M/S CO-OPERATIVE CANE DEVELOPMENT UNION LTD,LAKHIMPUR KHERI V. INCOME TAX OFFICER -1, RANGE-3(4), LAKHIMPUR KHERI

ITA 37/LKW/2022

AI Insights

The case involves M/s Cooperative Cane Development Union Ltd., which appealed against the orders of the CIT(A) and CIT, NFAC, which upheld the disallowances made by the Assessing Officer regarding the deduction under section 80P for interest earned on bank deposits. The Tribunal examined whether the interest income was attributable to the main activities of the society and whether it should be taxed under section 56 as income from other sources. The Tribunal noted that the society was required to maintain a statutory reserve and that the interest earned from such reserves was attributable to its main activities, thus eligible for deduction under section 80P. The Tribunal also considered the impact of the COVID-19 pandemic on the delay in filing appeals and allowed the appeals accordingly.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 313129 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: Totgars Cooperative Sale Society Ltd. vs. ITO, PCIT, Hubli vs. M/s Totgars Cooperative Sale Society, CIT vs. Cooperative Cane Development Union Limited, Gramin Sewa Sahakari Samiti Maryadit vs. ITO, Krishak Sahkari Ganna Samiti Limited vs. CIT
• Laws Referred To: Income Tax Act, U.P. Cooperative Societies Act, 1965
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV KRISHNA SHARMA; ADDL
• Assessee Lawyers: SHUBHAM RASTOGI
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Principle of natural justice; Co-operative Credit Society
• Section: 56; 10

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘A’BENCH, LUCKNOW BEFORE SH. KUL BHARAT, VICE PRESIDENT AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.37/Lkw/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 A.Y. 2017-18, 2018-19 & 2016-17 M/s Cooperative Cane Development Union Ltd., Gola Gokaran Nath, Lakhimpur Kheri, U.P. vs. Income Tax Officer, Range-3(4), Lakhimpur Kheri, U.P. PAN:AAAAC1960A (Appellant) (Respondent) Assessee by: Sh. Shubham Rastogi, C.A. Revenue by: Sh. Sanjeev Krishna Sharma, Addl CIT DR Date of hearing: 20.03.2025 Date of pronouncement: 30.04.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: These three appeals filed by the assessee against the orders of the ld. CIT(A), Bareilly and ld. CIT, NFAC in which the disallowances made by the ld. AO in respect of claim of deduction under section 80P for interest earned by the assessee were upheld and the appeals of the assessee were dismissed. The grounds of appeal are as under:- ITA No.37/Lkw/2022 A.Y. 2017-18 1. That the Authorities below erred on facts and in law in not allowing deduction u/s 80P of I.T. Act on Interest received on Investments held with Banks in form of FDR's Rs. 2,68,63,010/-. 2. That the Authorities below erred in relying on the decision of Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable in facts from the case of the Appellant Assessee. 3. That the Ld. C.I.T. (A) erred on facts and in law in considering that the A. O. has failed to demonstrate in the Assessment Order that the Interest Income on FDR's and Saving Bank Accounts was on account of surplus funds of the Society ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 2 and in absence of such finding the decision of Hon'ble Supreme Court cannot be relied upon in Appellant's Case. 4. That the Ld. C.I.T. (A) erred on facts and in law in not considering that the Law has used the word \"attributable\" and not the word \"derived\" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and marketing the agriculture produce of members. WITHOUT PREJUDICE TO ABOVE 5. The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the society being co- operative society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. 6. That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of society which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE 7. That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses of Rs. 5,66,43,874/- and 'Interest paid Rs. 74,15,032/-/- debited in the Profit and Loss Account from the gross interest of Rs. 2,68,63,010/-. 8. That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. 9. That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A).” ITA No.15/Lkw/2023 A.Y. 2018-19 1. That the Authorities below erred on facts and in law in not allowing deduction u/s 80P of I. T. Act on Interest received on Investments held with Banks in form of FDR's Rs. 3,45,29,714/-. 2. That the Authorities below erred in relying on the decision of Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. Vs. ITO without ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 3 appreciating that the decision of Hon'ble Supreme Court is distinguishable in facts from the case of the Appellant Assessee. 3. That the Ld. C.I.T. (A) erred on facts and in law in considering that the A. O. has failed to demonstrate in the Assessment Order that the Interest Income on FDR's and Saving Bank Accounts was on account of surplus funds of the Society and in absence of such finding the decision of Hon'ble Supreme Court cannot be relied upon in Appellant's Case. 4. That the Ld. C.I.T. (A) erred on facts and in law in not considering that the Law has used the word \"attributable\" and not the word \"derived\" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and marketing the agriculture produce of members. WITHOUT PREJUDICE TO ABOVE 5. The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the society being co- operative society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. 