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by sayum
25 August 2026 11:37 AM
“Legislature Deliberately Used ‘Attributable To’ and Not ‘Derived From’ – Wider Scope of Deduction Under Section 80P(2)(a)(i),” Income Tax Appellate Tribunal (ITAT), Chennai ‘B’ Bench delivered a significant ruling in The Coimbatore Co-operative Housing Society Ltd. vs. Income Tax Officer, Non-Corporate Ward-1(1), Coimbatore, allowing a claim for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Tribunal held that interest income earned by the society from surplus funds parked in its savings account with Axis Bank was “attributable” to the business of providing credit facilities to its members, and thus eligible for deduction under Section 80P.
“The word ‘attributable’ is certainly wider in import than ‘derived from’”: Tribunal echoes Karnataka High Court’s interpretation of Section 80P
The Tribunal’s primary observation centered around the nature of income earned by the Coimbatore Co-operative Housing Society Ltd., a registered credit society whose principal object is to provide housing loans and related credit facilities exclusively to its members. The assessing authority had denied the society’s deduction claim of ₹11,25,431 under Section 80P(2)(a)(i), treating the interest income earned from Axis Bank as "income from other sources" under Section 56, relying on the decisions in Totgars Co-operative Sale Society Ltd. and Citizen Co-operative Society Ltd.
However, the ITAT rejected the Revenue’s position, holding that the parked surplus funds were part of the society’s circulating capital, and not unrelated investments.
Background: Reassessment under Section 263 followed by denial of 80P claim
The appellant-society had originally filed its return for AY 2017–18 declaring NIL income after claiming deduction under Section 80P for the entirety of its gross income of ₹4,04,77,205. Though the assessment under Section 143(3) initially accepted this, the Principal Commissioner of Income Tax (PCIT), exercising powers under Section 263, directed reassessment, arguing that the interest earned from Axis Bank was not eligible for deduction.
Following this direction, the Assessing Officer disallowed the ₹11.25 lakh interest income, treating it as income under Section 56. The CIT(A) upheld this view, prompting the present appeal before the ITAT.
Legal Issue: Whether Interest from Bank Deposits Qualifies as Business Income ‘Attributable’ to Providing Credit Facilities
The Tribunal’s judgment revolved around the interpretation of Section 80P(2)(a)(i), which provides for deduction of the entire profits and gains “attributable to” the business of banking or providing credit facilities to members.
The Tribunal emphasized the legislative intent behind the use of the term “attributable to” – noting that it has a wider scope than “derived from.” Citing Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84 (SC), the Bench reiterated that “whenever the legislature wanted to give a restricted meaning, they used the term ‘derived from’. The use of ‘attributable to’ was deliberate and aimed at encompassing incidental and ancillary income flows.”
The Tribunal further accepted that interest income from savings parked in banks — due to temporary absence of loan demand from members — forms part of the operating business funds. It noted:
“Assessee is not carrying on any separate business for earning interest income. The interest from Axis Bank is incidental and ‘attributable’ to the business of providing credit to its members.”
Totgars & Citizen Co-op Society Distinguishable: Tribunal Clarifies Misapplication by AO
Addressing the Revenue’s reliance on Totgars Co-operative Sale Society Ltd. v. ITO (2010) 322 ITR 283 (SC), the Tribunal held the case inapplicable, stating:
“In Totgars, the interest was earned on funds retained on behalf of members, shown as liabilities in the balance sheet. In contrast, the deposits in the present case were made from the assessee’s own surplus, not any liability towards members.”
The Court further emphasized that even the Apex Court in Totgars had expressly limited its judgment to its own facts.
Similarly, the Citizen Co-operative Society Ltd. (2017) 397 ITR 1 (SC) case was found irrelevant. That case involved a society that had violated its own bye-laws by giving loans to the general public, thus engaging in an ultra vires activity. The Coimbatore Society, however, was found to be strictly operating within its legal mandate of serving only its members.
“In Citizen Co-op Society, the denial of 80P was based on the society lending to non-members in violation of the bye-laws. That factual matrix is absent here.”
Judicial Consistency Favors Assessee: Tribunal Applies Karnataka and Andhra Pradesh High Court Rulings
The Tribunal relied extensively on binding and favorable precedents, especially:
The Bench further cited Vavveru Co-operative Rural Bank Ltd. v. CCIT (2017) 396 ITR 371 (T&AP), which held that:
“Temporary parking of profits and gains of business in nationalized banks and earning of interest income therefrom is only one of the methods of multiplying the same income.”
Where there is judicial divergence, the Tribunal reminded that as per the Supreme Court’s dictum in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192, “where two interpretations are possible, the one favoring the assessee must be adopted.”
Final Order: AO Directed to Grant Deduction; Appeal Allowed
Holding that the interest income was not a separate stream but part of the society’s business operations, the ITAT concluded that:
“Orders of the AO and CIT(A) are liable to be set aside. The disallowance of ₹11,25,431 is unsustainable. The AO is directed to grant deduction under Section 80P(2)(a)(i).”
The appeal was thus allowed in full, marking a decisive victory for co-operative credit societies engaged exclusively in member-focused lending activities.
Date of Decision: 04 February 2026
