Jagadguru Mouneshwar Pattina Sahakari Sangh Niyamita Vs ITO (ITAT Bangalore)
Interest on Co-op Bank & Reserve Fund Deposits Eligible: ITAT Allows 80P(2)(a)(i) Deduction to Credit Society
Bangalore ITAT has allowed deduction u/s 80P(2)(a)(i) to Shree Jagadguru Mouneshwar Pattina Sahakari Sangh Niyamita for AY 2020-21, reversing the orders of AO & NFAC-CIT(A) which had denied deduction on interest income of ₹7.26 lakh from co-operative bank deposits and ₹1.90 lakh from reserve fund investments.
The Assessee, a members’ credit cooperative society, declared Nil income after claiming deduction u/s 80P. The AO treated interest earned from deposits with co-operative banks and reserve funds as “income from other sources”, relying on Totgars (SC) and Karnataka HC rulings, and disallowed the deduction. The CIT(A) upheld the disallowance.
The ITAT held that:
- The sole activity of the Assessee is providing credit facilities to its members.
- Interest earned on temporary deployment of surplus or statutory reserve funds is attributable to the business of the society.
- The expression “profits & gains of business attributable to” in section 80P(2)(a)(i) has wider scope than “derived from”.
- The decision in Totgars (SC) is fact-specific and confined to cases where deposits represented members’ liabilities, which was not the case here.
- The issue is squarely covered by Tumkur Merchants Souharda Credit Cooperative Ltd. (Karnataka HC) and reinforced by Mavilayi Service Co-operative Bank Ltd. (SC) holding section 80P to be a beneficial provision.
Accordingly, the ITAT directed the AO to allow deduction u/s 80P(2)(a)(i) on:
