JAI JALARAM CO-OPERATIVE CREDIT SOCIETY LIMITED,MUMBAI V. THE INCOME TAX OFFICER, WARD 29(1)(5), MUMBAI

ITA 2887/MUM/2025

AI Insights

The case involves Jai Jalaram Co-operative Credit Society Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals) denying deductions under Sections 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961 for the assessment year 2015-16. The primary contention was whether the interest income earned from investments with co-operative banks qualifies for deductions under the specified sections. The Assessing Officer had denied these deductions, categorizing the interest income under 'Income from Other Sources' rather than business income. The Tribunal's decision partly allowed the appeal, remanding the matter for verification of the nature of the entities involved in the interest income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706168 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2015-2016
• Other Referred Cases: Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors., PCIT & Anr. Vs. Totagars Cooperative Sale Society, State Bank Of India Vs. CIT, Totgars Cooperative Sale Society Ltd. vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAVIN CHAVAN
• Keywords: Business income; Co-operative Credit Society
• Section: 143(3); 56

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC” MUMBAI BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 2887/MUM/2025 Assessment Year: 2015-16 Jai Jalaram Co-operative Credit Society Ltd., Shop No. -2 Ground Floor, Shop No. -2 Ground Floor, Mulund Siddhivinayak C.H.S. Near Punjab National Bank Zaver Road, Mulund West, Mumbai-400080. Vs. The ITO Ward 29(1)(5), Kautilya Bhavan, Bandra Kurla Complex, Mumbai-400051. PAN NO. AAAAJ 2603 B Appellant Respondent Assessee by : None Revenue by : Mr. Pravin Chavan, Sr. DR Date of Hearing : 23/06/2025 Date of pronouncement : 30/06/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 13.03.2025 passed by the Ld. Commissioner of Income-tax (Appeals)-1, Visakhapatnam [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds: 1. The Ld. CIT(Appeals), NFAC has erred in dismissing the appeal and denying the deduction u/s 80P(2)(a)(i) of The Income Tax Act, 1961 2. The Ld. CIT(Appeals), NFAC has erred holding that the interest income earned by a cooperative society on its investments held with a Co operative banks/Nationalised banks would not be eligible for c deduction under 3. Your appellant further reserves the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives. 2. Briefly stated the facts of the case are that the appellant is co-operative credit society and had filed the return of income for A.Y. 2015-16 declaring total income at Rs. NIL after claiming deduction u/s. 80P(2)(a)(i) Act) amounting to Rs. 2,86,069/ selected for scrutiny under CASS and order u/s. 143(3) of the Act was passed on 14.12.2017 denying the deduction u/s. 80P(2)(a)(i) as well as u/s. 80P(2)(d) of the Act the deduction u/s. 80P(2)(a)(i) op. society fulfills the condition laid down u/s. 56(c)(ccv) of part V of the Banking Regulation Act and is a co assessee is covered within the purvie bank, the provisions o that even the interest income earned banks is not its business income head “Income from Other Source deduction u/s. 80P(2)(d), the Assessing Officer rejected even this deduction on the ground that the investments are made by the Jai Jalaram Co ITA No. 2887/MUM/2025 The Ld. CIT(Appeals), NFAC has erred in dismissing the appeal and deduction u/s 80P(2)(a)(i) of The Income Tax Act, 1961 The Ld. CIT(Appeals), NFAC has erred holding that the interest income earned by a cooperative society on its investments held with a Co operative banks/Nationalised banks would not be eligible for c deduction under Sec.80P(2)(d)/ 80P(2)(a)i) 3. Your appellant further reserves the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives. Briefly stated the facts of the case are that the appellant is operative credit society and had filed the return of income for 16 declaring total income at Rs. NIL after claiming deduction u/s. 80P(2)(a)(i) of the Income-tax Act,1961( in sho amounting to Rs. 2,86,069/-. The case of the assessee was selected for scrutiny under CASS and order u/s. 143(3) of the Act was passed on 14.12.2017 denying the deduction u/s. 80P(2)(a)(i) as well as u/s. 80P(2)(d) of the Act. The Assessing Off the deduction u/s. 80P(2)(a)(i) on the ground that the assessee co op. society fulfills the condition laid down u/s. 56(c)(ccv) of part V of the Banking Regulation Act and is a co-operative bank and since assessee is covered within the purview of a primary co , the provisions of section 80P(4) are applicable resulting and that even the interest income earned from various co not its business income but is to be classified under the head “Income from Other Sources”. As regards the alternate plea of deduction u/s. 80P(2)(d), the Assessing Officer rejected even this deduction on the ground that the investments are made by the Jai Jalaram Co-operative Credit Society Ltd. 2 ITA No. 2887/MUM/2025 The Ld. CIT(Appeals), NFAC has erred in dismissing the appeal and deduction u/s 80P(2)(a)(i) of The Income Tax