Co-operative Society Is Eligible for Section 80P Deduction Claimed in Section 148 Return and on Bank Interest From Idle Funds

By | August 12, 2026
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Co-operative Society Is Eligible for Section 80P Deduction Claimed in Section 148 Return and on Bank Interest From Idle Funds

Co-operative Society Is Eligible for Section 80P Deduction Claimed in Section 148 Return and on Bank Interest From Idle Funds

Issue

  1. Whether a deduction under Section 80P can be claimed in a return filed in response to a notice under Section 148 when no return was filed within the original due date under Section 139(1), despite the restrictions under Section 80AC and Section 80A(5).
  2. Whether interest income earned by a credit co-operative society on bank deposits of surplus/idle funds is attributable to its business and eligible for deduction under Section 80P(2)(a)(i).

Facts

  • Background & Non-Filing: The assessee, a Souharda credit co-operative society engaged in providing credit facilities to its members, did not file an original return of income for AY 2016-17 under Section 139(1).
  • Return Filed Under Section 148: Pursuant to a notice issued under Section 148, the assessee filed a return of income for the first time, claiming a deduction under Section 80P(2)(a)(i).
  • Disallowance of 80P Claim: The Assessing Officer (AO) disallowed the Section 80P claim on the ground that the return was not filed within the due date prescribed under Section 139(1), relying on Section 80AC and the sixth proviso to Section 139(1).
  • Taxation of Bank Interest: The AO further held that interest income earned from parking surplus/idle funds in bank deposits was taxable under “Income from other sources” rather than attributable to the credit facility business, thereby denying Section 80P(2)(a)(i) benefit on such interest.

Decision

  • Validity of Claim in Reassessment Return: Held in favor of the assessee. The sixth proviso to Section 139(1) and Section 80AC (as applicable for AY 2016-17) did not cover Section 80P deductions. Furthermore, Section 80A(5) only requires that a claim be made in a return of income, without mandating that it be filed within the Section 139(1) timeline. Since the return filed under Section 148 containing the claim was accepted, Section 80A(5) stood fulfilled.
  • Eligibility of Interest Income: Held in favor of the assessee. Following the precedent in Naravi Vyavasaya Seva Sahakari Bank Ltd. v. ITO, interest earned by a credit co-operative society on bank deposits of idle/surplus funds (for which there was no immediate borrower) is attributable to its business and eligible for deduction under Section 80P(2)(a)(i).

Key Takeaways

  • Scope of Section 80A(5) Compliance: Section 80A(5) requires the deduction to be claimed in a validly submitted return of income; it does not automatically invalidate claims made in returns accepted under Section 148 reassessment proceedings if Section 80AC does not specifically bar them for that assessment year.
  • Sixth Proviso to Section 139(1) Excludes Section 80P: For AY 2016-17, the procedural restrictions barring late claims applied selectively and did not extend to disallowing Section 80P deductions.
  • Idle Funds Interest Qualifies for Business Exemption: Interest generated from temporarily depositing operational surplus or idle funds in banks is treated as inextricably linked to the co-operative society’s credit operations under Section 80P(2)(a)(i).
IN THE ITAT BANGALORE BENCH ‘SMC’
Aditya Vivdhoddeshagala Sahakara Sangha Niyamita
v.
Income-tax Officer
Keshav Dubey, Judicial Member
and Waseem Ahmed, Accountant Member
IT Appeal No. 2661 (BANG) of 2025
[Assessment year 2016-17]
JULY  23, 2026
Ramenagowda, Adv. for the Appellant. Ganesh R. Ghale, Standing Counsel for the Respondent.
ORDER
Waseem Ahmed, Accountant Member. – This appeal is filed by the Assessee against the order of Ld. National Faceless appeal Centre vide DIN: ITBA/NFAC/S/250/2025-26/1080869317(1) dated 19-Sep-2025 for the Assessment Year 2016-17.
2. The effective issue raised by the assessee is that the ld. CIT-A erred in confirming the disallowance of deduction claimed under section 80P(2)(a)(i) of the Act by invoking the provisions of section 80AC and 80A(5) of the Act.
3. The facts in brief are that the assessee, a society registered under the Karnataka Souharda Sahakari Act, 1997, is engaged in the business of accepting deposits and providing credit facilities to its members. For the assessment year 2016-17, the assessee has not filed its return of income as per section 139(1) of the Act.
3.1 Subsequently, a notice under section 148 of the Act was issued based on specific information. In response to the notice u/s 148, the assessee filed its return for the first time declaring total income at NIL after claiming deduction u/s 80P(2)(a)(i) of the Act for Rs. 9,43,253/- only.
3.2 During the assessment, the AO noticed that the gross income of the assessee included interest income earned from banks also, and the assessee claimed a deduction under section 80P(2)(a)(i) of the Act on such interest income earned from banks. The AO noted that the interest income earned from banks is to be considered as income from other sources, which is not eligible for deduction u/s 80P(2)(a)(i) of the Act. In holding so, the AO relied on various case laws, including the judgment of the Hon’ble Supreme Court in the case of Totgars, Co-operative Sale Society Ltd. v. ITO 322 ITR 283 (SC) and the judgment of the Hon’ble Gujarat High Court in the case of State Bank of India (SBI) v. CIT 389 ITR 578 (Gujarat) etc.
