Anathapadmanabha Credit Cooperative Society Ltd. Vs ITO (ITAT Bangalore)
Nominal & Associate Members Don’t Bar Section 80P Deduction – ITAT Sends Back for Verification Under KCS Act Limits
Interest on Statutory FDs with Co-op Bank Eligible for 80P Relief – Subject to Verification of Mandatory Deposit Rule
AO Can Verify Membership Composition for 80P, But Cannot Question Validity of Co-op Registration
Assessee, a co-operative society registered under the Karnataka Co-operative Societies Act, 1959 (KCS Act), provided credit facilities to members & claimed deduction of its entire income u/s 80P(2)(a)(i) for AY 2017-18 (& similarly for AYs 2016-17 & 2018-19). It had three classes of members — regular, associate, & nominal.
AO denied deduction, citing the Supreme Court ruling in Citizen Co-operative Society Ltd. v. ACIT (84 taxmann.com 114), holding that the concept of mutuality was violated as associate & nominal members lacked voting rights. The AO also: taxed interest income of ₹6.14 lakh from fixed deposits with a co-operative bank as “income from other sources”, & disallowed ₹5 lakh RBDD provision as notional.
CIT(A) followed the Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT (123 taxmann.com 161), holding that co-operatives registered under State Acts are entitled to deduction u/s 80P if they serve members. However, citing the amendment to Section 18 of the KCS Act (restricting associate members to 15 % of total membership), the CIT(A) directed the AO to verify compliance with that limit. Deduction for FD interest was denied.