Act, 1961 The Ld. CIT(Appeals), NFAC has erred holding that the interest income earned by a cooperative society on its investments held with a Co- operative banks/Nationalised banks would not be eligible for claim of 3. Your appellant further reserves the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by Briefly stated the facts of the case are that the appellant is a operative credit society and had filed the return of income for 16 declaring total income at Rs. NIL after claiming tax Act,1961( in short the . The case of the assessee was selected for scrutiny under CASS and order u/s. 143(3) of the Act was passed on 14.12.2017 denying the deduction u/s. 80P(2)(a)(i) . The Assessing Officer rejected on the ground that the assessee co- op. society fulfills the condition laid down u/s. 56(c)(ccv) of part V of operative bank and since mary co-operative f section 80P(4) are applicable resulting and from various co-operative but is to be classified under the s”. As regards the alternate plea of deduction u/s. 80P(2)(d), the Assessing Officer rejected even this deduction on the ground that the investments are made by the assessee in co-operative banks and that a co urban commercial bank and “Co-operative Society” referred in Section 80P(2)(d) of the Act. 3. Aggrieved by this the assessee challenged it before the CIT(A) who same. The relevant extra “6.3 I have carefully gone through the assessment order, grounds of appeal and submissions made by the appellant. It is seen from the assessment order that the AO has made addition of Rs 2,86,069/- by disallowing the Act. In this case, assessee received interest income from deposits with Cooperative banks As assessee got interest income from Co operative banks and not from co claim of deduction u/s 8 addition, appellant filed present appeal and submitted that appellant would be eligible for deduction u/s 80P of the IT Act. 6.3.1 In this regard, it is pertinent to mention that as per the provisions of section claiming deduction under this section in respect of interest income or dividends earned from other cooperative societies only. the AO disallowed the deduction claimed for the interest earned from Cooperative banks u/s 80P. With regard to the interest or dividend income earned from a Co Bank, the Hon'ble Supreme Court in the case of Kerala State Co operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing 10069 of 2016 dated 14.09.2023 analyzed the legal framework, relevant provisions under relevant cooperative societies Act, NABARD Act, provisions of sec. 80P under the Income Tax Act, 1961, RBI Act, the Bank precedents on similar issues. The observations of Hon'ble Supreme Court in para 14.3 and 15.8 are of relevant that reads as under: \"14.3. While analysing Section 80P of the Act in depth, the following points are Jai Jalaram Co ITA No. 2887/MUM/2025 operative banks and that a co-operative bank is a urban commercial bank and does not fall under the purview of a operative Society” referred in Section 80P(2)(d) of the Act. Aggrieved by this disallowance made by the Assessing Officer the assessee challenged it before the CIT(A) who . The relevant extract of the CIT(A)’s order is as under: 6.3 I have carefully gone through the assessment order, grounds of appeal and submissions made by the appellant. It is seen from the assessment order that the AO has made addition of Rs by disallowing the claim of deduction u/s 80P of the IT Act. In this case, assessee received interest income from deposits with Cooperative banks As assessee got interest income from Co operative banks and not from co-operative society, AO denied the claim of deduction u/s 80P of the IT Act. Aggrieved with the above addition, appellant filed present appeal and submitted that appellant would be eligible for deduction u/s 80P of the IT Act. 6.3.1 In this regard, it is pertinent to mention that as per the provisions of section 80P(2)(d), a cooperative society is eligible for claiming deduction under this section in respect of interest income or dividends earned from other cooperative societies only. the AO disallowed the deduction claimed for the interest earned erative banks u/s 80P. With regard to the interest or dividend income earned from a Co-operative bank/ Scheduled Bank, the Hon'ble Supreme Court in the case of Kerala State Co operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. in Civil Appeal Nos. 10069 of 2016 dated 14.09.2023 analyzed the legal framework, relevant provisions under relevant cooperative 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 para 14.3 and 15.8 are of relevant that reads as under: \"14.3. While analysing Section 80P of the Act in depth, the following points are noted by this Court: Jai Jalaram Co-operative Credit Society Ltd. 3 ITA No. 2887/MUM/2025 operative bank is a does not fall under the purview of a operative Society” referred in Section 80P(2)(d) of the Act. Assessing Officer, the assessee challenged it before the CIT(A) who confirmed the ct of the CIT(A)’s order is as under:- 6.3 I have carefully gone through the assessment order, grounds of appeal and submissions made by the appellant. It is seen from the assessment