MAHATMA GANDHI NAGRI SAHAKARI PAT SANSTHA MYDT UDGIR,LATUR V. INCOME TAX OFFICER- WARD 1 -LATUR, LATUR

ITA 670/PUN/2025

AI Insights

The case involves the Mahatma Gandhi Nagri Sahakari Pat Sanstha Mydt Udgir, a Co-operative Credit Society, which appealed against the orders of the Commissioner of Income Tax (Appeals), NFAC, Delhi, for the Assessment Years 2018-19 and 2020-21. The primary issue was the disallowance of deductions claimed under sections 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act for interest income earned from deposits in Co-operative banks. The Assessing Officer had treated this income as 'other income' and not eligible for deduction under the specified sections, a decision upheld by the CIT(A). The Tribunal, however, found that the interest income was indeed part of the business income of the assessee and thus eligible for the claimed deductions, referencing a series of favorable judicial decisions and the principle of mutuality in cooperative societies.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 774490 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Appeal Filed On: 06-03-2025
• Other Referred Cases: Pr. CIT Vs. The Totagars Co-operative Sale Society, CIT Vs. Shri Sangam Sahakari Sakkare Karkane Niyamith, Katlary Kariyana vs. State of Gujarat, Mavilayi Service Co-Op Bank vs. State of Kerala, Secunderabad Club vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P. MURKUNDE
• Assessee Lawyers: MISS SAILEE GUJARATHI VIRTUAL; CATENA OF DECISIONS; CATENA OF; CATENA
• Keywords: Set aside; Business income; Reassessment proceedings; Question of law; Co-operative Credit Society
• Section: 147; 143(3); 142(1); 56; 28

Judgement Text

" आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA Nos.670 & 671/PUN/2025 धििाारण वर्ा / Assessment Years : 2018-19 & 2020-21 Mahatma Gandhi Nagri Sahakari Pat Sanstha Mydt Udgir, Bidar Road, Near Mahatma Gandhi Udyan, Udgir, Latur-413517 PAN : AABAM7649H Vs. ITO, Ward-1, Latur अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Miss Sailee Gujarathi (Virtual) Department by : Shri Ramnath P. Murkunde Date of hearing : 02-07-2025 Date of Pronouncement : 09-09-2025 आदेश / ORDER PER ASTHA CHANDRA, JM : The above two appeals filed by the assessee are directed against the two separate orders both dated 10.01.2025 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [“CIT(A)/NFAC”] pertaining to Assessment Years (“AYs”) 2018-19 and 2020-21. Since common issued are involved, both the appeals were heard together and are being disposed of by this common order. ITA No. 670/PUN/2025, AY 2018-19 2. Briefly stated the facts are that the assessee is Co-operative Credit Society registered under the Maharashtra Co-operative Societies Act, 1960 and engaged in the activity of providing credit facility to its members. For AY 2018-19, the assessee filed its return of income declaring total income at Rs. Nil after claiming deduction u/s 80P(2)(a)(i) of Rs.3,00,30,803/-. The case of the assessee was selected for complete scrutiny assessment under the E-assessment Scheme, 2019 on the following issues : (i) Bonus or Commission to Employee; (ii) Investment/Advances/Loans and (iii) Printed from counselvise.com 2 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 Deduction from total income under Chapter VI-A. Accordingly, statutory notice(s) u/s 142(1) of the Act were issued and served upon the assessee seeking information regarding the deduction claimed by the assessee, in response to which the assessee filed its part reply stating that it does not have any other business activity apart from the business of accepting deposits from the members and lending loans to members and that these activities are performed strictly as per the approved Bye-laws of the society. The Ld. Assessing Officer (“AO”) noted that during the relevant AY the assessee has earned interest of Rs. 3,04,88,392 from investments in Co- operative and a show cause notice was issued as to why the said interest income claimed as deduction under section 80P(2)(a)(i)/80(P(2)(d) of the Act be not disallowed and added back as income from other sources. The show cause notice issued by the Ld. AO remained uncomplied with. 2.1 Before the Ld. AO, taking support from the catena of decisions pronounced by various judicial forums on the impugned issue favorable the assessee, the assessee contended that the interest income earned during the relevant AY from deposits with Co-operative Banks tantamount to business income of the assessee and is an allowable deduction u/s 80P(2)(a)(i) of the Act. Alternatively, the said income is also an allowable deduction u/s 80P(2)(d) of the Act. 2.2 The above submissions of the assessee were however found to be not acceptable by the Ld. AO. Relying on the decision(s) of the Hon‟ble Karnataka High Court in the case of Pr. CIT Vs. The Totagars Co-operative Sale Society in ITA No. 100066/2016, dated 16.06.2017 (Kar.) and in the case of CIT Vs. Shri Sangam Sahakari Sakkare Karkane Niyamith in ITA No. 100011/2016, dated 30.10.2017 (Kar.), the Ld AO disallowed the deduction claimed by the assessee u/s 80P(2)(a)(i)/80P(2)(d) of the Act amounting to Rs.3,04,88,392/- treating the same as „other income‟. Accordingly, the Ld. AO completed the assessment on 28.09.2021 u/s 143(3) r.w.s. 144B of the Act by making an addition of Rs.3,04,88,392/- as income from other sources being not eligible for deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act 3. Aggrieved, the assessee carried the matter before the Ld. CIT(A)/NFAC challenging the above action of the Ld. AO. Before the