6. That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of society which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE 7. That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses' and 'Interest paid' debited in the Profit and Loss Account from the gross interest of Rs. 3,45,29,714/-. 8. That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. 9. That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A).” ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 4 ITA No.394/Lkw/2019 A.Y. 2016-17 “1. The Ld. C.L.T. (A) erred on facts and in law in not allowing deduction u/s 80P of I.T. Act, 1961 on Interest received from Bank on F.D.R's and Saving Bank Accounts Rs. 2,61,79,220/-. 2. That in not allowing the deduction u/s 80P of 1. T. Act, 1961, Ld. CIT(A) and the authorities below relied upon the decision of Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Limited Vs. LT.O. without appreciating that the decision of Hon'ble Supreme Court is distinguishable in facts from the case of the appellant assessee. 2.1 That the Ld. C.I.T. (A) erred in not considering that the Assessing Officer has failed to demonstrate in the assessment order that the Interest income from F.D.R's and Saving Bank Accounts was on account of surplus funds of society and in absence of such finding the decision of Hon'ble Supreme Court cannot be relied upon in the present sets of facts and circumstances. 3. The Ld. C.LT. (A) erred on facts and in law in not considering that the appellant assessee is a 'Welfare Society' for cane growers and not a 'Sale Society' as in the case of Totgar's Co-operative Sale Society Limited and it was not marketing/selling the product of its members. 4. That the Ld. C.I.T. (A) erred in facts and in law in not considering that the funds of the Society are in form of Share Capital from members being farmers and the funds are invested as per byelaws of the society and the same are under the direct control and Management of Cane Commissioner. 5. That the Ld. C.I.T. (A) erred on facts and in law in not considering that the law has used the word 'attributable' and not the word 'derived' in Sect. 80P of L. T. Act so as to include income from sources other than the actual conduct of the business of the Society and thus Interest Income from F.D.R.'s and Saving Bank Accounts is attributable to the business of providing credit facilities and marketing the agriculture produce of members. 6. The addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by Ld. A. O. Additional grounds of appeal 1. That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses of Rs. 5,43,58,995/- and 'Interest paid Rs. 51,91,972/- debited in the Profit and Loss Account from the gross interest of Rs. 2,61,79,220/-. 2. That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 5 earning the said income has to be determined and deducted from the Gross Income. 3. The Ld. C.I.T.(A) erred on facts and in law in not considering that the society being co-operative society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Reserve Fund cannot be said to be made out of surplus funds. 4. The Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of Rs.4,13,76,016/- of seasonal employees of society which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. 5. That the Ld. C.I.T. (A) erred on facts and in law in not considering that the society has taken Loan of Rs. 4,05,03,269/- from Zila Sahkari Bank, Gola and accordingly Interest accruing on the investments of the society to the extent of Loan from Zila Sahkari Bank cannot be said to be made out of Surplus Funds of the Society.” 2. At the very outset, it is observed that the appeals in these cases are delayed by 80 days (in 394/Lkw/2019), 65 days (in 37/Lkw/2022) and 357 days in (15/Lkw/2023). Condonation petitions have been submitted by the assessee in respect of these three appeals. It has been submitted that for the assessment year 2016-17, the ld. CIT(A) passed the order on 25.01.2019 and the same was received by the Society on 30.01.2019. The Society deposited the requisite appeal filing fee of Rs.10,000/- on 14.02.2019 for filing the appeal before the Hon’ble ITAT. However, due to non-appointment of secretary of the Society, the appeal could not be signed for the purposes of filing it. Since, in that period, the Society did not have a full time Secretary, the appeal papers could not be put up for filing before the Secretary. It was only after the appointment of a new Secretary and on receipt of notice of attachment from the Department, that the new incumbent became aware of the need to file the appeal and accordingly immediately filed the same. It was submitted that the deposit of fees on time indicated the bona fides of the assessee’s in deciding to go in appeal and the delay was caused due unavoidable circumstances i.e. the unavailability of any authorized person