3.3 The AO further observed that the deduction claimed u/s 80P of the Act, amounting to Rs. 9,43,253/-, is not allowable, as the assessee has failed to file the return u/s 139(1) of the Act. The AO held that the 6th Proviso to section 139(1) of the Act states that for the purpose of claiming a deduction under Chapter VIA of the Act, the return shall be filed on or before the due date. Also, Clause (ii) to section 80AC further provides that for the previous year relevant to the assessment year commencing on or after the 1st day of April, 2018, no deduction under Chapter VIA shall be allowed, unless the assessee furnishes its return of income for such assessment year on or before the due date specified under section (1) of section 139 of the Act. Thus, the AO disallowed the entire deduction claimed by the assessee under section 80P(2)(a)(i) of the Act.
4. The aggrieved assessee preferred an appeal before the learned CIT(A), who confirmed the order of the AO. The relevant finding of the learned CIT(A) is extracted as under:
I have carefully considered the submissions of the appellant and the assessment order. The first and foremost aspect is that the appellant admittedly did not file its return of income within the due date prescribed under section 139(1). The return was filed belatedly only in response to notice under section 148. The language of section 80A(5) as well as the sixth proviso to section 139(1) makes it abundantly clear that no deduction under Chapter VIA, including section 80P, shall be allowed unless the return is filed within the time prescribed under section 139(1). The provisions of section 80AC, even prior to its amendment, cannot be read in isolation, as section 80A(5) independently bars deduction unless a return is filed on time. The appellant’s contention that 80AC in its earlier form covered only 80IA-80IE is therefore of no avail, because denial of deduction flows not only from section 80AC but also directly from section 80A(5) read with the proviso to section 139(1). The appellant has completely overlooked this mandatory provision. The claim that deduction cannot be denied for delay is directly contrary to the statute.
Even otherwise, on merits, it is now a well-settled position in law after the judgment of the Hon’ble Supreme Court in Totgars Co-operative Sale Society Ltd. v. ITO (322 ITR 283), that interest earned from investments of surplus funds, even if placed with co-operative banks, is not attributable to the business of providing credit to members and is assessable under the head “Income from Other Sources”. Several High Courts, including Punjab & Haryana, Gujarat, Delhi, and Calcutta, have reiterated this principle. The AO has rightly applied this dictum and held that the appellant cannot claim deduction under section 80P(2)(a)(i) on such income. Section 80P(4) also specifically excludes co-operative banks other than primary agricultural credit societies or primary cooperative agricultural and rural development banks. The appellant is admittedly a Souharda Credit Cooperative Society, and its claim to blanket exemption is not tenable. The reliance placed by the appellant on isolated ITAT decisions does not override the binding authority of the Hon’ble Supreme Court and jurisdictional High Courts. Thus, the disallowance made is legally justified.
5. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
6. The learned AR before us file a paper book running from pages 1 to 78 and submitted that the AO wrongly denied the deduction u/s 80P(2)(a)(i) of the Act merely because the return was not filed within the time prescribed u/s 139(1) of the Act. For AY 2016-17, section 80AC of the Act did not apply to the deduction claimed u/s 80P of the Act. The assessee had made the claim in the return filed in response to the notice issued u/s 148 of the Act and had therefore complied with section 80A(5) of the Act. He further submitted that the interest income was earned from deposits made in the course of the assessee’s business of providing credit facilities to its members. Accordingly, the deduction claimed by the assessee should be allowed.
7. The learned DR, on the other hand, relied upon the orders of the lower authorities. He submitted that the assessee had not filed any return within the time prescribed u/s 139(1) or 139(4) of the Act. Even the return filed in response to the notice issued u/s 148 of the Act was filed after the period allowed in the notice and was therefore not a valid return. Hence, the claim made u/s 80P of the Act was not allowable in view of section 80A(5) of the Act. He further submitted that the interest earned from bank deposits was taxable as income from other sources and was not eligible for deduction u/s 80P(2)(a)(i) of the Act.
8. We have heard the rival contention of both the parties and perused the materials available before us. Admittedly, the AO and the learned CIT(A) denied the claim of deduction under section 80P(2)(a)(i) of the Act on account of non-filing of the income tax return within the due date prescribed under section 139(1) of the Act. The revenue authority has also given a finding that the assessee has earned interest income from bank deposits, which is not eligible for deduction u/s 80P(2)(a)(i) of the Act.
8.1 First, we proceed to deal with the issue of disallowance of deduction due to non-filing of return within the due date prescribed under section 139(1) of the Act. It is not in dispute that for the relevant assessment year 2016-17, the assessee did not file a return under section 139(1) or section 139(4) of the Act. As such, the AO issued notices under section 148 of the Act on 27th March 2023, and the assessee, in response, filed a return of income on 13th November 2023 only, which was admittedly filed after the time allowed in the notice u/s 148 of the Act. In the return filed dated 13th November 2023, the assessee claimed the deduction under section 80P(2)(a)(i) of the Act for the first time.
8.2 The AO disallowed the claim of the assessee by initially invoking the 6th proviso to section 139(1) of the Act. We note that the proviso as applicable to A.Y. 2016-17 mandated certain persons (individuals, Hindu undivided families, associations of persons, bodies of individuals, or artificial juridical persons) to furnish a return within the due date of 139(1) if their total income, without giving effect to certain exemptions or Chapter VI-A deductions, exceeded the maximum amount not chargeable to income-tax. Crucially, this proviso did not explicitly include ‘co-operative society’ in the list of entities to whom it applied. Furthermore, section 80P of the 1961 Act falls under Chapter VI-C, not Chapter VI-A, which was referenced in the proviso. Therefore, the AO’s reliance on this proviso for disallowing the section 80P deduction for a cooperative society appears to be legally incorrect.
