The AO cites Totgars against my credit society's deposit interest. Can I still claim 80P?
Yes, if the deposits arose in the course of the credit business. 'Attributable to' is wider than 'derived from', so interest on short-term deposits of funds not immediately needed for lending remains within s.80P(2)(a)(i).
Decided by the High Court (Karnataka High Court (N. Kumar and B. Manohar, JJ.; judgment delivered by N. Kumar, J.); IT Appeal No. 307 of 2014) on 2014-10-28, reported as [2015] 55 taxmann.com 447 (Karnataka) / [2015] 230 Taxman 309 (Karnataka); IT Appeal No. 307 of 2014; assessment year 2009-10. It bears on section 80P, section 80P(1), section 80P(2)(a)(i), section 80P(4), section 56 of the Income Tax Act 1961, in Co-operative Societies and Deductions & Disallowances matters.
This is the standard answer to a Totgars-based disallowance for a credit society. The distinction doing the work is factual: in Totgars the deposited money was a liability owed to members, here it was the society's own lending float. It is a Karnataka High Court decision, so its weight depends on where the assessment sits.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A co-operative society registered under s.7 of the Karnataka Co-operative Societies Act, 1959, carrying on no business other than providing credit facilities to its members, returned nil income for assessment year 2009-10 after claiming a deduction of Rs 42,02,079 under s.80P. The Assessing Officer, relying on the insertion of s.80P(4), refused the deduction altogether and assessed the whole Rs 42,02,079. The Commissioner (Appeals) held the society's activity was not in the nature of banking, so s.80P(4) did not bar the deduction; but he held taxable the interest of Rs 1,77,305 - Rs 1,55,300 on short-term deposits with Allahabad Bank and Rs 22,005 on a savings account with Axis Bank - relying on the Supreme Court in Totgars Co-operative Sale Society Ltd. v. ITO. The Tribunal dismissed the society's appeal, following Totgars. Only that Rs 1,77,305 was in issue in the High Court.
The appeal was allowed and the substantial question of law answered in favour of the assessee. Where a co-operative society whose only business is providing credit facilities to its members deposits in a bank money it cannot immediately lend out, the interest is attributable to the profits and gains of that business - the society carries on no separate business of earning interest - and is deductible; the Court's operative words are that it 'is liable to be deducted in terms of Section 80P(1)' (paras 8, 10). The orders of the appellate authorities denying the deduction were set aside (para 10). Totgars was held inapplicable because the money invested there was the retained sale consideration payable to members, a liability shown on the liabilities side of the balance sheet, whereas here the deposited funds were not due to any member and were not a liability (paras 9-10). The Court went further and said that the Supreme Court in Totgars, having confined its judgment to the facts of that case, 'was not laying down any law' (para 9) - a step other High Courts have since declined to take.
The Court started from the word 'attributable to' in s.80P(2)(a). Quoting the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT on the same expression in another provision, it took the point that the legislature deliberately used 'attributable to' rather than 'derived from', that the former is wider, and that where the legislature meant to restrict it used 'derived from'; so 'attributable to' reaches receipts from sources other than the actual conduct of the business (paras 7-8). Applying that, a society whose business is lending to members earns its profits from that business, cannot keep idle the capital or interest not immediately required for lending, and the interest it earns by depositing that money in a bank is attributable to the same business - it carries on no separate business of earning interest (para 8). Totgars was then read on its facts: there the society also marketed members' agricultural produce, and the money invested was the retained sale consideration payable to members, a liability on the balance sheet, so that interest was attributable to neither s.80P(2)(a)(i) nor s.80P(2)(a)(iii) and was rightly taxed under s.56; the Supreme Court had itself said it was confining the judgment to those facts, from which this Court concluded it 'was not laying down any law' (para 9). Here the deposited amount was not due to any member and was not a liability, so the interest retained its character as profits and gains of the credit business, a view the Court noted was also taken by the Andhra Pradesh High Court in CIT v. Andhra Pradesh State Co-operative Bank Ltd. (para 10).
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.
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Handle my notice → Ask a CA on WhatsAppYes, if the deposits arose in the course of the credit business. 'Attributable to' is wider than 'derived from', so interest on short-term deposits of funds not immediately needed for lending remains within s.80P(2)(a)(i). This was decided by the High Court (Karnataka High Court (N. Kumar and B. Manohar, JJ.; judgment delivered by N. Kumar, J.); IT Appeal No. 307 of 2014) and bears on section 80P, section 80P(1), section 80P(2)(a)(i), section 80P(4), section 56 of the Income Tax Act 1961. It is reported as [2015] 55 taxmann.com 447 (Karnataka) / [2015] 230 Taxman 309 (Karnataka); IT Appeal No. 307 of 2014; assessment year 2009-10. This is the standard answer to a Totgars-based disallowance for a credit society. The distinction doing the work is factual: in Totgars the deposited money was a liability owed to members, here it was the society's own lending float. It is a Karnataka High Court decision, so its weight depends on where the assessment sits. If it applies to you, the first step is this: Show from the books that the deposited funds were the society's own lending float and not amounts owed to members.