to sign the appeal. Accordingly, it was prayed that the delay may ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 6 kindly be condoned. After considering the facts of the case, the delay of 80 days (in 394/Lkw/2019) is condoned. With regard to appeal in ITA No.37/Lkw/2022, it is observed that the entire delay of 65 days is covered in the period that was excluded for the purposes of limitation due to the Covid -19 pandemic by the Hon’ble Supreme Court in its decision in Suo Moto Writ Petition No. 03/2020. Hence, the delay is condoned and the appeal is admitted for adjudication. In respect of appeal in ITA No. 15/Lkw/2023, where the delay is of 357 days, it is observed that 128 days of said delay are covered in the Covid period as per the decision of Hon’ble Supreme Court in Suo Moto Writ Petition No. 03/2020. For the remaining 229 days, it has been submitted that the order was served on the email ID [e-mail], which belonged to the counsel of the assessee and the Society did not receive any intimation from the local counsel about the service of the appellate order. It was only upon the receipt of outstanding demand intimation from the jurisdictional AO that the assessee society enquired from its counsel about the pendency of the first appeal and was informed by the counsel that the order of the Hon’ble CIT(A), NFAC had been passed on 24.11.2021 and received on his email ID. Thereafter, the Secretary of the Society immediately contacted the counsels at Lucknow. However, due to last date of filing of return and tax audit report, the counsels were busy and could not file the appeal. Once the same was over, the assessee was asked to deposit the appeal fee which it did on 22.11.2022 and thereafter it filed the appeal. It was submitted that the delay was unintentional and caused by the failure of the local counsel to inform the assessee about the passing of the appeal order and the pre-occupation by the counsels at Lucknow with the tax audit and return filing. It was, therefore, prayed that in the interest of justice, the appeal may be admitted. After considering the facts as narrated above, we deem it appropriate in the interest of justice to condone the delay and admit the appeal for hearing. 3. The facts of the case in all the three assessment orders are similar. The assessee had claimed deduction under section 80P with respect to the interest ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 7 earned on deposits made by it with the banks. The ld. AO after detailed discussions in each case held that the assessee was not eligible for deduction under section 80P(2)(a)(i) or section 80P(2)(d) on the interest that had been earned by it on deposits with the bank as the same could not be said to be attributable to the activities of the society and would come in the category of, “income from other sources” and should therefore, be taxed accordingly under section 56 of the Act, in view of the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. ITO, (2010) 322 ITR 263 (SC) and the decision of Hon’ble Allahabad High Court in its order in ITA No. 520/2008 which had held that such interest i.e. the like of which was erred by a Cooperative Society for investment in a cooperative bank cannot be said to be the activities of the society. Accordingly, the ld. AO disallowed the deduction claimed by the assessee in respect of interest on deposit held in various banks. In pursuance of the same, a disallowance of Rs.2,61,79,223/- was made in the assessment year 2016-17, a sum of Rs.2,68,63,013/- was disallowed in the assessment year 2017-18 and a sum of Rs.3,45,29,714/- was disallowed in the assessment year 2018-19. 4. Aggrieved with the decisions of the various ld. AOs in the orders, the assessee preferred appeals before the ld. CIT(A), Bareilly and the ld. CIT(A), NFAC. In all three appeals, the ld. CIT(A) in these three cases rejected the plea of the assessee for distinguishing its case from that of the case of M/s Totgars Cooperative Sale Society Limited and pointed out that the Hon’ble Allahabad High Court in a later decision in ITA No.520 of 2008 dated 11.09.2012 in the case of Cooperative Cane Development Union Limited had held that in M/s Totgars Cooperative Sale Society Limited, the Hon’ble Supreme Court had explained the eligibility of deduction under section 80P and held that where the investment in securities was not a primary object of the Cooperative Credit Society, the interest therefrom could not be regarded as income attributable to business but would in fact be regarded as income from other sources. He noted that the Hon’ble Allahabad High Court in the said case had ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 8 pointed out that the assessee was a Cooperative Cane Development Union and the objects of the society did not provide for investment of money in the post office or bank and to earn interest on the same and therefore, in its case also, the interest earned out of the investments made in the bank would be an interest which would be income from other sources and chargeable to tax under section 56 of the Act. Therefore, relying upon the case of the Hon’ble Supreme Court in the case of M/s Totgars Cooperative Sale Society Limited vs. ITO (supra) and the Hon’ble Allahabd High Court in ITA No.520 of 2008 in the case of Cooperative Cane Development Union, Lakhimpur Kheri (supra). The ld. CIT(A) in all three assessment years dismissed the appeals of the assessee and upheld the disallowances made by the assessee. 