8.3 The AO also invoked section 80AC of the 1961 Act. We find that for AY 2016-17, section 80AC of the Act, as it stood, stipulated that deductions under sections 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, or 80-IE would not be allowed unless the return of income was furnished on or before the due date specified under Section 139(1) of the 1961 Act. It is important to note that section 80P of the 1961 Act was not included in this list. The expanded scope of section 80AC of the Act, which covers ‘any provision of this Chapter under the heading “C.— Deductions in respect of certain incomes”‘ (thereby including section 80P), was introduced by the Finance Act, 2017, with effect from April 1, 2018 (i.e., for AY 2018-19 onwards). Consequently, the AO’s reliance on section 80AC of the Act for disallowing the deduction under section 80P of the Act for AY 2016-17 was also legally incorrect.
8.4 We note that the assessee, during the appellate proceedings before the learned CIT(A), argued that the provisions of section 80AC of the Act are not applicable for the year under consideration. The learned CIT(A) confirmed the disallowances by invoking the provisions of section 80A(5) of the Act. The learned CIT(A) held that
“the language of section 80A(5) as well as the sixth proviso to section 139(1) makes it abundantly clear that no deduction under Chapter VIA, including section 80P, shall be allowed unless the return is filed within the time prescribed under section 139(1)”. The learned CIT(A) further held that “the provisions of section 80AC, even prior to its amendment, cannot be read in isolation, as section 80A(5) independently bars deduction unless a return is filed on time”.
8.5 The question arises whether the ld. CIT(A) can legally change the basis of disallowance from the AO’s original grounds, i.e. section 80AC, to section 80A(5) of the Act. Section 250 of the Act outlines the procedure for appeal before the ld. CIT(A). On reading of the provisions of section 250 of the Act, it can be inferred that while the ld. CIT(A) cannot introduce a new source of income or a new ground for disallowance that was not part of the assessment order to the prejudice of the assessee without giving an opportunity to be heard, the ld. CIT(A) can certainly confirm the assessment order on a different legal reasoning or basis. If the AO has applied an incorrect provision or failed to consider the correct legal position, the ld. CIT(A) has the power to rectify these errors. Changing the basis of disallowance from the incorrect invocation of section 80AC of the Act to section 80A(5) of the Act, if legally sustainable, would generally be considered a change in the legal justification for the same disallowance, rather than introducing a new ground of disallowance. This is permissible, provided the assessee is given a fair opportunity to present their case against the new legal basis.
8.6 From the order of the learned CIT(A), we note that there was no opportunity provided to the assessee to present its case against the new legal basis, i.e. making disallowances by invoking the provision of section 80A(5) of the Act.
8.7 It is also pertinent to highlight that the learned CIT(A) held that
“the language of section 80A(5) as well as the sixth proviso to section 139(1) makes it abundantly clear that no deduction under Chapter VIA, including section 80P, shall be allowed unless the return is filed within the time prescribed under section 139(1)”. In our considered opinion, the view expressed by the learned CIT(A) is misplaced. In the preceding paragraph,
8.8 We have already held that the provision of the 6th proviso to section 139(1) of the Act does not cover the deduction u/s 80P of the Act. Furthermore, section 80A(5) requires only that the claim be made in the return of income. It does not require a time limit for filing the return of income. Hence, the view of the learned CIT(A) that deduction u/s 80P of the Act shall not be allowed unless the return is filed within the due date prescribed under section 139(1) of the Act is devoid of merit.
8.9 The provision of section 80A(5) states “where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading ‘C.—Deductions in respect of certain incomes’, no deduction shall be allowed to him thereunder”. Thus, a claim for deduction under section 80P of the Act must be made in the return of income. Undisputedly as observed in preceding paragraphs, the assessee has not filed the original return under section 139(1) of the Act. The assessee, for the first time, filed a return of income in response to a notice u/s 148 of the Act, though after the expiry of the period allowed in the notice issued under section 148 of the Act. The unamended provision of section 148 of the Act (before amendment by finance Act 2021) as applicable to the year under consideration (A.Y. 2016-17) explicitly states that when a return is furnished in response to a notice under section 148, “the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139” of the Act. Similarly, the amended provision of section 148(2) of the Act also explicitly states that when a return is furnished in response to a notice issued under section 148, “the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139” of the Act. However, the proviso attached to the subsection carves out an exception that if a return under section 148(1) of the Act is filed after the expiry of the period specified in the notice issued under section 148 of the Act, it shall not be deemed to be a return under section 139 of the Act.
8.10 This is a crucial deeming fiction. It implies that a return filed in response to a notice issued under section 148 of the Act is to be treated as a return filed under section 139 of the Act for all practical purposes, including the claiming of deductions. Since a return filed under section 148 of the 1961 Act is deemed to be a return furnished under section 139 of the 1961 Act, it should satisfy the condition of “make a claim in his return of income” as required by section 80A(5) of the Act.
8.11 Be that as it may be. The learned DR before us placed reliance on the ruling of the Hon’ble Kerala High Court in the case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT 459 ITR 730 (Kerala) and submitted that the assessee filed its return of income after the expiry of the period allowed in the notice issued under section 148 of the Act. Therefore, applying the ratio of the Hon’ble Kerala High Court, the assessee is not eligible for the deduction u/s 80P of the Act.
