VYAVASAYA SEVA SAHAKARI BANK LIMITED,HALKUSAGAL V. INCOME TAX OFFICER, WARD-1, GADAG

ITA 1475/BANG/2024

AI Insights

The case involves M/s. Vyavasaya Seva Sahakari Bank Limited, a primary credit cooperative society, which appealed against the decision of the National Faceless Appeal Centre, Delhi, and the Assessing Officer, which denied them deductions under section 80P(2)(a)(i) and section 80P(2)(d) of the Income Tax Act, 1961, for the assessment year 2020-21. The primary contention was whether the interest income earned from deposits with cooperative banks qualifies for deduction under section 80P(2)(a)(i) as part of the business income. The Tribunal examined various precedents and the specific activities of the cooperative society, ultimately deciding in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 791583 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2020-2021
• Appeal Filed On: 07-08-2024
• Other Referred Cases: Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society, CIT vs. Totgars Co-operative Sale Society, Maviyali Service Co-operative Bank Limited and others vs. Income Tax Officer, Judicial Employees House Building Co-operative Society Limited vs. Income Tax Officer, Tumkur Merchants Souhadra Credit Co-operative Society Limited vs. Income-tax officer Word-V, Tumkur
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANESH R GALE; STANDING COUNSEL
• Assessee Lawyers: ANIL KUMAR
• Keywords: Business income
• Section: 90

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No. 1475/Bang/2024 Assessment Year: 2020-21 M/s. Vyavasaya Seva Sahakari Bank Limited, Halkusagal. PAN: AAAAV1081D Vs. The Income Tax Officer, Ward 1, Gadag APPELLANT RESPONDENT Assessee by : Shri Anil Kumar, CA Revenue by : Shri Ganesh R Gale, Standing Counsel for Department Date of Hearing : 05-12-2025 Date of Pronouncement : 08-12-2025 ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT 1. ITA No. 1475/Bang/2024 is filed by M/s. Vyavasaya Seva Sahakari Bank Limited (the Assessee/Appellant) for Assessment Year 2020-21 against the Appellate Order passed by the National Faceless Appeal Centre, Delhi (the Ld. CIT(A)) dated 15.07.2024 wherein the Appeal filed by the Assessee on 22.10.2022 against Assessment Order passed u/s. 143 (3) r.w.s. 144 Business of the Income Tax Act, 1961 (the Act) passed by the Assessing Officer, National Faceless Assessment Centre, Delhi (the Ld. Assessing Officer) on 22.09.2022, was dismissed. 2. The solitary issue in this Appeal is the claim of deduction u/s. 80P(2)(a)(i) of the Act claimed by the Assessee denied by the Ld. Printed from counselvise.com ITA No. 1475/Bang/2024 Page 2 of 11 Assessing Officer on the basis of the decision of the Hon’ble 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 611 (Karnataka)/[2017] 297 CTR 158 (Karnataka)[16-06-2017]) and thereby making an addition of Rs. 10,20,139/-. The Ld. CIT (A) also confirms the same. 3. The brief facts of the case show that, that the Assessee is a primary credit society engaged in business of providing credit facilities to its members. It filed its return of income on 28.01.2021 at a gross total income of Rs. 10,20,139/- and claimed the same as deduction u/s. 80P of the Act determining total income at Rs. Nil/-. The return of income was picked up for scrutiny for exemption of claim of deduction u/s. 80P. The notice u/s. 143 (2) of the Act and 142 (1) of the Act were issued. Subsequently, the show cause notice was also issued. The Ld. Assessing Officer found that society is a primary credit cooperative society extending loans to its members by obtaining loans from district central co-operative bank andloans to its members out of its own funds. The Assessee is not a bank. Therefore, the claim of the Assessee is that whole of the income is eligible for deduction u/s. 80P(2)(a)(i) and otherwise the interest earned on deposits with cooperative societies is also exempted u/s. 80P(2)(d) of the Act. It is also a claim that income from sale of fertilizers and seeds is also exempted u/s. 80P(2)(a)(iv) of the Act. The Assessee has shown the total interest income of Rs 20,64,423/- from co-operative societies. The AO found that the aforesaid investment is out of the surplus funds of the society and therefore interest income is chargeable to tax under the head of Income from other sources. The Assessee is not entitled to deduction u/s. 80P(2)(d) of the Act on the above sum. Therefore, according to the AO, interest income earned by the Society is not eligible for deduction u/s. 80P(2)(a)(i) of the Act as well as u/s. 80P(2)(d) of the Act. The Ld. AO relied upon the decision of the Printed from counselvise.com ITA No. 1475/Bang/2024 Page 3 of 11 Hon’ble Supreme Court in case of Totgars Co-operative Sale Society Limited v/s. Income Tax Officer, Karnataka 188 Taxman282 as well as the decision of the Honourable Karnataka High court in 47 taxmann.com 189. The Ld. AO also relied upon the decision of the Hon’ble Karnataka High Court in Principal Commissioner of Income- Tax, Hubballi vs. Totagars Co-operative Sale Society83 taxmann.com 140. The AO was also further of the view that execution of section 80P(4) of the Act even though without any amendment in section 80(P)(2)(d) of the Act is sufficient to deny the claim of the Respondent Assessee for deduction u/s. 80P(2)(d) of the Act. The Assessment order was passed on 22.09.2022 determining total income of the Assessee at Rs. 10,20,139/-. 