Chidambara Souharada Pattina Sahakari Niyamita Vs ITO (ITAT Bangalore)
Call It “Souharda” or “Society”—Co-operation by Any Name Qualifies u/s 80P: Bangalore ITAT
Summary:
The controversy
The assessee, Shri Chidambara Souharada Pattina Sahakari Niyamita, was registered under the Karnataka Souharda Sahakari Act, 1997. It provided credit facilities exclusively to its members.
For AY 2017-18, the assessee filed its return declaring nil income after claiming a deduction of ₹31,69,257 u/s 80P.
The return was selected for limited scrutiny under CASS to examine low income in comparison with high loans, advances or investments appearing in the balance sheet & the substantial Chapter VI-A deduction.
During assessment, the assessee furnished its audit report, financial statements, investment details, ITR-V, statement of income, registration certificate & bye-laws.
The AO nevertheless denied the deduction solely because the assessee was registered under the Karnataka Souharda Sahakari Act, 1997, and not under the Karnataka Co-operative Societies Act, 1959.
“Co-operative” distinguished from “co-operative society”
According to the AO, the Karnataka Legislature had deliberately distinguished between entities registered under the two State enactments.
An entity registered under the Karnataka Co-operative Societies Act, 1959 was described as a “co-operative society,” whereas an entity registered under the Karnataka Souharda Sahakari Act, 1997 was merely called a “co-operative.”
The AO therefore held that a Souharda entity did not fall within the definition of “co-operative society” u/s 2(19) of the Income-tax Act and consequently could not claim deduction u/s 80P.
The deduction of ₹31,69,257 was disallowed and added to the assessee’s returned income.
First appeal mechanically dismissed
The Addl./JCIT(A) dismissed the assessee’s appeal, observing that the AO’s approach was just, proper & reasonable and that there was no reason to interfere.
The assessee contended before the ITAT that the appeal had effectively been dismissed for non-prosecution and without a proper merits-based adjudication, contrary to the statutory obligation u/s 250(6) to pass a reasoned order.
It was argued that an income-tax appeal cannot be dismissed merely because the appellant does not appear. The first appellate authority must adjudicate the grounds on merits based upon the material available on record.
On the substantive issue, the assessee relied upon binding decisions of the Karnataka High Court holding that entities registered under the Souharda Act fall within s.2(19) and are entitled to stake their claim for deduction u/s 80P.
Issue no longer res integra
The Bangalore ITAT held that the controversy was no longer res integra in view of the jurisdictional High Court’s decision in Swabhimani Souharda Credit Co-operative Ltd. v. Government of India, 421 ITR 670 (Karn.).
Section 2(19) defines a co-operative society as one registered under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co-operative societies.
The definition is not confined to societies registered under an enactment bearing the exact title “Co-operative Societies Act.” What matters is the nature, object & legal framework of the State legislation under which the entity is registered.
Both the Karnataka Co-operative Societies Act, 1959 and the Karnataka Souharda Sahakari Act, 1997 are State enactments traceable to the same constitutional field concerning incorporation, regulation & winding up of co-operative societies.
Nomenclature cannot defeat substance
The Karnataka High Court had held that all entities registered under State enactments relating to co-operative societies must be treated as co-operative societies, notwithstanding differences in nomenclature.
The word “co-operative” in the Souharda Act is used as a noun and not merely as an adjective. Upon registration, a Souharda co-operative becomes a body corporate with perpetual succession and the capacity to own property, sue & be sued.
The objects and preamble of the 1997 Act are also founded upon recognised co-operative principles such as self-help, mutual aid, democratic functioning, member ownership & economic betterment.
The very expression “Souharda Sahakari” reinforces its co-operative character. A restrictive construction based only upon the absence of the suffix “society” would frustrate the legislative purpose of s.80P, which was enacted to encourage the co-operative movement.
Binding precedent could not be bypassed
The ITAT also relied upon the Karnataka High Court’s subsequent ruling in Sri Matha Vividoddesha Pathina Souharda Sahakari Niyamitha v. Union of India, 285 Taxman 230.
In that case, the High Court followed Swabhimani and reiterated that a society registered under the Souharda Act is a co-operative society within s.2(19) for purposes of s.80P.
The mere pendency of an appeal against Swabhimani did not dilute its binding force, particularly when no interim stay had been granted.
Accordingly, the Tribunal held that the assessee satisfied the definition of a co-operative society u/s 2(19) and was eligible to claim deduction u/s 80P in accordance with law.
The AO was directed to allow the deduction claimed u/s 80P(2). The appeal was allowed.