8.12 We note that the assessee Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham (supra), a cooperative society registered under the Kerala Act, did not file their return of income for A.Y. 2009-10. Accordingly, notice under section 148 of the Act was issued on 6-2-2012 requiring the assessee to furnish a return of income within 30 days of receipt of the notice. The assessee failed to file the return of income in response to the notice under section 148 within the prescribed 30-days period. However, the assessee filed a return on 5-7-2012, i.e. after the expiry of the prescribed 30-days period. Since the return of income was filed after the expiry of the time allowed under section 139(4) and much after the due date mentioned in the notice under section 148 of the Act, the AO treated the same as invalid and proceeded to complete the assessment in terms of section 144 of the Act. While completing the assessment, the assessee’s claim for deduction under section 80P was disallowed on the ground that it had not been made in a valid return filed under the Act. It was the stand of the AO that, in view of the provisions of section 80A(5) of the Act, the claim for deduction could not be considered. The dispute reached to the Hon’ble Kerala High Court and the Hon’ble bench in the given facts and circumstances held that as per the law prior to 1-4-2018, a claim for deduction under section 80P had to be made in a valid return filed within the timelines provided under the Act i.e. under section 139(1), 139(4), 142(1), or 148 of the Act and after the Finance Act 2018 amendment, only returns filed within the due date under section 139(1) are acceptable for such claims.
8.13 The Hon’ble Court also emphasised that the deduction provision is a statutory benefit, and the conditions set by law must be strictly followed. A failure to file a valid and timely return is not a minor or procedural lapse that can be condoned. It is a mandatory precondition, and neither the tax authorities nor even the courts have the power to overlook it when it is not met. The relevant observation of the Hon’ble Kerala High Court in the above-mentioned case is extracted as under:
11. On a consideration of the rival submissions and on a perusal of the statutory provisions, we find that a reading of section 80A(5) and Section 80AC of the IT Act as they stood prior to 1-4-2018, when the latter provision was amended by Finance Act 2018, would reveal that the statutory scheme under the IT Act was to admit only such claims for deduction under section 80P of the IT Act as were made by the assessee in a return of income filed by him. That return can be under sections 139(1), 139(4), 142(1) or section 148, and to be valid, had to be filed within the due date contemplated under those provisions. Under section 80A(5), the claim for deduction under section 80P could be made by an assessee in a return filed within the time prescribed for filing such returns under any of the above provisions. The amendment to Section 80AC with effect from 1-4-2018, however, mandated that for an assessee to get a deduction under section 80P of the IT Act, he had to furnish a return of his income for such assessment year on or before the due date specified in section 139(1) of the IT Act. In other words, after 1-4-2018, even if the assessee makes his claim for deduction under section 80P in a return filed within time under sections 139(4), 142(1) or section 148, he will not be allowed the deduction, unless the return in question was filed within the due date prescribed under section 139(1). Thus, it is clear that the statutory scheme permits the allowance of a deduction under section 80P of the IT Act only if it is made in a return recognised as such under the IT Act, and after 1-4-2018, only if that return is one filed within the time prescribed under section 139(1) of the Act. As the return in these cases, for the assessment years 200910 and 2010-11, were admittedly filed after the dates prescribed under sections 139(1) and 139(4) or in the notices issued under section 142(1) and section 148, the returns were indeed non-est and could not have been acted upon by the Assessing Officer even though they were filed before the completion of the assessment.
12. There is yet another aspect of the matter. The requirement of making the claim for deduction in a return of income filed by the assessee can be seen as a statutory pre-condition for claiming the benefit of deduction under the IT Act. It is trite that a provision for deduction or exemption under a taxing Statute has to be strictly construed against the assessee and in favour of the Revenue. Thus viewed, a failure on the part of an assessee to comply with the pre-condition for obtaining the deduction cannot be condoned either by the statutory authorities or by the courts.
8.14 However, in the present case, as observed in earlier paragraphs, the assessee filed its return of income on 13th November 2023 in response to the notice issued under section 148 of the Act dated 27th March 2023. The AO, based on the assessee’s return, finalised the assessment u/s 147 of the Act. Thus, a crucial fact arises here that the assessee’s return under section 148 dated 13th November 2023 was accepted by the AO as a valid return, unlike in the case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham (supra), where the return filed was held invalid by the AO. Therefore, in our considered view, the ratio laid down by the Hon’ble Kerala High Court in Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham (supra) is not applicable to the present case before us as it is factually distinguishable. As such, the finding of the Hon’ble High Court was in the context of a peculiar fact where the return filed was invalid, and accordingly, the claim of deduction under section 80P of the Act was disallowed by invoking the provision of section 80A(5), which requires that the claim of deduction be made in the return of income. On the contrary, the present assessee before us has claimed the section 80P deduction in the return of income filed u/s 148 of the Act, and the same (return) was accepted by the AO, and this is evident from the assessment order passed under section 147 r.w.s. 144B of the Act. Once the assessee claimed section 80P deduction in the return of income even though the same was filed under section 148 of the Act and the same is accepted as a valid return by the AO while finalising the assessment, the condition prescribed under section 80A(5) of the Act has been fulfilled. Therefore, in view of the above detailed discussion, we hold that the AO and the learned CIT(A) erred in disallowing the assessee’s claim of deduction u/s 80P of the Act by invoking section 80AC or section 80A(5) of the Act.
8.15 Without prejudice to the above, we find that both the AO and the learned CIT(A) noted that the income claimed as a deduction under section 80P(2)(a)(i) of the Act included interest income on deposit with the bank as well. Accordingly, the AO and the learned CIT(A) held that interest income on deposits does not arise from the business of providing credit facilities to members. Therefore, the same is not eligible for deduction under section 80P(2)(a)(i) of the Act. In this regard, we note that this issue is covered by the recent decision of the coordinate bench of This Tribunal in the case of Naravi Vyavasaya Seva Sahakari Bank Ltd. v. ITO [IT Appeal Nos. 2552 & 2553 (Bang) of 2025, dated 19-5-2026]. The relevant finding of the tribunal reads as under:
19. We heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the assessee has received interest and dividend income from deposits and investment made with SCDCC Bank for an amount aggregated to Rs. 20,76,951/- only. The assessee before the AO has contended that the major portion of the deposit or investment with the SCDCC bank was in accordance with the compulsory requirements under the provisions of KCS Act. Further the other short-term deposit was made during ordinary course of the business to avoid keeping surplus fund idle when not immediately required for lending. However, the AO disallowed the claim of deduction under section 80P of the Act on impugned interest and dividend income.
