Arya Vyshya Co Operative Society Limited Vs ITO (ITAT Bangalore)
Credit Transactions with Nominal Members and Interest on Bank Deposits Eligible for Section 80P Deduction: Bangalore ITAT
The assessee, a credit co-operative society registered under the Karnataka Co-operative Societies Act, claimed deduction under section 80P(2)(a)(i). The AO disallowed 50% of the deduction on an estimated basis, alleging that part of the business was conducted with nominal members. A further deduction of ₹11.06 lakh relating to interest earned from deposits with commercial banks was also denied.
The Bangalore ITAT held that section 18 of the Karnataka Co-operative Societies Act expressly permits the admission of nominal members. The statutory ceiling of 15% applies only to associate members and not to nominal members. Since the term “member” is not defined under the Income-tax Act, its meaning must be determined with reference to the State Co-operative Societies Act. Nominal members cannot be treated as outsiders merely because they lack voting, management or profit-sharing rights.
The Tribunal distinguished Citizen Co-operative Society Ltd., where the society had violated the governing State law and dealt with persons who were not genuine members. In the present case, there was no finding that the assessee dealt with the general public or that the Registrar had found any violation of the State Act or its bye-laws. Accordingly, the estimated disallowance of 50% of the deduction was deleted.
Regarding interest earned from bank deposits, the Tribunal followed the jurisdictional Karnataka High Court decision in Tumkur Merchants Souharda Credit Co-operative Ltd. It held that where a society engaged exclusively in providing credit facilities temporarily parks statutory or surplus business funds in banks, the resulting interest remains attributable to its credit business and qualifies for deduction under section 80P(2)(a)(i).
The Tribunal clarified that Karnataka High Court decisions denying deduction under section 80P(2)(d) for interest from co-operative banks do not govern a claim under section 80P(2)(a)(i). Both disallowances were therefore deleted and the assessee’s appeal was allowed.
Recent Cases Discussed
- M/s Naravi Vyavasaya Seva Sahakari Bank Limited vs The Income Tax Officer, Ward 1, Puttur (ITAT Bangalore), ITA No. 2552/Bang/2025
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FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is filed by the Assessee against the order of Ld. ITO WARD 2, HASSAN vide DIN: ITBA/APL/S/250/2025-26/1084922079(1) dated 19-Jan-2026 for the Assessment Year 2015-16.
