Gujarat High Court
The Principal Commissioner Of Income ... vs M/S. The Peoples Coop Credit Society ... on 26 August, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/169/2024 ORDER DATED: 26/08/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 169 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX 3
Versus
M/S. THE PEOPLES COOP CREDIT SOCIETY LIMITED
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Appearance:
MS MAITHILI D MEHTA, SR. STANDING COUNSEL for the Appellant(s) No.
1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 26/08/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE PRANAV TRIVEDI) 1 Heard Ms.Maithili Mehta, learned Senior Standing Counsel for the appellant - Revenue.
2 This Tax Appeal is filed under Sec.260A of the Income-Tax Act, 1961 (for short 'the Act') by the appellant - Revenue proposing the following substantial questions of law arising out of the judgement and order dated 08.09.2023, passed by the Income-Tax Appellate Tribunal, Ahmedabad (for short 'the Tribunal') in ITA No. 322/AHD/2023 for the Assessment Year 2018-19:
"Whether on the facts and circumstances of the case and in law, the ITAT erred in deleting Page 1 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined disallowance of Rs.1,22,53,554/- u/s.80P (2) (d) of the act on account of the interest earned?"
3 With the consent of the learned advocates for the respective parties, this Tax Appeal is taken up for hearing today.
4 The Tribunal has passed the impugned order in this tax appeal by holding that the action of the Principal Commissioner of Income Tax ('PCIT' for short) invoking section 263 of the Act directing the Assessing Officer to tax the interest earned by the respondent - assessee on the investment made with the Co-Operative Bank to be disallowed is not legal and Tribunal has allowed the appeal of the assessee holding that the action of passing the order by the Assessing Officer was not erroneous and prejudicial to the interest of the Revenue by allowing the deduction on interest earned from Co-operative Bank under Section 80P(2)(d) of the Act.
Page 2 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined 4.1 Learned Senior Standing Counsel Ms.Maithili Mehta appearing for the appellant - revenue submitted that as per Section 80P(4) of the Act, the provisions of section 80P are not applicable in relation to any Cooperative Bank other than a Primary Agriculture Credit Society or a Primary Cooperative Agricultural and Rural Development Bank. Reliance was also placed on the explanation given below section 80P(4) of the Act which defines Cooperative Bank to mean that "Cooperative Bank"
and "Primary Agriculture Credit Societies" shall have the same meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949.
4.2 However, Ms.Mehta, learned Senior Standing Counsel conceded to the fact that the issue is no more res-integra in view of the decision of this Court in Tax Appeal No. 538 of 2024 and Tax Appeal No. 221 of 2022 and Tax Appeal No.419 of 2023, which are on Page 3 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined the very same issue. It has been observed by this Court in the aforesaid tax appeals as under:
"28. Having heard learned advocates for the and considering the respective parties controversy arising in these tax appeals, we are of the opinion that the controversy sought to be canvassed with regard to deduction under section 80P(2) (d) of the Act is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. as well as in case of State Bank of India (supra) wherein it was held that the deduction of under section 80P(2) (d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with cooperative bank which in turn, is the a cooperative society itself.
29. Reliance placed by the learned advocate revenue on for the decisions of the Hon'ble Karnataka High Court and Hon'ble Supreme Totgars' Cooperative Sale Society Ltd, the Hon'ble Court in case of Karnataka High Court appears to have taken into consideration the amendment in section 194A (3) (v) of the Act wherein the cooperative bank is excluded from the applicability of tax to be deducted at source. However, it appears that the interpretation made by the Hon'ble Karnataka High Court to the effect that the cooperative banks have been excluded from the definition of the cooperative societies by Finance Act, 2015 by amending section 194A (3) (ν) of the Act is concerned, on perusal of section 194A (3) of the Act, it appears that it provides for exemption from deducting Page 4 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined Tax Deducted at Source ['TDS' for short] from the income on interest other than interest on securities as the cooperative societies other than cooperative banks meaning thereby that the cooperative banks are liable to deduct TDS from the interest other than Therefore it interest cannot on be securities. said that cooperative banks are excluded from the definition of cooperative societies by such an amendment.
30. Moreover, as reliance placed on the aforesaid decision for applicability of section 80P(4) of the Act in the facts of of the Act the case is also not possible to accept as section 80P (4) would be applicable to the cooperative bank when the cooperative bank is liable to pay tax under the provisions of the Act and in such eventuality, the provision of section 80P would not be applicable as per the amendment of sub-section (4) of section 80P of the Act. Therefore, the exclusion of applicability of section 80P to cooperative banks by section 80P (4) of the Act would not disentitle from the respondent-assessee claiming deduction under section 80P(2) (d) of the Act in absence of any amendment in the said section and that would not be sufficient to deny the claim of the respondent-assessee for deduction of interest earned from investment made in a cooperative bank which 15 also a cooperative society from the total income.
31. The Hon'ble Apex Court in case of Kerala State Co-operative Agricultural & Rural Development Bank Ltd. vs. Assessing Officer (supra) while considering various provisions of the Banking Regulation Act read with provisions of the Income Tax Act has held that the provision Page 5 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined of section 80P(4) of the Act would not be applicable to a cooperative bank which is not a bank as per the provisions of the BR Act, 1949, as under:
"5. Interpretation. In this Act, unless there is anything repugnant in the subject or context, XXX
(b) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise;
(c) "banking company" means any company which transacts the business of banking in India.