A co-operative society registered under s.7 of the Karnataka Co-operative Societies Act, 1959, carrying on no business other than providing credit facilities to its members, returned nil income for assessment year 2009-10 after claiming a deduction of Rs 42,02,079 under s.80P. The Assessing Officer, relying on the insertion of s.80P(4), refused the deduction altogether and assessed the whole Rs 42,02,079. The Commissioner (Appeals) held the society's activity was not in the nature of banking, so s.80P(4) did not bar the deduction; but he held taxable the interest of Rs 1,77,305 - Rs 1,55,300 on short-term deposits with Allahabad Bank and Rs 22,005 on a savings account with Axis Bank - relying on the Supreme Court in Totgars Co-operative Sale Society Ltd. v. ITO. The Tribunal dismissed the society's appeal, following Totgars. Only that Rs 1,77,305 was in issue in the High Court. The matter was decided on 2014-10-28 by the High Court (Karnataka High Court (N. Kumar and B. Manohar, JJ.; judgment delivered by N. Kumar, J.); IT Appeal No. 307 of 2014). On those facts the High Court held as follows. The appeal was allowed and the substantial question of law answered in favour of the assessee. Where a co-operative society whose only business is providing credit facilities to its members deposits in a bank money it cannot immediately lend out, the interest is attributable to the profits and gains of that business - the society carries on no separate business of earning interest - and is deductible; the Court's operative words are that it 'is liable to be deducted in terms of Section 80P(1)' (paras 8, 10). The orders of the appellate authorities denying the deduction were set aside (para 10). Totgars was held inapplicable because the money invested there was the retained sale consideration payable to members, a liability shown on the liabilities side of the balance sheet, whereas here the deposited funds were not due to any member and were not a liability (paras 9-10). The Court went further and said that the Supreme Court in Totgars, having confined its judgment to the facts of that case, 'was not laying down any law' (para 9) - a step other High Courts have since declined to take.
The Court started from the word 'attributable to' in s.80P(2)(a). Quoting the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT on the same expression in another provision, it took the point that the legislature deliberately used 'attributable to' rather than 'derived from', that the former is wider, and that where the legislature meant to restrict it used 'derived from'; so 'attributable to' reaches receipts from sources other than the actual conduct of the business (paras 7-8). Applying that, a society whose business is lending to members earns its profits from that business, cannot keep idle the capital or interest not immediately required for lending, and the interest it earns by depositing that money in a bank is attributable to the same business - it carries on no separate business of earning interest (para 8). Totgars was then read on its facts: there the society also marketed members' agricultural produce, and the money invested was the retained sale consideration payable to members, a liability on the balance sheet, so that interest was attributable to neither s.80P(2)(a)(i) nor s.80P(2)(a)(iii) and was rightly taxed under s.56; the Supreme Court had itself said it was confining the judgment to those facts, from which this Court concluded it 'was not laying down any law' (para 9). Here the deposited amount was not due to any member and was not a liability, so the interest retained its character as profits and gains of the credit business, a view the Court noted was also taken by the Andhra Pradesh High Court in CIT v. Andhra Pradesh State Co-operative Bank Ltd. (para 10). In the words reproduced by the source cited on this page: "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 decision followed or applied Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) - followed on the width of 'attributable to' (para 7); CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 200 Taxman 220 / 12 taxmann.com 66 (Andhra Pradesh) - followed (para 10); Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 / 188 Taxman 282 (SC) - distinguished as confined to its facts (paras 3, 9); Followed by the Kerala High Court in Pr. CIT v. Sahyadri Co-operative Credit Society Ltd. [2024] 166 taxmann.com 445 (Kerala), IT Appeal Nos. 68 of 2017 and others, 4 September 2024 (Dr. A.K. Jayasankaran Nambiar and Syam Kumar V.M., JJ.), which followed this decision and Vavveru Co-operative Rural Bank and distinguished Totgars; Not followed by the Gujarat High Court in State Bank of India (SBI) v. CIT [2016] 72 taxmann.com 64 (Gujarat), 25 April 2016, which said in terms that it did not agree with this decision's reading of Totgars; applied against the assessee in Brahmarshi Co-Op. Credit Society Ltd. v. Asstt. CIT [2025] 170 taxmann.com 336 (Gujarat), R/Tax Appeal No. 669 of 2024, 18 November 2024.
