ITAT Nagpur on Section 80P: When “Operational Funds” Don’t Become “Other Income”
Case: Jalsampda Karmchari Sahakari Patsanstha Maryadit vs. ITO, Wardha
ITA No. 300/Nag/2025 | A.Y. 2017–18 | Order dated 23.09.2025 (Nagpur SMC Bench)
Introduction
The question of whether interest earned by cooperative societies on bank deposits qualifies for deduction under section 80P is like that old Bollywood song-remixed again and again, but still evergreen in disputes.
Some officers say, “Interest from commercial banks? That’s income from other sources. Sorry, no 80P!”
Societies reply, “Wait! These are our operational funds. We can’t keep cash in the cupboard! Deposits are part of our business.”
This tug-of-war reached the Nagpur ITAT in the case of Jalsampda Karmchari Sahakari Patsanstha Maryadit, a credit society of Irrigation Department employees in Wardha. And yes—the Tribunal sided with the society.
Background of the Case
• The society filed its return showing NIL income after claiming deduction of ₹2.12 crore u/s 80P.
• During scrutiny, the AO noticed interest of ₹9.02 lakh earned from deposits with Bank of India and Axis Bank.
• AO disallowed it, holding that interest from non-cooperative banks is not covered u/s 80P(2)(d).
• A small donation of ₹14,831 was also disallowed.
• The CIT(A) affirmed both additions.
• The society knocked ITAT’s door-albeit with a delay of 279 days (condoned, thanks to bona fide reasons like President’s illness and consultant mix-ups).
The Assessee’s Stand
• Deposits were not surplus investments but operational funds-kept liquid to meet member withdrawals.
• Earlier years’ scrutiny assessments had already allowed the claim.
• Various precedents, including CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd. (182 Taxman 231), had held that interest on such deposits is business income eligible for 80P(2)(a)(i).
Tribunal’s Observations
The Tribunal made some important points:
1. Operational vs. Surplus funds
• In Totgars Co-op Sale Society Ltd. (SC), the funds invested were surplus, arising out of retained proceeds of agricultural produce sales.
• In this case, funds were not surplus but kept for liquidity, making a world of difference.
2. Judicial consistency
• ITAT cited its own earlier rulings (Ismailia Urban Co-op Society, MSEB Engineers Co-op Credit Society, Chhattisgarh Urban Sahakari Sanstha).
• Jurisdictional High Court in Solapur Nagri too had recognised such interest as business income.
3. Doctrine of stare decisis
• When multiple benches and High Court rulings have taken a consistent view, there’s no reason to deny the deduction.
4. Result
• Disallowance of ₹9,02,984 deleted.
• Disallowance of ₹14,831 donation sustained (since no evidence was given).
Why This Case Matters
• Clarity for Cooperative Societies: Many societies keep funds in commercial banks for practical reasons-this decision affirms their right to 80P deduction.
• Totgars Limitation: Officers often wave Totgars like a magic wand to deny claims. This order reminds us: Totgars applies only where funds are surplus, not operational.
• Consistency in approach: ITAT reinforced that year-to-year consistency is crucial. If deduction is allowed in one year, absent factual change, it shouldn’t be denied the next year.
Interesting Observations
• The Tribunal’s condonation of delay is itself a lesson: genuine hardships, when explained with sincerity, are respected by courts. The society blamed illness, consultant confusion, and logistical issues. Many taxpayers shy away from appeals fearing “delay rejection”-this case shows otherwise.
• The small disallowance of donation (₹14,831) is a reminder: always back claims with documents. Big battles may be won, but small skirmishes are lost when evidence is missing.
• This case once again shows the irony: A co-op society lending to its own members is treated as if it is “not in banking business” when it places deposits with scheduled banks. The Tribunal has rightly cut through this fiction.
Conclusion
The Nagpur ITAT’s ruling is a strong reaffirmation of cooperative principles: operational deposits in banks are not “other income,” but integral to business, eligible for 80P deduction.
For cooperative societies, this order brings comfort. For tax officers, it brings a caution: don’t stretch Totgars beyond its facts.
And for all of us tax professionals-it’s another reminder that in tax law, context is everything. The same word “deposit” can mean “business income” or “other sources,” depending on whether the funds were surplus or operational.
Author’s Note: Having argued the matter personally, I can say this case is a perfect example of how clarity, consistency, and common sense can tilt the scales of justice in tax litigation.
The copy of the order is attached herewith.