Explanation.-Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;"
32. After considering the above interpretation of various provisions and the Case laws, the Hon'ble Apex Court has analyzed the provisions as under:
"14.1. In Apex Co-operative Bank of Urban Bank of Maharashtra and Goa Ltd., it was categorically Page 6 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined held that under Section 56 of the BR Act, 1949 only three co-operative banks have been defined, namely, state operative bank, central co- operative bank and primary co-operative bank which are covered under Section (cci) read with (ccvii) read with the provisions of the NABARD Act, 1981. Thus, it is only these three banks which are co-operative banks which require a licence under the BR Act, 1949 to engage in banking business. If any bank does not fall within the nomenclature of the aforesaid three banks as defined under the NABARD Act, 1981, it would not be a co-operative bank within the meaning of Section 56 of BR Act, 1949 irrespective of whatever nomenclature it may have or structure it may possess or incorporated under any Act. It was as a state Co-further stated that if a bank has to be a state co-operative bank, there has to be a declaration made by the State Government in terms of Section 2 (u) of NABARD Act, 1981.
Hence, it is necessary to go into the question as to, whether, the appellant herein has been 50 declared operative bank. This question would need not detain us for long as the Kerala High Court in A.P. Varghese had categorically stated that the "Kerala State Co-operative Bank" is a "state co-operative bank" as defined under the NABARD Act, 1981. Therefore, the appellant bank has not been declared as a state co- operative bank under the provisions of NABARD Act, 1981. Further, in the case of Mavilayi Service Co-operative Bank, this Court observed that a co-operative bank would engage in banking business on obtaining a licence under Section 22 (1b) of the BR Act, 1949. In the instant case, the appellant herein is not a co- operative bank having regard to the aforesaid Page 7 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined conspectus tus of the provisions so as to require a licence under the aforesaid provision carrying on for banking business. In the circumstances, the question could still arise as to whether the appellant herein 18 entitled to benefit of deduction under Section 80P of the Act.
14.2. In Mavilayi Service Co-operative Bank, it that Section of has been observed is a 80P of the Act beneficial provision which was enacted in order to encourage and promote the growth the co-operative sector generally in the economic life of the country and therefore, has to be read liberally in favour of the assessee. That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in sub- section (2) of Section 80P must be given by way of deduction vide Citizen Co-operative Society. This is because sub-section (4) of Section 80P is in the nature of a proviso to the main provision contained in sub- sections The Section and of 80P. (1) (2) proviso excludes co- operative banks, which are co-operative societies which the must possess a from licence Reserve Bank of India to do banking business. In other words, if an entity does not require a licence to do banking business within the definition of banking under Section5 (b) of the BR Act, 1949, then it would not fall within the scope of sub- section (4) of Section 80P.
14.3. While analysing Section 80P of the Act in depth, the following points were noted by this Court:
i) Firstly, the marginal note Section 80P which Page 8 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined reads "Deduction in respect of income of co-
operative societies" is significant as it indicates the general "drift" of the provision.
ii) Secondly, for purposes of eligibility for deduction, the assessee must be a "co-operative society".
iii) Thirdly, the gross total income must include income that is referred to in sub-section (2).
iv) sub-clause Fourthly, (2) (a) (1) speaks of a co- operative society being "engaged in", inter alia, carrying on the business of banking or providing credit facilities to its members.
v) Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under Section 80P.
vi) Sixthly, the expression "providing credit facilities to its members" does not necessarily mean agricultural credit alone. It was highlighted that attributable members, such amount the distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to ron-members cannot be said to be to the activity of to its cannot be providing credit facilities deducted.
vii) Seventhly, under Section 80P (1)(c), the co- operative societies must be registered either under Co-operative Societies Act, 1912, or a State Act and may be engaged in activities which may be termed as residuary activities i.e. Page 9 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined activities not covered by sub-clauses (a) and (b), either independently of or in addition to those activities, then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub-clause (c).
viii) Eighthly, sub-clause (d) states that where interest or dividend income is derived by a co- operative society from investments with other CO-operative societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the co-operative movement as a whole.
14.4. In paragraph 42 of Mavilayi Service Co- operative Bank, this Court observed that the object and purpose of sub-section (4) of Section 80P is to exclude only co-operative banks that function with other par commercial banks i.e. which lend money to members of the public. That on a reading of Section 3 read with Section 56 of the BR Act, 1949, the primary co-operative bank cannot be a primary agricultural credit society. As such co-operative bank must be engaged in the business of banking as defined by Section 5(b) of the BR Act, 1949, of which means accepting, for the purpose of lending or investment, of deposits money from the public. Also under Section 22(1)(b) of the BR Act, 1949, no co-can operative society carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by Reserve Bank of India. pointed out that as It was opposed to the above, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural Page 10 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined purposes or for purposes connected with agricultural activities.
14.5. It was further observed in the said agricultural sought case that some primary credit societies had for banking licence from Reserve Bank of India but the same was turned down by observing that such a society was not carrying on the business of banking and that it did not come under the purview of Reserve Bank of India requiring a licence for its business.
14.6. Thereafter in paragraph 48 of the judgment, it was observed that a deduction that is given without any reference to any restriction or be restricted That sub-limitation cannot limited by implication. section (4) of Section 80P which is in the nature of a proviso specifically excludes co-operative banks which are societies engaged co-operative in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from Reserve Bank of India."
5 In view of the above dictum of law as well as the provisions of the Act which are considered, we are of the opinion that the provisions of section 80P(2) (d) would be applicable in the facts of the case and the PCIT was not justified in invoking revisional powers under section 263 of the Act which is rightly reversed by the Tribunal holding that the cooperative bank is a Page 11 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025 NEUTRAL CITATION C/TAXAP/169/2024 ORDER DATED: 26/08/2025 undefined cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2) (d) of the Act which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled.
6 In view of the foregoing reasons, we answer the question in favour of the assessee and against the Revenue. Tax Appeal being devoid of merit, is accordingly dismissed. No order as to costs.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) BIMAL Page 12 of 12 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Fri Sep 19 2025 Downloaded on : Fri Sep 19 23:06:34 IST 2025