It was decided by the High Court on 2014-10-28 and is reported as [2015] 55 taxmann.com 447 (Karnataka) / [2015] 230 Taxman 309 (Karnataka); IT Appeal No. 307 of 2014; assessment year 2009-10. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 80P, section 80P(1), section 80P(2)(a)(i), section 80P(4), section 56, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed and the substantial question of law answered in favour of the assessee. Where a co-operative society whose only business is providing credit facilities to its members deposits in a bank money it cannot immediately lend out, the interest is attributable to the profits and gains of that business - the society carries on no separate business of earning interest - and is deductible; the Court's operative words are that it 'is liable to be deducted in terms of Section 80P(1)' (paras 8, 10). The orders of the appellate authorities denying the deduction were set aside (para 10). Totgars was held inapplicable because the money invested there was the retained sale consideration payable to members, a liability shown on the liabilities side of the balance sheet, whereas here the deposited funds were not due to any member and were not a liability (paras 9-10). The Court went further and said that the Supreme Court in Totgars, having confined its judgment to the facts of that case, 'was not laying down any law' (para 9) - a step other High Courts have since declined to take. It arises in Co-operative Societies and Deductions & Disallowances matters, on section 80P, section 80P(1), section 80P(2)(a)(i), section 80P(4), section 56 of the Income Tax Act 1961, and was decided by Karnataka High Court (N. Kumar and B. Manohar, JJ.; judgment delivered by N. Kumar, J.); IT Appeal No. 307 of 2014. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Frame the claim under s.80P(2)(a)(i) on the 'attributable to' wording, and show the deposits were incidental to the credit activity rather than made to earn interest. Do not stretch this decision to a claim under s.80P(2)(d) — the relief here was given under clause (a)(i).
Still good law. Followed by the Kerala High Court in Pr. CIT v. Sahyadri Co-operative Credit Society Ltd. [2024] 166 taxmann.com 445 (Kerala), decided 4 September 2024, whose case review records this decision followed and Totgars distinguished. But the High Courts are split on the very step this judgment took. The Gujarat High Court in State Bank of India (SBI) v. CIT [2016] 72 taxmann.com 64 (Gujarat), 25 April 2016, said it respectfully did not agree with the view taken here that Totgars was restricted to retained sale consideration and laid down no law, holding instead that interest on funds not immediately required for business purposes and invested as investment is ineligible under s.80P(2)(a)(i); that reasoning was applied against the assessee in Brahmarshi Co-Op. Credit Society Ltd. v. Asstt. CIT [2025] 170 taxmann.com 336 (Gujarat), 18 November 2024. Outside Karnataka and Kerala expect the point to be contested. Note also that the relief here was under s.80P(1) read with s.80P(2)(a)(i), not under s.80P(2)(d), so this decision does not resolve the separate controversy about interest received from co-operative banks. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The sum in issue was small - Rs 1,77,305 of bank interest for assessment year 2009-10 - and the deduction was granted in terms of s.80P(1) read with s.80P(2)(a)(i), not under s.80P(2)(d), so this decision does not resolve the separate controversy about interest received from co-operative banks. The load-bearing step is the reading of Totgars: the Court held the money there was the retained sale consideration payable to members and therefore a liability, and went on to say the Supreme Court 'was not laying down any law'. That step is contested. The Gujarat High Court in State Bank of India (SBI) v. CIT [2016] 72 taxmann.com 64 (Gujarat) expressly declined to agree with it, and applied its own view against the assessee in Brahmarshi Co-Op. Credit Society Ltd. v. Asstt. CIT [2025] 170 taxmann.com 336 (Gujarat). The Kerala High Court in Pr. CIT v. Sahyadri Co-operative Credit Society Ltd. [2024] 166 taxmann.com 445 (Kerala) followed this decision. Cite it in Karnataka and Kerala with confidence, and expect resistance in Gujarat. The report does not record whether the Revenue took this judgment to the Supreme Court, and carries no citator banner either way. The report shows the return for assessment year 2009-10 as filed on 30 September 2008, which cannot be right for that year; the discrepancy is in the report. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed and the substantial question of law answered in favour of the assessee. Where a co-operative society whose only business is providing credit facilities to its members deposits in a bank money it cannot immediately lend out, the interest is attributable to the profits and gains of that business - the society carries on no separate business of earning interest - and is deductible; the Court's operative words are that it 'is liable to be deducted in terms of Section 80P(1)' (paras 8, 10). The orders of the appellate authorities denying the deduction were set aside (para 10). Totgars was held inapplicable because the money invested there was the retained sale consideration payable to members, a liability shown on the liabilities side of the balance sheet, whereas here the deposited funds were not due to any member and were not a liability (paras 9-10). The Court went further and said that the Supreme Court in Totgars, having confined its judgment to the facts of that case, 'was not laying down any law' (para 9) - a step other High Courts have since declined to take.
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