Vyavasaya Seva Sahakari Bank Limited Vs ITO (ITAT Bangalore)
Interest from Co-op Bank Fully Eligible u/s 80P(2)(a)(i)- Tumkur Merchants Rescues Yet Again: 80P Deduction Restored for Primary Credit Society- Two Karnataka HC Views – Beneficial One Prevails: ITAT Deletes 80P Disallowance
Assessee, a primary credit co-operative society, filed ROI showing interest income of ₹20,64,423 from deposits with co-operative banks & claimed deduction u/s 80P(2)(a)(i). AO, relying on Totagars (2017) of Karnataka HC, held that surplus funds invested in co-operative banks give rise to income from other sources & denied deduction of ₹10,20,139, though paradoxically he already allowed deduction for the remaining portion of interest. CIT(A) confirmed.
Before Tribunal, Assessee argued that it is not a co-operative bank & is covered by Tumkur Merchants (2014) & earlier Totagars (392 ITR 74) which held that interest on temporarily parked funds is attributable to business of providing credit to members & eligible u/s 80P(2)(a)(i). DR relied on later judgments including Judicial Employees HBCS (2025) & Mavilayi SC decision.
Tribunal observed that Assessee earned ₹20.64 lakh interest but AO disallowed only ₹10.20 lakh, creating internal inconsistency. Tribunal held that facts of case align with Tumkur Merchants where interest on deposits made out of business funds not immediately required for lending is attributable to business income. Tribunal also analysed the SC decision in Mavilayi & held that 80P(4) only excludes co-operative banks, not primary credit societies earning interest from co-operative banks. Where two Karnataka HC views exist, the one favourable to Assessee must prevail.