4. On appeal before the Ld. CIT (A), the Assessee reiterated the submissions made by the Ld. lower authorities. However, the Ld. CIT(A) following the decision of the Hon’ble jurisdictional High Court in 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] dismissed the appeal of the Assessee. 5. Therefore, aggrieved with the same Assessee is in appeal before us. 6. The Assessee has raised only two grounds stating that the Assessee should be granted deduction u/s. 80P(2)(a)(i) or u/s. 80P(2)(d) of the Act. 7. It is also relevant that earlier the Assessee made a request before the Hon’ble President on 22.08.2025 for constitution of a special bench. Subsequently, when the Hon’ble President asked the recommendation of the bench by instruction dated 28.08.2025, during hearing, the Assessee withdrew the application for constitution of the special bench. Accordingly, during hearing on 04.11.2025, the reference was Printed from counselvise.com ITA No. 1475/Bang/2024 Page 4 of 11 withdrawn by the Assessee and based on that the Hon’ble President vide order dated 20.11.2025 passed an order holding that the application seeking reference was disposed as withdrawn. Based on the same, the appeal was listed for hearing at the consent of both the parties and heard on the merits of the case. 8. The Ld. Authorized Representative stated the fact that Assessee is not a bank, but it is a primary credit co-operative society. It filed its return of income claiming deduction u/s. 80P(2)(a)(i) of the Act. The Ld. Assessing Officer disallowed the claim of deduction u/s. 80P(2)(a)(i) as well as u/s.80P(2)(d) of the Act to the extent of interest income earned from cooperative societies relying on the decision of Hon’ble Karnataka High Court in case ofPrincipal 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]. He submits that the claim of the Assessee is covered by the decision of CIT v/s.Totgars Co-operative Sale Society dated 05.01.2017 in Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/ [2017] 392 ITR 74 (Karnataka) [05-01-2017]. That decision is on the issue of deduction u/s. 80P(2)(a)(i) of the Act. It was further concluded that the CIT(A) has also not considered the various decisions relied upon by him. His argument was that Assessee is a cooperative society whichhas earned business income and claimed deduction on interest income also treating it as a business income and therefore the claim of the Assessee is allowable u/s. 80P(2)(a)(i) itself. Alternatively, it is also stated that that decision of the Hon’ble Karnataka High Court in Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/ [2017] 392 ITR 74 (Karnataka) [05-01-2017] covers the issue in favour of the Assessee. That decision has also considered the decision of the Hon’ble Supreme Court. He referred to the several Printed from counselvise.com ITA No. 1475/Bang/2024 Page 5 of 11 judicial precedents wherein the coordinate benches have allowed the claim of the Assessee. Therefore, according to him the interest earned by him is first allowable u/s. 80P(2)(a)(i) of the Act. 9. The Ld. Departmental Representative vehemently supported the orders of the Ld. lower authorities. He submitted that the Assessee has invested the funds in the co-operative banks which is a surplus fund of the Assessee.Therefore, it cannot be considered as a business income of the Assessee, and it must be charged to tax as income from other sources. The deduction of income from other sources would be allowable only u/s. 80P(2)(d) of the Act. As the Assessee has invested the money in the co-operative bank, the issue is squarely covered against the Assessee by the decision of the Hon’ble 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 611 (Karnataka)/ [2017] 297 CTR 158 (Karnataka) [16-06-2017]. The decision of the Hon’ble Karnataka High Court in Principal Commissioner of Income-tax, Hubli vs. Totagars Co- operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/ [2017] 392 ITR 74 (Karnataka) [05-01-2017] does not apply to the facts of the case. He further referred to the latest decision of the Hon’ble Karnataka High Court in ITA No. 392/2024 in case of Judicial Employees House Building Co-operative Society Limited dated 16.09.2025 wherein the Hon’ble Karnataka High Court has once again followed the decision of the Hon’ble Supreme Court in case of 78 taxmann.com 169 has confirmed its disallowance of deduction u/s. 80P(2)(d) of the Act. He further relied upon the decision of the Hon’ble Supreme Court in case of Maviyali Service Co-operative Bank Limited and others (2021) 7 SC case 90 and specifically referring to paragraph no. 31 and 32 stated that the deduction is not allowable to the Assessee. He further referred to paragraph no. 35 stating that burden Printed from counselvise.com ITA No. 1475/Bang/2024 Page 6 of 11 is on the Assessee to show that it is entitled to claim deduction u/s. 80P of the Act. 10. In rejoinder, the Ld. Authorized Representative vehemently referred to the decision of the Hon’ble Karnataka High Court in case of Tumkur Merchants Souhadra Credit Co-operative Society Limited in ITA No. 307/2014 dated 28.10.2024Tumkur 