Laxmi Venkatesh Credit Co-op Society Limited Vs ITO (ITAT Bangalore)
Interest on Statutory Deposits & Surplus Business Funds Qualifies u/s 80P: Karnataka Credit Society Wins ₹14.99 Lakh Deduction
The Bangalore Bench of the ITAT has held that interest earned by a co-operative credit society from fixed deposits and savings bank accounts, out of funds belonging to its credit business, qualifies for deduction u/s 80P(2)(a)(i). Interest from reserve-fund investments mandated under the Karnataka Co-operative Societies Act, 1959 would also qualify to the extent the deposits were statutorily required.
The Tribunal distinguished the Supreme Court’s decision in Totagars’ Co-operative Sale Society Ltd. v. ITO [322 ITR 283 (SC)], observing that the funds in the present case belonged to the credit society’s business and did not represent amounts payable to its members.
₹14.99 Lakh Interest Excluded From Section 80P Deduction
Shri Laxmi Venkatesh Credit Co-operative Society Ltd., Udupi, was registered under the Karnataka Co-operative Societies Act, 1959 and was engaged in providing credit facilities to its members.
For AY 2020-21, it declared gross total income of ₹59,84,428 and claimed deduction of the entire amount u/s 80P(2)(a)(i), resulting in nil taxable income.
During scrutiny, the AO noticed that the society had earned interest aggregating to approximately ₹14,99,844, comprising:
- ₹8,01,867 from reserve-fund investments;
- ₹6,70,286 from fixed deposits; and
- ₹27,691 from savings bank accounts.
The deposits were maintained with scheduled banks and co-operative banks. The society explained that a portion represented deposits compulsorily maintained under the Karnataka Co-operative Societies Act and applicable rules & circulars. Had the money not been statutorily invested, it would have been used for advancing loans to members.