order that the AO has made addition of Rs claim of deduction u/s 80P of the IT Act. In this case, assessee received interest income from deposits with Cooperative banks As assessee got interest income from Co- operative society, AO denied the 0P of the IT Act. Aggrieved with the above addition, appellant filed present appeal and submitted that appellant would be eligible for deduction u/s 80P of the IT Act. 6.3.1 In this regard, it is pertinent to mention that as per the 0P(2)(d), a cooperative society is eligible for claiming deduction under this section in respect of interest income or dividends earned from other cooperative societies only. Further the AO disallowed the deduction claimed for the interest earned erative banks u/s 80P. With regard to the interest or operative bank/ Scheduled Bank, the Hon'ble Supreme Court in the case of Kerala State Co- operative Agricultural and Rural Development Bank Ltd. KSCARDB Officer, Trivandrum & Ors. in Civil Appeal Nos. 10069 of 2016 dated 14.09.2023 analyzed the legal framework, relevant provisions under relevant cooperative societies Act, NABARD Act, provisions of sec. 80P under the Income Tax Act, ing Regulation Act and the various judicial precedents on similar issues. The observations of Hon'ble Supreme Court in para 14.3 and 15.8 are of relevant that reads as under:- \"14.3. While analysing Section 80P of the Act in depth, the i) Firstly, the marginal note to Section 80P which reads \"Deduction in respect of income of co indicates the general \"drift\" of the provision. ii) Secondly, for purposes of eligibility for ded must be a \"co- ill) Thirdly, the gross total income must include income that is referred to in sub iv) Fourthly, sub being \"engaged in\". inter alia, 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 cr 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 an given to nonmembers 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 must be registered either under Cooperative 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 and (b), either independently of or in addition to those then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub viii) Eighthly, sub income is derived by a co other co-operative societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the cooperative movement as a whole. 15.8. Since the words 'bank' and banking company' are not defined in the NABARD clause (a) of Section 56 of the BR Act, 1949 has to be relied upon. It states that a co bank is in relation to or as a banking company. Th bank shall be construed as references to a banking company and Jai Jalaram Co ITA No. 2887/MUM/2025 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 -operative society\" ill) 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 nonmembers 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 be registered either under Cooperative 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 and (b), either independently of or in addition to those then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub- viii) Eighthly, sub-clause (d) states that where interest or dividend income is derived by a co-operative society from investments with operative societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the cooperative movement as a whole. 15.8. Since the words 'bank' and banking company' are not efined in the NABARD Act, 1981, the definition in sub clause (a) of Section 56 of the BR Act, 1949 has to be relied upon. It states that a co-operative society in the context of a cooperative bank is in relation to or as a banking company. Thus, co bank shall be construed as references to a banking company and Jai Jalaram Co-operative Credit Society Ltd. 4 ITA No. 2887/MUM/2025 i) Firstly, the marginal note to Section 80P which reads \"Deduction operative societies\" is significant as it uction, the assessee ill) Thirdly, the gross total income must include income that is operative society carrying on the business of banking v) Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under Section 80P. edit 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 d gains from credit facilities given to nonmembers cannot be said to be attributable to the activity of providing credit facilities to its members, such amount operative societies be registered either under Cooperative 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 such activity are also liable -clause (c). clause (d) states that where interest or dividend ociety from investments with operative societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the 15.8. Since the words 'bank' and banking company' are not Act, 1981, the definition in sub-clause (i) of clause (a) of Section 56 of the BR Act, 1949 has to be relied upon. operative society in the context of a cooperative us, 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 alre 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. T 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 operative bank. In other words, if a co conducting the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co and not so within the meanings of a state cooperati central co-operative bank or a primary co of Section 56(c)(i)(cci). Whereas a co of a banking company which transacts the business of banking as defined in clause (b) of Section 5 of the BR operative society does not transact business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co operative bank. Then the definitions under the NABARD Act, 1981 would not apply. If a co bank, then such an entity would be entitled to deduction but on the other hand, if it is a co Section 56 of BR Act, 1949 read with the provisions of NABARD Act, 1981 then it would Not be under sub-section (4) or Section 80P of the Act.