Ld. CIT(A)/NFAC, the assessee filed detailed submissions which are Printed from counselvise.com 3 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 incorporated by the Ld. CIT(A)/NFAC in para 3 and 4 of the his appellate order. The assessee contended that the interest income received from Co- operative Banks is a part of its business income and therefore its claim for deduction u/s 80P(2)(a)(i) of the Act ought to have been allowed. It was also submitted that in case of denial of deduction u/s 80P(2)(a)(i) of the Act, an alternate claim u/s 80P(2)(d) of the Act should be allowed to the assessee in view of catena of decisions on the impugned issue rendered in favour of the assessee by various judicial forums including the Pune Tribunal. The Ld. CIT(A)/NFAC rejected the above submissions of the assessee and upheld the action of the Ld. AO. The relevant findings and observations of the Ld. CIT(A) are reproduced below : “Decision:- 5. I have considered the facts of the case, assessment order, submissions made by the appellant and the case laws relied upon. The appellant has raised 7 effective grounds of appeal relating to the addition made by the AO of Rs.3,04,88,392/- treating it as 'Income from Other Sources' invoking provisions of section 80P of the IT Act. The appellant in its submission has sought to withdraw ground of appeal no.6 stating it to be an inadvertently claimed. The ground of appeal no.6 is allowed to be withdrawn. In the remaining grounds of appeal, appellant challenges the action of AO disallowing the deduction claimed by the appellant u/s.80P(2)(a)(i) of Rs. 3,04,88,392/-. Since all are related grounds of appeal same are adjudicated combinedly as under:- (i) The appellant is a Co-operative credit society. The funds of the appellant were deposited in different Co-operative banks and earned interest income of Rs.3,04,88,392/-. The appellant has claimed deduction u/s 80P on the interest income of Rs.3,04,88,392/- on account of being income in the ordinary course of business. (ii) Prima facie, the contentions of the assessee are misplaced. There is a subtle difference between the income earned from mutual operations, and, the parking of such income with a bank. In this case, the AO has not disputed the generation of surplus funds, rather, the only dispute is the interest income from that surplus fund, when such surplus fund is deposited with a non-member, or utilized for general public (who are obviously not a member of such Co-operative society). Such fund, as and when it returns to co-operative society, again assumes the character of fund generated out of mutuality. A co- operative bank i.e. an original cooperative society engaged in banking business, but which has been granted license from RBI, does not remain the species of genus Co- operative society. It transcends into a different genus of Commercial banks. (iii) The specific section which governs the deduction of such interest income if Sec. B0 (PX2)(d). lt exempts interest income accrued from funds deposited in any Co-operative society. However, when Two High Courts, viz, Hon HC of Karnataka, and Hon HC of Gujarat have held that after receipt of RBI license, the Co-operative Bank moves out of the basket of Co-operative society, and impliedly into the basket of Commercial bank, the interest income shall become outside the purview of S 80(P)(2)(d) benefits and shall be taxable as per the legislative intent. To this extent, all the decisions quoted by the assessee are silent, including jurisdictional ITAT, Raipur and are Printed from counselvise.com 4 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 hence distinguished as being sub-silentio. The decision of Hon HC has a persuasive value and stands at a higher pedestal of jurisprudence. The following discussion will further clarify the reason for my decision. (iv) Kind attention is invited to the decision of Hon Gujarat High Court in Katlary Kariyana, (2022) 215 DTR 0125 (Guj), (2022) 327 CTR 0138 (Guj), especially para 2.4 wherein the primary question was formulated by Hon'ble Gujarat High Court. The para 2-4, reads as follows: Para 2.4 2.4 The principal ground which was taken into consideration yyas as regards the deduction claimed by fhe assessee society in terms of provisions of Section 80P(2)(d) of the lncome Tax Act, as not admissible being interest received on FDR's from the cooperative banks and nationalized banks. (v) lt is hence seen that this question of law is almost the same question of law, which is to be answered in impugned appeal. To be more specific and precise, here the issue is only of deposit of surplus funds Cooperative Bank. The most common fact seen in the case of this assessee is that the surplus funds with the Co-operative Societies are deposited with Co-operative Banks and interest earned from such Cooperative Banks are claimed as permissible deduction (impliedly u/s 80(P)(2)(d) and specifically under S 80(P)(2)(a) (i) of the IT Act. That Sec 80P(2)(a)(i) of the Act is not applicable for the simple reason that the surplus funds have not been utilized in the ordinary course of business of assessee. !t is not the business of the assessee to deposit surplus funds in banks and earn interest thereon. The ordinary course of business is the assessee is to act as primary Agriculture Credit society for its members. When surplus funds are deposited in a NON-MEMBER, like Bank, the privity of mutuality is extinguished. lt is akin to earning by transactions with Non-Member. (vi) For a context on the status of a Co-operative Bank (where funds have been deposited), the decision