SRI. BASAVESHWARA PATTINA SOUHARDA SAHAKARI SANGHA NI., ,SINDHANUR V. INCOME TAX OFFICER, WARD-1 , RAICHUR

ITA 2313/BANG/2025

AI Insights

The case involves Shri Basaveshwara Pattina Souharda Sahakari Sangha Ni., a credit cooperative society, which appealed against the order of the National Faceless Appeal Centre, Delhi, which had upheld the assessment order denying deduction on interest income under section 80 P (2) (a) (i) and section 80 P (2) (d) of the Income Tax Act, 1961. The primary contention was whether the interest income earned from deposits in cooperative banks and other banks was business income and thus eligible for deduction under section 80 P (2) (a) (i). The Tribunal referenced the decision of the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer, which supported the assessee's position.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 847769 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Bangalore
• Assessment Year: 2020-2021
• Appeal Filed On: 15-10-2025
• Other Referred Cases: Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer Word-V, Tumkur, CIT v. Andhra Pradesh State co-operative Bank Ltd., Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society
• Laws Referred To: The Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRAMANIAN S
• Assessee Lawyers: SANTOSH G MAGAVI
• Keywords: Set aside; Business income; Question of law
• Section: 143(3); 56

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No. 2313/Bang/2025 Assessment Year: 2020-21 Shri Basaveshwara Pattina Souharda Sahakari Sangha Ni., Main Road, Sindhanur, Raichur – 584 128. PAN: AAAAS7409J Vs. The Income Tax Officer, Ward-1, Raichur. APPELLANT RESPONDENT Assessee by : Shri Santosh G Magavi, CA Revenue by : Shri Subramanian S – JCIT Date of Hearing : 12-02-2026 Date of Pronouncement : 25-03-2026 ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT 1. Above appeal is against the appellate order passed by the National Faceless Appeal Centre, Delhi (the learned CIT – A) for assessment year 2020 – 21 dated 26 August 2005 wherein the appeal filed by the assessee against the assessment order passed under section 143(3) read with section 144B of The Income Tax Act, 1961 (The Act) dated 21 September 2022 by the assessment unit, Income Tax Department ( the ld. AO ), was dismissed. 2. Solitary grievance of the assessee is as per grounds of appeal that assessee has been denied deduction of ₹ 22,213,166 – under section 80 P (2) (a) (i) of The Act and the learned revenue authorities have Printed from counselvise.com ITA No. 2313/Bang/2025 Page 2 of 6 thrust upon the assessee that the income earned by the assessee is chargeable to tax as income from other sources being the interest and dividend earned from cooperative society and cooperative bank and therefore the deduction was also denied under section 80 P (2) (d) of the act. 3. Brief facts of the case shows that assessee filed its return of income declaring a total income of ₹ 2,157,700/- on 24 December 2020. Return of income was picked up for scrutiny. Assessee is a credit cooperative society engaged in the business of providing credit facilities to its members. Assessee has earned interest income from other cooperative banks and cooperative societies amounting to ₹ 22,213,166/–. The assessee has claimed that this income is income from the business for which the deduction is allowable under section 80 P (2) (i) of the act. 4. The learned assessing officer held that such interest income is chargeable to tax as income from other sources and as the income is received from the cooperative bank and cooperative societies, assessee is not entitled to deduction under section 80 P (2) (d) of the act following the decision of the honourable Karnataka High Court Principal Commissioner of Income-tax, Hubballi vs. Totagars Co- operative Sale Society [2017] 83 taxmann.com 140 (Karnataka)/[2017] 395 ITR 611 (Karnataka)/[2017] 297 CTR 158 (Karnataka)[16-06-2017]. Assessment order was passed on 21 September 2022 determining the total income of the assessee at ₹ 24,370,866/–. 5. Assessee preferred an appeal before the learned is CIT – A who confirmed the action of the learned AO. 6. The assessee aggrieved with the appellate order preferred appeal before us. Main contention of the assessee is that interest income earned by the assessee on investment is business income of the assessee cooperative society and the same is entitled to be deduction under section 80 P (2) (a) (i) of the act. This issue is decided in Printed from counselvise.com ITA No. 2313/Bang/2025 Page 3 of 6 favour of the assessee by Honourable Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer Word-V, Tumkur [2015] 55 taxmann.com 447 (Karnataka)/ [2015] 230 Taxman 309 (Karnataka) [28-10-2014]. It was further stated there is no finding of the learned assessing officer that how the income earned by the assessee on interest from the cooperative banks which is deposited out of the statutory reserves as well as the amount received from its members, can be said to be an income from other sources. The assessee further submitted a chart stating that all the interest income has been earned by the assessee from the other cooperative societies and the cooperative banks. He candidly stated that there is a savings bank interest income earned by the assessee from ICICI bank, state bank of India and Kotak Mahindra bank which is also be considered as business income. 