\" 6.3.2 Based on above 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 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 earned by a cooperative society on its inv operative banks/Nationalised banks would not be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 6.3.3 Further, the appellant is also not entitled for deduction u/s 80P(2)(a)(i) of the Act in view of judgement of Hon' Court in the case of Totgars Cooperative Sale Society Ltd. (322 ITR 283) (SC), wherein held as follows: \"The words \"the whole of the amount of profits and gains of business\" in section Jai Jalaram Co ITA No. 2887/MUM/2025 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 alre 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 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 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 cooperati 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 co operative society does not transact business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co operative bank. Then the definitions under the NABARD Act, 1981 would not apply. If a co-operative society is not a co 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 section (4) or Section 80P of the Act.\" 6.3.2 Based on above 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 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, I hold that, the interest income earned by a cooperative society on its investments held with a Co operative banks/Nationalised banks would not be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 6.3.3 Further, the appellant is also not entitled for deduction u/s 80P(2)(a)(i) of the Act in view of judgement of Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. (322 ITR 283) (SC), wherein held as follows: \"The words \"the whole of the amount of profits and gains of business\" in section 80P(2) of the Incometax Act, 1961, emphasise Jai Jalaram Co-operative Credit Society Ltd. 5 ITA No. 2887/MUM/2025 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 hus, it is only 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 society is not conducting the business of banking as defined in clause (b) of operative bank and not so within the meanings of a state cooperative bank, a operative bank in terms operative bank is in the nature of a banking company which transacts the business of banking as Act, 1949. But if a co- operative society does not transact business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co- operative bank. Then the definitions under the NABARD Act, 1981 ve society is not a co-operative bank, then such an entity would be entitled to deduction but on operative bank within the meaning of Section 56 of BR Act, 1949 read with the provisions of NABARD entitled to the benefit of deduction 6.3.2 Based on above such principle analyzed by Hon'ble Supreme Court and respectfully following the view taken by the Hon'ble & 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. (2016) 389 ITR 578, I hold that, the interest income estments held with a Co- operative banks/Nationalised banks would not be eligible for 6.3.3 Further, the appellant is also not entitled for deduction u/s 80P(2)(a)(i) of the Act in view of judgement of Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. (322 ITR \"The words \"the whole of the amount of profits and gains of 80P(2) of the Incometax Act, 1961, emphasise that the incom operative society must constitute the operational income and not the other income which accrues to the society. The interest income arising to a co the business of providing cr marketing of agricultural produce of its members, on the surplus, which is not required immediately for business purposes from investment in short term deposits and securities, has to be taxed as income from other sources Act, 1961. Such interest cannot be said to be attributable to the activities of the society, viz., carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members retained by it cannot be said to be attributable either to the activity mentioned in section 6.3.4 Since the interest is earned by the appellant from Co operative bank/ Scheduled Bank, the same has to be considered under the head 'income from other sources' and such interest income earned from Co eligible for deduction under section 80P(2)(d)/ 80P(2)(a)(i). Thus, the AO is justified in disallowing the deduction of Rs 2,86,069/ claimed u/s 80P of the Act. 4. We have carefully perused the orders passed by the lower authorities, material on record and the arguments made by appellant and revenue. the assessee co-operative credit society about the