not entitled to the benefit of Section 80(P)(2) of the Act. This was upheld by the Ld. ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 38 of 44 CIT(A) and the Tribunal. The decision of the Tribunal was confirmed by Hon’ble Kerala High Court. 14.15.2 The Apex Court analyzed the legal framework, relevant provisions under the co-operative societies Act, NABARD Act, provisions of sec. 80P under the Income Tax Act, 1961, RBI Act, the Banking Regulation Act and the various judicial precedents on similar issues. The observations of Hon’ble Supreme Court in Paras 14.3 and 15.8 are relevant that read as under: - “14.3. While analysing Section 80P of the Act in depth, the following points were noted by this Court: i) Firstly, the marginal note to Section 80P which reads “Deduction in respect of income of co-operative societies” is significant as it indicates the general “drift” of the provision. ii) Secondly, for purposes of eligibility for deduction, the assessee must be a “co-operative society”. iii) Thirdly, the gross total income must include income that is referred to in sub-section (2). iv) Fourthly, sub-clause (2)(a)(i) speaks of a co-operative society being “engaged in”, inter alia, carrying on the business of banking or providing credit facilities to its members. v) Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under Section 80P. vi) Sixthly, the expression “providing credit facilities to its members” does not necessarily mean agricultural credit alone. It was highlighted that the distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted. vii) Seventhly, under Section 80P(1)(c), the co-operative societies must be registered either under Co-operative Societies Act, 1912, or a State Act and may be engaged in activities which may be termed as residuary activities i.e. activities not covered by sub-clauses (a) and (b), either independently of or in addition to those activities, then profits and gains attributable to ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 39 of 44 such activity are also liable to be deducted, but subject to the cap specified in sub-clause (c). viii) Eighthly, sub-clause (d) states that where interest or dividend income is derived by a co-operative society from investments with other co- operative societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the co-operative movement as a whole. ----------- 15.8. Since the words ‘bank’ and ‘banking company’ are not defined in the NABARD Act, 1981, the definition in sub-clause (i) of clause (a) of Section 56 of the BR Act, 1949 has to be relied upon. It states that a cooperative society in the context of a co-operative bank is in relation to or as a banking company. Thus, co- operative bank shall be construed as references to a banking company and when the definition of banking company in clause (c) of Section 5 of the BR Act, 1949 is seen, it means any company which transacts the business of banking in India and as already noted banking business is defined in clause (b) of Section 5 to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Thus, it is only when a co-operative society is conducting banking business in terms of the definition referred to above that it becomes a co-operative bank and in such a case, Section 22 of the BR Act, 1949 would apply wherein it would require a licence to run a co-operative bank. In other words, if a co- operative society is not conducting the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co-operative bank and not so within the meanings of a state co-operative bank, a central co-operative bank or a primary co-operative bank in terms of Section 56(c)(i)(cci). Whereas a co- operative bank is in the nature of a banking company which transacts the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949. But if a cooperative society does not transact the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a cooperative bank. Then the definitions under the NABARD Act, 1981 would not apply. If a co-operative society is not a co-operative bank, then such an entity would be entitled to deduction but on the other hand, if it is a co-operative bank within the meaning of Section 56 of BR Act, 1949 read with the provisions of NABARD Act, 1981 then it would not be entitled to the benefit of deduction under sub-section (4) of Section 80P of the Act.” 14.15.3 In any event Hon’ble Supreme Court in the decision has elaborately analyzed the requirement of a cooperative bank that could fall within the exception of section 80P(4) of the Act. Based on such principle analyzed by Hon’ble Supreme Court and respectfully following the view taken by the Hon'ble Karnataka High Court in the case of PCIT & Anr. Vs. Totagars Cooperative Sale Society reported ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 40 of 44 in (2017) 392 ITR 74 and the Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, we are of the considered opinion that interest earned on any amount of investment over and above the required statutory limitsfrom such commercial/cooperative banks that fall within the definition of “banking company’ as per section 2(c), Section 5(b) and holds license under section 22 of the Banking regulation Act 1949, such interest are to be considered under the head ‘income from other sources’ as held by the jurisdictional High Court of Karnataka in the case of Pr. CIT v. Totagars Co-operative Sale Society reported in(2017) 395 ITR 611. 14.16 Insofar as AR of the assessee’s claim that if interest income is to be assessed as income from other sources, necessarily, the cost of fund and related administrative expenses in respect of earning such interest income should be allowed as deduction u/s 57 of the I.T.Act, 1961. We find an identical issue was considered by the Hon’ble jurisdictional High Court in the case of Totagars Co- operative Sales Society Ltd. v. ITO reported in [2015] 58 Taxmann.com 35 (Karnataka) (judgment dated 25.03.2015). The relevant findings of the Hon’ble High Court, read as follows: - “11. Having heard the learned counsel for the parties and perusing the records and in the light of the finding recorded by The Hon’ble Supreme Court that the interest income earned by the appellant falls within the category of “other income” what falls for consideration is to answer the question as to whether the Tribunal was right in law in holding that the income by way of interest was chargeable to tax under Section 56 of the Income Tax Act without allowing deduction in respect of proportionate costs incurred as permissible under Section 57. 