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]. He submitted that decision also considered the decision of the Hon’ble Supreme Court and in Paragraph No. 8 has considered that what is the word attributable mean. He submits that, thus Assessee does not carry any separate business and the interest income so derived is the income of the Assessee. He further submits that the reliance by the Ld. DR on the decision of the Hon’ble Supreme Court in case of Maviyali Service Cooperative Bank Limited is misplaced. In other words, he submits that that decision supports the case of the Assessee and not the revenue. He accordingly submits that Assessee should be granted deduction u/s. 80P(2)(a)(i) of the Act on interest income. Further, if alternatively, the deduction is to be allowed u/s. 80P(2)(d) of the Act that is also in accordance with the law. He submits that the decision of the Hon’ble Karnataka High Court in Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/[2017] 392 ITR 74 (Karnataka)[05-01-2017] has been considered in 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]but he stated to be distinguishable. Thus, these two decisions of the Hon’ble Karnataka High Court operate in the same field on the same issue of deduction of interest income. Therefore, at present the assessment of Assessee’s case is supported by the decision of the Hon’ble High Court Printed from counselvise.com ITA No. 1475/Bang/2024 Page 7 of 11 in case of Tumkur Merchants Souhadra Credit Co-operative Society Limited and Totgars Co-operative Sale Society LimitedTumkur 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]. The Ld. AO has relied upon another decision of the Hon’ble Karnataka High Court against the Assessee. Therefore, the benefit must go to the Assessee in view of the above decisions. 11. We have carefully considered the rival contentions and perused the orders of the Ld. lower authorities. The issue involved in this case is that Assessee is a primary credit cooperative society providing credit to its members and dealing in seeds, fertilizer etc., supplying to members only. The name of the Assessee though includes bank, but it is not so. But it is a primary agricultural credit society. At the time of filing of the return of income, the Assessee has claimed deduction u/s. 80P(2)(a)(i) of the act on the total income of the Assessee. The Assessee has received bank interest from cooperative banks amounting to Rs. 20,64,423/-. The consolidated profit and loss account placed before us shows that Assessee has received interest on deposits with cooperative banks of Rs. 20,64,423/- which is included in the profit and loss account on the credit side and the profit earned by the Assessee of Rs. 10,20,139/- was claimed as deduction u/s. 80P(2)(a)(i) of the Act. Thus, the evidence shows that infact the interest on deposit with the co-operative bank received by the Assessee is Rs. 20,64,423/-.The claim for deduction of the Assessee is Rs. 10,20,139/- out of the net profit earned by the Assessee for the year. Thus, the return of income was filed by the Assessee at Rs. Nil/-. The Ld. Assessing Officer disallowed the deduction of Rs. 10,20,139/-, though the interest income earned by the Assessee on deposits with the co-operative banks is Rs. 20,64,423/-. Thus, it is not the Assessing Officer who disallowed the deduction interest income of Rs. 20,64,423/- either u/s. Printed from counselvise.com ITA No. 1475/Bang/2024 Page 8 of 11 80P(2)(a)(i) of the Act or u/s. 80P(2)(d) of the Act. This is the first fallacy in the Assessing Order passed by the Ld. AO. The Ld. CIT(A) also confirmed disallowance of deduction to the extent of Rs. 10,20,139/-. Therefore, the prima-facie fact shows that out of the interest income earned by the Assessee of Rs. 20,64,423/- on deposits with Co-operative bank, the disallowance is only Rs. 10,20,139/- which clearly shows that the deduction of interest income to the extent of Rs. 10,44,284/- comprising of bank interest from cooperative society is already allowed by the Assessing Officer u/s. 80P(2)(a)(i) of the Act. Thus, that the Ld. AO has accepted the part of the income as eligible for deduction and part of the income is not allowable for deduction blowing hot and cold together. 12. Be that as it may, even otherwise, the claim of the Assessee is covered by the decision of the Hon’ble Karnataka High Court dated 28.10.2024 in ITA No. 307/2014 in Tumkur Merchants Souhadra Credit Co- operative Society Limited 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]wherein it has been held that, that according to the provisions of section 80P(2)(a)(i) the Assessee is eligible for deduction of whole of the amount of profits and gains of business attributable to specified activities. The word attributable has been considered by the Honourable supreme court in 11 ITR 842. Based on the above interpretation of the Hon’ble Supreme Court in Paragraph no. 8, the Hon’ble High Court has held that a cooperative society which is carrying on the business of providing credit facility to its members,earns profits and gains of business byproviding credit to its members.The interest income so derived or the capital, if not immediately required to be lent to members, they cannot keep the said amount idle. If the same is deposited