of ld. SC in the Mavilayi Service Co- op Bank case, in para 22 and 23 should be seen (CA No. 7343- 7350 of 2019). Hon. SC has given a mechanism to test as to when a Co-op Society can be called a Cooperative Bank. The relevant extracts are as follows: (Mavilayi Service Co-Op) '22. With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a cooperative bank. However, if it is a primary agricultural credit society or a primary cooperative agricultural and rural development bank, the deduction would still be provided. Thus, cooperative banks are now specifically excluded from the ambit of Section B0- P. 23. lf one has to go by the aforesaid definition of \"cooperative bank\", the appellant does not get covered thereby. /t ls a/so a matter of common knowledge that in order to do the business of a cooperative bank, it is imperative to have a license from Reserve Bank of India, (para 20) The Hon. SC in Mavilayi, supra, has defined a test that once the RBI license is received, a Cooperative Society shall become a Co- operative Bank. This issue is important in this case also in order to test whether the excess funds of the appellant were deposited with Cooperative bank or not. Though Hon. SC has given a test to identify Printed from counselvise.com 5 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 Co-operative bank, it has not answered a possible question whether Co- operative Bank loses its basic characteristics of a Cooperative society or not. (vii) This issue has been addressed in KatlaryKariyana, supra by Hon Gujarat HC: Para 6: KatlaryKariyana 5. Learned senior advocate Mr. Bhatt has further taken this Court to the order passed by the Assistant Commissioner of Income Tax Circle, Himmatnagar, while disposing of the objections filed by the assessee against the reassessment proceedings under Section 147 and has strenuously submitted that the Assessing Officer has rightly observed that the interest derived from the credit provided to its member is deductible under Section 80P(2)(a)(i) of the Act, however, on verification of the case record at the stage of scrutiny assessment, it was noticed that the assessee had received interest on FDR's from the Cooperative banks and Nationalized banks amounting to Rs.18,08,444/-. The Assessing Officer was therefore, right in holding that the interest derived by depositing surplus fund with the bank was not attributable to the business carrying on by assessee which could be considered for deduction under Section 80P(2)(a)(i) of the Act. In fact, such interest derived from the FDRs from the Cooperative Bank and Nationalized Bank are not admissible for deduction in view of Section 80P(2)(d) of the Act. (emphasis supplied) Para 9-1 0 (part):Katlary Kariyana 9. We have extensively heard both the learned Counsels appearing for the respective parties and have perused the record, examined relevant provisions as well as a/so carefully gone through the judgments relied upon. 10. Before this Court dwells into the issue on hand, it would be apt to reproduce section 80P of the Income Tax act, 1961 , which reads as under: \" Section 80P : Deduction in respect of income of co-operative societies 80P.(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of the agricultural produce of its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities; (b) ……. (c) . …. Printed from counselvise.com 6 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co- operative society, the whole of such income; (viii) At this juncture, attention is again invited to the relevant parts of the provision of S. 80 (P)(2)(d) emphasizing that till now, the question whether the Cooperative Banks lose the character of Co-operative society still remains to be answered in unequivocal terms. For this the para 13 of the decision of Katlary Kariyana is relevant where Hon. Gujarat HC has discussed the issues and decision in the case of Totagars (2017) and Totagars (2010): Paras 13: KatlaryKariyana 13. Similar issue arose for consideration before the Hon'ble High court of Karnataka (Dharwad Bench) in the case of Principal Commissioner of Income Tax and ors. Vs. Totagars co-operative sale Society, reported in (2017) 395 ITR 611(KAR). The substantial questions of law which arose for consideration as recorded in Para 1 are reproduced as under: \" (l) Whether the asses see, Totagar Co-operative Sale Society, Sirsi, is entitled to 100% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (for short 'the Act') in respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the deposits or investments made by it during these years with a Co-operative Bank, M/s.Kanara District Central Co-operative Bank Limited? (ll) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sa/e Society Limited itself rendered on )Bth February 2010, in Totgar's Co-operative Sale Society Limited v. ITO, reported in MANU/SC/0095/2010: (2010) 322 ITR 283 SC: (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991- 1992 to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT(Appeals) were justified in holding that such interest income was 100 percent deductible under section 80P(2)(d) of the Act?