Author’s comments
The decision settles a recurring Karnataka controversy: registration under the Souharda Act cannot, by itself, disqualify an entity from s.80P merely because the statute calls it a “co-operative” instead of a “co-operative society.”
Tax eligibility turns upon the substance of the legal entity, not a drafting preference in State legislation.
However, the jurisdictional decisions state that Souharda entities are entitled to “stake their claim” subject to other statutory conditions. Therefore, satisfying s.2(19) does not dispense with examination of the particular clause of s.80P claimed, the nature of members, dealings with non-members or the possible exclusion u/s 80P(4).
In the present case, the AO’s sole objection was the statute under which the assessee was registered. Once that objection stood squarely overruled by binding Karnataka High Court judgments, the disallowance had no legal foundation.
Cases Discussed
- Swabhimani Souharda Credit Co-operative Ltd. v. Government of India, 421 ITR 670 (Karn.)
- Sri Matha Vividoddesha Pathina Souharda Sahakari Niyamitha v. Union of India, 285 Taxman 230 (Karn.)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
This appeal at the instance of the assessee is directed against the order of the ld. Addl./JCIT(A)-3, Mumbai dated 29.12.2025 vide DIN & Order No. ITBA/APL/S/250/2025-26/1084175903(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.
2. The assessee has raised the following grounds of appeal:-
1. The order passed by the ld. CIT(A) is bad in law, erroneous, unsustainable and opposed to the facts and circumstances of the case.
2. The ld. CIT(A) erred in dismissing the appeal for non-prosecution, without adjudicating the issues on merits, which is contrary to the mandatory duty cast upon him under section 250(6) of the Income-tax Act, 1961.
3. The ld. CIT(A) failed to appreciate that dismissal of an appeal for non-prosecution is not permissible under the income-tax Act, and that the appellate authority is statutorily required to pass a reasoned order on merits, even in the absence of the appellant.
4. The ld. CIT(A) erred in confirming the order of the Assessing Officer mechanically, without independent application of mind and without examining the facts, evidence and legal submissions available on record.
5. The ld. CIT(A) erred in upholding the disallowance of deduction claimed under section 80P(2)(a)(i) of the Act, without appreciating that the appellant is a co-operative/souharda society providing credit facilities exclusively to its members and is not carrying on banking business.
6. The authorities below failed to appreciate that the appellant is not a co-operative bank, and therefore, the provisions of section 80P(4) are not applicable to the appellant’s case.
7. The ld. CIT(A) failed to consider and follow binding judicial precedents of the jurisdictional High Court and ITAT, which clearly hold that souharda/credit co-operative societies providing credit facilities to members are entitled to deduction under section 80P(2)(a)(i).
8. The ld. CIT(A) erred in presuming lack of interest on the part of the appellant, without considering that non-appearance was due to nona fide and reasonable causes, and thereby violated the principles of natural justice.
9. The ld. CIT(A) erred in confirming levy of interest under sections 234A and 234B, which is consequential and liable to be deleted once the deduction under section 80P is allowed.
10. Without prejudice the addition is excessive arbitrary and unreasonable and liable to be reduced substantially.
11. The appellant craves leave to add, alter, amend, or withdraw any of the above grounds of appeal at the time of hearing.
12. For these and other grounds that may urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed.
Total Tax effect : Rs.13,41,167/-.
3. The brief facts of the case are that the assessee is a co-operative registered under the Karnataka Souharda Sahakari Act, 1997. The assessee filed its return of income for the AY 2017-18 on 22/03/2018 by claiming deduction u/s 80P of the Act amounting to Rs. 31,69,257/- & declared total income of Rs. NIL. Thereafter, the case was selected for LIMITED Scrutiny under CASS to verify “Low income in comparison to high loans/advances/investment in shares appearing in balance sheet & large deduction under chapter VI-A from total income”. Accordingly, the notices u/s 143(2) as well as u/s 142(1) of the Act were issued calling for details in connection with the return of income filed. In response to the notices, the assessee had furnished Audit report, financial statements, details of investments, Copy of ITR-V, Statement of Income, Registration Certificate and bye-laws of the Co-operative.
3.1 During the course of the assessment proceedings, the AO observed that the assessee is claiming deduction u/s 80P(2) of the Act as a Co-operative Society, however the assessee is a co-operative registered under the Karnataka Souharda Sahakari Act, 1997 and not under the Co-operative Societies Act, which is the Karnataka State Cooperatives Act,1959. In the opinion of the AO, the Karnataka State Legislature has already distinguished the fact that Co-operative Society is only those registered under the Karnataka State Co-operative Societies Act 1959 and those registered under the Karnataka Souharda Sahakari Act, 1997 are only “Co-operatives” and not Co-operative Societies. In view of the above, the AO disallowed the claim of deduction u/s 80P of the Act and added back to the returned income.
