Case Law Details
Laxminarayana Suvarna Credit Co-operative Society Ltd. Vs ITO (ITAT Bangalore)
n the matter of Laxminarayana Suvarna Credit Co-operative Society Ltd. vs. Income Tax Officer (ITAT Bangalore), the appeals were filed by the assessee against the orders of the CIT(Appeals), National Faceless Appeal Centre, Delhi, for the assessment years 2018-19 and 2020-21. The core issue revolved around the eligibility of the assessee to claim deductions under sections 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961 (the Act), concerning interest income earned from investments with Karnataka District Central Co-operative Bank (KDCC Bank).
Initially, the assessee had filed its income tax return declaring NIL income after claiming a deduction under section 80P(2)(a)(i) for interest income received from investments with KDCC Bank. The Assessing Officer (AO), however, disallowed the deduction citing violations of the principle of mutuality and relying on judicial precedents like the Supreme Court’s decision in Citizen Co-operative Society Ltd. The AO also denied deduction under section 80P(2)(d), asserting that KDCC Bank, although a cooperative bank, functioned akin to a commercial bank and hence did not qualify as a cooperative society under section 80P(4).
On appeal, the CIT(Appeals) partially upheld the AO’s decision, denying deductions under both sections 80P(2)(a)(i) and 80P(2)(d). The CIT(Appeals) referenced judicial rulings, including the Karnataka High Court’s decision in Totgars’ Co-operative Sales Society Ltd., which held that interest income from investments in cooperative banks should be categorized as income from other sources rather than operational income eligible for deductions under section 80P.
The assessee, represented by its counsel, argued before the ITAT that the income from investments with KDCC Bank should qualify for deduction under section 80P(2)(a)(i) as business income, citing Circular No. 18/2015 and provisions of the Karnataka Co-operative Societies Act. They contended that since the investments were made in a cooperative society (KDCC Bank), the interest income derived therefrom should also qualify for deduction under section 80P(2)(d).
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