\" That while holding the aforesaid issues in favour of the revenue department, the Court followed the decision of the Hon'ble Supreme Court in the case of same assessee which was later on followed by this Court in the case of State Bank of India Vs. ClT, reported in MANU/GJ/1053/2016 : (2016) 389 ITR 578 (Guj), relevant paras are reproduced as under: \"16. In case where the co-operative society is a bank, one of its objects would be to carry on the general business of banking. Like other banks, money would be ifs stock-in-trade or circulating capital and its normal business is to deal in money and credit. The business of such a bank does not consist only of receiving deposits and lending money to its members or such other societies as are mentioned in the objects. When such a society lends out its monies so that they may be readily available to meet the demands of its depositors if and when they arise, it is a legitimate mode of carrying on ifs banking business. In case of a credit society like the present one, the business of the society is limited to providing credit to its members and the income Printed from counselvise.com 7 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 that is earned from providing such credit facilities to its members is deductible under section B)P(2)(a)(i) of the Act. However, investing ifs surplus funds with the State Bank of India is no part of the business of the appellant of providing credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India is profits and gains of business attributable to the activities of the appellant society. The character of the interest is different from the income attributable to the business of the society of providing credit facilities to its members. The interest income derived from investing surplus funds with the State Bank of India must be closely linked with the business of providing credit facilities for it to be held that it is attributable to the business of the assessee. Therefore, the profits and gains can be said to be directly attributable to the business of providing credit facilities to its members if there is a direct and proximate connection between the profits gains and the business of the appellant. In the present case there is no obligation upon the appellant to invest ifs surplus funds with the State Bank of India. Investing surplus funds in a bank is no part of the business of the assessee of providing credit facilities to its members. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India not being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i) of the Act. If the appellant wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a co-operative bank and avail of deduction under section 80P(2)(d) of the Act. 17. Section 71 of the Gujarat Co-operative Societies Act, 1961 permits a society to invest or deposit its fund in the State Bank of India. Therefore, while investment in the State Bank of India is permissible under section 71 of that Act, there is no statutory obligation cast upon the appellant to deposit funds as a part of its business. The said provision also permits investment of funds in any co- operative bank or any banking company approved for this purpose by the Registrar on such conditions as the Registrar may from time to time impose. However, insofar as the provisions of the Income Tax Act are concerned, under section 80P(2)(d) thereof, it is only the income by way of interest or dividends derived by a cooperative society from its investments with any other cooperative society which is required to he deducted while computing the total income of the assessee.\" Thus, following the decision of the Hon'ble Supreme Court in the case of Totagar's Co- operative Sale Society Ltd., (2010) 322 ITR 283(SC) it was held that interest earned from investments made in any bank, not being co-operative society, is not deductible under section 80P(2)(d) to the act. (emphasis supplied) (ix) The decision in Totagars (2010) and SBI (2016) deal with cases prior to amendments by Finance Act 2015. In fact, the decision of SBI implies that interest earned from deposit in any co-operative Bank will be permissible under Sec. B0 (P) (2) (d) of the IT Act. Thus, Hon Gujarat HC has treated Co-Operative Banks at par with Co-operative Societies. However, the decisions in Totagars (2017) and KatlaryKariyana(2}22) have discussed the scenario post amendment in IT Act. Kind attention is invited to paragraph 14 and 15 of KatlaryKariyana. Paragraph 14 and 15:. KatlaryKariyana. \"14. This Court further finds that by virtue of amendment in section 19aAp)(v) of the Income tax act, it has also excluded the cooperative Printed from counselvise.com 8 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 banks from the definition of \"co- operative society\" by the Finance act,2015. The High Court of Karnataka has taken note of this amendment in the case of Totagars Coop/sale society (Supra) (2017) 395 ITR (KAR) thereby holding that the effect of the aforesaid amendment explicitly makes clear intention of legislation that co- operative banks are not specie of genus co- operative society, which would entitled to exemption or deduction under the special provisions of Chapter Vl-A in the form of section 80P of the Act. 15. In view of aforesaid settled legal position, and having held that the allowance of deduction of the income derived by way of interest from the investment in the form of FDR's with other banks was incorrect.............