19.1 The views of the AO are that such interest income from banks or cooperative banks cannot be said to be attributed to the carrying on banking business or providing credit facility as it is not arising from the members. Therefore, such income shall not be eligible for deduction under section 80P(2)(a)(i) of the Act. The views of the Revenue authorities are largely based on the ruling of Hon’ble Supreme Court in the case of Totgars, Co-Operative Sales Society Ltd v. ITO in Civil Appeal Nos. 1622 to 1629 of 2010, dated 8th February 2010, reported in 322 ITR 283
19.2 Going through the above stated judgment of Hon’ble Supreme Court, we note the assessee i.e. Totgars, Co-Operative Sales Society Ltd at the relevant time (A.Y. 1991-92 to 1999-2000) was engaged in two activities viz marketing of agricultural produce of its members and providing credit facilities to them. The assessment for the A.Ys. 1991-92 to 1994-95 and 1996-97 to 1999-2000 stood reopened under section 147 of the Act. During the relevant assessment years, the assessee i.e. Totgars, Co-Operative Sales Society Ltd has earned interest income from short term deposit with the bank and in the government securities. Before the AO, it was argued by the assessee that it had invested the funds on short-term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman. Therefore, such interest income was liable to be taxed under section 28 of the Act and not under section 56 of the Act, and, consequently, the assessee was entitled to deduction under section 80P(2)(a)(i) of the Act. This argument of the assessee was rejected by the AO by holding that the assessee-society had invested the surplus funds as and by way of, investment by an ordinary investor, hence, interest on such investment has got to be taxed under the head “Income from other sources”. The finding of the AO was confirmed by the Tribunal as well by the Hon’ble Karnataka High Court. The dispute reached to the Hon’ble Supreme Court through the civil appeal filed by the assessee. The Bench of Hon’ble Supreme Court observed that the assessee markets the produce of its member and sale proceeds of the same which liable to remitted to the member were sometimes retained by the assessee. The surplus fund created by such retention, not immediately required for business purposes, was invested in specified securities. The Hon’ble Supreme Court in the given facts and circumstances decided the issue favouring the Revenue by observing as under:
10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is – whether interest on such deposits/securities, which strictly speaking accrues to the members’ account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of “Income from other sources”, hence, such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with “Deductions in respect of certain incomes”. The headnote to section 80P indicates that the said section deals with deductions in respect of income of co-operative Societies. Section 80P(1), inter alia, states that where the gross total income of a co-operative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-Society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction. The word “income” has been defined under section 2(24)(i) of the Act to include profits and gains.
This sub-section is an inclusive provision. The Parliament has included specifically “business profits” into the definition of the word “income”. Therefore, we are required to give a precise meaning to the words “profits and gains of business” mentioned in section 80P(2) of the Act. In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression “profits and gains of business”. Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as “investment”. Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this “retained amount” which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. 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 in section 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act.
11. An alternative submission was advanced by the assessee(s) stating that, if interest income in question is held to be covered by section 56 of the Act, even then, the assessee-Society is entitled to the benefit of section 80P(2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80P(2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to section 80HHC, section 80HHD(3) and section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject-matter. For example, section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of section 80HHC is, therefore, different from the scope of section 80P of the Act, which deals with deduction in respect of income of co-operative Societies. Even Explanation (baa) to section 80HHC was added to restrict the deduction in respect of profits retained for export business. The words used in Explanation (baa) to section 80HHC, therefore, cannot be compared with the words used in section 80P of the Act which grants deduction in respect of “the whole of the amount of profits and gains of business”. A number of judgments were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of section 80P of the Act. We find no merit because all the judgments cited were cases relating to Co operative Banks and assessee-Society is not carrying on Banking business.
We are confining this judgment to the facts of the present case. To say that the source of income is not relevant for deciding the applicability of section 80P of the Act would not be correct because we need to give weightage to the words “the whole of the amount of profits and gains of business” attributable to one of the activities specified in section 80P(2)(a) of the Act. An important point needs to be mentioned. The words “the whole of the amount of profits and gains of business” emphasise 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. In this particular case, the evidence shows that the assessee-Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of “Other Income” which has been rightly taxed by the Department under section 56 of the Act.
19.3 The above finding of the finding of the Hon’ble Supreme Court has been followed by the revenue authorities for disallowing the deduction claimed under section 80P(2)(a)(i) of the Act on account of interest income earned from deposit or investment of surplus fund by the cooperative societies carrying the business of banking or providing credit facilities to the members.
19.4 On the contrary, the argument of the assessee engaged in providing credit facility to the members is that the surplus fund for which members are not immediately seeking credits are deposited with bank as a prudent business decision and hence, the same shall be attributed to the business only. Therefore, the same is eligible for the deduction. We note that the above argument of the assessee finds support from the ruling of Hon’ble Jurisdictional High court of the Karnataka in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income-tax officer Word-V dated 28th October 2014, reported in (Karnataka). The Hon’ble Bench of Karnataka High Court distinguished the ratio of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra).
