Mahaveera Credit Co-operative Society Ltd. Vs ITO (ITAT Bangalore)
ITAT Bangalore on 80P Deduction: Interest from Co-op Investments Eligible, Not from Scheduled Banks
Assessee, Mahaveera Credit Co-op Society Ltd., Mangaluru, a credit co-operative society registered under the Karnataka Co-op Societies Act, filed its return for AY 2020-21 declaring gross total income of ₹26.99 lakh and claimed the entire amount as deduction u/s 80P(2)(a)(i).
During scrutiny, AO noticed that the assessee had earned ₹13.80 lakh interest on investments, included in the 80P(2)(a)(i) claim. AO disallowed the same, holding that interest on bank deposits is not attributable to providing credit facilities to members, and taxed it u/s 56 as “income from other sources”.
CIT(A), relying on the Bangalore ITAT ruling in University of Agricultural v. ACIT (ITA 319/Bang/2023), partly allowed the appeal & directed AO to allow deduction u/s 80P(2)(d) on interest from deposits with other co-operative societies/banks not governed by RBI Act. Denied deduction on interest earned from scheduled commercial banks.
Before ITAT, Assessee argued that all interest is integral to its co-op business and should qualify u/s 80P(2)(a)(i), citing statutory requirements under Karnataka Co-op Societies Act & Rules that mandate maintaining fluid resources and investing reserves only in govt/co-op/scheduled banks. However, Tribunal followed the binding precedent of PCIT v. Totagars Co-op Sale Society (Karnataka HC, 2017, 83 taxmann.com 140), holding that Interest from investments with banks cannot be treated as operational income eligible u/s 80P(2)(a)(i). Deduction u/s 80P(2)(d) is allowable only on interest/dividend received from other co-operative societies, in line with the SC ruling in Kerala State Co-op Agricultural & Rural Development Bank Ltd. (CA No.10069/2016, dated 14.09.2023). If interest from banks is ultimately assessed as “income from other sources” u/s 56, the assessee is entitled to claim deduction of cost of funds u/s 57. Accordingly, the issue was restored to AO for fresh consideration with these directions. Appeal was partly allowed & Deduction u/s 80P(2)(a)(i) was denied on interest from bank deposits. Deduction u/s 80P(2)(d) was permitted for interest/dividend from co-op investments. Held that Relief u/s 57 is available if interest is taxed as “income from other sources”