\" (x) ln paragraphs 14 and 15, Hon HC of Gujarat has held that the Go- operative Banks are not species of genus Co-operative Societies. Thus, the previous view that Cooperative Banks are akin to Cooperative society has been reversed by Hon Gujarat HC. There is a categorical finding that Cooperative banks are no more Cooperative societies. Impliedly, Hon. Gujarat HC has approved and followed the decision of Totagars (2017) in holding that deduction of interest income derived by a Cooperative society by way of interest from investment of surplus funds with any bank, including Co-operative Bank, was not deductible under Sec 80(P)(2)(d) of the Act. (xi) At this juncture, it would be worthwhile to reproduce relevant extracts from Totagars (2017) PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS COOPERATIVE SALE SOCIETY, (2017) 99 CCH 0126 KarHC(2017) 154 DTR 0025 (Kar), (2017) 297 CTR 0158 (Kar), (2017) 395 ITR 061 1 (Kar) for ready reference: (Totagars 2017) 9. We have heard the learned counsels at length and perused the record and the judgments cited at the Bar 10. Admittedly and undoubtedly, the respondent assessee is a Co- operative Society engaged mainly in the activity of marketing of agricultural produces grown by its members. The assessee co- operative society also accepts deposits from its members and provides credit facility to its members, runs Kirana Stores, rice mills, live stocks, van section, medical shops, Areca-nut trading section, lodging, plying and hiring of goods carriage, etc. 11. The Assessment Years involved in the present batch of appeals are Assessment Years 2007-2008 to 2011- 2012. The bone of contention is that the deduction under Section 80P(2) of the Act is now claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's decision against the assessee Totagar's Co-operative Sale Society Ltd. (supra), fhe assessee has shifted the deposits and investments from Schedule Banks to Co-operative Bank and such Co-operative Bank is essentially a Co-operative Society also and Clause (d) allows deduction of income by way of interest or dividends derived by the assessee Cooperative Society from its investments with any other Cooperative Society. 12. The sheet anchor of the contention of the learned counsel for the assessee misses two essential points required for claiming the exemption or 100% deduction from gross total income for a cooperative society: (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co-operative Printed from counselvise.com 9 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 Bank. (ii) that What the Hon'ble Supreme Court held in the case of the respondent assessee itself, against the assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under Section 28 of the Act, but was taxable as \"income from other sources\" under Section 56 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to (f) Subsection (2) of Section 80P of the Act should be its business or operational income. 13. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Cout, envisages is that such interest or dividend earned by an assessee cooperative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co- operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. 14. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section B)P of the Act was to exclude the applicability of Section B)P 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. The depository Kanara District Central Bank Limited in the present case is admittedly not such a primary agricultural credit society. 15. The amendment of Section 194A(3)(v) of the Act excluding the Co- operative Banks from the definition of \"Co- operative Society\" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. 16. lf the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise. 17. As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. lt is needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be Printed from counselvise.com 10 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 inferred in such provisions. What was clearly held to be not exempt and not deductible under section 80P(2)(a) of the Act by the Hon'ble Supreme Court in the case of respondent assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the respondent assessee happens to be a co-operative bank. We cannot appreciate this distinction so as not to apply the binding precedent of the Hon'ble Supreme Court for subsequent years merely on account of the change of the Bank where such deposits were made by the respondent assessee, all other facts remaining the same, particularly the nature and character of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. Para 23 23. Thus, the aforesaid judgments supports the view taken by this Court that character of income depends upon the nature of activity for earning that income and though in the face of it, the same may appear to be falling in any of the specified Clauses of Section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under Section 80P(2) of the Act. The case in Udaipur Sahakari Upbhokta Thok Bhandar Ltd. (supra) was that of Section 80P(2)(e) of the Act, whereas in the present case, it is under section 80P(2)(d) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a cooperative bank and thus, clause (d) of Section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P of the Act, as held by the Hon'ble Supreme Court. Conclusion: Deduction u/s 80P(2)(d)-Deduction in respect of income of co-operative societies-Interest income-Eligibility for deduction-Lower authorities held that, assessee-Co-operative Society was genus term and co- operative Bank was also specie of Co-operative Society and since, clause 80P(2)(d) of Act permitted such 100% deduction in respect of income by way of interest or dividends derived by Cooperative Society (Assessee) from its investments with any other Co-operative Society (including Co-operative Bank) and whole of such interest income was eligible for 100% deduction -Revenue claimed that, assessee was not entitled to 100% deduction u/s 80P(2)(d) in respect of whole of the income by way of interest earned by it during relevant Assessment Years on deposits or investments made by it during