in the bank to earn interest, such interest income is also attributable to the profits and gains of that Printed from counselvise.com ITA No. 1475/Bang/2024 Page 9 of 11 business. Societyis not carrying on any other business. Therefore, the income derived is the amount of profits and gains of business attributable to that activity. The Assessee is eligible for deduction u/s. 80P of the Act.The Hon’ble Karnataka High Court considered the decision of the Hon’ble Supreme Court. In Paragraph no. 10 also, the identical findings were given. Theabove decision of the Hon’ble High Court was neither challenged before the Hon’ble Supreme Court nor referred to the larger bench. This decision was also pressed into service by the Assessee before the Hon’ble Karnataka High Court in 395 ITR 611 at Paragraph no. 22. The Hon’ble High Court considered the same. The Hon’ble High Court held that if it is establishedupon remand that Assessee is carrying on the business of banking, the result may be different. In the present case, the Assessee is carrying on the primary business of lending to its members. Thus, the tumkur case was distinguished by the Hon’ble high Court in subsequent decision. Further, the decision of the Hon’ble High Court in case of Totgars Co-operative Sale Society Limited [392 ITR74]was also held to be distinguishable as held in paragraph no. 19. Therefore, there are three decisions, of which two are in favour of the Assessee and one is against the Assessee. The subsequent decision of the Hon’ble Karnataka High Court in case of Judicial Employees House Building Cooperative Society Limited dated 16.09.2025 followed the one of the decisions of the Hon’ble Supreme Court dated 16.06.2017 where the facts of the case were not distinguished from the facts before the Hon’ble High Court in order dated 16.06.2017. The decision of the Hon’ble Supreme Court in case of Maviyali Service Co-operative Bank Limited rendered by Hon’ble three judges has held that, that provisions of section 80P (4) is to exclude cooperative banks that function on par with other commercial banks from the deduction in their own case. Further, the Hon’ble Supreme Court was clear that, that the provisions of section 80P of the Act relate to the deduction in respect of income of cooperative societies and further the definition of the cooperative Printed from counselvise.com ITA No. 1475/Bang/2024 Page 10 of 11 society u/s. 2(19) of the Act is to be considered with respect to the respective sister legislations. It further states that the deduction is to be allowed to the Assessee from the gross total income. Thus, it is irrespective of the fact whether it is business income or income from other sources. The specific character of the deduction is providing u/s. 80P (2). If such income is included in the gross total income, the deduction is to be granted. Further, though the burden is on the Assessee to claim the deduction u/s. 80P of the Act,but the Ld. AO cannot proportionate with the cooperative societies’ characteristic. At Paragraph no. 38, the Hon’ble Supreme Court also considered clause (d) and stated that it should be interpreted looking at the object of the provision being furtherance of cooperative movement. Further, the motive for introduction of section 80P (4) wasalso explained at paragraph no. 40 stating that, that withdrawal of tax benefit available to cooperative banks. This is also covered by the circular dated 28.12.2006. The clarification of CBDT by letter dated 09.05.2008 was also considered. It referred to the deduction in the case of the Assessee who is a cooperative bank. It did not say that the co- operative societies who are receiving interest from co-operative banks are not granted deduction. Thus, the amendment of section 80P (4) is with respect to the denial of deduction where the Assessee is a co- operative society and not where the Assessee is a co-operative society butearning interest from a cooperative bank. 13. In any case, when there are two sets of decisions of the Hon’ble High Court, the subject benefit goes where the facts are nearer to the set of decisions. In this case we do find that the facts of the case of the Assessee are more near to the facts of the case of the Assessee as decided by the Hon’ble High Court in case of Tumkur MerchantsTumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer Word-V, Tumkur [2015] 55 taxmann.com 447 (Karnataka)/[2015] 230 Printed from counselvise.com ITA No. 1475/Bang/2024 Page 11 of 11 Taxman 309 (Karnataka)[28-10-2014] and in case of Totgars in 392 ITR 74. 14. In view of the above facts, we hold that the Assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act on the bank interest earned from co-operative societies. The Ld. AO is directed to delete the disallowance. Thus, we reverse the orders of the Ld. lower authorities. 15. As we have already allowed the claim of the Assessee u/s. 80P(2)(a)(i) of the Act, the claim of deduction u/s. 80P(2)(d) of the Act becomes merely academic. 16. In the result, appeal of the Assessee is allowed. Order pronounced in the open court on 08th December 2025. Sd/- Sd/- (SOUNDARARAJAN K.) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT Bangalore, Dated, the 08th December 2025. *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 "