4. Aggrieved by the assessment completed u/s. 143(3) of the Act dated 19/12/2019, the assessee preferred an appeal before the ld. CIT(A)/ADDL/JCIT(A).
5. The ld. ADDL/JCIT(A)-3, Mumbai dismissed the appeal of the assessee as in the opinion of the ld. ADDL/JCIT(A), the approach of the AO while making subject addition in this case is just, proper and reasonable as such he find no reason to interfere with the stand taken by the AO & accordingly confirmed the order of the AO.
6. Again aggrieved by the order of the ld. ADDL/JCIT(A)-3, Mumbai dated 29/12/2025, the assessee has filed the present appeal before this Tribunal.
7. Before us, the ld. AR of the assessee by heavily relying upon the judgment of the Jurisdictional High Court of Karnataka in the case of M/s. Swabhimani Souharda Credit co.-operative Ltd. versus Central Board of Direct Taxes (cbdt) income tax department, state of Karnataka reported in (2020) 421 ITR 670 vehemently submitted that as held by the Hon’ble High Court, the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co-operative society” as enacted in Sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, they are entitled to stake their claim for the benefit of sec.80P of the said Act & accordingly prayed to allow the appeal of the assessee.
8. The ld. DR on the other hand supported the orders of the authorities below.
9. We have heard the rival submissions and perused the material available on record. Undisputedly the case of the assessee was selected for limited scrutiny to verify “Low income in comparison to high loans/advances/investment in shares appearing in balance sheet & large deduction under chapter VI-A from total income”. The AO held that as the assessee is a co-operative registered under the Karnataka Souharda Sahakari Act, 1997 and not a Co-operative Society registered under the Co-operative Societies Act, 1959 & accordingly, disallowed the claim of deduction u/s 80P of the Act and added back to the returned income. Thus, the only issue to be adjudicated in the present case is whether the assessee is eligible for deduction u/s 80P(2) as Co-operative Society. In our considered opinion, now this issue is no more Res Integra. The Jurisdictional High Court of Karnataka in the case of M/s. Swabhimani Souharda Credit co.-operative Ltd. versus Government of India reported in (2020) 421 ITR 670 has held that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co-operative society” as enacted in Sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, they are entitled to stake their claim for the benefit of sec.80P of the said Act. The relevant observations of the Hon’ble High Court of Karnataka are reproduced below for ease of reference & convenience:-
“4. In the light of the rival submissions half heartedly made at the Bar, the following question of law arises for consideration:
“Whether an entity registered under the Karnataka Souharda Sahakari Act, 1997 fits into the definition of “co-operative society” as enacted by sec. 2(19) of the Income Tax Act, 1961 for the purpose of Section 80P thereof?”
5. Having heard the learned counsel for the parties and having perused the petition papers, this Court is of a considered opinion that the answer to the above question needs to be in the affirmative for the following reasons:
(a) sec.80P of the 1961 Act provides for deduction in respect of income of Co-operative Societies is obvious going by its very text; sub-section (1) of said section reads as under:
“80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2) in computing the total income of the assessee.”
The other provisions of this section being not of much relevance to the question being treated, are not reproduced, although they too have been looked into.