these years with Co-operative Bank- Held, admittedly and undoubtedly, respondent assessee was Co-operative Society engaged mainly in activity of marketing of agricultural produces grown by its members-Assessee cooperative society also accepts deposits from its members and provides credit facility to its members, runs Kirana Stores, rice mills, live stocks, van section, medical shop, Areca-nut trading section, lodging, plying and hiring of goods carriage-Income by way of interest earned by deposit or investment of idle or surplus funds did not change its character irrespective of fact whether such income of interest was earned from schedule bank or co-operative bank and thus, clause (d) of Section 80P(2) would not apply in facts and circumstances of case-Person or body corporate from which such interest income was received would not change its character, viz. interest income not arising from its business operations, which made Printed from counselvise.com 11 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 it ineligible for deduction u/s 80P-Appeals filed by Revenue deserved to be allowed-Revenue's appeal allowed. (xii) In the recent decision of Secunderabad Club rendered by Hon. SC in Secunderabad Club vs CIT in CIVL APPEAL NO(S). 51955201 OF 2012, order dated 17/08/2023(2023) 117 CCH 0114 ISCC, (2023) 334 CTR 0105 (SC), (2023) 457 ITR 0263 (SC), (2023) 295 TAXMAN 0123 (SC), the issue of 'privity of mutuality' was highlighted. Relevant extracts from the order are as follows: Para 3: Secundrabad Club Bird's eye view of the controversy: 3. A short but interesting question of law arises in these cases, which is, whether the deposit of surplus funds by the appellant Clubs by way of bank deposits in various banks is liable to be taxed in the hands of the Clubs or, whether, the principle of mutuality would apply and the interest earned from the deposits would not be subject to tax under the provisions of the Income Tax Act, 1961 (hereinafter referred to as \"the Act\" for the sake of convenience). The High Courts in the impugned judgments have uniformly held that the interest earned on the bank deposits made by the clubs is liable to be taxed in the hands of the clubs and that the principle of mutuality would not apply. Para 30-35: Secundrabad Club 30. We have considered the arguments advanced at the Bar on behalf of the respective parties; and considered the nuances of the principle of mutuality in the context of the applicability of the said principle with regard to the interest income earned on fixed deposits made in banks/financial institutions by the appellant Clubs, in the backdrop of the dictum of this Court in the case of Bangalore Club. 31. While considering the triple test for applying the principle of mutuality, we find that in the case of Bangalore Club, the aforesaid triple test was applied. It was reiterated that the principle of mutuality envisages: (i) Complete identity between the contributors and participators; (ii) Action of the participators and contributors must be in furtherance of the mandate of the associations or the Clubs. The mandate of the Club is a question of fact which has to be determined from the Memorandum or Articles of Associations, Rules of Membership, Rules of the Organization, etc., which must be construed broadly. (iii) There must be no scope for profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. 32. Applying the aforesaid principles to the facts of the case, it was observed in Bangalore Club, that in relation to transactions, namely, deposit of surplus funds earned by the clubs, in banks which are members of the club, the principle of mutuality applies till the stage of deposit of funds and would lose its application, once the funds are deposited as fixed deposit in the banks. This is because the funds would be exposed to commercial banking operations which means that the deposits could be used for lending to third parties and earning a higher interest thereon and by paying a lower rate of interest on the fixed deposits to the clubs. That the bank's utilizing the funds of the clubs deposited in fixed deposit receipts, for their banking business would completely rupture the \"privity of mutuality\" and as a result, the element of complete identity between the contributors and Printed from counselvise.com 12 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 participators would be lost. Consequently, the first condition for the claim of mutuality is not satisfied. 33. That, it is not a normal activity of the appellants-clubs to deposit funds in a bank. lt is only when a surplus is generated. These appellant Clubs just like Bangalore Club are social clubs, and it is the surplus funds earned through various activities of the Clubs which are deposited as fixed deposit in the banks so as to earn an interest owing to the business of banking. In the absence of the said fixed deposits being utilized by the banks for their transactions with their customers, no interest can be payable on the fixed deposits. This is so in respect of any customer of a bank who would deposit surplus funds in a bank. It may be that the interest income would be ultimately used for the benefit of the members of the Clubs but that is not a consideration which would have an impact on satisfying the triple test of mutuality. It was observed in Bangalore Club that even if ultimately the interest income and surplus funds in the fixed deposit are utilized for the benefit of the members of the clubs, the fact remains that when the fixed deposits were made by the clubs in the banks, they were exposed