7. The learned departmental representative vehemently submitted that assessee has earned interest from banks which is chargeable to tax under the head income from other sources as per the decision of the honourable Karnataka High Court which is followed by the learned revenue authorities and therefore the appeal of the assessee does not merit any consideration. 8. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The assessee is a credit cooperative society registered under the Karnataka State cooperative societies act and it has invested its working capital in fixed deposits of other banks to earn interest income. During the assessment proceedings as well as in the return of income assessee has claimed deduction under section 80 P (2) (a) (i) of the act stating that interest income earned by the assessee is attributable to the business of the assessee providing credit to its members. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer Word-V, Tumkur Printed from counselvise.com ITA No. 2313/Bang/2025 Page 4 of 6 [2015] 55 taxmann.com 447 (Karnataka)/ [2015] 230 Taxman 309 (Karnataka) [28-10-2014]. In this decision the honourable Karnataka High Court has categorically held that “8. Therefore, the word \"attributable to\" is certainly wider in import than the expression \"derived from\". Whenever the legislature wanted to give a restricted meaning, they have used the expression \"derived from\". The expression \"attributable to\" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State co-operative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is Printed from counselvise.com ITA No. 2313/Bang/2025 Page 5 of 6 unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order: 9. Thus amount earned by the assessee from amount deposited in the bank account is business income of the assessee as it is not shown as a liability in their account, not an amount due to any member and it is not a liability but in fact it is in the nature of profits and gains which was not immediately required by the assessee for lending onwards to its members as there were no takers. Therefore, they deposited the money in bank to on the interest income said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of provisions of section 80 P of the act 10. Decision relied upon by the learned revenue authorities of Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka)/[2017] 395 ITR 611 (Karnataka)/[2017] 297 CTR 158 (Karnataka)[16-06-2017] is with respect to the interest income earned by the assessee which is chargeable to tax under the head income from other sources. Here it is not the case of the assessee that such income is chargeable to tax as income from other sources as there is no finding that the income of bank interest earned by the assessee is not covered by the decision of the honourable Karnataka High Court stated above wherein it has been held that this income is part of the business profits of the assessee. 11. In view of facts of the present case, as the assessee has not claimed any deduction under section 80 P (2) (d) of the act, but u/s 80 P (2) (a) (i) of the act, we do not find any reason to hold that the decision of the honourable Karnataka High Court in case of Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka)/[2017] 395 ITR Printed from counselvise.com ITA No. 2313/Bang/2025 Page 6 of 6 611 (Karnataka)/[2017] 297 CTR 158 (Karnataka)[16-06-2017] applies to the facts of the case. 12. In the result we direct the learned assessing officer to grant the deduction under section 80 P (2) (a) (i) of the act to the assessee on the interest income earned by the assessee which is income attributable to the business of the assessee of providing credit to its members. 13. Accordingly, the appeal of the assessee is allowed. Order pronounced in the open court on 25th March, 2026. Sd/- (SOUNDARARAJAN K.,) Sd/- (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT Bangalore, Dated, the 25th March, 2026. *TNTS* Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. CIT(A) By order Assistant Registrar, ITAT, Bangalore Printed from counselvise.com "