Sri Gayathri Credit Co-operative Society Ltd. Vs ITO (ITAT Bangalore)
Bangalore ITAT: Bank Interest Earned by Credit Co-operative Society Eligible for Section 80P Deduction; Nominal Members Cannot Defeat Mutuality
The assessee, a credit co-operative society providing credit facilities to its members, claimed deduction under Section 80P(2)(a)(i) on interest earned from deposits placed with a District Central Co-operative Bank. The AO denied the entire deduction, alleging that the presence of nominal members defeated the principle of mutuality and that the deposit interest was taxable as income from other sources.
The Bangalore ITAT held that nominal and associate members are included within the definition of “member” under the Karnataka Co-operative Societies Act, 1959. Since the Income-tax Act makes no distinction between regular and nominal members, the deduction could not be denied merely because the society had collected a nominal-membership fee of ₹900. The Tribunal relied on the Supreme Court’s decision in Mavilayi Service Co-operative Bank Ltd.
The Tribunal further held that money temporarily not required for lending to members cannot be expected to remain idle. Interest earned by depositing such business funds with co-operative or commercial banks is attributable to the business of providing credit facilities to members and is therefore deductible under Section 80P(2)(a)(i). The decision in Totgars Co-operative Sale Society was distinguished because that case involved amounts payable to members and reflected as liabilities.
Accordingly, the AO was directed to allow deduction on the entire interest income, and the assessee’s appeal was allowed.
List of Cases Discussed / Relied Upon
- Sri Gayathri Credit Co-operative Society Ltd. Vs ITO (ITAT Bangalore)
- M/s. Citizen Co-operative Society Ltd. Vs. ACIT, Civil Appeal No. 10245 of 2017, dated 08.08.2017
- Mavilayi Service Co-operative Bank Ltd v. CIT, Calicut, reported in 431 ITR 1 (SC)
- U.P. Cooperative Cane Unions’ Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I, [1997] 11 SCC 287 / (1999) 237 ITR 574 (SC)
- Sri Kengal Credit Co-operative Society Limited v. ITO, ITA Nos. 238 & 331/Bang/2026, dated 04/08/2026
- Cambay Electrical Supply Industrial Co. Ltd. Vs. CIT, 113 ITR 84 (SC)
- Tumkur Merchants Souharda Credit Co-operative Ltd. v. Income-tax Officer, Ward-V, Tumkur, [2015] 230 Taxman 309 (Karn.)
- Guttigedarara Credit Co-operative Society Ltd. v. Income-tax Officer, Ward 2(2), Mysore, (2015) 377 ITR 464 / [2016] 234 Taxman 476
- Totgars Co-operative Sale Society Ltd. v. ITO, 322 ITR 283
- PCIT Vs. Totgars Co-operative Sales Society, (2017) 395 ITR 611 (Karn.)
- Lalitamba Pattina Souharda Sahakari Niyamita v. ITO, (Karn-HC) (2019) 307 CTR 770
- CIT v. Andhra Pradesh State Co-operative Bank Ltd., [2011] 336 ITR 516 / 200 Taxman 220 / 12 taxmann.com 66
- Belve Vyavasaya Seva Sahakari Sangha vs. The Commissioner of Income Tax, ITA No. 118 of 2025, dated 21/01/2026
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 03.11.2025 v ide DIN & Order No. ITBA/NFAC/S/250/2025-26/1082243831(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.