19.5 The assessee i.e. Tumkur Merchants Souharda Credit Cooperative Ltd (hereafter-TMSCC) was engaged only in the business of providing credit facilities to members unlike the assessee i.e. Totgars Co-operative Sale Society Ltd which was also engaged in marketing of agricultural produce of the members as well as providing credit facilities. For the A.Y. 2009-10, the assessee TMSCC earned interest income on short term deposit with the M/s Allahabad Bank and M/s Axis Bank and the same was included in the profit claimed for the deduction under section 80P(2)(a)(i) of the Act. The learned CIT(A) disallowed the deduction to the extent of aforesaid interest income and coordinate bench of the Tribunal confirmed the disallowances by following the ratio of the Hon’ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. (supra). However, the Hon’ble High Court found that the assessee being cooperative society is only engaged in the business of providing credit facility to the members and other than that it does not engage in any other business. It was observed that the word used in the provision of section 80P of the Act is the profit and gains attributable to the business of providing credit facilities. The Hon’ble High Court referring to the ruling of the Hon’ble Apex Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) held that the word “attributable” is wider term than the word “derived from”. It was held that:

“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.”

19.6 The Hon’ble High Court in the above stated case of Tumkur Merchants Souharda Credit Cooperative Ltd (supra) also found that ratio laid down by the Hon’ble Supreme in Totgars Co-operative Sale Society (supra) was in different context. It was found that said assessee retained the sale proceed payable to the members and deposited such retained money. The fund deposited was the liability of the said cooperative society and interest earned on such deposit was held to be not attributable to the business of the cooperative society. Hence, the Hon’ble High Court held that ratio laid down by the Hon’ble Supreme Court in Totgars Co-operative Sale Society (supra) shall not be applicable where cooperative society is carrying banking business or providing credit facility to members and earns interest on deposit of surplus/idle fund out of profit & gains or capital.
19.7 It is also noted that the identical view was taken by the Hon’ble Jurisdictional High Court of the Karnataka in the subsequent decision in case of Guttigedarara Credit Cooperative Society Ltd. v. ITO, Ward 2(2), Mysore dated 9th June 2015 reported in [2015]  .
19.8 Furthermore, the Hon’ble Karnataka High Court followed the principle laid down Tumkur Merchants Souharda Credit Cooperative Ltd (supra) in the subsequent judgment dated 19th February 2018 in the case of Lalitamba Pattina Souharda Sahakari Niyamita v. ITO in ITA No. 100004 of 2018.
19.9 We also find that the identical view was taken by the Hon’ble High Court of Andhra Pradesh in the case of Commissioner of Income-tax-III, Hyderabad v. Andhra Pradesh State Cooperative Bank Ltd. dated 7th June 2011 reported in . This decision of Hon’ble Andhra High Court was passed after considering the ratio of the Hon’ble Supreme Court in Totgars Co-operative Sale Society (supra) and before the ratio of the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd (supra). The relevant extract stands as under:
11. Does section 80P(2)(a) of the Act make a distinction between income received by a cooperative bank from statutory deposits and the income from non-statutory deposit of surplus funds? The answer must be in the negative. The income earned by the cooperative bank either by deposit of the prescribed percentage of its reserves or by deposit of their surplus funds is exempted. The income from either category of the deposits is certainly attributable to the business of banking. Indeed as a prudent business practice, no banking company or no entity engaged in the business of banking would keep its amount idle. By parking the funds, immediately not required for the business in other banks, interest can be earned to the benefit of the cooperative society. Every cooperative society is expected to make profits for the benefit of its members. As long as the deposit of the surplus funds in the other banks for the purpose of earning interest is not unauthorized or not barred by any of the applicable statutes, the income is certainly attributable to the business of banking. There is no concept of voluntary or non-statutory reserves as urged by the Revenue.
19.10 We further note that the ratio laid down by the Hon’ble Jurisdictional High Court of the Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd (supra) was subsequently followed by the Hon’ble Kerala High Court in the case of the PCIT v. Sahyadri Co operative Credit Society Ltd. reported in  (Kerala) and further by the Hon’ble Calcutta High Court in West Bengal State Co-Operative Agriculture & Rural Development Bank Ltd. v. DCIT reported  (Calcutta) [06-08-2025]. The relevant finding of the Hon’ble Kerala High Court in above stated case is extracted as under:
7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of ‘Profits and Gains of Business or Profession’ is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.
19.11 Likewise, the relevant finding of the Hon’ble Calcutta High Court in the above stated case is extracted as under:
11. In terms of the above decision, the expression ‘attributable to’ being a wider in 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. The facts in the said case were more or less identical to the facts before us. As the interest income so derived or the capital, if not immediately required to be lent to the members, the society/assessee cannot keep the said amount idle and 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. Bearing in mind the meaning of the words ‘attributable to’ the court proceeded to consider as to the applicability of the judgment of the Hon’ble Supreme Court in Totgars, Co-operative Sale Society Ltd. (supra). It was pointed out that the Hon’ble Supreme Court was dealing with the case where the assessee therein, apart from providing credit facility to the members, was also in the business of marketing of agricultural produce grown by its members and the sale consideration received from marketing agricultural produce of its members was retained in many cases and retained amount which was payable to its members from whom produce was bought, was invested in a short term deposit/security.
12. The facts of the case of the assessee before us is entirely different as the amount which was deposited in the bank was not an amount due to the members and it was not the liability of the society to the members and, therefore, the interest earned from such deposits in the bank should be held to be eligible for deduction under section 80P(2)(a)(i) of the Act. Yet again in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (Kar) identical issue was considered and it was held that where Cooperative Society was engaged in the business of providing credit facilities to its members, they deposited excess amount for short term in banks, interest earned was entitled to be deducted under section 80P of the Act.