Sec. 2(19) which finds a place in the Dictionary Clause of the 1961 Act reads as under:
‘co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies;’
The provisions of sec.80P are enacted by the Parliament for promoting the co-operative movement in the Country in tune with what Father of the Nation Mahatma Gandhi preached to the countrymen; this Section needs to be liberally construed to effectuate the legislative object of encouraging & promoting the growth of co-operative movement vide Kanga & Palkhivala’s The Law and Practice of Income Tax, 10th Edition, Lexix Nexis at page 1656; it is more so because the right to form a co-operative society itself is made a Fundamental Right, now enshrining in Article 19(1)(i) by virtue of 97th Amendment to the Constitution of India w.e.f. 15.10.2013;
(b) the object of enacting sec.80P of the 1961 Act may be defeated if a restrictive meaning is assigned to the definition of “co-operative society” as given u/s.2(19) inasmuch as the invokability of the provisions of sec.80P is dependent upon the entity seeking the benefit thereunder being a co-operative society; going by the text and context of these provisions, one can safely conclude that all entities that are registered under the enactments relating to co-operative societies, regardless of their varying nomenclatures need to be treated as co-operative societies; this view accords with the purposive construction of sec.80P r/w sec.2(19) of the 1961 Act;
(c) in the State of Karnataka, there have been two statutes enacted by the State Legislature that relate to registration & regulation of co-operative societies viz., the Karnataka Co-operative Societies Act, 1959 ie., Karnataka Act No.11 of 1959 and the Karnataka Souharda Sahakari Act,1997 ie., Karnataka Act No.17 of 2000; both these Acts are enacted pursuant to Article 246(3) r/w Entry 32, List-II of Schedule VII of the Constitution of India; there is no other Entry to which this Act is relatable; the Legislative Entries being only the fields of legislation need to be very broadly interpreted, is the settled position of constitutional jurisprudence vide UJAGAR PRINTS, ETC. vs. UNION OF INDIA, AIR 1989 SC 516; Chapter X of 1997 Act containing sec.67 enacts important co-operative principles that animate and brood through almost all the provisions of this Act;
(d) the Karnataka Souharda Sahakari Bill, 1997 has the following as the Statement of Objects & Reasons:
“1. the recognition, encouragement and voluntary formation of co-operatives based on self help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles specified therein;
2. removing all kinds of restrictions that have come to clog the free-functioning of the cooperatives and the controls and interference by the Government except registration and cancellation;
3. promotion of subsidiary organization, partnership between co-operatives and also collaboration between co-operatives and other institutions;
4. registration of co-operatives, union cooperatives and Federal Co-operative in furtherence of the objectives specified above;
5. Conversion of co-operative societies registered under the Karnataka Co-operative Societies Act, 1959 as a co-operative under the proposed legislation. Hence the Bill.”
(e) the preamble to the 1959 Act reads as under:
“Whereas it is expedient (to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies) in the State of Karnataka; Be it enacted by the Karnataka State Legislature in the Tenth Year of the Republic of India as follows-”
Similarly, the preamble to the 1997 Act reads as follows:
“Whereas it is expedient to provide for recognition, encouragement and voluntary formation of co-operatives based on self-help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles and for matters connected therewith; Be it enacted by the Karnataka State Legislature in the Forty-eighth Year of Republic of India as follows-”.
A perusal of these two preambles and various provisions of these two Acts leads one to an irresistible conclusion that both these Acts are cognate statutes that deal with cooperative societies, regardless of some difference in their nomenclature and functionality, the subject matter being the same;
(e) the word ‘co-operative’ is defined by sec.2(d-2) of 1959 Act as under:
“2(d-2): ‘Co-operative’ means a Co-operative registerd under the Karnataka Souharda Sahakari Act, 1997 (Karnataka Act 17 of 2000), and includes the Union Co-operative and the Federal Co-operative”
Similarly, the word ‘co-operative’ is defined by Sec. 2(e) of 1997 Act as follows:
“2(e): “Co-operative” means a co-operative including a co-operative bank doing the business of banking registered or deemed to be registered under Section 5 and which has the words ‘Souharda Sahakari’ in its name (and for the purposes of the Banking Regulation Act, 1949 (Central Act 10 of 1949), the Reserve Bank of India Act, 1934 (Central Act 2 of 1934), the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and the National Bank for Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981), it shall be deemed to be a Co-operative Society”.
A close examination of these two definitions shows that they have abundant proximity with each other in terms of content and contours; it hardly needs to be stated that in both these definitions the word ‘co-operative’ is employed not as an adjective but as a noun; the definition of other relative concepts in the dictionary clauses of these Acts strengthens this view; this apart, sec.7 of the 1997 Act provides that the entity registered as a ‘co-operative’ shall be a body corporate, notwithstanding the conspicuous absence of the word ‘society’ as a postfix; sec.9 of the 1959 Act makes the entity once registered u/s.8 thereof a body corporate; both the entities have perpetual succession by operation of law; thus on registration be it under the 1959 Act or the 1997 Act, a legal personality is donned by them, so that inter alia they can own and possess the property;
(f) the employment of the word “Sahakari” in the very title of the 1997 Act is also not sans any significance; ‘Sahakaar’ in Sanskrit is the equivalent of ‘sahakaara’ in Kannada which means ‘co-operation’; as already mentioned above both the 1959 Act and the 1997 Act employ this terminology; the 1997 Act is woven with the principles of co-operation; sec.4 of this Act bars registration of an entity unless its main objects are to serve the interest of the members in the area of co-operation and its bye-laws provide for economic and social betterment of its members through self-help & mutual aid in accordance with the cooperative principles; this apart, even sub-section (2) of sec.4 is heavily loaded with co-operative substance.