deduction u/s. 80P(2)(a)(i) of the Act or u/s. 80P(2)(d) of the Act. As regards the deduction claimed by the assessee u/s. 80P(2)(a)(i) of the Ac fact is that the assessee is a AOP running a co engaged in the business of accepting and lending money to the members of the society and during the year under consideration, it has earned interest income to the tune of Rs investments made in various co Jai Jalaram Co ITA No. 2887/MUM/2025 that the income in respect of which deduction is sought by a co operative society must constitute the operational income and not the other income which accrues to the society. The interest income arising to a co-operative society carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members, on the surplus, which is not required immediately for business purposes from investment in short term deposits and securities, has to be taxed as income from other sources under section 56 of the Income Act, 1961. Such interest cannot be said to be attributable to the activities of the society, viz., carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. Interest income of such society from amounts retained by it cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) or section 80P(2)(a) (iii) of the Act.\" 6.3.4 Since the interest is earned by the appellant from Co rative bank/ Scheduled Bank, the same has to be considered under the head 'income from other sources' and such interest income earned from Co-operative banks/ Scheduled Bank is not eligible for deduction under section 80P(2)(d)/ 80P(2)(a)(i). Thus, is justified in disallowing the deduction of Rs 2,86,069/ claimed u/s 80P of the Act. Accordingly, the appeal is 'Dismissed.” We have carefully perused the orders passed by the lower authorities, material on record and the arguments made by nd revenue. The issue before us is about the eligibility of operative credit society about the deduction u/s. 80P(2)(a)(i) of the Act or u/s. 80P(2)(d) of the Act. As regards the deduction claimed by the assessee u/s. 80P(2)(a)(i) of the Ac fact is that the assessee is a AOP running a co-operative society engaged in the business of accepting and lending money to the members of the society and during the year under consideration, it has earned interest income to the tune of Rs. 7,19,303 investments made in various co-operative banks and the resultant Jai Jalaram Co-operative Credit Society Ltd. 6 ITA No. 2887/MUM/2025 e in respect of which deduction is sought by a co- operative society must constitute the operational income and not operative society carrying on edit facilities to its members or marketing of agricultural produce of its members, on the surplus, which is not required immediately for business purposes from investment in short term deposits and securities, has to be taxed under section 56 of the Income-tax Act, 1961. Such interest cannot be said to be attributable to the activities of the society, viz., carrying on the business of providing credit facilities to its members or marketing of agricultural produce . Interest income of such society from amounts retained by it cannot be said to be attributable either to the activity 80P(2)(a)(i) or section 80P(2)(a) (iii) of the Act.\" 6.3.4 Since the interest is earned by the appellant from Co- rative bank/ Scheduled Bank, the same has to be considered under the head 'income from other sources' and such interest operative banks/ Scheduled Bank is not eligible for deduction under section 80P(2)(d)/ 80P(2)(a)(i). Thus, is justified in disallowing the deduction of Rs 2,86,069/- 'Dismissed.” We have carefully perused the orders passed by the lower authorities, material on record and the arguments made by before us is about the eligibility of operative credit society about the deduction u/s. 80P(2)(a)(i) of the Act or u/s. 80P(2)(d) of the Act. As regards the deduction claimed by the assessee u/s. 80P(2)(a)(i) of the Act, the operative society engaged in the business of accepting and lending money to the members of the society and during the year under consideration, it . 7,19,303/- from operative banks and the resultant income of the assessee is not in the nature of any business income The issue which arises for consideration in the present matter pertains to the scope and applicability of deduction co-operative society under Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income-tax Act, 1961, and the distinction that exists therein. 