to transactions with third parties, i.e., between the banks and its customers and this would snap the principle of mutuality breaching the triple test. When the reasoning of this Court in Bangalore Club is considered in light of the judgments of overseas jurisdictions, it is noted that this proposition would squarely apply even to fixed deposits made in banks which are members of the clubs. In other words, it is only profit generated from the payments made by the members of the clubs, which would not be taxable. This was also the reasoning in the case of Royal Western India Club (supra), wherein it was observed that where services are rendered by the club to both members and non-members, the dealings of the Club with non-members is in the ordinary course of the business carried on with a view to earn the profits, as in any other commercial concern and hence, subjected to tax. This is on the principle that complete identity between the contributors and the recipients is absent. 34. The question asked therefore is - at what point does the relationship of mutuality end and that of trading begin. lf there is an entry of a third party or non-member to deal with the contributions of or funds of the club or to utilize the funds of the club and return the same with interest, then, the relationship of the parties is not on the basis of a privity of mutuality. The essential condition of mutuality, i.e., identity between the contributors and participators would end. The relationship would then be like any other commercial relationship such as that between a customer and a bank where the fixed deposit is made by the customer for the purpose of earning an interest income. 35. lf the principle of mutuality is to apply, then, where a number of people contribute to a fund are ultimately paid the surplus from the fund, it is a mere repayment of the contributors' own money. However, if the very same surplus fund is not applied for the common purpose of the club or towards the benefit of the members of the club directly but is invested with a third party who has the right to utilize the said funds, subject to payment of interest on it and repayment of the principal when desired by the club, then, in such an event, the club loses ifs control over the said funds. Further, the interest generated on the fixed deposits or investment made is a commercial activity, thereby permitting the bank to utilize the fixed deposit amount for its banking business and derive profits from the said banking business by way of lending the amount for a higher rate of interest while paying a lower rate of interest on the fixed deposit made by the club. Thus, identicality between the contributors to the common fund and Printed from counselvise.com 13 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 the participators in it which is a sine qua non for the application of the principle of mutuality would get ruptured. When surplus funds of a club are invested as fixed deposits in a bank and the bank has a right to utilize the said fixed deposit amounts for its banking business subject to repayment of the principal along with interest, then, the identity is lost. 5.1 ln the light of the above discussions, it is held that once the surplus fund is removed from the arena of mutuality, and placed at the disposal of a Co-operative bank, where there is no restriction in its utilization by non-member general public, the privity of mutuality is lost. The Cooperative Bank has earned a higher interest and passed on a portion of such interest earned from general public to the appellant assessee. As such, the amount of interest income is not generated on account of transactions by and within the members of Cooperative Society - the present appellant instead from non-member co-operative banks. Since the income is not earned by applying privity of mutuality, it is outside the purview of deduction u/s 80P of the IT Act, from both 80P(2)(a)(i) as well as 80P(2)(d). This amount of Rs.3,04,88,392/- cannot be permitted as deduction. The action of AO is upheld and the grounds of appeal nos. 1 to 5 &7 are dismissed.” 4. Aggrieved, the assessee is in appeal before the Tribunal raising the following grounds of appeal:- “1. On the facts and circumstances of the case and in law, the honourable CIT (A) erred in confirming the addition made by the Learned AO of Rs 3,04,88,392/- without appreciating the facts of the case in proper perspective. The appellant hereby prays that the addition of Rs 3,04,88,392/- may please be deleted. 2. On the facts and circumstances of the case and in law, the honourable CIT (A) erred in confirming the addition made by the Learned AO of Rs 3,04,88,392/- being interest earned on deposit with various Cooperative Banks by treating the same “Income from Other Sources” without appreciating the fact that the appellant is engaged in the business of providing credit facilities to its members and the interest income earned on such deposits is eligible for deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 („Act‟). Hence, the appellant hereby prays deduction of Rs. 3,04,88,392 may please be allowed under section 80P(2)(a)(i) of the Act. 3. On the facts and circumstances of the case and in law, without prejudice to the ground of appeal no 1 and 2, the honourable CIT (A) erred in denying the deduction under section 80P(2)(d) of the Act. Hence, without prejudice to ground of appeal 1 and 2, the appellant hereby prays that the deduction of interest income of Rs 3,04,88,392/- may please be allowed under section 80P(2)(d) of the Act. 4. The appellant hereby reserves the right to add, amend, alter, or raise any additional ground or grounds of appeal or delete or withdraw any of the grounds of appeal.” 