12. It is no doubt true that the appellant did initially claim deduction under Section 80P(2). Upon the pronouncement of the order by the Apex Court, in these appeals referred to Supra, the income earned on the interest is declared as “other income” falling under Section 56 of the Income Tax Act. Then the next immediate question that follows is as to whether the entire fund i.e., in deposit with the Bank is taxable or the proportionate expenditure incurred by the appellant requires deduction. It is ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 41 of 44 logical that when the Revenue is permitted to assess and recover taxes from assessee under Section 56 by treating the income earned by interest as income from “other sources”, the appellant shall be entitled for proportionate expenditure cost incurred in mobilizing the deposit placed in the Bank/s. What can be taxed is only the next income which the appellant earns after deducting cost and expenditure incurred and administrative expenses incurred by the assessee. 13. Accordingly, we answer the question of law and hold that the Tribunal was not right in coming to the conclusion that the interest earned by the appellant is an income from other sources without allowing deduction in respect of the proportionate costs, administrative expenses incurred in respect of such deposits.” 14.17 The assessee has not raised the plea before the Income tax Authorities that it has to be given deduction u/s 57 of the Act, in respect of expenditure for earning the interest income. However, in spite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only the net income has to be taxed (i.e., gross receipt minus allowable expenditure), this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon’ble jurisdictional High Court in the case of Totagars Sale Co-operative Society Limited v. ITO (supra). Accordingly, the issue of deduction u/s 57 of the I.T. Act is restored to the file of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources. If so, the same shall be allowed as deduction u/s 57 of the Act. The assessee is directed to co-operate with the revenue and furnish all the necessary details/records/evidence. 14.18 In view of the above discussions/observations, we are inclined to remit the issue back to the file of AO for determining/computing the Business Income, Income from other sources, eligible deduction u/s 80P of the Act with the following Observations- ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 42 of 44 i) The Interest received exclusively from the credit facilities provided to its members will be treated as operating Profit of the Co-operative society & eligible for deduction u/s 80P(2)(a)(i) of the Act. ii) Further, the Interest income earned out of the Statutory deposits/maintain fluid resources are attributable to the business activity of the co-operative society & hence also eligible for deduction u/s 80P(2)(a)(i) of the Act irrespective of the fact that the interest is earned from the co-operative bank and/or scheduled bank. iii) For an amount of interest earned on investment over and above the required statutory limits from such scheduled/cooperative banks that fall within the definition of “banking company’ as per section 2(c), Section 5(b) and holds license under section 22 of the Banking regulation Act 1949, such interest are to be considered under the head ‘income from other sources’ & the deduction under section 80P(2)(d) is not available on such Interest on investment. However the cost of fund and related administrative expenses in respect of earning such interest income should also be allowed as deduction u/s 57 of the Act. iv) In respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income is eligible for deduction u/s 80P(2)(d) of the Act. v) In respect of interest earned on investment out of the surplus fund over and above the required statutory limits can not be said to be attributable to the business of the assessee & ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 43 of 44 therefore deduction u/s 80P(2)(a)(i) can not be allowed on such interest income. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. The assessee is also directed to submit all the relevant details as well as the breakups as per our observation above. 15. In the result appeal filed by the assessee is partly allowed for statistical purposes. The cross-objection No.04/Bang/2025 filed by the assessee for the AY 2018-19 is also partly allowed for statistical purposes. 16. Now we take the revenue appeal in ITA No.2348/Bang/2024 and CO of the assessee in CO 05/Bang/2015 for the AY 2020-21 for adjudication. 17. The issues in this appeal of the revenue as well as in cross objection of the assessee are similar to that of the appeal of the revenue in ITA No.2347/Bang/2024 and CO of the assessee in CO No. 04/Bang/2025 as above and hence, the decision/observation given in the appeal of the revenue in ITA No.2347/Bang/2024 & and CO of the assessee in CO No.04/Bang/2025 will mutatis mutandis apply to the appeal of revenue in ITA No.2348/Bang/2024 and cross objection of the assessee in CO No.05/Bang/2024 and hence these are also partly allowed for statistical purposes. 18. In the result both the appeals of the Revenue as well as Cos of the Assessee for the Asst. year 2018-19 & Asst. year 2020-21 are partly allowed for statistical purposes. ITA Nos.2347 & 2348/Bang/2024 & CO Nos.4 & 5/Bang/2025 M/s. Bangalore Credit Co-operative Society Ltd., Bangalore Page 44 of 44 Order pronounced in the open court on 30th June, 2025 Sd/- (Waseem Ahmed) Accountant Member Sd/- (Keshav Dubey) Judicial Member Bangalore, Dated 30th June, 2025. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Bangalore. "
Other Referred Cases
Collector Land Acquisition v. Mst. Katiji and Ors., Cambay Electric Supply Industrial Co. Ltd v. CIT, Mavilayi Service Co-operative Bank Limited v. CIT, Kerala State Co-operative Agricultural and Rural Development Bank Ltd. v. ITO, Totagar's Co-operative Sale Society v. ITO, PCIT v. Totagars Co-operative Sale Society, State Bank Of India v. CIT, Nawanshahar Central Cooperative Bank Ltd. v. ITO, Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO
Laws Referred To
Income Tax Act, 1961
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