Kengal Credit Co-operative Society Limited Vs ITO (ITAT Bangalore)
Bangalore ITAT: Credit Co-operative Society Entitled to Full Section 80P Deduction on Bank Deposit Interest; Section 80P(4) Inapplicable
The Bangalore Bench of the ITAT allowed the appeals of Sri Kengal Credit Co-operative Society Ltd. for AYs 2018-19 and 2020-21, holding that the assessee, being a credit co-operative society providing credit facilities exclusively to its members, was entitled to deduction under Section 80P(2)(a)(i) on the entire interest income earned from deposits with co-operative and commercial banks. The Tribunal also condoned a 24-day delay in filing the appeals after accepting that the delay was caused by the ill-health of the assessee’s counsel.
The Tribunal found that the CIT(A)/NFAC had wrongly treated the assessee as a co-operative bank and denied deduction by invoking Section 80P(4), despite the Assessing Officer himself recognizing the assessee as a credit co-operative society engaged in providing credit facilities to its members. Relying on the Karnataka High Court’s decision in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha and the Supreme Court’s judgment in PCIT v. Anna Saheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., the Tribunal held that Section 80P(4) does not apply to a credit co-operative society dealing only with its members.
On the issue of interest income, the Tribunal held that the funds deposited in banks represented business funds temporarily surplus to lending requirements and not amounts held as liabilities payable to members. Therefore, the interest earned was “attributable to” the business of providing credit facilities to members and qualified for deduction under Section 80P(2)(a)(i). The Tribunal emphasized that the expression “attributable to” has a wider scope than “derived from”, following the Supreme Court’s decision in Cambay Electric Supply Industrial Co. Ltd.
The Tribunal further relied upon the Karnataka High Court decisions in Tumkur Merchants Souharda Credit Co-operative Ltd., Guttigedarara Credit Co-operative Society Ltd., and Lalitamba Pattina Souharda Sahakari Niyamita, which consistently held that interest earned by credit co-operative societies from temporary investment of surplus business funds in banks remains attributable to their banking/credit business and is eligible for deduction under Section 80P(2)(a)(i). It also distinguished the Supreme Court’s ruling in Totgars Co-operative Sale Society Ltd., observing that Totgars dealt with investment of members’ liability funds, whereas in the present case the deposits represented the society’s own business surplus.
Accordingly, the Tribunal directed the Assessing Officer to allow the entire deduction under Section 80P(2)(a)(i) in respect of the interest income for both assessment years and allowed both appeals.
Cases Discussed
- PCIT Vs. Anna Saheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. (SC), (2023) 454 ITR 117
- Mavilayi Service Co-operative Bank Ltd. & Ors. vs. CIT & Anr. (SC), (2021) 318 CTR (SC) 609 : (2021) 197 DTR (SC) 361 : (2021) 7 SCC 90
- Lalitamba Pattina Souharda Sahakari Niyamita v. ITO (Karnataka HC), (2018) 307 CTR 770
- Citizen Co-operative Society Ltd., 397 ITR 1
- Guttigedarara Credit Co-operative Society Ltd. v. Income-tax Officer, Ward 2(2), Mysore (Karnataka HC), (2015) 377 ITR 464 : [2016] 234 Taxman 476
- Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income-tax Officer Ward-V, Tumkur (Karnataka HC), [2015] 230 Taxman 309
- CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot (Karnataka HC), (2014) 369 ITR 86
- Totgars Co-operative Sale Society Ltd., 322 ITR 283
- CIT v. Andhra Pradesh State Co-operative Bank Ltd. (Andhra Pradesh HC), [2011] 336 ITR 516/200 Taxman 220/12 com 66
- CIT v. Andhra Pradesh State Co-operative Bank Ltd. (Andhra Pradesh HC), [2011] 200 Taxman 220
- Cambay Electrical Supply Industrial Co. Ltd. Vs. CIT (SC), 113 ITR 84
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals at the instance of the assessee are directed against the separate orders of the ld. CIT(A)/NFAC, Delhi vide DIN& Order No. ITBA/NFAC/S/250/2025-26/1081826699(1) dated 16.10.2025 for the AY 2018-19 &vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1081819910(1) dated 16.10.2025 for the AY 2020-21 both passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”). Since the issue involved in both these appeals is common and of the same assessee, these are clubbed together, heard together and disposed of by this common order for the sake of convenience & brevity.