5. At the outset, the Ld. AR submitted that the impugned issue is squarely covered in favour of the assessee by catena of decisions pronounced by various Benches of the Tribunal including the Pune Printed from counselvise.com 14 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 Tribunal and Hon‟ble High Court(s) wherein the claim of deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act under the similar set of facts as that of the assessee has been allowed. He submitted that the Jurisdictional Tribunal has consistently allowed the claim of deduction in respect of interest income earned by the assessee from the Co-operative Banks/Co-operative Society u/s 80P(2)(a)(i)/80P(2)(d) of the Act. In support thereof, the Ld. AR submitted the compilation of the following cases (pages 1 to 106 of the Paper Book refers): i. Karmaveer Bhaurao Patil Nagari Sahakari Patsanstha Maryadit Vs ITO (ITA 1045 & 1046 (PUN) OF 2023) (ITAT Pune) ii. Shreenath Mhaskoba Credit Co-Operative Society Ltd VS PCIT (ITA No. 488/PUN/2025) (ITAT Pune) iii. Sant Motiram Maharaj Sahakari Pat Sanstha Ltd Vs ITO (ITA 826 (PUNE) OF 2019) (ITAT Pune) iv. New Satara Zilla Nagrik Sahakari Patsanstha Maryadit Vs National Faceless Appeal Centre (ITA 209, 210 & 211 (MUM) OF 2023) (ITAT Mumbai) v. Jakraya Multi-State Co-operative Credit Society Ltd. Vs ITO Pandharpur(ITA No 1423/PUN/2024) (ITAT Pune) vi. Nivruttisheth Gramin Bigarsheti Sahakan Patsanstha Ltd. Versus ITO (ITA No. 1502/Pun/2018) (ITAT Pune) vii. Talegaon Nagari Sahakan Patsanstha Limited Vs ITO (ITA No. 743/PUN/2024) (ITAT Pune) viii. Kolhapur District Central Co-Op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs ITO (ITA No. 1365/PUN/2023) (ITAT Pune) ix. Annapurna Nagari Sahkari Vs ITO Ward-1 (4), Jalgaon (ITA No. 2471/PUN/2024) (ITAT Pune) x. PCIT Vs Ashwinkumar urban co-operative Society Ltd (Appeal No 538 of 2024) (Gujarat HC) xi. Babanrao Awatade Nagari Bigarsheti Sahakari Patsanstha Maryadit Mangalwedha Vs ITO Pandharpur (ITA No. 647/PUN/2022) (ITAT Pune) xii. Annapurna Nagari Sahkari Pathsanstha Maryadit Yawal Vs ITO, Ward-1(4), Jalgaon (ITA 313/PUN/2025) (ITAT Pune) xiii. Pragati Gramin Bigarsheti Sahakari Patsanstha Maryadit Vs PCIT-4 (ITA No. 303/PUN/2022) (ITAT Pune) xiv. Rena Sahakari Sakhar Karkhana Ltd VS PCIT-2 (ITA No. 1249/PUN/2018) (ITAT Pune) Printed from counselvise.com 15 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 xv. Shri Laxmi Narayan Nagari Vs. ITO Ward 1(3), Kolhapur (ITA No. 604/PN/2014) (ITAT Pune) xvi. Income Tax Commissioner Vs Mahanagar Co-Operative Bank - (ITA No. 123 Of 2010) (Bombay HC) xvii. Chandraprabhu Gramin Bigar Sheti Sahkari Patsantha Maryadit VS ITO (ITA No. 1352/PN/2016) (ITAT Pune) 6. The Ld. DR fairly conceded with the above submission of the Ld. AR that the impugned issue is covered in favour of the assessee by catena of decisions of various judicial forums as cited by the Ld. AR. 7. We have heard the Ld. Representatives of the parties and perused the material on record and various judicial precedents cited by the Ld. AR as well as the paper book filed by the Ld. AR on behalf of the assessee. The facts of the case are not in dispute. During the relevant AY 2018-19, the assessee has received interest from investments in Co-operative banks amounting to Rs. 3,04,88,392/- and claimed deduction u/s 80P(2)(a)(i)/ 80P(2)(d) of the Act, which has been disallowed by the Ld. AO and upheld by the Ld. CIT(A) / NFAC for the reasons reproduced above. We find that the impugned issue is squarely covered in favour of the assessee by catena of decisions of various judicial forums including Jurisdictional Pune Tribunal wherein it has been consistently held that interest income earned from Co-operative banks are eligible for deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act as the same is attributable to the business of the assessee society. Respectfully following the decision(s) (supra) cited by the Ld. AR and in the absence of any contrary material brought on record by the Ld. DR, we hereby set aside the impugned order of the Ld. CIT(A)/NFAC and allow the deduction claimed by the assessee u/s 80P(2)(a)(i)/80P(2)(d) of the Act. The grounds of appeal raised by the assessee are accordingly allowed. 8. In the result, the appeal of the assessee is allowed. ITA No. 671/PUN/2025, AY 2020-21 9. Both the sides are unanimous in stating that the facts and the grounds of appeal in ITA No. 671/PUN/2025 for AY 2020-21 is identical to the grounds raised in ITA No. 670/PUN/2025 for AY 2018-19 except for the variance in amounts. Thus, in view of the fact that the issue raised in Printed from counselvise.com 16 ITA Nos.670 & 671/PUN/2025, AYs 2018-19 & 2020-21 both the appeals are identical and are arising from same set of facts, the finding given by us while adjudicating the appeal in ITA No. 670/PUN/2025 would mutatis mutandis apply to the appeal in ITA No. 671/PUN/2025 as well. Accordingly, the grounds of appeal raised by the assessee in ITA No. 671/PUN/2025 are hereby allowed in the same terms. 10. To sum up, both the appeals of the assessee for AY 2018-19 (ITA No. 670/PUN/2025) and AY 2020-21 (ITA No. 671/PUN/2025) are allowed. Order pronounced in the open court on 09th September, 2025. Sd/- Sd/- (R.K. Panda) (Astha Chandra) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; दिन ांक / Dated : 09th September, 2025. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune Printed from counselvise.com "