5. Aggrieved by these disallowances, the assessee is before us in appeal. Sh. Shubham Rastogi, C.A. (hereinafter referred to as the ld. ‘AR’), arguing the case on behalf of the appellant submitted that the assessee was a cooperative society registered under the U.P. Sahkari Samiti Adhiniyam, 1965 by the Registrar, Ganna Sahkari Smitiyan. The assessee was a welfare society for cane growers and the main object of the society, as set out in the byelaws was to provide assistance to the cane growers for the better development of cane crops, to make available and provide assistance in obtaining better quality of seeds, fertilizers, agricultural equipment etc., and also provide credit facilities to the Members for purchase of equipments, seeds, fertilizers etc,. It was submitted that the ld. AO had treated the interest received from the banks as not eligible for deduction under section 80P of the Act and thus had brought it to tax under section 56 as income for other sources. It was submitted that as per section 58 of the U.P. Cooperative Societies Act, 1965, under which the society was registered, the society was required to keep an amount of out of its profits in a, “statutory reserve fund”. The said amount which was required to be kept in that fund was to be not less than 25% of total profits. The ld. AR took us through section 58 of the U.P. Cooperative Societies Act, 1965 and pointed out that such investments which ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 9 were placed in the bank could not be held to be a surplus of the society which could bring the case within the ambit of the judgment of the Hon’ble Supreme Court in the case of M/s Totgars Cooperative Sale Society Limited – where the society was a sale society and was retaining the sale proceeds of its Members which was invested in short term deposits and it was in respect of such matters that the Hon’ble Supreme Court had held that the said investment could not be held to be attributable to business and therefore, not deductible under section 80P of the Act. Since in the present case, the assessee statutory obliged to maintain reserve to the extent of 25% of its profits in the form of deposits in bank, these could not be held to be made out of the surplus funds of the society and the interest accruing on the said deposits could not be brought to tax under section 56 of the Income Tax Act, 1961 by relying on the decision of the Hon’ble Apex Court in the case of Totgars Cooperative Sale Society Limited. It was submitted that the Hon’ble Madras High Court in the case of K. 2058, Saravanampatti Primary Agricultural Co-Operative Credit Society Ltd. v. ITO 426 ITR 251 (Mad) had held after considering that the society was required to maintain statutory reserve of 25% under the Tamilnadu Cooperative Societies Act, that the same cannot be the surplus fund of the society as decided in the case of Totgars Cooperative Sale Society Limited and after placing reliance on the decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax V. Nawanshahar Central Cooperative Bank Limited reported in 289 ITR 6, it had set aside the assessment for de novo and fresh examination. It was, therefore, prayed that in the light of the above facts which had not been examined by the lower authorities, the issue may be set aside for fresh examination by the ld. AO in the interest of justice. The ld. AR also invited our attention to the decision of the ITAT Lucknow ‘B’ Bench in the case of Cooperative Cane Development Union Limited, Maholi vs. ACIT, Sitapur in ITA Nos. 165, 166 and 168/Lkw/2023 wherein that Bench, of which one of us was a party, had held that the investment in FDs and other securities on account of the provisions of section 58 and 59 of the U.P. Cooperative Societies Act, 1965 and ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 10 section 173 of the U.P. Cooperative Society Rules, 1968 were investments attributable to the main activity of the assessee co-operative society and therefore, the interest earned from such investments ought not to be regarded as a surplus within the meaning of the Totgar’s case and therefore, the said interest was deductible under section 80P. It was submitted that in that particular case, as the ld. AO had not examined the breakup of the investments and the interest earned on them, with reference to the byelaws of sections 58 and 59 of the U.P. Cooperative Societies Act and section 173 of the U.P. Cooperative Society Rules, the matter had been restored to his file for the limited purpose of re-computing the admissible deduction under section 80P with reference to the interest earned on investments made in accordance with the aforesaid statutory provisions. Accordingly, it was prayed that since the facts in the present case were identical, these cases may also be referred back to the ld. AO for fresh consideration in the light of the statutory provisions as laid out in that decision. 