In the above circumstances, these writ petitions succeed; a declaration is made to the effect that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co-operative society” as enacted in sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec.80P of the said Act; a Writ of Certiorari issues quashing the impugned notice dated 30.03.2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow.
It is needless to mention that the other provisions of sec. 80P of 1961 Act and their effect on the claim of the petitioner-like-societies have been left to be addressed by the concerned authorities.”
9.1 Again, the Hon’ble Jurisdictional High Court of Karnataka in the case of Sri Matha Vividoddesha Pathina Souharda Sahakari Niyamitha v. Union of India reported in (2022) 285 Taxman 230 by following the own judgment in Swabhimani Souharda Credit Co-operative Ltd. v. Government of India (cited supra) has held as under:-
“2. Heard learned counsel for the petitioner, learned HCGP for respondent No. 3 and learned counsel for respondent Nos.1 and 2 and perused the material on record.
3. In addition to reiterating the various contentions urged in the Memorandum of Petition and referring to the various documents produced by the petitioner, learned counsel for the petitioner submits that the main issue in controversy involved in the present petition is whether the petitioner, which is a Souharda Sahakari Niyamitha, a Society registered under the Karnataka Souharda Sahakari Act, 1997 (for short “the said Act, 1997”) is a Co-operative Society within the meaning of the section 2(19) of the Income-tax Act, 1961 (for short, “the IT Act, 1961”), so as to enable the petitioner to seek exemption under section 80-P of the said Act. It is submitted that this issue is directly and squarely covered by the decision of a Co-ordinate Bench of this Court in the case of Swabhimani Souharda Credit Co-operative Ltd. v. Government of India [2020] 122 taxmann.com 37/421 ITR 670 and as such, the present petition also deserves to be allowed in terms of the said decision of this Court.
4.Per contra, learned counsel for respondent Nos.1 and 2 in addition to reiterating the various contentions urged in the Statement Objections submits that aggrieved by the aforesaid order passed in Swabhimani Souharda Credit Co-operative Ltd. (supra), the respondents have preferred W.A.No.378/2020 along with connected matters and the same are pending adjudication. It is however fairly submitted that there is no interim order of stay in the appeal.
5. As rightly contended by learned counsel for the petitioner, the material on record indicates that the petitioner herein is a Souharda Credit Co-operative Society, registered under the Karnataka Souharda Sahakari Act, 1997. In the case of Swabhimani Souharda Credit Co-operative Ltd. (supra), this Court has come to the conclusion that even a Society registered under the said Act of 1997, is a Co-operative Society within the meaning of sec. 2(19) of the IT Act, 1961 for the purpose of section 80P and consequently, the petitioner-Society would be entitled to exemption under section 80P of the said Act, 1961 as held by this Court in the aforesaid decision. In the case of Swabhimani Souharda Credit Co-operative Ltd. (supra), this Court has held as under :
“In the above circumstances, these writ petitions succeed; a declaration is made to the effect that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “cooperative society” as enacted in sec. 2(19) of the Income-tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec. 80P of the said Act; a Writ of Certiorari issues quashing the impugned notice dated 30-3-2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow.”
A perusal of the aforesaid decision of this Court clearly indicates that this Court has made it clear that all entities registered under the said Act of 1997 are Cooperative Societies within the meaning of section 2(19) of the IT Act, 1961 and that they would be entitled to stake their claim for exemption under section 80P.
6. In the instant case, a perusal of the impugned order at Annexure-E dated 28-6-2019 passed by respondent No. 2 will clearly indicate that respondent No. 2 has rejected the claim of the petitioner for exemption under section 80P on the sole ground that the petitioner is not a Co-operative Society within the meaning of section 2(19) of the I.T.Act. In view of the decision of a Co-ordinate Bench in the case of Swabhimani Souharda Credit Co-operative Ltd. (supra), I am of the considered opinion that the impugned Assessment Order at Annexure-E is erroneous and illegal and therefore, deserves to be quashed and the matter be remitted back to respondent No. 2 for reconsideration afresh in accordance with law, bearing in mind the observations and findings recorded in this order.”
9.2 In view of the above, we respectfully following the above judgments of the Jurisdictional High Court of Karnataka held that the assessee registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co-operative society” as enacted in Sec.2(19) of the Income Tax Act, 1961 and accordingly eligible for deduction u/s 80P of the Act in accordance with law. Accordingly, we direct the AO to allow the deduction as claimed by the assessee u/s 80P(2) of the Act.
10. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 7th Sept, 2026
