Yedapadavu Vyvasaya Sahakara Sangha Niyamitha Vs ITO (ITAT Bangalore)
ITAT Bangalore Grants Full 80P Deduction to Yedapadavu Vyavasaya Sahakara Sangha
In a key relief to the co-operative credit sector, the ITAT Bangalore (SMC Bench vide order dated 29.10.2025 in ITA Nos. 1878 & 1919/Bang/2025 (A.Ys. 2020-21 & 2018-19) allowed the appeals of Yedapadavu Vyavasaya Sahakara Sangha Niyamitha, Dakshina Kannada, & directed deletion of disallowance of deduction claimed u/s 80P(2)(a)(i) & 80P(2)(d).
Background
The assessee, a registered co-operative society engaged in providing credit facilities to its members, had claimed deduction of its profits u/s 80P.
For A.Y. 2018-19, deduction of ₹36.73 lakh was denied by the AO on the ground that the income, including ₹31.99 lakh interest from a co-operative bank, was not “derived from providing credit to members,” relying on Karnataka HC in Totagars Co-op. Sale Society (395 ITR 611).
For A.Y. 2020-21, similar disallowance of ₹30.62 lakh was made, including interest from SCDCC Bank, Axis Bank, & Canara Bank, which the AO taxed as “other income u/s 56”.
Both disallowances were upheld by NFAC-CIT(A).
Assessee’s arguments
The Assessee, represented by CA Sriram V. Rao, submitted that it was a co-operative credit society registered under the Karnataka Co-operative Societies Act and was not a co-operative bank as contemplated in section 80P(4). All its operations were confined to its members—regular and nominal—and there were no transactions with non-members, thereby fully satisfying the principle of mutuality. The Assessee emphasized that its profits from lending and other incidental income were derived entirely from member-related activities and hence were eligible for full deduction u/s 80P(2)(a)(i).
It was contended that the AO and CIT(A) had misapplied the Karnataka High Court decision in Totagars Co-operative Sale Society (395 ITR 611), which dealt with a co-operative bank conducting business with the public. The Assessee argued that its case was governed by the Supreme Court’s Three-Judge Bench ruling in Mavilayi Service Co-operative Bank Ltd. v. CIT (431 ITR 1), which clarified that section 80P(4) excludes only co-operative banks under the Banking Regulation Act and not primary credit societies. The apex court had also recognized that nominal members are to be treated as members for purposes of section 80P benefits.
The Assessee further argued that even if interest income from deposits with South Canara DCC Bank, Axis Bank, and Canara Bank were to be taxed under “other sources,” it would still qualify for deduction u/s 80P(2)(d), being income from investments with another co-operative society. The CIT(A), it contended, had issued a mechanical order without independent analysis and ignored the binding authority of Mavilayi.
In conclusion, the Assessee maintained that it was a genuine credit society operating only with members, and that its income, whether from lending or investments with co-operative banks, was fully deductible u/s 80P(2)(a)(i) or alternatively u/s 80P(2)(d) in line with the liberal interpretation adopted by the Supreme Court.
Tribunal’s Findings