6. On the issue of the additional ground of appeal no.4 that the interest of the PF balance of interest received on provident fund balance of seasonal employees which was held in the form of deposits with the society and invested with the banks, was not the interest of the assessee as it was only a custodian of the said amounts which was liable to be paid back to the respective employees at the time of the completion of their contract with the society, it was pointed out that in the aforesaid decision in ITA Nos.16, 167 and 168/Lkw/2023, the Hon’ble Tribunal had held that these investments could not be considered to be the investments of the society and accordingly the interest accruing on the said amount could not be said to be the income of the society. The ld. AR, therefore, prayed that directions may kindly be given that interest earned on such deposits was not liable to be considered for the purposes of computation of the assessee’s income. With regard to the other grounds preferred by him, the ld. AR submitted that if his prayer of restoring the matter back to the file of the ld. AO for reconsideration of his order in the light of the statutory ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 11 provisions as contained in section 58 and 59 of the U.P. Cooperative Societies Act, 1965 and Rule 173 of the U.P. Cooperative Society Rules, 1968, were accepted and the orders of the Tribunal given earlier on the issue of investment of provident fund of employees was reiterated, he would not press the remaining grounds for a decision at this stage. 7. Responding to these arguments, Sh. Sanjeev Krishna Sharma, ld. Sr. DR (hereinafter referred to as the ‘ld. Sr. DR’) pointed out that the relevant issue had already been decided in favour of Revenue by the Hon’ble Supreme Court in the case of PCIT, Hubli vs. M/s Totgars Cooperative Sale Society (2017) 83 taxman.com 140 which re-emphasized the fact that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. He further submitted that the above verdict of the Hon’ble Supreme Court had been further followed by the Hon’ble Allahabad High Court in similar cases wherein the Hon’ble Allahabad High Court had held in the case of PCIT, Bareilly vs. Cooperative Cane Development Council, Lakhimpur Kheri in ITA No. 183 of 2016 that investment in securities was not a primary object of the cooperative credit society and the objects of the society did not provide for investments of money in post office or bank to earn interest. Therefore, any such interest earned from such deposits would necessarily be chargeable to tax under section 56 of the Act. It had also been held in ITA No.520 of 2008 in CIT vs. Cooperative Cane Development Union Limited that where the investment in securities was not a primary object of the Cooperative Cane Society and the objects of the society did not provide for investment of money in post office and bank and for earning of interest, the interest earned out of investments made in the bank would be an interest which would be income from other sources and it would be chargeable to tax under section 56 of the Act. The ld. Sr. DR submitted that since the issue was covered in favour of the Revenue by the verdicts of the Hon’ble Supreme Court and the Hon’ble jurisdictional High Courts, the ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 12 assessee’s appeal in the three cases on the similar issue deserve to be dismissed and the orders of the ld. CIT(A) deserve to be upheld. 8. We have duly considered the facts and circumstances of the case and the arguments placed before us. We noticed that virtually identical issues came up for consideration before us in the case of Cooperative Cane Development Union Limited, Maholi vs. ACIT, Sitapur in ITA Nos. 165, 166 and 168/Lkw/2023 which was pronounced by the Lucknow ‘B’ Bench on 30.09.2024. We further observed that ground nos.5 & 6 of appeal in ITA No.37/Lkw/2022 and ITA No.15/Lkw/2023 and additional ground nos.3 and 4 of appeal in ITA No.394/Lkw/2019 have been decided by the Bench in the matter of Cooperative Cane Development Union Limited vide order dated 30.09.2024. In the said order, after considering similar arguments advanced by the ld. AR and the ld. Sr. DR, the Bench held as under:- “13. We have duly considered the facts and circumstances of the case. And also the arguments made by both parties. Since the case of the Revenue is based on the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. Income Tax Officer (supra), it would be pertinent to first consider the decision of Hon’ble Supreme Court in that matter. As pointed out by the ld. Sr. DR, as per the said judgment, the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. In that particular case, the Hon’ble Supreme Court observed that, in the facts and circumstances of that case, the assessee society had earned interest on funds which were not required for business purposes at the given point of time. Therefore, as it clarified, on the facts and circumstances of that case, they rendered their judgment that such interest income fell in the category of, “other income” which had rightly been taxed by the Department under section 56 of the Act and therefore, was ineligible for deduction under section 80P