19.12 At this point, we also find it pertinent to refer the decision of Hon’ble Gujarat High Court in the case of State Bank of India (SBI) v. CIT reported  wherein ratio of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd (supra) was distinguished by holding the ratio of the Hon’ble Supreme Court in Totgars Co-operative Sale Society (supra) was properly interpreted. The relevant finding of the Hon’ble Gujarat High Court in this respect reads as under:
13. In the opinion of this court, in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall in any of the categories mentioned under section 80P(2)(a) of the Act. In the case of Totgars Cooperative Sale Society (supra), as rightly submitted by the learned counsel for the respondent, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. This is further clear when one peruses the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression “profits and gains of business” and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as “investment” are ineligible for deduction under section 80P(2)(a)(i) of the Act. For the above reasons, this court respectfully does not agree with the view taken by the Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) High that Court the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law.
19.13 From the preceding discussion of the ratio laid down by the Hon’ble Supreme Court, High Court of Karnataka, Andhra Pradesh, Kerala, Culutta and Gujarat, we note the dispute of whether the interest income earned from deposit or investment of surplus/idle fund out of profit & gains or capital by the cooperative societies engaged in providing credit facilities to the members is squarely covered in favour of the assessee by the ruling of Jurisdictional High Court in the cases of Tumkur Merchants Souharda Credit Cooperative Ltd (supra), Guttigedarara Credit Co-operative Society Ltd. and Lalitamba Pattina Souharda Sahakari Niyamita v. ITO as well as by the decision of Hon’ble Kerala High court and Calcutta high court as mentioned in preceding paras.
19.14 It well settled position of the law that the Income-tax Appellate Tribunal, though the final fact-finding authority under the Income-tax Act, functions within the judicial hierarchy established under the Constitution. Under Articles 226 and 227 of the Constitution of India, the Hon’ble High Court exercises supervisory jurisdiction over all courts and tribunals within its territorial jurisdiction. Consequently, the Tribunal is bound to follow the law laid down by the jurisdictional High Court while deciding matters arising within that State.
19.15 The principle that subordinate authorities must follow the judgments of superior courts has been firmly established by the Hon’ble Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs [1962] 3 SCR 338 / AIR 1962 SC 1893, wherein it was held that the law declared by the Hon’ble High Court is binding on all authorities and tribunals within its territorial jurisdiction. The relevant finding is extracted below:
Section 167 (8) of the Sea Customs Act can be invoked only if an order issued under s. 3 of the Act was infringed during the course of the import or export. The division Bench of the High Court held that a contravention of a condition imposed by a licence issued under the Act is not an offence under s. 5 of the Act. This raises the question whether an administrative tribunal can ignore the law declared by the highest court in the State and initiate proceedings in direct violation of the law so declared. Under Art 215, every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for contempt of itself. Under Art. 226, it has a plenary power to issue orders or writs for the en- forcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under Art. 227 it has jurisdiction over all courts and tribunals throughout the territories in relation to which it exercise jurisdiction. It would be anomalous to suggest that a tribunal over which the High Court has superint- endence can ignore the law declared by that court and start proceedings in direct violation of it. If a tribunal can do so, all the sub-ordinate courts can equally do so, for there is no specific, provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer. We, therefor, hold that the law declared by the highest court in the State is binding on authorities or tribunals under its supreintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. If that be so, the notice issued by the authority signifying the launching of proceedings contrary to the law laid down by the High Court would be in. valid and the proceedings themselves would be without jurisdiction.
19.16 Further, the binding nature of Hon’ble Jurisdictional High Court decisions on the Tribunal has been reiterated in CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 by the Hon’ble Bombay High Court, wherein it was held that the Tribunal is bound by the decision of the Hon’ble High Court within whose jurisdiction it functions. The Hon’ble Court also clarified that decisions of other High Courts have only persuasive value. The relevant finding is extracted below:
For deciding whose decision is binding on whom, it is necessary to know the hierarchy of the courts. In India, the Supreme Court is the highest court of the country. That being so, so far as the decisions of the Supreme Court are concerned, it has been stated in article 141 of the Constitution itself that : “The law declared by the Supreme Court shall be binding on all courts within the territory of India.” In that view of the matter, all courts in India are bound to follow the decisions of the Supreme Court. Though there is no provision like article 141 which specifically lays down the binding nature of the decision of the High Courts, it is a well-accepted legal position that a single judge of a High Court is ordinarily bound to accept as correct judgments of courts of co-ordinate jurisdiction and of the Division Benches and of the Full Benches of his court and of the Supreme Court. Equally well-settled is the position that when a Division Bench of the High Court gives a decision on a question of law, it should generally be followed by a co-ordinate Bench of the same High Court. If the co-ordinate Bench in the subsequent case wants the earlier decision to be reconsidered, it should refer the question at issue to a larger Bench. It is equally well-settled that the decision of one High Court is not a binding precedent on another High Court. The Supreme Court in Vattiama Champaka Pillai v. Sivathanu Pillai, AIR 1979 SC 1937, dealing with the controversy whether a decision of the erstwhile Travancore High Court can be made a binding precedent on the Madras High Court on the basis of the principle of stare decisis, clearly held that such a decision can at best have persuasive effect and not the force of binding precedent on the Madras High Court. Referring to the States Reorganisation Act, it was observed that there was nothing in the said Act or any other law which exalts the ratio of those decisions to the status of a binding law nor could the ratio decidendi of those decisions be perpetuated by invoking the doctrine of stare decisis. The doctrine of stare decisis cannot be stretched that far as to make the decision of one High Court a binding precedent for the other. This doctrine is applicable only to different Benches of the same High Court. It is also well-settled that though there is no specific provision making the law declared by the High Court binding on subordinate courts, it is implicit in the power of supervision conferred on a superior Tribunal that the Tribunals subject to its supervision would confirm to the law laid down by it. It is in that . ITA No.2552 & 2553/Bang/2025 Page 40 of 44 view of the matter that the Supreme Court in East India Commercial Co, Ltd. v. Collector of Customs, AIR 1962 SC 1893 (at page 1905) declared : “We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it…………..
