Sri Bramaramba Pattina Souharda Sahakari Sangha Niyamitha Vs ITO (ITAT Bangalore)
The Income Tax Appellate Tribunal (ITAT), Bangalore, allowed the appeal filed by a co-operative society against the order of the National Faceless Appeal Centre (NFAC) for Assessment Year (AY) 2020-21. The dispute concerned the taxability of interest income amounting to Rs.5,95,54,197 earned on statutory fixed deposits with co-operative banks and a scheduled bank, and the assessee’s entitlement to deduction under Section 80P(2)(a)(i) of the Income Tax Act.
The assessee, a co-operative society providing credit facilities to its members, had claimed deduction under Section 80P in respect of interest earned from deposits maintained with co-operative banks and a scheduled bank. The Assessing Officer (AO) treated the interest income as “Income from Other Sources” and denied the deduction under Section 80P(2)(a)(i). The AO also rejected the assessee’s claim under Section 80P(2)(d), holding that the investments were made with co-operative banks and not co-operative societies. The CIT(A) affirmed the assessment order, observing that once surplus funds were placed with co-operative banks, the principle of mutuality was lost because the funds were available for utilisation by non-members and the interest received was not generated exclusively from transactions among members.
Before the Tribunal, the assessee contended that the deposits were statutory investments made in compliance with the provisions of the Karnataka Souharda Sahakari Act, 1997 and the Karnataka Co-operative Societies Act. It argued that these statutes required a portion of the society’s profits to be invested in specified modes, including fixed deposits with co-operative banks or scheduled banks. Accordingly, the interest earned from such compulsory deposits constituted business income attributable to the business of providing credit facilities to members and qualified for deduction under Section 80P(2)(a)(i). The assessee relied upon the judgments of the Supreme Court in CIT v. Karnataka State Co-operative Apex Bank (251 ITR 194) and the Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO (55 taxmann.com 447).