of the Act. The two judgments of Hon’ble Allahabad High Court that have been cited by the ld. Sr. DR have followed the principle laid down by the Hon’ble Supreme Court and held, that the objects of the society did not provide for investment of money in a post office or bank and earn interest and therefore, the interest earned out of the investments made in the bank would be an interest, which in turn would be income from other sources that would be chargeable to tax under section 56 of the Act. However, as the ld. Authorized Representative has pointed out, the arguments of the nature that the fixed deposits were made on account of the Statutory provisions (of sections 58 and ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 13 59 of the U.P. Cooperative Societies Act in this case) and was therefore, the condition precedent to doing of business and accordingly “attributable” to the activities of the assesse cooperative, was not brought before the Hon’ble Allahabad High Court in either of the judgments cited by the ld. Sr. DR. Furthermore, M/s Cane Cooperative Development Council had appealed the judgment of Hon’ble Allahabad High Court in ITA No. 183/2016 to the Hon’ble Supreme Court in Civil Appeal No. 7405 to 7409 of 2021 and placed the statutory rules before the Hon’ble Supreme Court. After considering that such rules may have a bearing on the nature of income and entitlement to exemption under section 80P of the Act, the Hon’ble Supreme Court had remitted the matter back to the Income Tax Appellate Tribunal to decide the appeals afresh, without being bound or influenced by the earlier orders passed by them or by the Hon’ble High Court. In view of such orders of the Hon’ble Supreme Court, the case laws of the jurisdictional Hon’ble Allahabad High Court cited by the ld. Sr. DR did not constitute a binding precedent for the ITAT, Lucknow Bench in the case of Cooperative Cane Development Council in ITA Nos. No.285/Lkw/2015, 474/Lkw/2015, 525/Lkw/2015, 536/Lkw/2015 and 540/Lkw/2015. The Hon’ble ITAT, Lucknow Bench after considering the byelaws and the statutory rules, the decisions of Hon’ble Allahabad High Court in CIT vs. Krishak Sahkari Ganna Samiti Limited 258 ITR 594 (Alld) and CIT vs. Cooperative Cane Development Union Limited 118 ITR 770 (Alld) and the decisions of the Tribunal in Income Tax Officer vs. Sahkari Ganna Vikas Samiti, Rupapur Chouraha (Munder), Hardoi in ITA No. 467/Lkw/2013 held as under:- “7.1 Now the parties are again before us. We find that assessees had earned interest from fixed deposits from bank and co-operative society. Hon'ble Supreme Court, after acceptance of additional documents had set aside the issue before this Tribunal for readjudication. We find that the arguments of the assessees are that the assessees had placed the funds in the form of fixed deposits with nationalized banks and Co- operative banks in view of the specific requirements of U.P. Co- operative Societies Act. We find that section 58 of the U.P. Co- operative Societies Act requires the net profit to be distributed as under: \"(a) An amount not less than twenty five percent shall be transferred to a fund called the reserved fund: (b) Not less than such amount as may be prescribed, shall be credited to a Co- operative Education fund to be established in the manner prescribed, and this shall be applicable to such cooperative society also which incur loss in the year, [Provided that the provisions of this clause shall not apply to a Primary Agriculture Credit Co-operative Society, a Central Cooperative Bank or the Apex Bank.',] (c) An amount that may be prescribed shall be credited to the research and development fund created in the Apex Societies of the concerned class of Co- operative society and which shall be maintained for the purpose of Research and development in the prescribed manner. ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 14 (d) an amount not exceeding twenty percent as may be prescribed shall be transferred to a fund called the Equity Redemption Fund to be established and utilized in the manner prescribed by such co- operative Society which has the subscription of the State Government in its share capitals.\" 7.2 Hon'ble Allahabad High Court in the case of CIT vs. Krishak Sahkari Ganna Samiti Ltd. [2002] 258 ITR 594 (Alld) has held that the investment by co-operative Society in the form of Government securities, equivalent to 25% of its profit, was the requirement of keeping the same as statutory reserve therefore, has held that such earning of interest was attributable to the activity carried on by the assessee. The relevant findings of Hon'ble Allahabad High Court are reproduced below: \"Clause (c) of Section 80-P(2) exempts income of cooperative society to the extent mentioned in that section if the profits or gains are 'attributable' to the activity in which the Cooperative Society is engaged. The findings are that under statutory provisions the Cooperative Society is bound to invest 25% of its profits in Government securities. The assessee complied with this provision. In the process, it earned interest on these investments. The question is whether such profits or gains are attributable to the activity of supplying sugarcane