19.17 In the absence of a decision of the jurisdictional High Court, the Tribunal may rely upon judgments of other Hon’ble High Courts as persuasive precedents. The Hon’ble Bombay High Court in CIT v. Thana Electricity Supply Ltd. (supra) explained that when conflicting decisions of Hon’ble Non-Jurisdictional High Courts exist, the Tribunal may adopt the view it considers more reasonable.
19.18 Thus, under the constitutional scheme and the doctrine of judicial discipline, a decision of the Hon’ble jurisdictional High Court is binding on the Tribunal, while decisions of other Hon’ble High Courts carry persuasive value and may be followed in the absence of a contrary jurisdictional precedent.
19.19 Hence in our considered view, while deciding the issue of deductibility of interest income from deposit of surplus/idle fund by the cooperative societies engaged in providing credit facilities, we are bound to follow the principles laid down in the case of Tumkur Merchants Souharda Credit Cooperative Ltd (supra), unless material brought on record that the said principle/finding has been overruled by the Hon’ble Supreme Court or the larger bench of the Hon’ble Karnataka High Court or disturbed by the Hon’ble Karnataka High Court in subsequent case.
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19.22 At this juncture it is equally important to note that in several earlier decisions, this Tribunal had taken a view that interest income earned by a co-operative society from deposits placed with banks would not qualify for deduction under section 80P(2)(a)(i) of the Act and the same was liable to be taxed under the head “Income from other sources”. Accordingly, the claim of deduction under section 80P(2)(a)(i) in respect of such interest income was rejected in those cases.
19.23 However, the legal position now stands clarified by the judgment of the Hon’ble jurisdictional High Court of Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), and other case laws as discussed in preceding paragraphs wherein it has been held that where a co-operative society engaged in the business of providing credit facilities to its members temporarily parks its surplus funds with banks, the interest earned therefrom is attributable to the business of the society and is therefore eligible for deduction under section 80P(2)(a)(i) of the Act.
19.24 Since the decision of the Hon’ble Jurisdictional High Court is binding on this Tribunal, judicial discipline requires that the same be followed. Therefore, to the extent our earlier decisions have taken a contrary view, we respectfully depart from the earlier stand and follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Accordingly, the issue is now decided in favour of the assessee by granting deduction under section 80P(2)(a)(i) in respect of the interest income in question.
19.25 Before parting it is also equally important to highlight that the learned DR before us quoted the recent judgment of Hon’ble Jurisdictional High Court of Karnataka in the case of BELVE VYAVASAYA SEVA SAHAKARI SANGHA LTD v. ITO in ITA No. 118 of 2025 dated 21st January 2026. The relevant finding of the Hon’ble High Court in the said case is extracted as under:
6. Section 80P(1) of the I.T. Act enables a co-operative society to claim deduction of the income referred to in sub-section (2). Sub-section (2) provides for deduction in respect of the profits and gains of business attributable to the business of banking or providing credit facilities to its members. Section 80P(2)(d) provides deduction of interest income derived by the Co-operative Societies from its investments with any other Co-operative societies. The assessee as made investments in SCDCC Bank which is a Co-operative Bank. Interest income derived from Co-operative Bank is not included as deduction under Section 80P of the I.T. Act. This Court, in M/s. Judicial Employees House Building Co-operative Society Limited v. Income Tax Officer [ITA No.93/2024, dated 16.09.2025], has held that the interest income received from co operative banks is not eligible for deduction under Section 80P of the I.T. Act. We find that the facts and the legal position considered in the aforesaid d ecision apply to the present case in all force.
19.26 From the perusal of the said finding we note that the decision of the Hon’ble High Court in the case of BELVE VYAVASAYA SEVA SAHAKARI SANGHA LTD v. ITO (supra) was in relation to deduction under section 80P(2)(d) of the Act which deals with deduction of interest and dividend income on investments with other cooperatives society/ bank. As the SCDCC bank is a cooperative bank and not cooperative society, it was held that interest income from such cooperative bank is not eligible for deduction u/s 80P(2)(d) of the Act. However, in the present case, we are dealing with deduction under section 80P(2)(a)(i) of the Act which state the whole of the amount of profits and gains of business attributable to business of banking or providing credit facilities to its members shall be deducted. Therefore, the ratio of the Hon’ble Karnataka High court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. is applicable in the given fact whereas ratio in case of BELVE VYAVASAYA SEVA SAHAKARI SANGHA LTD v. ITO (supra) is distinguished.
19.27 In view of the above detailed discussion, we hereby set aside the findings of the learned CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal raised by the assessee is hereby allowed.
8.16 Respectfully following the decision of the coordinate bench of this tribunal in the abovementioned case involving identical facts and circumstances, we hold the assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act with respect to interest income from the bank on the deposit of idle funds for which there was no immediate borrower. In view of the above detailed discussion, we hereby set aside the finding of the learned CIT(A) and direct the AO to allow the assessee’s claim of deduction u/s 80P(2)(a)(i) of the Act. Hence, the grounds of appeal raised by the assessee are hereby allowed.
9. In the result, the appeal of the assessee is hereby allowed.