Nagapura Credit Co Operative Society Vs ITO (ITAT Bangalore)
Bangalore ITAT Allows Section 80P Deduction on Interest from Bank Deposits; Distinguishes Totgars Decision and Treats Income as Business Income
The Bangalore ITAT allowed the appeal of Nagapura Credit Co-operative Society, holding that interest income of ₹1.56 crore earned from deposits with co-operative banks, commercial banks and other financial institutions is eligible for deduction under Section 80P(2)(a)(i). The Assessing Officer had treated the interest as “Income from Other Sources” and denied deduction under Section 80P, relying on the Supreme Court’s decision in Totgars Co-operative Sale Society. The Tribunal also condoned a 91-day delay in filing the appeal, accepting that the delay was caused by the serious illness of the society’s Chief Executive Officer.
The Tribunal observed that the assessee was a credit co-operative society exclusively engaged in providing credit facilities to its members and that the deposits represented business funds temporarily parked until deployment in lending operations. Relying on the Karnataka High Court decisions in Tumkur Merchants Souharda Credit Co-operative Ltd. and Principal CIT v. Totagars Co-operative Sale Society (392 ITR 74), it held that interest earned on such deposits is attributable to the business of providing credit facilities and therefore constitutes business income, qualifying for deduction under Section 80P(2)(a)(i).
The Tribunal further clarified that the Revenue had misapplied the Karnataka High Court decision reported in 395 ITR 611, as that case dealt with a claim under Section 80P(2)(d), whereas the present case involved a claim under Section 80P(2)(a)(i). Holding that the assessee’s claim was fully covered by the binding precedents of the Karnataka High Court, the Tribunal reversed the orders of the Assessing Officer and the CIT(A), directed the Assessing Officer to allow the deduction under Section 80P(2)(a)(i), and consequently found it unnecessary to adjudicate the alternative grounds relating to Section 80P(2)(d) and Section 57. The appeal was allowed.
Cases Discussed
- Shree Sharada Credit Co-operative Society Ltd. v. ITO (ITAT Bangalore), ITA Nos. 1315 & 1316/Bang/2025, order dated 05.12.2025
- Siddhartha Pattina Sahakari Sangha Niyamita v. ITO (ITAT Bangalore), ITA No. 2113/Bang/2024, order dated 29.05.2025
- Principal Commissioner of Income-tax, Hubballi v. Totagars Co-operative Sale Society (Karnataka High Court), [2017] 83 taxmann.com 140 (Karnataka) / [2017] 395 ITR 611 (Karnataka) / [2017] 297 CTR 158 (Karnataka)
- Principal Commissioner of Income-tax, Hubli v. Totagars Co-operative Sale Society (Karnataka High Court), [2017] 78 com169 (Karnataka) / [2017] 392 ITR 74 (Karnataka)
- Tumkur Merchants Souharda Credit Co-operative Ltd. v. Income-tax Officer, Ward-V, Tumkur (Karnataka High Court), [2015] 55 taxmann.com 447 (Karnataka) / [2015] 230 Taxman 309 (Karnataka)
- M/s. Sree Maruthi Cooperative Housing Society, Bengaluru v. ITO, Ward-7(2)(3), Bengaluru
- Yedamangala Vyavasaya Seva Sahakari PACS Ltd. v. ITO
- CIT v. Andhra Pradesh State Co-operative Bank Ltd., [2011] 200 Taxman 220 / 12 taxmann.com66
- Totgars Co-operative Sale Society Ltd. v. ITO, (322 ITR 283)
FULL TEXT OF THE ORDER OF ITAT BANGALORE