4.1 Section 80P of the Act confers certain tax benefits upon co operative societies, recognising assistance and cooperative development. The relevant clauses under consideration are as follows: o Section 80P(2)(a)(i) income attributable to a co the business members. o Section 80P(2)(d) of income by way of interest or dividend earned from investments made with 4.2 A careful reading of the statuto judicial pronouncements, reveals that these provisions operate in distinct spheres. Section 80P(2)(a)(i) is deduction where the income arises from the active conduct of the business of banking or le source-based, and confers deduction where the income is passively earned by way of interest or dividends Jai Jalaram Co ITA No. 2887/MUM/2025 income of the assessee is not in the nature of any business income The issue which arises for consideration in the present matter pertains to the scope and applicability of deduction operative society under Section 80P(2)(a)(i) and Section 80P(2)(d) tax Act, 1961, and the distinction that exists therein. Section 80P of the Act confers certain tax benefits upon co operative societies, recognising their role in promoting mutual assistance and cooperative development. The relevant clauses under consideration are as follows: Section 80P(2)(a)(i) provides for deduction in respect of income attributable to a co-operative society engaged in the business of banking or providing credit facilities to its Section 80P(2)(d), on the other hand, provides deduction of income by way of interest or dividend earned from investments made with another co-operative society A careful reading of the statutory language, in light of settled judicial pronouncements, reveals that these provisions operate in distinct spheres. Section 80P(2)(a)(i) is activity-based deduction where the income arises from the active conduct of the business of banking or lending to members. Section 80P(2)(d) is , and confers deduction where the income is passively interest or dividends from investments with Jai Jalaram Co-operative Credit Society Ltd. 7 ITA No. 2887/MUM/2025 income of the assessee is not in the nature of any business income. The issue which arises for consideration in the present matter pertains to the scope and applicability of deductions available to a operative society under Section 80P(2)(a)(i) and Section 80P(2)(d) tax Act, 1961, and the distinction that exists therein. Section 80P of the Act confers certain tax benefits upon co- their role in promoting mutual assistance and cooperative development. The relevant clauses provides for deduction in respect of operative society engaged in of banking or providing credit facilities to its , on the other hand, provides deduction of income by way of interest or dividend earned from operative society. ry language, in light of settled judicial pronouncements, reveals that these provisions operate in based, granting deduction where the income arises from the active conduct of the nding to members. Section 80P(2)(d) is , and confers deduction where the income is passively from investments with other co-operative societies. The Hon’ble Supreme Court, in Mavilayi Service Co 1 (SC)], held that the eligibility for deduction under Section 80P(2)(a)(i) does not depend on registration under the Banking Regulation Act. What is required is that the co in fact engaged in providing Court overruled the contrary view expressed in earlier judgments of High Courts that placed emphasis on the nom operative bank”. The distinction was further clarified in operative Sale Socie where the Hon’ble Court held that interest income arising from surplus funds deposited in banks does not qualify for deduction under Section 80P(2)(a)(i), as it is not income derived from the business of banking or open for deduction under Section 80P(2)(d), provided such income arises from investments with a co 4.3 The decision of the Hon’ble Apex Court in the case of Totgars Co-operative Sale Society so far as the deduction u/s. 80P(2)(a)(i) is claimed by the assessee in the present case. assessee is dismissed. 4.4 Apropos, the deduction claimed u/s. 80P(2)(d) of th observed that the assessee is eligible for deduction of interest Jai Jalaram Co ITA No. 2887/MUM/2025 operative societies. The Hon’ble Supreme Court, in Mavilayi Service Co-operative Bank Ltd. v. CIT [(2021) 431 ITR , held that the eligibility for deduction under Section 80P(2)(a)(i) does not depend on registration under the Banking Regulation Act. What is required is that the co-operative society is in fact engaged in providing credit facilities to its members. The Court overruled the contrary view expressed in earlier judgments of High Courts that placed emphasis on the nomenclature of “co The distinction was further clarified in operative Sale Society Ltd. v. ITO [(2010) 322 ITR 283 (SC)] where the Hon’ble Court held that interest income arising from surplus funds deposited in banks does not qualify for deduction under Section 80P(2)(a)(i), as it is not income derived from the business of banking or credit facilities. However, the door was left open for deduction under Section 80P(2)(d), provided such income arises from investments with a co-operative society. The decision of the Hon’ble Apex Court in the case of Totgars operative Sale Society Ltd. (322 ITR 283) (SC) squarely applies in so far as the deduction u/s. 80P(2)(a)(i) is claimed by the assessee in the present case. In the result, ground no. 1 raised by the assessee is dismissed. the deduction claimed u/s. 80P(2)(d) of th observed that the assessee is eligible for deduction of interest Jai Jalaram Co-operative Credit Society Ltd. 8 ITA No. 2887/MUM/2025 operative societies. The Hon’ble Supreme Court, in Bank Ltd. v. CIT [(2021) 431 ITR , held that the eligibility for deduction under Section 80P(2)(a)(i) does not depend on registration under the Banking operative society is credit facilities to its members. The