Lalitamba Pattina Souharda Sahakari Niyamita Vs ITO (Karnataka High Court)
Karnataka High Court has set aside the Income Tax Appellate Tribunal’s (ITAT) decision in the case of Lalitamba Pattina Souharda Sahakari Niyamita v. ITO and remanded the matter to the Assessing Officer (AO) for reconsideration. The case pertains to the denial of deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, on interest income earned from fixed deposits by a cooperative society. The court noted that the Tribunal failed to distinguish between deductions under Sections 80P(2)(a)(i) and 80P(2)(d) and did not properly examine the proportionate cost and administrative expenses related to such deposits.
The appellant, a cooperative society, argued that the interest income from bank deposits should be considered business income and thus eligible for deduction under Section 80P(2)(a)(i). The society relied on the Karnataka High Court ruling in Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO, where it was held that interest earned from deposits in cooperative banks was attributable to the core banking activities and qualified for deduction. The appellant further contended that the AO had incorrectly computed taxable income by adding interest on fixed deposits without considering its inclusion in the consolidated income statement.
On the other hand, the Revenue relied on the Supreme Court ruling in Totgar’s Co-operative Sale Society Ltd. v. ITO, which held that interest earned on surplus funds invested in banks does not qualify for deduction under Section 80P(2)(a)(i) but is taxable under the head “Income from Other Sources” under Section 56. The Karnataka High Court, however, observed that Totgar’s primarily dealt with Section 80P(2)(d), and its blanket application to Section 80P(2)(a)(i) without factual examination was inappropriate. The court emphasized that the Tribunal had failed to assess whether the proportionate cost and administrative expenses related to interest income were deductible under Section 57.