carried on by the assessee. In Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 1TR 84 the Supreme Court held that the expression 'attributable to suggests that the Legislature intended to cover receipts from sources other than the actual conduct of the business of the assessee. The investment of the statutory percentage of its profits in Government securities was a condition of the carrying on the business. The profits or gains from such investments were connected with or incidental to the carrying on of the actual business. They were, in our opinion, rightly held by the Tribunal to be attributable to the activity carried on by the assessee within the \"meaning of clause (c) aforesaid. We therefore, answer the question referred to us in the affirmative in favour of the assessee and against the Department. 8. Following the aforementioned ratio laid down by the Division Bench which we consider binding on us, we too answer the question referred to us in the affirmative in favour of the assessee cooperative Society and against the Revenue.\" 7.3 Further we find that the assessee has relied on a judgment of Raipur Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit vs. Income Tax Officer [2022] 138 taxmann.com 476 (Raipur-Trib.) wherein the Tribunal has held that the interest earned by the assessee from deposit with co-operative bank and nationalized bank was eligible for deduction u/s 80P(2)(a) of the Act. 7.4 The above two judgments respectively by Hon'ble High Court and Tribunal hold that the interest earned by a Co-operative Society on deposits, which are statutorily required to be kept in the form of bank deposits or Government securities, are attributable to the business of an assessee. 7.4 Here in the present cases, we do not find the figures regarding the interest which the assessees may have earned on fixed deposits attributable to the making of statutory reserves. We further find that bye laws of the assessee has to be gone through which, though are available in the paper book, but require examination by the Assessing Officer as these were filed before Hon'ble Supreme Court as additional evidences. Therefore, we deem it appropriate to remit the issue of deduction u/s 80P for readjudication by the Assessing Officer, who, in the light of judgment of ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 15 Hon'ble Supreme Court and keeping in view the judgments relied on by the assessee and keeping in view the additional documents, as filed before Hon'ble Supreme Court, will adjudicate the issue afresh. Needless to say that the assessees will be provided sufficient opportunity of being heard.” 14. Subsequent on the said remand, the matter was examined by the Revenue and after consideration of the decision of the Hon’ble Supreme Court and the other judgments relied upon by the Hon’ble ITAT while remanding the matter back to him, the ld. Assessing Officer held as under:- \"3.3 Reason for inference drawn that no variation is required on this issue: The submissions made by the Assessee have been examined thoroughly particularly the bylaws of the Assessee Society and the U. P. Co-operative Societies Act. On going through the by-laws of the Assessee Society, it has been noticed that its Part 14 i.e. \"Disposal of Net Profit and Societies\" Assets and funds and appropriation thereof deals with the appropriation of Net Profits and Funds of the Assessee Society. Further, it has also been noticed that the aforementioned Part-14 of the bylaws of the Societies are in accordance with section 58 and 59 of the U. P. Co-operative Societies Act. Further, it has also been noticed that the secured reserve as well as other reserves are created in Annual General Meeting of the Society as per its bylaws and get accumulated over the year. These reserves are kept in co-operative and nationalized banks from where the Assessee earns the interest income under question. In view of the aforementioned facts, it is inferred that the reserve funds kept by the Assessee with Co-operative and nationalized banks are as per the by-laws of the Society and accordingly interest income arising from these funds can be held to be attributable to its main activities and therefore, the assessee is eligible for deduction in respect of this interest income under section 80P(2)(a) of the Act as per the case laws referred to and relied upon by the Hon'ble L.T.A.T. i.e. Judgments of Hon'ble Allahabad High Court in the case of CIT Vs. Krishak Sahkari Ganna Samiti Limited [2002] 258ITR594 (Allahabad) and ITAT, Raipur in the case of Gramin Sewa Sahakari Samiti Maryadit Vs. Income Tax Officer 92022), 138 Taxmann.com 476 (Raipur Tribunal).” 15. Thus, the principle that interest income arising from investments in statutory reserve funds and other funds as per the provisions of sections 58 and 59 of the U.P. Cooperative Societies Act is “attributable” to the main activities of that Society, has been accepted by the Revenue. The assessee is governed by the same U.P. Cooperative Societies Act and Rules as the Cooperative Cane Development Council, Lakhimpur and therefore, in its case also, it must be held that interest earned from investment made by it as per sections 58 and 59 of the U.P. Cooperative Societies Act r.w.r.173 of the U.P. State Cooperative Rules, is attributable to the activity in which the assessee is engaged and therefore, is eligible to be deducted under section 80P(2)(a) of the Act. 16. We have further observed that the Hon’ble Madras High Court in the case of K. 2058, Saravanampatti Primary Agricultural Co-Operative Credit Societies Ltd. v. Income Tax Officer 426 ITR 251 (Mad), after considering ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 16 that the Societies was required to maintain a statutory reserve of 25% under the Tamilnadu Cooperative Societies Act held that the same could not be regarded as the surplus funds of the Society as decided in M/s Totgars Cooperative Sale Society Limited (supra) and therefore, it set aside the assessment of the ld. Assessing Officer in the light of the decision of the Hon’ble Supreme Court in CIT vs. Nawanshahar Central Cooperative Bank Ltd. 289 ITR 6 (SC) ‘.Therefore, in view of the arguments made by the learned Authorized Representative, that the investment in fixed deposits and other securities or on account of the provisions of sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and section 173 of the U.P. Cooperative Societies Rules, 1968, it is quite clear that since it has been held that interest on such investment is attributable to the main activity of the assessee cooperative society, the interest earned from such investments ought not to be regarded as a surplus within the meaning of Totgar’s Case, but an interest attributable to the main activity of the assessee cooperative and therefore, deductible under section 80P. The assessee has submitted copies of its byelaws and the detailed breakup of investments and interest arising on the same. However, we observe that the ld. Assessing Officer has not examined the breakup of such investments and the interest earned on the same, with reference to the byelaws or sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Societies Rules, 1968 as he was of the view that no such interest was deductible in view of the decision of Hon’ble Supreme Court in the case of Totgars (supra). Now that the position with regard to such investments has been clarified by the Hon’ble ITAT in the case of Cooperative Cane Development Council, Lakhimpur and accepted by the Revenue in the consequent assessment, we deem it appropriate to restore the matter in all three cases back to the file of the ld. Assessing Officer for the limited purpose of re-computing the admissible deduction under section 80P with reference to the interest earned on investments made in accordance with sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Societies Rules, 1968 . Ground numbers 1 to 5 are accordingly allowed. With regard to Ground no 6 on the issue of adding back the interest on PF balance of the seasonal employees of the society, we observe that the same cannot be considered to be the investments of the society and accordingly the interest accruing on the said amount cannot be said to be income of the society. Therefore, any adding back of such interest income to the income of the society is not maintainable and accordingly, additions made on this account in A.Ys. 2017-18 and 2020-21 are deleted. In view of the fact that we have allowed Ground numbers 1 to 5, Ground numbers 7 to 9 are rendered infructuous and are dismissed as such.” 9. Accordingly, following the said order, we restore the matter back to the file of the ld. AO to re-compute admissible deduction under section 80P to the interest earned on investments made in accordance with sections 58 and 59 of the U.P. ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019 M/s Cooperative Cane Development Union Ltd. 17 Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Society Rules, 1968. Such investments that have been made in accordance with these statutory provisions would be regarded as attributable to the business of the assessee society and eligible for deduction under section 80P. Furthermore, since the provident fund balances do not belong to the assessee, but the assessee is merely a custodian of the same and the interest earned on the investments made on this account is credited to this account which is to ultimately be repaid to the employees at the conclusion of their contracted terms, the interested on the same cannot be regarded as the income of the assessee and cannot be brought to tax in its hands. Accordingly, ground nos.1 to 5 of ITA No.37/Lkw/2022 and additional ground of appeal in ITA 15/Lkw/2023 and ground nos. 1 to 5 and additional ground no.3 of appeal in ITA No.394/Lkw/2019 are held to be allowed for statistical purposes while ground no. 6 of appeal in ITA Nos.37/Lkw/2022 and 15/Lkw/2023 and additional ground no. 4 of appeal in ITA No. 394/Lkw/2019 are held to be allowed. In view of our decision on the aforesaid grounds, the remaining grounds, which have not been pressed by the ld. AR are held to be infructuous and dismissed as such. 10. In the result, all three appeals are partly allowed. Order pronounced on 30.04.2025. Sd/- Sd/- [KUL BHARAT] [NIKHIL CHOUDHARY] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 30/04/2025 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S. "