Hamdard Co-operative Society Limited Vs ADDL/JCIT (ITAT Bangalore)
Interest on Bank Deposits Can Still Qualify for 80P Deduction- Bangalore ITAT Gives Relief to Credit Co-operative Society
The Bangalore ITAT allowed deduction u/s 80P(2)(a)(i) to a credit co-operative society by holding that the interest earned on deposits kept with co-operative banks and reserve fund deposits was attributable to the business of providing credit facilities to members and therefore eligible for deduction. The Tribunal distinguished the facts from the Supreme Court ruling in Totgars and relied on the Karnataka High Court ruling in Tumkur Merchants Souharda Credit Co-operative Ltd. to hold that temporary parking of business funds in banks does not change the character of the income.
The AO had denied deduction on two grounds – firstly, that the interest income of ₹5.78 lakh was taxable as “Income from Other Sources”, and secondly, that the society had nominal members and therefore was not eligible for deduction u/s 80P.
The Tribunal rejected both objections. It observed that the assessee was engaged only in the business of accepting deposits and lending to members, and the funds parked in banks were part of the operational business funds of the society. Hence, the interest income retained the character of business income attributable to the activity of providing credit facilities to members.
On the issue of nominal members, the ITAT relied on the Supreme Court ruling in Mavilayi Service Co-operative Bank Ltd. and held that transactions with nominal members would not automatically disentitle the society from claiming deduction u/s 80P, especially when there were no dealings with non-members. Accordingly, the entire deduction claimed by the assessee was directed to be allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
