Sullia Primary Co-operative Agricultural & Rural Development Bank Vs ITO (ITAT Bangalore)
Assessee, a primary agricultural co-operative credit society registered under Karnataka Co-operative Societies Act, filed appeals against orders of CIT(A), NFAC dated 08.01.2025.
80P Deduction Issue: AO denied deduction of ₹1.27 crore claimed u/s 80P(2)(a)(i) on ground that majority of business was conducted with B-class nominal members, who lacked voting & profit-sharing rights. AO held that principle of mutuality was violated, relying on Citizen Co-operative Society Ltd. (2017) 397 ITR 1 (SC) & CIT Vs Kumbakonam Mutual Benefit Fund Ltd. 53 ITR 241 (SC). CIT(A) upheld denial.
Tribunal’s Finding on Mutuality: Tribunal noted that under Karnataka Co-operative Societies Act, nominal/associate members are recognized as “members.” Reliance on Citizen Co-operative Society Ltd. was misplaced since Mavilayi Service Co-op Bank Ltd. Vs CIT (2021) 431 ITR 1 (SC) clarified that dealings with nominal members do not bar deduction u/s 80P(2)(a)(i). Therefore, deduction could not be denied on this ground.
Interest Income Issue: AO disallowed deduction on ₹23,26,564/- interest from deposits with scheduled & co-operative banks, holding it not attributable to providing credit to members.
Tribunal held Interest from Bank of Baroda & South Canara District Central Co-op Bank is not eligible u/s 80P(2)(d). For remaining deposits, AO must verify whether payers are co-operative societies, and allow deduction u/s 80P(2)(d) if confirmed. If deposits were statutory SLR requirement integral to lending business, interest may also qualify u/s 80P(2)(a)(i). Same income not to be doubly deducted.