Court overruled the contrary view expressed in earlier judgments of enclature of “co- The distinction was further clarified in Totgars Co- ty Ltd. v. ITO [(2010) 322 ITR 283 (SC)], where the Hon’ble Court held that interest income arising from surplus funds deposited in banks does not qualify for deduction under Section 80P(2)(a)(i), as it is not income derived from the credit facilities. However, the door was left open for deduction under Section 80P(2)(d), provided such income The decision of the Hon’ble Apex Court in the case of Totgars Ltd. (322 ITR 283) (SC) squarely applies in so far as the deduction u/s. 80P(2)(a)(i) is claimed by the assessee In the result, ground no. 1 raised by the the deduction claimed u/s. 80P(2)(d) of the Act, it is observed that the assessee is eligible for deduction of interest income taxed under the head “Income from other sources” if the same is earned from a co Courts have consistently held, following the aforesaid that interest income received from co are co-operative societies) Reference may be made to the decision of the Hon’ble Karnataka High Court in PCIT v. Totagars Co 395 ITR 611 (Kar)], wherein such interest was held to be eligible for deduction under clause (d). 4.5 The assessee contends that the interest income in question has been earned from investments with co are co-operative societies for the purposes of the Act. This contention, if substantiated, would entitle the assessee to deduction under Section 80P(2)(d). However, this is a question of fact requiring verification. Accordingly, we consider it appropriate to remand the matter to the file of the Assessing Officer for the limited purpose of verifying whether the entities from which the assessee has earned interest income are, in fact, co meaning of the Act. Upon such verification, the Assessi shall adjudicate the claim for deduction under Section 80P(2)(d) in accordance with law and after affording due opportunity of hearing to the assessee. The ground no.2 of the assessee is allowed for statistical purposes. Jai Jalaram Co ITA No. 2887/MUM/2025 income taxed under the head “Income from other sources” if the same is earned from a co-operative society. The Courts have consistently held, following the aforesaid interest income received from co-operative banks (if they operative societies) is deductible under Section 80P(2)(d). Reference may be made to the decision of the Hon’ble Karnataka PCIT v. Totagars Co-operative Sale , wherein such interest was held to be eligible for deduction under clause (d). The assessee contends that the interest income in question has been earned from investments with co-operative banks, which ve societies for the purposes of the Act. This contention, if substantiated, would entitle the assessee to deduction under Section 80P(2)(d). However, this is a question of fact requiring verification. Accordingly, we consider it appropriate to remand the matter to the file of the Assessing Officer for the limited purpose of verifying whether the entities from which the assessee has earned interest income are, in fact, co-operative societies within the meaning of the Act. Upon such verification, the Assessi shall adjudicate the claim for deduction under Section 80P(2)(d) in accordance with law and after affording due opportunity of hearing he ground no.2 of the assessee is allowed for statistical purposes. Jai Jalaram Co-operative Credit Society Ltd. 9 ITA No. 2887/MUM/2025 income taxed under the head “Income from other sources” if the The Hon’ble High Courts have consistently held, following the aforesaid precedent, operative banks (if they is deductible under Section 80P(2)(d). Reference may be made to the decision of the Hon’ble Karnataka operative Sale Society [(2017) , wherein such interest was held to be eligible The assessee contends that the interest income in question operative banks, which ve societies for the purposes of the Act. This contention, if substantiated, would entitle the assessee to deduction under Section 80P(2)(d). However, this is a question of fact requiring verification. Accordingly, we consider it appropriate to remand the matter to the file of the Assessing Officer for the limited purpose of verifying whether the entities from which the assessee has earned operative societies within the meaning of the Act. Upon such verification, the Assessing Officer shall adjudicate the claim for deduction under Section 80P(2)(d) in accordance with law and after affording due opportunity of hearing he ground no.2 of the assessee is accordingly 5. In the result appeal of the assessee is allowed partly for statistical purpose. Order pronounced in the open Court on Sd/ (SANDEEP GOSAIN JUDICIAL MEMBER Mumbai; Dated: 30/06/2025 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Jai Jalaram Co ITA No. 2887/MUM/2025 esult appeal of the assessee is allowed partly for nounced in the open Court on 30/06/2025. Sd/- Sd/ (SANDEEP GOSAIN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Jai Jalaram Co-operative Credit Society Ltd. 10 ITA No. 2887/MUM/2025 esult appeal of the assessee is allowed partly for /06/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai "